I am honored to join in this 40th anniversary of Ned Phelps micro-foundations volume and to participate in this panel on rules versus discretion in economic policy during the past 40 years. Though I did not attend the January 1969 conference, my research on policy rules began around that time, so perhaps I can provide some historical perspective.
Looking back at actual U.S. macroeconomic policy during this period, I see two major swings in the balance between rules and discretion, first away from discretion toward rules-based policies and then back again toward discretion. I use the word “balance” to emphasize that the ideal of a pure rule, without any discretion, is a theoretical abstraction. Evidence of the swing away from discretion is seen in actual fiscal policy and in the wide consensus among economists against the use of discretionary countercyclical fiscal policy in the 1980s and 1990s; it is also seen in the efforts to make monetary policy predictable and transparent, including through the use of inflation targets and actual policy rules for the instruments. The swing back toward discretion is found in the recent large discretionary fiscal stimulus packages and in deviations of monetary policy from the simple rules that described policy well in the 1980s and 1990s.
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