01 Aug 2012

Yet More on Rules vs. Discretion in Monetary Policy

Economics, Federal Reserve 57 Comments

==> Steve Horwitz weighs in.

==> This was actually one of the few things I thought was cool in macro class in grad school. So let me reproduce the patronizing comment I left at Daniel Kuehn’s blog where he and I have taken the battle:

DK [Daniel Kuehn] wrote:

I suppose I was reading “do something that sucks” too narrowly. After all, presumably you don’t have to do what sucks if you have a rule you like! But that really depends on whether you like the rule or not!

Argh! You can interpret this as either really patronizing, or as kind-hearted. But, I am persisting with this because I’m still not sure you are getting my (modest) point. I keep thinking you and I are on the same page, but then you go and write a comment like this that makes me not so sure…

You can have a rule which simultaneously: (a) makes you worse off in certain situations, according to your own preferences, than you would be in the absence of the rule, and yet (b) makes you better off in the long-term. In other words, you sometimes benefit from having options removed, even if the removal of those options changes your behavior through time.

So suppose society “really” thinks that it is worth tolerating an extra 2 percentage points of inflation for every point of employment, relative to the baseline 2% inflation rate and 5% unemployment rate. Left to discretion, if the Fed found itself in an economy with 7% inflation and 7% unemployment, it would be willing to cut interest rates in order to move to 8% inflation and 6% unemployment, if it thought the Phillips Curve allowed such a tradeoff.

But, because people in the private sector know that the Fed will do this, it affects their long-term inflation expectations from time=1, and that itself influences what tradeoffs are possible, i.e. those very expectations influence the shape of the Phillips Curve.

So, you can come up with a model where if the Fed is forced to pretend that actually it should only tolerate a 1% point increase in excess inflation, if it will achieve a 5% reduction in excess unemployment, then the Phillips Curve is transformed such that, operating under this constraint, the resulting path of the economy is preferable to the one under discretion, even with the true social welfare function.

Then, once you get this result under your belt, you can then see why it makes sense to install a central banker who apparently really hates inflation. I.e. you install a central banker who hates inflation (compared to unemployment) more than “society” really does, so that when this stodgy banker sets discretionary policy, it actually is closer to the constrained rule policy.

Now maybe this type of model captures an important aspect of the real world, or maybe it’s nuts. But the comments I’ve been reading on your blog on these issues (not just from you, but from your commentators) makes it sound like this element is completely lacking. You guys seems to have just been talking about different ways of describing what the Fed could do, as opposed to seeing how (in principle) limits on the Fed could actually improve the outcome.

For further reading, or simply to substantiate my claims…ask Tyler Cowen. I have no idea what papers I read on this, I just remember thinking, “Ah, that’s pretty cool. For once the New Keynesian model with sticky prices and a representative household who lives forever, spits out something I like.”

57 Responses to “Yet More on Rules vs. Discretion in Monetary Policy”

  1. Strat2131 says:

    This is the dynamic-time inconsistency illustration bob is referring to:

    https://www.dropbox.com/s/7hdmrgsdvclnrsg/dynamic%20time-incosistency.jpg

  2. Daniel Kuehn says:

    Ya – I just responded to. You could just call your “stodgy central banker” the “conservative central banker” and left it at that.

    My point was only that anyone that commits to a rule because of a time inconsistency problem in some sense recognizes the existence of the time inconsistency problem itself and could be said to be doing something they like, not something that sucks.

    Take someone with hyperbolic discounting that won’t save for retirement. Let’s say they arrange to have automatic contributions made out of their paycheck.

    What do we say in response? That they are “doing something that sucks” and that’s the whole point of rules to address time inconsistency? Well since they decided to do that on one level that doesn’t make sense to say. They’re doing it because they like the rule. What is really going on is that in the bigger picture it DOESN’T suck for them and they understand that even though in the short term it may feel like it does. But you usually adopt these rules because you’re not just concerned with the short-term.

    • Bob Murphy says:

      DK wrote:

      What do we say in response? That they are “doing something that sucks” and that’s the whole point of rules to address time inconsistency?

      I might, if you had a blog post on the guy, and you and 100% of your commentators kept complaining about the need for him to spend more right now, and how you couldn’t understand why he was spending so little when he was hungry and his car was falling apart. Then, seeing not a whiff of acknowledgement of the time-inconsistency problem, I might say, “It’s supposed to suck when the employer automatically takes out the contribution to his 401(k). That’s the point of the contract that he signed, and isn’t allowed to break.”

  3. Daniel Kuehn says:

    You responded to me: “I was talking about the use of rules vs. discretion in the context of macroeconomists arguing the issue.” And I agreed that’s what we are all talking about. I’m simply broadening my point that it may not make sense to say “the point is it sucks” if the whole reason why you hire a conservative central banker (or institute a rule) is because you recognize in the big picture you like that result.

    • Christopher says:

      It seems that you are just altering the definition of words here. The fact that you believe something is necessary doesn’t mean you like it. You still dislike the result but you are willing to accept it to archives a greater end – not necessarily only in the future.

      E.g. you could let someone go whom you believe to be a murderer because you want to uphold the rule of law. But you certainly think it sucks to let him go. But you stick with the rule instead of exercising discretion.

      • Daniel Kuehn says:

        Well the point is that you like the result – it produces a higher expected utility.

        The difference is in time horizons that we’re considering, not whether or not you like the result. In both cases – with full discretion or with a conservative central banker, or just with a central banker that understands the nature of inflation expectations formation – they’re all maximizing some kind of utility. They’re all doing something “you like”. Each just has somewhat different information, or (in the case of the conservative banker) somewhat different preferences from the general public, or somewhat different time horizons.

        re: “You still dislike the result but you are willing to accept it to archives a greater end”

        Ummm… right. “Greater end”. You think it’s greater or more preferable. You certainly wouldn’t commit to a rule that achieved a lesser end then discretion, would you!

        re: “E.g. you could let someone go whom you believe to be a murderer because you want to uphold the rule of law. But you certainly think it sucks to let him go. But you stick with the rule instead of exercising discretion.”

        Right, because the rule secures a greater benefit for a wider time horizon, or a greater benefit when you take into account all the potential unintended consequences of short-time horizon discretion.

        You are repeating my point and then just saying that that’s something you don’t like, which I’m just saying seems silly to me. We do these rules because we like what they produce.

        • Christopher says:

          I would disagree that we defend the rule of law because it maximizes utility or any kind of benefit. It’s because we think the rule is right and just. I guess one could also argue for it from an utilitarian point of view but that’s not what we usually do.

          • Daniel Kuehn says:

            And do you think someone that didn’t value rightness and justice would uphold the rule of law?

            I’m not really a utilitarian. I just think we do this stuff because we find value in it. Or perhaps I should say, I don’t think the the line between the deontologist and the consequentialist is as clear cut as people often think. They are different ways of expressing the same view.

            Or – to put it another way – a deontologist is a lazy consequentialist and a consequentialist is a jaded deontologist.

            • Blackadder says:

              I don’t think the the line between the deontologist and the consequentialist is as clear cut as people often think. They are different ways of expressing the same view.

              A Rule Utilitarianism (as opposed to An Act Utilitarianism) is superficially similar to a Deontologist. But they aren’t the same. If they were, the motto “Fiat justitia ruat caelum” would be somewhat baffling.

              • Daniel Kuehn says:

                Why baffling?

                Someone who says such a thing thinks that justice is better than a terrible thing that happens if justice is done, right?

                Given two alternatives that each have two consequences attached:

                Alternative 1: do justice
                Consequence A: Justice is done
                Consequence B: The sky falls.

                Alternative 2: don’t do justice
                Consequence A: Justice is not done.
                Consequence B: The sky does not fall,

                The person who says that phrase sincerely considers the consequences of Alternative 1 to be better.

                They are consequentialists, they’re just lazy when it comes to laying it all out.

              • Blackadder says:

                Dan,

                Let me see if I understand you. If a person says that we should do justice whatever the consequences, you say that person is really a consequentialist, because justice being done is among the consequences of one’s action? Is that right?

              • Daniel Kuehn says:

                Well right. There’s one major, obvious consequence such a person is trying to avoid: an instance of injustice.

                To say that there is some kind of transcendent priority associated with a rule like justice that ought defines ethics is simply to say that the consequence of violating that rule is a consequence that cannot be accepted by an ethical person.

                Maybe a way to put it is that a deontologist is a consequentialist that thinks life often finds us at an ethical corner solution.

              • Christopher says:

                Daniel,

                I think I understand where you are coming from. I used to hold similar views. E.g. the way I thought about altruism was that people who supposedly act out of altruism do it because they want to. I.e. they don’t act altruistic because it helps other people but because they made the decision to do so. They must have some motive for their action. So it’s really not so different from egoism. It’s following one’s own motive and will.

                I used to think this way until I realized that words have a purpose and you can play this game with whatever dichotomy you want. You just have to broaden the definition of words far enough and everything vanishes in a huge tautology.

                Utilitarianism – deontological ethics, rule – discretion, to like a result – to dislike a result, altruism – egoism; those are all opposites precisely because we define them this way. That way it’s easier to discuss certain problems. If you change that and say “deontology is really just a form of utilitarianism” it becomes very difficult to talk about the differences.

                (I am not sure if I really got my point across – English is not my native language, so I am sorry if this is confusing)

        • Blackadder says:

          We do these rules because we like what they produce.

          We adopt these rules because we like the result they produce overall, not because we like the result they produce in each particular case. If there weren’t cases where the rule calls for doing something we don’t like in that particular case, then there would be no need to adopt the rule; we could just do as we liked on a case by case basis.

          That’s Bob’s point.

          • Daniel Kuehn says:

            Right. I’m still trying to figure out why he thinks I’m challenging or missing that point.

            There are a lot of people right now who don’t like monetary and fiscal stimulus. That’s why there’s not much of it.

            This is starting to get silly. You adopt rules for lots of reasons, including predictability, solutions to time inconsistency, ease of computation, etc.

            You adopt a rule because you determine you “like it” in some global sense. Rational human beings, at a particular point in time when the rule is really binding, ought to still tell you they “like it” (like how I like what a Taylor rule says we should be doing). Does that mean it’s not really a rule because we’ve somehow converged on the fact that it’s a good rule?

            Does Krugman need to switch to a zero money growth rule because he’s just liking the Taylor rule so much and Bob have to switch to a Taylor rule just because if zero money growth were actually to happen he’d like it too much?

            Maybe that’s what I should start arguing. Bob should switch to wanting a Taylor rule because what he really wants RIGHT NOW is tight money. And we all know that a rule that isn’t binding isn’t really a rule…

            • Bob Murphy says:

              DK wrote:

              Right. I’m still trying to figure out why he thinks I’m challenging or missing that point.

              Because you said things like (paraphrasing), “It’s true, Krugman might not be talking about following a rule right now, but that’s only because we are so far from the optimal level of AD.”

              So that would be like Wapshott talking about our hypothetical employee with automatica 401(k) contributions, saying that Dave Ramsey wanted the guy to spend his money in the current month to make sure he gets enough food and goes to see a movie he likes, and then saves what is left over.

              Then Don Boudreaux flips out and says, “No way! Dave Ramsey is big on saving! He advocates a fixed rule of saving x% of your income, come hell or high water.”

              Then you come along and say, “The guy should spend whatever amount he thinks is optimal each month.”

              Yes, there is a sense in which you are agreeing with Don, but any innocent onlooker would have no way of knowing that.

              That’s why I keep saying, “I *think* we’re on the same page Daniel, but then your further elaborations make me wonder…”

              It’s not worth looking back at it now, but I’m pretty sure neither you nor any of your commentators acknowledged there could be a time-inconsistency problem. It was all about stuff like, “But we’re not following the Taylor Rule right now! So spending more gets us closer to the old rule!”

              That may or may not be true, but it doesn’t indicate understanding of what “discretion vs. rules” in monetary policy get at.

              • Daniel Kuehn says:

                re: “Because you said things like (paraphrasing), “It’s true, Krugman might not be talking about following a rule right now, but that’s only because we are so far from the optimal level of AD.”

                Don’t you speak in general terms about what policymakers should do too?

                Is that because you miss the point about rules or is it because you recognize that in the current fairly discretionary environment there is value in at the very least getting across your point in general terms?

                re: “So that would be like Wapshott talking about our hypothetical employee with automatica 401(k) contributions, saying that Dave Ramsey wanted the guy to spend his money in the current month to make sure he gets enough food and goes to see a movie he likes, and then saves what is left over.”

                But this seems like the wrong analogy. If for some reason Ramsey was compelled to say “look, I know you’re having trouble saving a predetermined amount in a 401k, but for God’s sake could you at least put the money you have after feeding yourself into a jar instead of going to that movie”, that would be more comparable to what Krugman is saying.

                That – and what Krugman is saying – is at least moving closer to the ideal rule that is in mind.

              • Daniel Kuehn says:

                So what is the time inconsistency problem most relevant to monetary policy? It has to do with the formation of inflation expectations.

                What do you think is the real difference here – a misunderstanding of time inconsistency or a disagreement about the nature of inflation expectations?

                Boorish Keynesians on here (that does not include me – I’m a nice Keynesian :) ) point out the difference between your past views on inflation and Krugman’s past views on inflation all the time.

                There’s been plenty of ink spilled on that issue over the last several years.

                I think it’s safe to say the difference is actually in understandings of the determinants of the inflation/unemployment trade-off, and not in the properties of time inconsistency or unintended consequences.

                This sort of thing comes up with discussions of Bastiat too. I promise you guys – we understand broken windows. You call it the “unseen” – the rest of the world calls it a “counterfactual”. We’re not as dumb as you think, the econ blogosphere just happened to have sprung up in a really weird time.

          • Daniel Kuehn says:

            Think about what your saying.

            What does Bob want policymakers to do right now?

            What does Krugman want policymakers to do right now?

            What does Sumner want policy makers to do right now?

            These are three smart economists. Anything they want policymakers to do is going to take into account their views on its optimality and its unintended consequences, and these time consistency issues.

            In that sense, no rule you’ll ever hear any of them propose is ever going to be binding on them because they think the rule is best.

            The disagreement is over the fundamental model.

          • Daniel Kuehn says:

            Sorry to belabor the point, but I want to make it clear that we all understand what Bob is saying.

            Perhaps this is a better way of putting it: Nobody who genuinely understands the time inconsistency problem is ever going to be in a position where in the short-run they want something that is inconsistent in the long-run, because anybody who genuinely understands the time inconsistency problem (or really any number of other “unintended consequences” type problems like it) is going to knowingly cut off their nose to spite their face like that.

            Rulemakers practically by definition like having the rules so of course in the moment they are going to want to follow the rules they put in place.

            So if you see differences of opinion among smart people on this it’s almost certainly because of a disagreement on the fundamental model or the costs and benefits that are in play.

            • Blackadder says:

              Nobody who genuinely understands the time inconsistency problem is ever going to be in a position where in the short-run they want something that is inconsistent in the long-run

              By this logic, no one who takes heroin genuinely understands that heroin is bad for them over the long run. If they did understand this, then they would cease to want to take heroin.

              • Daniel Kuehn says:

                You know I had typed a comment noting that psychological or physical addiction that was another example of time inconsistency was a different matter of course – that no one is addicted to a particular federal funds rate in that way.

                I considered that too obvious and an entirely unnecessary point to make. Guess I was wrong.

              • Blackadder says:

                I had typed a comment noting that psychological or physical addiction that was another example of time inconsistency was a different matter of course

                If you don’t like the addiction example, just substitute another real life example of time inconsistency in action.

                If people only realized that procrastination was bad for them over the long run, they would cease to procrastinate (in fact, they wouldn’t even want to procrastinate anymore).

                Perhaps you are so utterly self-disciplined that these issues never come up in your own life. You never hit snooze on your alarm clock. When you see a big drop in the stock market, you don’t even consider altering your investment strategy. When someone offers you a second slice of pie, you say “not interested.” Etc.

                If so you should realize that you are atypical.

              • Daniel Kuehn says:

                But Blackadder when you hit the alarm clock you are ignoring the time inconsistency problem. You are NOT maximizing globally, you are maximizing locally.

                My point is that if you are acting on an understanding of time inconsistency you’re not going to do something that is time inconsistent.

                Your response to me is “well what about all these cases where people don’t act on an understanding of time inconsistency – then they’re being time inconsistent!!!!”

                My answer: duh. That’s the whole point!

              • Daniel Kuehn says:

                I am saying when someone wakes up with the alarm clock they are clearly doing something they want to do given that they are conscious of the consequences of hitting snooze.

                You can’t accuse them not following a rule just because they are aware that it is good to wake up with the alarm clock!

              • Bob Murphy says:

                DK wrote:

                I am saying when someone wakes up with the alarm clock they are clearly doing something they want to do given that they are conscious of the consequences of hitting snooze.

                No, Daniel, now I have gone back to thinking, you really don’t understand the claim here.

                It is false if you say that a central banker, knowing all of these issues, would maximize social welfare by following the rule, whether the rule is imposed on him or not. That’s the whole point–he would violate the rule if he could. Given society’s actual tradeoff between inflation and unemployment (btw I’m speaking their language, Austrian onlookers, so don’t lynch me), the central banker ends up inflating too much.

                Switch to your hyperbolic discounting example. It is false when you say that someone, aware of the problem, will maximize his utility by ignoring his hyperbolic preferences. No, if he did that, he would not be maximizing his utility, even correctly calculated as ex ante long-run present discounted utility.

                This is the apparent paradox: You can actually benefit by having options removed. And it’s why Steve Horwitz stressed the distinction he did. You can’t voluntarily abide by the rule, because the rule asks you to do what is suboptimal in some situations. The irony (or paradox) is that, because of how others then react, you end up preferring the timeline where you are not allowed to do what you want to do in those instances. And yes, “what you want to do” is itself fully aware of the big picture.

                Let me give a much simpler example: Suppose you and I are playing a one-shot Prisoner’s Dilemma. You and I both get a higher utility if some outside party comes along and says, “I will shoot you in the head if you Defect. I am imposing a rule constraining your behavior.”

                Now, if you then say, “Well, we don’t really need this outsider, Bob. You and I are both smart guys who have studied game theory, and we can just voluntarily do what gives us more utility, i.e. by Cooperating,” then you have missed the point entirely. And you hopefully would understand why Blackadder and I would keep arguing with you.

              • Blackadder says:

                My point is that if you are acting on an understanding of time inconsistency you’re not going to do something that is time inconsistent.

                That’s a tautology. What you said before was that if someone genuinely understood the time inconsistency problem then they would cease to have time inconsistent desires.

              • Daniel Kuehn says:

                re: “That’s a tautology.”

                Right. So you can understand why I’m so befuddled people are arguing with it.

              • Daniel Kuehn says:

                Bob –

                - Yes, all these time inconsistency problems are about different conceptions of utility between present and future selves. If you’re only thinking from the perspective of your current self you will not follow the rule. But we commit to rules precisely because we recognize thinking from the perspective of your current self might not get us to a place we like.

                - Yes, a conservative central banker is in the same position. He actually wants to do what he does. In a way it mimics a rule, which is why it’s got a sort of intermediate utility level. If you take that central banker conservatism out asymptotically you actually have the equivalent of the rule (lambda = zero, if I recall the choice of greek).

                - In the prisoners dilemma, without an ability to commit I will defect, yes. With an ability to commit each other I will not defect. The gun is a commitment. If I could come up with a credible commitment that’s not so violent I would want that commitment. Of course the best situation would be if I could commit YOU without committing me! But that’s the point. If you and I could come up with some way to commit ourselves (maybe a contract) you and I would both WANT to do that. It’s a little different from the time inconsistency point because we’d be dealing with only our current selves.

                Ultimately the reason why this world actually has rules and constitutions is because people want them.

                Either I’m tremendously dense or we’re talking past each other because in all these comments that start with “I’m not sure you get it”, I end up agreeing with every substantive point you raise.

              • Bob Murphy says:

                DK wrote:

                Either I’m tremendously dense or we’re talking past each other…

                In fairness, that’s why I keep saying, “I don’t mean to patronize you…” I.e. it’s not that I actually think you’ve never heard of a Prisoner’s Dilemma. Rather, it’s that the straightforward interpretation of what you’ve been saying to BA and me, makes it sound like you don’t realize the simple points we are trying to make.

                I think some of it is that we want to disagree with you, but I also think some of it is that you are not always crystal clear in what your position is. E.g. I don’t ever accuse DeLong or Sumner of being slippery and vague, I accuse them of being crazy. I know full well what their positions are, and I think they’re wrong.

                But with you, I feel like I’m always dealing with a moving target.

              • Daniel Kuehn says:

                re: “Now, if you then say, “Well, we don’t really need this outsider, Bob. You and I are both smart guys who have studied game theory, and we can just voluntarily do what gives us more utility, i.e. by Cooperating,” then you have missed the point entirely. And you hopefully would understand why Blackadder and I would keep arguing with you.”

                I’m confused about why you think I’m saying this.

                We DO need a gun or some other kind of credible commitment.

                That has been my point all along.

                When in the course of this whole discussion have I ever given the impression I don’t think rules that commit us to an action are better than discretion????

              • Daniel Kuehn says:

                Something is really being lost in translation if you have to resort to explaining the importance of credible commitments in a prisoners dilemma to impress upon me an argument I’ve been making from the very beginning of the conversation.

              • Blackadder says:

                So you can understand why I’m so befuddled people are arguing with it.

                They aren’t arguing with it. They are arguing with the other, non-tautological things you say. That you retreat to tautologies when challenged doesn’t make the problem go away.

              • Major_Freedom says:

                DK:

                no one is addicted to a particular federal funds rate in that way.

                I don’t know, DK, I imagine the board at the Fed get a high when they change the fed funds rate target, like how one plays Sim City, and I am sure that economists who see that their ideas concerning where the Fed funds rate ought to be, also get a high when it is in line with their preferences, and they get a withdrawal effect when they don’t.

              • Major_Freedom says:

                DK:

                Of course the best situation would be if I could commit YOU without committing me!

                Well that’s statism in nutshell.

              • Major_Freedom says:

                Don’t know why I had to say that in Russian immigrantish, though.

              • Daniel Kuehn says:

                Not really MF. I’m perfectly happy with him shooting himself in the foot. I don’t need to be the one to do it.

                In fact I’d probably enjoy my gains more if I wasn’t the one to commit him.

              • Daniel Kuehn says:

                What’s more likely, Blackadder, that I’m retreating from a tremendously stupid claim or that you’ve misattributed a tremendously stupid claim.

                The record is there. I’m getting tired of being told what my position is.

              • Blackadder says:

                Dan,

                Here is what yo said: Nobody who genuinely understands the time inconsistency problem is ever going to be in a position where in the short-run they want something that is inconsistent in the long-run.

                That is not a tautology.

                You could say that you didn’t mean this literally; all you meant was to state the tautology that a person who doesn’t act in a time inconsistent manner doesn’t act in a time inconsistent manner. The problem with that interpretation is that when I brought up the example of the heroin addict you said that actual addiction was obviously an exception to what you were saying. But if you were just stating a tautology then there would be no need to make an exception for addiction, nor would it make sense to do so.

                I agree that the record speaks for itself.

              • Dan says:

                BA, FTW.

              • Daniel Kuehn says:

                re: ” But if you were just stating a tautology then there would be no need to make an exception for addiction, nor would it make sense to do so. “

                It’s not an “exception” as you put it. I never said it was an exception. Don’t slip words like that in and act like you’re representing what I said.

                It’s an example of a time inconsistency problem where the addict clearly does not incorporate an understanding of time inconsistency into their preferences and action. I thought that was obvious.

                Look, I’m telling you, you are claiming I was asserting something I didn’t assert. Just give it up Blackadder. You are not going to convince me you know my claim better than I do. Quit it. I’m not telling you what you think. I take your word on that.

          • Daniel Kuehn says:

            re: ” If there weren’t cases where the rule calls for doing something we don’t like in that particular case, then there would be no need to adopt the rule”

            Another way of putting it – specifically responding to this point – is that people adopt rules precisely because they reject evaluating things on the basis of “a particular case” or on a case unconditioned by the reactions of others.

      • Daniel Kuehn says:

        I don’t think any words are being altered here.

        Why is the conservative central banker preferred to discretion?

        Because it produces a higher utility level.

        If “produces a higher utility level” can’t be construed to mean “something you like”, then I don’t know what the word means.

        • Major_Freedom says:

          If “produces a higher utility level” can’t be construed to mean “something you like”, then I don’t know what the word means.

          Ah but exactly whose utility is being referred to here, in the case of central banking? What if all central bank actions engender dislike from A and like from B? Then what? Should A’s utility overrule B’s utility, or should B’s utility overrule A’s utility? By what criteria is this question answered, and has this criteria been seriously analyzed for internal consistency?

          • Daniel Kuehn says:

            An interesting, but it seems to me entirely different, point from the one that Bob is making.

            It’s not all that hard to figure out, I imagine. How you view the rule change (or conservative hire) is going to depend on your distribution around the initially specified social utility function.

            • Major_Freedom says:

              How you view the rule change (or conservative hire) is going to depend on your distribution around the initially specified social utility function.

              Social utility function? Isn’t that an internally inconsistent concept, built on the flawed premise that one can add and subtract interpersonal utility, which is really just a reification fallacy?

              If there is your utility and your preferences, and there is my utility and my preferences, then what other thing has preferences other than us?

              If my utility is separate from your utility, as we like different things, then I can’t even see how social utility is even a coherent concept.

    • Major_Freedom says:

      I’m simply broadening my point that it may not make sense to say “the point is it sucks” if the whole reason why you hire a conservative central banker (or institute a rule) is because you recognize in the big picture you like that result.

      Who exactly is the “you” here? I don’t hire central bankers. Central bankers are hired by others and their actions are going to be imposed on all Americans, through law.

      Is the only relevant “utility” framework really just for Presidential nominators of Fed chairmen, and majority elected Congressmen?

      What about the utilities of those in the minority? Why are these people’s utility being overruled by other people’s utility?

      Shouldn’t central banking only contractually affect the 51% of the people who vote for the Congressmen who keep voting to renew the Fed’s charter?

      • Daniel Kuehn says:

        And I thought the criticism of my use of the word “like” was overwrought!

        • Major_Freedom says:

          The devil is in the details. I think some important details are being casually overlooked and treated as inconsequential, as if it’s “common knowledge” and in no need of being addressed.

          It may seem like semantic quibbling, but I think it is wise to take Wittgenstein’s advice on this one, and realize that philosophical problems can be a consequence of misunderstanding of usages of phrases and terms. For once these are made clearer and clearer, then we can more easily reveal where the disagreements actually reside, and who’s making errors and who is picking up on them.

    • Silas Barta says:

      It almost seems like you’re all stuck on a REALLY long tangent on a semantics issue, whether “something that sucks [for now]” is the appropriate term to use. Just recognize that and try to move to the substance of the debate about rule-based monetary policy and whether it allows things like “crazy Ben’s housing sale”, and whether such things would be good or bad *long term*, and also (though it should be obvious) whether thinking about the long term is important here or not.

      • Daniel Kuehn says:

        Wow. I completely agree with Silas.

        Granted, since I’m the one whose statement is being argue with, me simply saying “let’s stop talking about this – it’s just a semantic difference” seems to be striking people as a little self-serving.

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