Historical Evidence on the Benefits of Rules-Based Economic Policies

Each year since 1948 the American Economic Association and the American Finance Association hold a joint luncheon with an invited speaker. Over the years the luncheon has grown to a very large affair usually held in the big hotel ballrooms. This year’s luncheon was held today in Denver, and I was the speaker. Like the first two speakers—Winthrop Aldrich, president of Chase National Bank, and Paul Douglas, U.S. Senator from Illinois and known to economists from the Cobb-Douglas production function—I spoke about monetary and fiscal policy. I presented evidence of an amazing six decade long correlation between rules-based policies and good economic performance. The correlation—along with basic economic reasoning—is strong evidence that rules-based monetary and fiscal policies are enormously beneficial to the economy. The historical swings away from rules toward discretion have been damaging whether during the Great Inflation of the 1970s or the recent Great Recession. Here is a copy of the speech and here is the video of the speech with introduction by AEA President elect Orley Ashenfelter (AEA ID is needed for video).