Yesterday, my mother-in-law was reading Caroline a story from "The Adventures of Toad and Frog".
Frog baked Toad a bunch of cookies and brought them to his house. Pretty soon they found themselves eating too many cookies. Toad told Frog they needed willpower, which is what you have if you don't do something you want to do. First - to get willpower - Toad put the cookies in a box. That didn't work - they could open the box, Frog pointed out. Then he tied the box up with string. Frog pointed out that they could cut the string. Then he got a ladder and put the box of cookies, tied with a string, up on a tall shelf. Frog pointed out that they could get the ladder, bring the box down, cut the string, and open the box. Exasperated, Toad took the box of cookies outside and fed the rest of the cookies to the birds.
When we talk about rules and discretion, and policy-making vs. constitution-making in monetary policy or any other policy area there is often a one-upsmanship when someone wants to be more pro-rules-based-policy-than-thou. The proper response is usually to ignore them, for a number of reasons. Chief among these reasons is personal sanity, of course. But another good reason is illustrated by Toad and Frog. The more pro-rules-based-policy-than-thou attitude almost always plays into the hands of the nihilists and libertarians because the most credible commitment you can make is to feed all the cookies to the birds.
We all know there are potential problems with discretion in monetary policy. What's the tightest system of rules we can clamp down on them? Don't just establish policy rules. Don't just establish legislative guidelines on policy. Perhaps don't even establish constitutional guidelines on policy. Eliminate the monetary authority!
We all know there are potential problems associated with the welfare state. What's the tightest system of rules we can clamp down on the welfare state? Eliminate it! Constitutionally ban it! No one has to worry about labor supply elasticities then!
You hear this sort of thing over and over and over again from libertarians. "You don't think politicians are trustworthy - then why let government do things?"
What the argument ignores of course is that Frog and Toad don't have any cookies anymore when they feed them to the birds, and that's not a good situation to be in by any reasonable standard (unless, of course, that's what you wanted in the first place - although most people don't). I don't think a box of cookies tied up on a high shelf is as reliable as feeding all the cookies to the birds either, but that doesn't mean I prefer to feed the cookies to the birds.
It's a basic economic point about trade-offs. When we think about rules/institutions/constitutions the question should not be what the most credible commitment is (and that's usually a constitutional commitment rather than a legislative or policy commitment), it should be about how we balance constitutional restraint to avoid bad outcomes with the liberty to achieve good outcomes.
It's precisely that balancing act that we celebrate the American founding fathers for, but in a lot of discussions of rule-based policy making I think it's often missed.
A couple times I've alluded to the fact that ignoring this standard bit of economics is in libertarians' interest. The issue Frog and Toad faced was that they wanted to eat the cookies but they didn't want to eat them all at once. They wanted to eat them in a reasonable fashion. If you don't share Frog and Toad's preferences - if your actual end goal is not to have cookies (or welfare, or monetary policy), then a very good way to push that is to forget trade-offs and economic principles in discussing rules and constitutions and instead just push the discussion towards feeding all the cookies to the birds.
The U.S. Constitution (the only one I really know to any appreciable degree) is not libertarian. It's good and classically liberal, though, in that it constrains government and allows it to do a restricted set of things to provide for the general welfare. But it is also flexible and provides mechanisms for contesting and deliberating over the parameters of the Constitution.
The U.S Constitution, in other words, is like putting the cookies in a box, tied with a string, on a high shelf. It does not feed the cookies to the birds. And that's a good thing.