When we think about economics we tend to draw battle lines. There is “conservative” economics (generally Monetarist or classical) and “liberal” economics (generally some flavor of Keynesian economics though not necessarily “New Keynesian” which is actually highly influenced by Monetarism).
I think the better distinction is along the lines of discretionary government intervention in the economy as opposed to automated or rules based approaches. If you believe the government should intervene at times with discretion then you are essentially a liberal economist and if you believe that the government should not intervene with discretion then you are a conservative.
This distinction, while helpful for drawing battle lines, is largely unnecessary and I think it just results in ideological conclusions about how we should think about economics.
In my view, we should acknowledge a few simple realities:
- The economy is dynamic and evolves with time. As it does so the things which ail the economy will also evolve and change. Therefore, policymakers also have to learn to adapt and evolve so that they can update the way the system responds to certain shocks. Therefore, economic policy HAS to have a certain degree of dynamism and discretion.
- Rules based approaches are very smart and very effective. I am 100% in favor of using both monetary policy and fiscal policy in a rules based manner. What I am not in favor is claims that discretion is always bad or always good.
- No side has all the answers. The conservatives are never completely right and the liberals are never completely right. The truth often lies somewhere in the middle or, at least, on the edges of the middle.
Unfortunately, the whole debate in economics has become very ideological in recent decades. On one side you have the anti government crowd which will formulate any conclusion so long as it is based on less discretionary government intervention. And on the other side we have liberal economists who tend to form conclusions so long as they’re based on more discretionary government intervention. I’ve been very critical of both sides at times saying groups like Monetarists and Austrians go too far while also saying that Keynesians and Post-Keynesians go too far. But I don’t see a lot of other people doing this.
Yes, it’s important to shoot down bad ideas and to make progress in economics via a form of creative destruction, but I don’t see enough overlap in difference making views. And as a result, we have a policy environment that is still very much dominated by conservative thinking (see here). As Noah Smith has argued, the liberals appear to be winning the discourse, but in my view the conservatives are winning the policy implementation. In my opinion, we’re all worse off for it. Not because the conservative ideas are all wrong, but because it’s resulted in a lot of unbalanced policy making and an excessive focus on what things like monetary policy can actually achieve.