To day or not to day #54: Two Policy Prescriptions for the Global Crisis. One thing that experts know, and that non-experts do not, is that they know less than non-experts think they do. Our economic expertise is limited in fundamental ways. Consider monetary and fiscal policies. Despite decades of careful data collection and mathematical and statistical research, on many large questions we have little more than rules of thumb. For example, we know that we should lower interest rates and inject liquidity to fight stagnation, and that we should raise policy rates and banks’ cash-reserve ratios to stifle inflation. Sometimes we rely on our judgment in combining interest-rate action with open-market operations. But the fact remains that our understanding of these policies’ mechanics is rudimentary.
Source: Het Financieele Dagblad, Weekend Essay on Saturday by Kaushik Basu, 4 May, 2013