Policymakers Should Not Try to Stabilize the Economy Essay Example

cause economic fluctuations are intrinsically unpredictable. Thus, when policymakers change monetary or fiscal policy, they must rely on educated guesses about future economic conditions. All too often, policymakers trying to stabilize the economy do just the opposite. Economic conditions can easily change between the time when a policy action begins and when it takes effect.

Because of this, policymakers can inadvertently exacerbate rather than mitigate the magnitude of economic fluctuations. Some economists have claimed that many of the major economic fluctuations in history, including the Great Depression of the 1930s, can be traced to destabilizing policy actions. One of the first rules taught to physicians is “do no harm. ” The human body has natural restorative powers. Confronted with a sick patient and an uncertain diagnosis, often a doctor should do nothing but leave the patient’s body to its own devices.

Intervening in the absence of reliable knowledge merely risks making matters worse. The same can be said about treating an ailing economy. It might be desirable if policymakers could eliminate all economic fluctuations, but that is not a realistic goal given the limits of macroeconomic knowledge and the inherent unpredictability of world events. Economic policymakers should refrain from intervening often with monetary and fiscal policy and be content if they do no harm.