Rules-based Public Policy FTW

Rules-based policymaking allows us to find common ground

TLDR: Rules-based policymaking allows us to find common ground.

In my Vulcan-esque political fantasy, we use rules-based public policy in place of many of our fixed policies.

The reason is: it’s easier to agree on ideal states of the world than it is to agree on how to get there. And when we miss this crucial step, and jump straight to policy positions, we lose the opportunity to find common ground.

Rules-based policy in practice: monetary policy

One of the most prominent examples of rules-based public policy today is monetary policy. The Federal Reserve sets monetary policy via their choice of the interest rate. (This conversation glosses over a ton of nuance. If you have beef with that, follow the rabbit hole here.)

How do they determine the interest rate? The generally accepted decision model is known as the Taylor rule, which explains the Federal Reserve’s interest rate decision as the result of their effort to jointly keep unemployment low and inflation under control.

The rigorous mathematical formulation of the Taylor rule specifies a loss function with respect to both unemployment and inflation — and target levels of both inflation and unemployment.

The further inflation or unemployment get from the Fed’s targets, the greater the “loss”. The Federal Reserve thus sets policy (the interest rate) to minimize the output of the loss function — i.e. to keep inflation and unemployment as close as possible to target levels.

Why is this helpful?

I think it’s easier to common ground. We could avoid becoming quagmired in partisanship by debating about the loss function instead of debating about the particular policies.

The reason for this derives from a very popular method of negotiation, popularized in the book, “Getting To Yes”.

In short, the negotiation strategy is to focus on interests, not positions.

This shift from “positions” to “interests” dramatically improves our ability to find common ground, and thereby reach compromise in the negotiation that leaves everyone feeling understood, and like their needs were addressed.

Let’s translate this strategy into the framework of public policy.

“Interests” = your loss function.
“Positions” = your proposed policy for achieving your interests.

Interests vs positions, in practice

Consider again the case of a monetary policy. Suppose we determined monetary policy by debating our “position”, what the should the interest rate be. I imagine the Federal Reserve’s policymakers shouting numbers across the table…

“ We need to raise the interest rate 10 basis points.”
“10 basis points? You’re insane! No more than two basis points!”

Not very substantive!

Moving from “positions” to “interests” allows the policy-makers to instead debate questions like:
1. What is our target unemployment rate?
2. What is our target inflation rate?
3. How do we want to make trade-offs when we can’t jointly achieve both at once?

Again: It’s easier to agree on ideal states of the world than it is to agree on how to get there. And when we miss this crucial step, and jump straight to policy positions, we lose the opportunity to find common ground.

What public policy would you like to see moved from fixed to rules-based?

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