Since they aren’t currently able to demand a return to the gold standard — and maybe a ban on paper money? — Republicans are pushing to mandate that the Fed follow the so-called Taylor rule, which relates short-term interest rates to unemployment (and/or the output gap) and inflation. John Taylor, not surprisingly, likes this idea. But it’s a really terrible idea, and not just for the reasons Tony Yates describes.

You see, we had this thing called the Great Recession, whose aftereffects are still very much with us. And you would think we should learn something from that experience.

The Taylor rule came into prominence during the Great Moderation, and for around 15 years that very moderation, which most monetary analysts expected to persist into the indefinite future, was widely viewed as vindication for the rule. But the future isn’t what it used to be. The comfortable outlook in which Taylorism flourished has proved to be a mirage, and it’s hard to see why we should want to impose a policy that has totally failed to deliver on its promises.

Specifically, during the heyday of the Taylor rule the general belief was that the zero lower bound was a minor issue as long as we had a little bit of expected inflation. One widely cited study found that

if monetary policy followed the prescriptions of the standard Taylor (1993) rule with an inflation target of 2 percent, the federal funds rate would be near zero about 5 percent of the time and the “typical” ZLB episode would last four quarters.

But here we are, with the Fed funds rate still close to zero 25 quarters after the fall of Lehman, and expected to stay there for at least a couple more quarters, which means that the ZLB will have been binding more than 25 percent of the time since inflation dropped to around 2 percent in the early 90s. The world has turned out to be a much more dangerous place than Taylor-rule enthusiasts imagined, so why impose a rule devised, we know now, by economists who completely misjudged the risks?

Now Taylor himself has an excuse and rationale: he claims that the whole financial crisis thing was because the Fed departed slightly from his version of the rule in the pre-crisis 2000s. But as Yates points out, this assigns an importance to monetary policy that is wildly at odds with the kind of modeling used to justify the rule in the first place. It also, as Yates does not point out, has the distinct whiff of someone inventing ever-more bizarre stories to avoid admitting having been wrong about something. This is not the kind of argument on which to base rules that permanently constrain policy.