Setting targets: promises and pitfalls

Modern macroeconomics  reflects a strong proclivity to use targets to guide policy action. Two of the most well-known are low, single digit inflation targets and fiscal rules, most notably pertaining to debt-to-GDP ratios. Here is a thoughtful piece by non-economists on how a preoccupation with numerical targets leads to unintended consequences. Using a variety of examples, the authors show how targets might motivate agents to move in the wrong direction and thus distort the evolution of complex systems (of which a modern market economy is a solid exemplar). This does not mean that one should not have targets. It does mean that a lot of care needs to be taken when setting targets, especially when they pertain to macroeconomic aggregates. The current tendency to aim for point estimates entails a degree of confidence in such estimates that are not warranted. Given the uncertainty surrounding quantitative targets, one should aim for ranges (think of them as quasi-confidence intervals) rather than fixed numbers with their inflated sense of precision.