Fiscal policies should be science-based.

• Position: YOUR LIFE

Fiscal decisions about budgets, taxes, and spending should be based on economic science, in much the same way that monetary policy has come to be science-based in recent decades, proposes former Federal Reserve System economist Eric Leeper, a professor in the Department of Economics at Indiana University, Bloomington. (Monetary policy typically is implemented by a central bank, while fiscal policy decisions are set by the national government)

Leeper charges that fiscal policy in the U.S. is "too political and too confused to be a player" in ensuring a strong economy--and fiscal confusion threatens to undermine the effectiveness of monetary policy.

Leeper says he uses terms such as "science" and "alchemy" to call attention to the generalization that "monetary policy tends to employ systematic analytics, while fiscal policy relies on unsystematic speculation."

In normal times, he explains, fiscal alchemy does not interfere seriously with the ability of monetary policy to promote stable prices and sustainable economic output--but normal times may be coming to an end. With populations aging in the U.S. and most other G-20 countries, the costs of government pension and health care programs are projected to increase exponentially The situation portends an extended era of fiscal stress in which it will become increasingly difficult for consumers and businesses to make sound...