From Monetarism New Classical Economics

There are two different issues here:

• should the government try to influence production and employment by any sort of discretionary policy?
• If so, what kind of policy?

A Keynesian might easily agree that the lags in monetary policy are long and unpredictable, but draw a different conclusion: that the government ought to rely on fiscal policy instead of monetary policy, since fiscal policy could be more predictable, and there is at least a chance that the overall lags would be shorter. Compromising neoclassical economists, who favored monetary policy, could make a case that the implementation lag in fiscal policy is too long and unpredictable, but monetary policy could be feasible. The monetarists' arguments based on lags did not, in themselves, conclusively answer the first question: should the government try to influence production and employment by a discretionary policy?

The "New Classical" school of thought focused on that point more narrowly.

The New Classical school of thought grew out of Monetarism in the 1970's. The name "New Classical" stresses their continued objective of reformulating the older pre-Keynesian economic ideas that many economists (including Keynesians) called "classical" economics. But the ideas of the New Classical school were more new than classical. They would argue that any sort of macroeconomic policy, fiscal as well as monetary policy, would be "ineffective" and therefore do no good. This is called the "policy ineffectiveness" proposition. As a first step on the way to the "policy ineffectiveness proposition," we must return to the idea of "rational expectations" and make it a bit more precise.

Rational Expectations