I would say that ever since some time last year when it become absolutely undeniable that Ben Bernanke was had been completely wrong about “The Great Moderation”, Bernanke has done an admirable job of trying to clean up the mess created by the errors of the school of thought to which he adhered. But like Kevin Drum I feel that this is a strange basis on which to rest the burgeoning Cult of Bernanke. In a reasonable world, I would think that Bernanke would probably fade away after his term ends to be replaced by someone else, and then return to the public eye a few years hence with an interesting memoir taking stock of the whole situation. Instead, he’s weirdly become an iconic figure and a shoo-in for another term.
Beyond the specifics of the case, I think this Bernanke-love is a symptom of what John Quiggin is talking about when he says that “history teaches us that we rarely learn from history.” Instead of looking at the recent past as an era of “moderation” we can look at it as an era of crisis management, in which successful emergency central bank operations helped clean up first the ’87 stock crash then the Asian crisis then the dot-com boom. In each instance, events in the world that clearly contradicted elements of “efficient markets” thinking got erased from official memory since the ex post cleanup worked well. But we seem to be seeing an escalating series of financial crises, to the point where even a successful cleanup of the great housing bubble is still leaving us with double digit unemployment. Nevertheless, in lieu of learning the lessons of history—even really recent history—the ruling class in the United States is instead constructing a new cult around a new central banker and denying the need for any structural change in how we deal with the financial services industry or its role in the economy.