Belief in the Great Moderation blinded the Fed to signs of crisis

Evidence

His repeated assertion of this thesis in the intervening years went some distance in explaining why Bernanke’s Fed did essentially nothing to curb the worst financial abuses that led up to the crisis of 2007–8; Bernanke had been insisting throughout that the mortgage market was sound, hedge funds were “disciplined,” and the banks solid right up to the onset of the failure of Lehman Brothers. This self-congratulation persisted even though a few inside figures such as the Fed governor Ned Gramlich (who was forced to resign in 2005) and the Atlanta Fed president, Jack Guynn, had been sounding the alarm since 2005. It is difficult to convey in any short space just how much the orthodox economics profession loved this trope of the Great Moderation and its ballyhooed prophet; so much so that it spawned a huge academic literature in its own right. Not only did highly ranked economics journals continue to publish articles discussing the Great Moderation long after the crash rendered the very idea ludicrous, but (having no shame) some tone-deaf economists even argued that the crisis had in no way impugned the existence of a Great Moderation. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 504

Categorization

• QUESTION: The claim that journals kept publishing Great Moderation papers after the crash is a striking, checkable fact — how long did that literature persist, and in which journals?
• XREF: connects to: The Great Moderation consensus collapsed in 2008 exactly as Austrian theory predicted — Mark Blyth, Austerity: The History of a Dangerous…, 387; Bernanke attributed the Great Moderation primarily to improved monetary policy — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 503; Orthodox macroeconomics masked crisis buildup and blocked repairs afterward — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 662 (+6 more)

Broader Connections

• The financial system failed to foresee crisis because its risk theory denied catastrophes #expands (0.90) — Mark Blyth, Austerity, 100
• Orthodox macroeconomics masked crisis buildup and blocked repairs afterward #expands (0.85) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 662
• Ideology shapes economic crisis rather than merely reflecting it #expands (0.85)
• Orthodox economics models structurally excluded the possibility of major crises #expands (0.85) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 491
• Social studies of finance recapitulated orthodox economics and obscured the crisis’s political economy #corroborates (0.75) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 956
• A model imposed from above proved unprepared for the crisis #qualifies (0.72) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 785
• The 2008 crisis was fundamentally a crisis of economic ideas #corroborates (0.70) — Mark Blyth, Austerity, 132