Matt Yglesias ended his reporting from American Economics Association conference yesterday with a discussion of, Romer and Romer on Monetary Policy Complacency. It is really important work, but I think that Yglesias is being a little too cool for school. I guess he just figures that anyone who knows anything of what is going on should understand the subtext of his article. I will make it plain.

The paper looked primarily at the two cases where the Federal Reserve did a bad job of managing the economy: the Great Depression of the 1930s and the stagflation of the 1970s. In both these cases, the people at the Fed understood what was wrong with the economy. The problem is that they convinced themselves that nothing could be done. As David Romer put it, “Fear of impotence is bad for performance.”

The reason this is important is that this is a good description of the Federal Reserve these past four years. It has been particularly telling, because the Fed Chairman Ben Bernanke spent most of the 1990s complaining about the lack of action by the Bank of Japan. He proposed a number of non-standard monetary policies that could have helped. But once he was in the position to do something about it in his own country, he did nothing—or as close to it as he could get without widespread criticism. Paul Krugman has long complained about this.

Some economists like Karl Smith believe that only using the Fed we could have gotten out of this recession. I don’t generally agree. I don’t think that Yglesias does either. But it is clear that the Fed could do a whole lot more to help the economy. David Romner’s comment seems particularly to apply to Bernanke: his fear of impotence (of his ideas over the years) is bad for his performance.