“We have seen the triumph of sensible ideas and have reaped the rewards in terms of macroeconomic performance,” Romer concluded. “The costly wrong turn in ideas and macropolicy of the 1960s and 1970s has been righted and the future of stabilization looks bright.”

She was, as we now know, wrong about the happy ending. In retrospect, what is striking about Romer’s lecture is not the chastened tone of its opening but the celebratory nature of its conclusions. “Better policy, particularly on the part of the Federal Reserve, is directly responsible for the low inflation and the virtual disappearance of the business cycle in the last 25 years,” she said (emphasis added). “In this area, the policy mistakes of the 1960s were a painful, but not permanent, detour on the road to excellent economic performance.”

I don’t mean to pick on Romer, who is a fine and careful scholar. Until recently, this triumphalist view was the conventional wisdom. And it isn’t 100 percent wrong. Fed policy really did break inflation and keep it low. The relative stability from the mid-’80s to last year really was much better than the economic chaos of the 1970s.

But containing inflation and eliminating, or noticeably dampening, economic downturns are two entirely different things. Congratulating policy makers for “the virtual disappearance of the business cycle” oversteps the evidence and encourages the hubris that fostered the current crisis and could make recovery more difficult. The conventional explanation for the Great Moderation gives too much credit to easily identifiable economic policy makers—“I feel the contribution of good policy cannot be overstated,” said Romer—and too little to all those anonymous managers and workers whose everyday actions get summarized in the aggregate statistics that Fed economists watch so closely.

Research published in journals like the American Economic Review, dating back to a 2000 article by Margaret McConnell of the New York Fed and Gabriel Perez-Quiros of the European Central Bank, tells a different story. This line of research says that good Fed policy was necessary but not sufficient, that the business cycle never disappeared, and that most of the Great Moderation emerged not from deliberate government policy but from changes in business practices that occurred for competitive reasons having nothing to do with macroeconomic goals.

In the Summer 2008 issue of the Journal of Economic Perspectives, economists Steven J. Davis and James A. Kahn review this research and further dissect the evidence from both aggregate statistics and individual measurements of things like the lead times for ordering production materials and fluctuations in household spending. What they find fits the broad outlines of Romer’s story—but not its congratulatory conclusion. The Great Moderation looks a lot like the staid 1950s, with better inventory management and more-flexible employment contracts.