Before serving as Chairman of the Federal Reserve, Ben Bernanke was the head of George W. Bush’s Council of Economic Advisers, operating in the Christina Romer role. During that period he parroted the rose-colored outlook of the economy that characterized the Bush Administration prior to the Great Recession they created. Matthew Yglesias finds this quote from 2006 from the Economic Report of the President, about the housing bubble:

To gauge the extent to which house price increases have reflected fundamentals, some studies compare housing prices to rents. The rent-to-price ratio is a real rate of return on housing assets in the same way that the earnings-to-price ratio measures the real rate of return on corporate stocks. Viewed as an asset, a home should bear a real return similar to the real return available on alternative assets, such as stocks and bonds. As real interest rates have fallen in the United States and in most other Organization for Economic Cooperation and Development (OECD) countries, the rent-to-price ratio for housing has likewise fallen across a broad range of OECD countries. A recent OECD paper concluded that the decline in the rent-to-price ratio in the United States from 2000 through 2004 was roughly consistent with the decline in interest rates over the same period [...] During the next five years, the Administration expects the pace of home-building to decrease gradually because of demographic trends and slowly rising long-term interest rates.

That’s certainly not all. In the same Economic Report of the President from 2006, he said “The economy has shifted from recovery to sustained expansion … The U.S. economy continues to be well positioned for long-term growth,” and he projected the unemployment rate to remain at 5% through 2011. He continued the rosy predictions for the economy while Fed Chairman, well into June 2008, when he said, “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

And going back to the housing market. This is from a CNBC appearance in 2005:

CNBC INTERVIEWER: “Ben, there’s been a lot of talk about a housing bubble, particularly, you know from all sorts of places. Can you give us your view as to whether or not there is a housing bubble out there?”

BERNANKE: “Well, unquestionably, housing prices are up quite a bit; I think it’s important to note that fundamentals are also very strong. We’ve got a growing economy, jobs, incomes. We’ve got very low mortgage rates. We’ve got demographics supporting housing growth. We’ve got restricted supply in some places. So it’s certainly understandable that prices would go up some. I don’t know whether prices are exactly where they should be, but I think it’s fair to say that much of what’s happened is supported by the strength of the economy.

INTERVIEWER: Tell me, what is the worst-case scenario? We have so many economists coming on our air saying ‘Oh, this is a bubble, and it’s going to burst, and this is going to be a real issue for the economy.’ Some say it could even cause a recession at some point. What is the worst-case scenario if in fact we were to see prices come down substantially across the country?

BERNANKE: Well, I guess I don’t buy your premise. It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

He also defended unregulated derivatives while chair of the CEA. This is testimony to former Senator Paul Sarbanes, from November 2005:

SARBANES: Warren Buffett has warned us that derivatives are time bombs, both for the parties that deal in them and the economic system. The Financial Times has said so far, there has been no explosion, but the risks of this fast growing market remain real. How do you respond to these concerns?

BERNANKE: I am more sanguine about derivatives than the position you have just suggested. I think, generally speaking, they are very valuable. They provide methods by which risks can be shared, sliced, and diced, and given to those most willing to bear them. They add, I believe, to the flexibility of the financial system in many different ways. With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly. The Federal Reserve’s responsibility is to make sure that the institutions it regulates have good systems and good procedures for ensuring that their derivatives portfolios are well managed and do not create excessive risk in their institutions.

Very sophisticated individuals!

It’s important to remember this cavalcade of missteps, because they reflect a conservative, laissez-faire, free-market evangelical bent to Bernanke’s thinking. It’s no accident that he called for cuts to Social Security instead of investing in job creation at yesterday’s hearing; that’s his economic orientation. It’s why the former domestic policy advisor to Dick Cheney discussed him in telling ways today:

Sure, Bernanke has made plenty of mistakes, most glaringly has been his penchant for putting the pedal to metal on the money supply, which created the housing bubble in the mid-2000s, and now threatens to spark inflation, as David Burton and I wrote in this op-ed. But Bernanke has been an important voice of caution on budget deficits and entitlement spending, and philosophically he tends to come down on the free market side of issues. I had left the Bush White House by the time Bernanke had arrived as Chairman of the Council of Economic Advisers, but according to one of my former Cheney staff colleagues: “(Bernanke) was a very good and effective conscience for the West Wing,”

The conscience of George Bush’s West Wing. That’s who’s running monetary policy in the United States right now.