It's tough to decide whether the tone of Peter Diamond's Monday op-ed in The New York Times is marked more by scorn or disbelief. In a certain way, the column announcing Diamond's withdrawal from the Sisyphean confirmation process for a seat on the Federal Reserve Board reads like an explainer. Over a year ago, President Obama nominated Diamond to serve as one of the seven governors of the Fed. Everyone agreed that the choice made great sense. Diamond might understand structural unemployment better than anyone in the world, and in December, the Nobel committee honored the MIT professor's groundbreaking research in the field with the 2010 Prize in Economics. So why did Senate Republicans repeatedly block the nomination? Diamond explains in The Times:
The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington. The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy…
In my Nobel acceptance speech in December, I discussed in detail the patterns of hiring in the American economy, and concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing, and thus not a reason to stop an accommodative monetary policy — a policy of keeping short-term interest rates exceptionally low and buying Treasury securities to keep long-term rates down. Analysis of the labor market is in fact central to monetary policy.
Diamond's quick explainer linking monetary policy and labor markets are direct rebuttals to arguments from Sen. Richard Shelby, the ring leader of the GOP skepticism over his nomination. Shelby's quest to block the nomination has been unrelenting for the past year, and unfazed by Diamond's Nobel prize, the senator from Alabama has argued consistently, "Does Dr. Diamond have any experience in conducting monetary policy? No, his academic work has been on pensions and labor market theory.” Diamond almost ruefully explains the connection--hoping to skirt around the tawdry politics of the Senate approval process somewhat and clarify the role of monetary policy in capping rising unemployment and preventing future crises. But others agree, the process is pretty bankrupt.
A few months ago, Paul Krugman boiled down Diamond's struggle with Senate Republicans to unproductive partisanship. Krugman is not shy about his feelings on the matter:
This is disgusting: Senate Republicans holding up Peter Diamond’s nomination to the Federal Reserve Board on the grounds that he may not be qualified to make monetary policy. Aside from the fact that the same Senators cheerfully confirmed Bush nominees who didn’t know much about economics of any kind, this is especially stupid right now. … [O]ne of the hot topics is whether the apparent shift in the Beveridge curve signals a rise in structural unemployment--and Diamond wrote the seminal paper on the whole subject.
After Diamond's withdrawl, Ezra Klein echoes Krugman:
What Shelby can't say is that he's blocking Diamond as payback for a Fed nomination that Bush made in 2007 and Democrats refused to act on until the 2008 election was decided. And that's politics, I guess. But it's remarkable that what Shelby thinks he can say is that Diamond is unqualified because his expertise lies in labor-market analysis. Unemployment is above 9 percent. Almost half of the 15 million workers who're looking for jobs and can't find them have been unemployed for six months or longer. We've got a jobs crisis is this country. And yet Shelby thinks it's self-evident that knowledge about the labor market isn't the sort of expertise that monetary policymakers need right now. If you wanted further evidence that Washington has stopped caring about jobs, there it is.
Diamond says he'll be fine. He'll keep teaching at MIT, doing the things that Nobel laureates do, and in a way, will allow the commentators to be scornful for him. He can't believe the process drove him from helping fix a problem he seemed so qualified to fix. Good luck to the runner-up, though. Diamond's parting words on the issue sound downright conciliatory: "I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can."