I will fully admit that I would be pretty pissed if I were in Peter Diamond’s shoes- the dude is a professor at MIT, he won a Nobel Prize, etc., but when the time came to confirm Diamond’s nomination for the Federal Reserve Board of Governors, Republicans on the Senate Banking Committee decided to say publicly that he wasn’t qualified enough, despite the fact that some of them had voted for him previously.
Granted, a Nobel Prize doesn’t make one directly qualified to provide intellectual guidance in all subjects. That said, I was about to follow up that statement with some quip of the form “it’s not like I would want Albert Einstein building bridges or something,” but then I realized that I was making several mistakes. First, I probably would have trusted Einstein to build a bridge, since he was a really smart guy and was certainly intellectually curious enough to read up on what he needed to know. Second, the building a bridge analogy isn’t even really accurate- the relevant question should be whether I would trust Einstein to be on a committee that uses what bridge engineers know in order to make decisions regarding bridge policy. I am even more confident that I would trust him with that task.
Diamond is so cute in his New York Times op-ed entitled “When a Nobel Prize Isn’t Enough”– he manages to exude a thoroughly unconvincing air of earnestness when he says things like the following:
But I am unqualified to serve on the board of the Federal Reserve — at least according to the Republican senators who have blocked my nomination. How can this be?
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.
For his sake, I can only hope that the NYT editors chose the title, since good lord does it sound like an invitation to a pity party in addition to putting forth a pretty entitled attitude. Anyway, he goes on to explain how his work is relevant, which is pretty interesting and insightful, despite the fact that it doesn’t address the actual issue at hand:
But understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy. The financial crisis has led to continuing high unemployment. The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. If much of the unemployment is related to the business cycle — caused by a lack of adequate demand — the Fed can act to reduce it without touching off inflation. If instead the unemployment is primarily structural — caused by mismatches between the skills that companies need and the skills that workers have — aggressive Fed action to reduce it could be misguided.
I applaud Diamond’s intellectual argument, but there’s a much easier one to make: You want relevant experience? Diamond was a reader for Ben Bernanke’s dissertation, which was deemed relevant enough for Bernanke to be confirmed as Fed chair, so, by extension, Diamond has the expertise to think critically about monetary-policy related issues and offer good advice…which is kind of the job of the Fed Board of Governors, right?
Diamond also warns against the politization of the Fed, which is probably the most valid concern on the table. (After all, the Fed is independent from the three branches of government for a reason.) I wish that he had elaborated more on this point, since it more directly addresses the situation at hand rather than pandering to the red herring of irrelevant experience. If you don’t believe me, here is Senator Richard Shelby’s criticism of Diamond:
“As I have said many times, Peter Diamond is not the right person for this job.
“Dr. Diamond is, of course, a very accomplished academic and economist.
“He does not, however, possess the appropriate background or experience that makes him the best person for the job at this point in our economic history.
“The Fed’s responsibilities cut across three broad areas: conducting monetary policy, supervising our financial system, and responding to financial crises.
“He does not have experience in any of these areas.
“In addition, he is an old-fashioned, big government Keynesian.
“He supported bailing out the big banks during the crisis.
“He supports additional stimulus and quantitative easing.
“He supports the use of behavioral economics to help bureaucrats control the choices Americans make.
“Finally, he has even advocated the creation of a GSE modeled after Fannie and Freddie to subsidize health care.
“Mr. Chairman, we are a nation awash in talented and capable people. Surely the President can find another nominee with the level of experience and temperament necessary to garner bipartisan support.
I hear one weak point for “he’s inexperienced because he hasn’t literally done this job yet,” and 5 points for “he doesn’t agree with me.” Hm…how’s that nonpartisan thing working out?
Update: The more I think about it, the more Senator Shelby’s use of the word “temperament” really sticks in my craw. “Temperament” is something that you care about when deciding whether a golden retriever makes an acceptable service animal, not when confirming a high-level government official. (If temperament were a real consideration in this sphere, Larry Summers would no doubt be out of a job.) In other words, “temperament” and “viewpoints” are not the same thing, and if Shelby really means “acquiescence to the GOP,” he should just say so. In terms of actual temperament, however, I think that Diamond scores high marks:
Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can.
So do we, Professor Diamond, so do we.