JONATHAN COHN JUNE 5, 2011
Peter Diamond, the Nobel-winning economist from MIT, will not be serving on the Federal Reserve. Therein lies a story about our dysfunctional Senate and our even more dysfunctional economics debate.
President Obama first nominated Diamond in April, 2010. At the time, the choice prompted almost universal acclaim. Nobody in his generation may be better at applying theory to real-world problems like the design of social insurance or the nature of unemployment. Months later, some of that work (on “search frictions”) brought him and two co-authors the Nobel.
But a handful of Senate Republicans, led by Richard Shelby of Alabama, refused to vote for his nomination and, thanks to Senate procedures that thwart majority rule, they had the power to block his nomination. Over and over again, Shelby insisted that Diamond was unqualified for the Fed—either because he wasn’t a specialist in monetary policy or because he didn’t have experience in crisis management. Paul Krugman explained the absurdity of this argument a few months ago:
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—the top result on Google scholar.
In a New York Times op-ed on Sunday, Diamond made more or less the same argument, although more delicately and politely—which was entirely typical for him, as his many friends could attest. (In addition to being a genius, Diamond happens to be a notoriously nice guy.) But Diamond also realizes that his nomination isn’t going forward, and so, in that same op-ed, he announced that he’d be informing the White House he wishes to withdraw his name from consideration.
In some tellings, Shelby is extracting payback for a Republican nominee that Senate Democrats had blocked. But that nominee didn’t have Diamond’s sterling credentials and, besides, it’s not just Diamond: The use of Senate procedures to block nominees, and legislation more generally, has increased substantially since Obama became president. As Jim Manley, the Democratic strategist and former top aide to Majority Leader Harry Reid, puts it, “if the Senate can't confirm a guy who won a Nobel prize—for economics—who in the hell can they confirm?”
Could the White House have pushed harder for Diamond and other languishing nominees? Better still, could (and should) it have done more earlier in Obama's term to force changes in Senate procedure? It sure looks that way. But put that aside and focus, for a moment, on the policy implications.
Even before Friday’s disappointing employment report, it was clear the economy was not growing very quickly—and in need of some sort of stimulus. But by keeping Diamond off the Fed, where he likely would have pushed for expansionist policies, Republicans are blocking monetary stimulus—just as surely as their votes against infrastructure, aid to the states, and other spending programs are blocking fiscal stimulus.
Kill the economy. Blame the Democrats. It’s the perfect crime.