Free Peter Diamond!

by Jonathan Cohn | March 9, 2011

Few political spectacles depress and alarm me right now more than the stalled nomination of Peter Diamond.

For those of you who don't already know, Diamond is the MIT economist whom President Obama has nominated to serve on the Federal Reserve Board. Diamond is widely considered among his generation's most brilliant economists. Six months ago, he shared the Nobel Prize for research on unemployment and labor markets that was as timely as it was groundbreaking.

During the previous Congress, the full Banking Committee twice approved Diamond's nomination, the first time by a party-line vote and the second time with three Republican senators joining the majority. But the committee's ranking Republican member, Senator Richard Shelby of Alabama, blocked Diamond's nomination from coming to a floor vote. 

With a new Congress in session, Obama has submitted Diamond's nomination and, on Tuesday, he appeared before the Banking Committee one more time. But Shelby hasn't budged and, according to multiple media accounts, he may still have the power to block a vote. (It's not clear to me which parliamentary mechanism Shelby would be using this time.)

As before, Shelby has cited two main objections to Diamond. One is ideological: "Dr. Diamond is an old-fashioned, big government Keynesian," Shelby said. And it's true: Diamond is a Keynesian. Then again, so is most of the economics establishment, including quite a few conservatives and, by most recokinings, Fed Chairman Ben Bernanke. 

Shelby's other objection is that Diamond, however brilliant, is not qualified to serve on the Fed because he is too "theoretical" and lacks specific expertise in monetary policy and financial markets. This is a strange criticism: As Steve Benen notes today, you could say the same thing about three of the five governors sitting on the Fed at the time Diamond was first nominated. 

Since Benen is not an economist and I am not either, I put the question directly to somebody who is: Henry Aaron of the Brookings Institution. He called the conservative criticism "ill-informed," explaining:

For starters, although he is known as a theorist--and deservedly so--he has done a fair bit of empirical work, both statistical and observational—for example, he was a member of a panel chaired by James Mirlees (another Nobelist) that analyzed the Chinese pension system and recommended changes to the government. He has worked extensively on social insurance for decades, which requires intimate familiarity with the details of how those systems work, financial markets, and demographics and he has co-authored a superlative book on pension reform with British economist, Nicolas Barr. He is done empirical work on consumption with his MIT colleague, Jerry Hausman (I know because I edited it for a Brookings volume). And if one reads his Nobel lecture ... his deep familiarity with the empirical literature on labor markets is palpable.

Paul Krugman and Brad DeLong have been equally enthusiastic about Diamond, the latter calling him an "inspired choice." Just to be sure I was getting a full spectrum of opinion, I also reached out to a pair of more conservative economists. Former CBO director and McCain adviser Douglas Holtz-Eakin, said he understood Shelby's reservations about lack of specific expertise on financial markets and monetary policy. (The nomination is "not ... a no-brainer," Holtz-Eakin told me.) But when I asked former Bush Administration economist Andrew Samwick whether he thought Diamond was qualified to sit on the Fed, he quickly e-mailed back with a one word answer: "Yes." 

Update: In my original item, I mistakenly wrote that both of the previous votes on Diamond were along party lines--and that Obama had used a recess appointment to put Diamond on the Fed. I'm sorry for the error, which I've now corrected.

Source URL: http://www.newrepublic.com//blog/jonathan-cohn/84974/diamond-fed-shelby-nomination-economist