WHY PETER DIAMOND’S NOMINATION MATTERS MORE THAN YOU THINK…. President Obama nominated three accomplished experts a few months ago to serve on the board of governors of the Federal Reserve — an entity with more than a little influence over the macroeconomic conditions in the U.S. economy. The Senate Banking Committee approved all three nominees.
But this week, one of the brilliant scholars ran into trouble. The development was significant, as was the larger significance regarding Republicans’ political motivations.
[U]nder an arcane procedural rule, the Senate sent [M.I.T. professor Peter Diamond’s] nomination back to the White House on Thursday night before starting its summer recess. A leading Republican senator, Richard C. Shelby of Alabama, said that Mr. Diamond did not have sufficiently broad macroeconomic experience to help run the central bank. […]
All three nominees were approved by the Senate Banking Committee, and there does not seem to be enough opposition to permanently block Mr. Diamond. “This is standard operating procedure in the Senate, and we expect that the president will renominate Peter Diamond,” a White House official said of the delay.
Mr. Diamond, 70, joined the M.I.T. faculty in 1966 and is an authority on taxation, Social Security, pensions, Medicare, labor markets and behavioral economics.
Even for a hack like Shelby, questioning Diamond’s experience is both crazy and pathetic — the scholar is among the most accomplished economists of his generation. The conservative Alabaman suggested the Diamond’s background is not in monetary policy, which is true, but is hardly a prerequisite — of the five current governors of the Fed, three are not specialists in monetary economics. One of Bush’s appointees has no advanced degree in economics and has never done any academic research in the field. Shelby never raised questions about his qualifications and didn’t hesitate to support that nomination.
So, what’s this all about? It’s worth considering the possibility that congressional Republicans, not content with blocking legislation that might improve the economy, also want to prevent the Federal Reserve from exercising its powers and pumping more capital into the economy. Jonathan Cohn’s take, explaining what President Obama’s nominees may do if confirmed to the Fed, is worth reading.
One of his nominees, Janet Yellen, has said publicly that the Fed has an obligation to focus more on employment during times like these. And while I don’t know whether Diamond has said similar things, I know enough about his philosophical bearings to know — or, at least, suspect strongly — that he’d push for more employment-focused policies, as well. As Paul Krugman notes today, Diamond wrote the seminal paper on structural shifts in unemployment.
In other words, Obama’s nominees may very well use the power of the Fed to improve the American economy — so Shelby is slowing the process down, on purpose, and making the White House needlessly jump through procedural hoops without a coherent explanation.
It may be because Shelby is “just being a prick,” but it seems just as likely that the Republican senator hopes to paralyze the Federal Reserve, keeping it from giving the economy a much-needed boost.