Peter Diamond withdraws as Federal Reserve nominee
Nobel Prize-winning economist Peter Diamond on Monday withdrew his nomination for a seat on the Federal Reserve Board, complaining that Republicans who have blocked his confirmation for more than a year failed to understand the importance of his work on unemployment.
Diamond announced his withdrawal in an opinion article in the New York Times with the headline "When a Nobel Prize Isn't Enough."
"Last October, I won the Nobel Prize in economics for my work on unemployment and the labor market. 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?" wrote Diamond, an economics professor at the Massachusetts Institute of Technology.
"The easy answer is to point to shortcomings in our confirmation process and to partisan polarization in Washington," he continued. "The more troubling answer, though, points to a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy."
The Senate Banking Committee has approved Diamond's nomination to the Fed three times, largely along party lines. But the committee's top Republican, Sen. Richard Shelby of Alabama, has blocked the nomination from a vote in the full Senate.
Shelby has called Diamond "an old-fashioned, big-government Keynesian" who supported the bank bailouts and would back additional Fed stimulus to the economy. In addition, Shelby said that despite the Nobel Prize, the MIT professor did not have "the appropriate background or experience" in "conducting monetary policy, supervising our financial system, and responding to financial crises."
On Monday, Shelby said President Obama needed to find a better nominee.
"I have said many times that I commend Dr. Diamond's talent and career. I wish him the best in the future," Shelby said. "It is my hope that President Obama will now nominate someone capable of garnering bipartisan support in the Senate. It would be my hope that the President will not seek to pack the Fed with those who will use the institution to finance his profligate spending and agenda."
White House Press Secretary Jay Carney criticized Republicans for blocking the nomination and said Obama would make a new nomination as soon as possible.
"Peter Diamond, a Nobel laureate and one of the nation's top economists, would have brought extraordinary expertise and knowledge of the economy to the Board of Governors of the Federal Reserve," Carney said. "We are deeply disappointed that this candidate, who had initially seen bipartisan support, fell victim to partisan obstructionism at this important time for our economic recovery."
As did his supporters, Diamond argued that understanding unemployment and the functioning of the labor market was critical to the Fed's main job of conducting 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," Diamond wrote.
"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," Diamond continued. "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."
Diamond said that instead of serving on the Fed, he will continue "my congenial professional existence as a professor at MIT," and urged people not to worry about him.
But in a shot at Shelby and other opponents, Diamond warned that people should be worried about the "distorted" confirmation process and "how little understanding of monetary policy there is among some of those responsible for Congressional oversight."
-- Jim Puzzanghera
Photo: Peter Diamond. Credit: Associated Press