For months, an anonymous hold in the senate (likely, most reports note, Senator Richard Shelby (R-Ala.)) has blocked MIT economics professor Peter Diamond’s nomination to the Federal Reserve’s Board of Governors.
“Professor Diamond is a skilled economist and certainly an expert on tax policy and on the Social Security system,” Shelby said July 28. “However, I do not believe he’s ready to be a member of the Federal Reserve Board. I do not believe that the current environment of uncertainty would benefit from monetary policy decisions made by board members who are learning on the job.”
President Obama even had to re-nominate Diamond, who once taught Fed Chairman Ben Bernanke. It was looked even less likely that Diamond, along with two other Fed Board nominees and a host of further blocked nominations, would receive quick floor action.
Then Diamond won the Nobel Memorial Prize in Economic Science yesterday.
The Swedish Academy of Sciences, which awards the Nobels, said that the prize, which Diamond shared with Dale Mortenson of Northwestern University and Christopher Pisarides of the London School of Economics, was for the researchers’ exploration of “why it takes so long for people to find jobs, even in good economic times, and why so many people can be unemployed even when many jobs are available.”
The New Republic’s Jonathan Cohn argued back in August that Diamond is eminently qualified for the Fed.
He’s among the top economists of his generation and, while he doesn’t specialize in monetary policy, he’s done groundbreaking work on the labor market and government pensions, two areas very much in the Fed’s purview. Besides, as Matthew Yglesias points out, three of the sitting governors aren’t even formal economists. Two of them are Republican appointees and none, as far as I know, aroused Shelby’s suspicions.
The Washington Post’s Ezra Klein writes that Shelby’s real objection to Diamond’s nomination is not entirely political in nature.
You can’t serve on the Federal Reserve Board before you serve on the Federal Reserve Board. Shelby’s argument against Diamond is cover for his actual objections against Diamond. One of those objections is simple partisan politics. But another, I’ve heard, is odder: Shelby hates behavioral economics.
This White House, as has been endlessly pointed out, is big on behavioral economics. See Peter Orszag, Jeff Liebman and Cass Sunstein for more on that. But the administration’s embrace of the discipline has provoked a response that the White House never anticipated. Republicans have grown suspicious of behavioral economics. And Diamond, it turns out, has done a fair amount of work in the field (for instance, here). Insofar as Shelby’s got an actual objection to Diamond, that’s it, and one of the things he wants is another hearing focusing on Diamond’s behavioral work.
Democrats are hoping Diamond’s Nobel win will help propel him through the confirmation process, but Shelby maintains his objection. “While the Nobel Prize for Economics is a significant recognition, the Royal Swedish Academy of Sciences does not determine who is qualified to serve on the Board of Governors of the Federal Reserve System,” he told Reuters.