Peter Diamond, the Nobel laureate economist nominated for the Federal Reserve Board, said he’d go along with a potential retry by the White House next year to appoint him to the central bank.
The Obama administration would have to decide on nominating Diamond, 70, in 2011 if the Senate fails to confirm him in a lame-duck session ending next month. Asked in an interview in Washington today if he would accept renomination next year, Diamond said, “Yes.” The Senate would then have until the end of 2012 to confirm Diamond.
Diamond’s nomination has been held up by Senate Republicans and was returned in August to the White House, which nominated him again in September. Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, has questioned Diamond’s qualifications on monetary policy and said his nomination violates a law that no two Fed governors can be from the same geographic region.
The White House designated Diamond as being from the Chicago Fed district to comply with the law. In the interview, Diamond, a professor at the Massachusetts Institute of Technology since 1966, defended his professional connections to the region, saying it was sufficient for the provision.
Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said Nov. 16 that several Fed appointees over the past decade, including Chairman Ben S. Bernanke, may have been disqualified if the law had been “rigidly applied” to their nominations and that Congress didn’t intend the Fed law to be a residency requirement.
‘Enough of a Connection’
“Certainly, compared to the examples that Senator Dodd was citing from past appointments, I have enough of a connection to satisfy what the lawyers say is called for,” Diamond said after a panel discussion at Sweden’s embassy with Dale Mortensen, who shared the Nobel in October with Diamond and Christopher Pissarides.
He cited teaching for one quarter at Northwestern University in Evanston, Illinois; seminars at Northwestern and the University of Chicago and other visits for a few days apiece at schools located in the Fed district including the University of Iowa, Iowa State University, the University of Michigan and Michigan State University.
Dodd said in a Nov. 19 statement to Bloomberg News that he will keep working with Majority Leader Harry Reid and Senate Republicans to confirm Diamond this year.
Earlier today, during the panel discussion, Diamond said he expects a “slow” return to 5 percent U.S. unemployment, which was 9.6 percent in October. “What’s going on is that the usual mechanisms are working but they’re working very slowly perhaps because we don’t have enough aggregate demand,” Diamond said.
In the interview, he elaborated that the amount of time to reach that level depends on what the government does and that more fiscal stimulus would bring down the jobless rate more quickly.
“It’s going to be slow even if they step up the stimulus,” Diamond said. He declined to say if he would have voted for the Fed’s $600 billion monetary stimulus Nov. 3 while also saying that “the quantitative easing is a help, but it needs fiscal backing.”
“Given the other things happening, it’s not as powerful as we need,” Diamond said in the interview.
Bush-Era Tax Cuts
Diamond also said during the interview that he supports a temporary extension of middle-income Bush-era tax cuts and ending the cuts for the highest earners, in line with the Obama administration’s position. “The amount of stimulus you get out of the tax cuts on the highest income people is very small,” Diamond said. “The impact on the long-term debt is big. It’s not enough bang for the buck.
In response to an audience question during the panel, Diamond said that if the government were to enact additional fiscal stimulus, directing it toward small businesses “would be a good thing to do.” One way would be to make it more profitable for banks to lend, Diamond said.
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