Peter A. Diamond’s Nobel Prize in economics may weaken Senate Republican opposition to the Massachusetts Institute of Technology professor’s Federal Reserve Board nomination, improving his chances of joining the central bank.
Richard Shelby, the senior Republican on the Banking Committee, in July questioned Diamond’s qualifications on monetary policy, and at least one unidentified senator made a procedural move to send Diamond’s nomination back to the White House in August.
Diamond’s Nobel Prize, announced today, “makes it more difficult to oppose him on the grounds that he isn’t a sufficiently qualified economist,” said Tim Duy, a former U.S. Treasury Department economist who now directs the Oregon Economic Forum at the University of Oregon in Eugene.
While it’s not a sure thing, the prize probably adds enough Republican votes to assure confirmation, said Mark Calabria, a former aide to Shelby. The Banking Committee voted 16-7 in July to recommend Diamond to the full Senate, with all 13 Democrats on the panel backing Diamond. Christopher Dodd, the Connecticut Democrat who chairs the panel, has said he’s prepared to hold a second hearing on Diamond after Shelby requested one.
In July, Shelby, of Alabama, called Diamond a “skilled economist” while questioning whether he has sufficient expertise in monetary policy to join the Fed. “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,” said Shelby, 76, at the July 28 committee vote.
Today, Shelby said in a statement: “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.”
The White House and Democratic leaders have been struggling with Senate Republicans to win approval for dozens of pending presidential appointments. In March, President Barack Obama used his constitutional authority to fill vacant federal positions by making 15 recess appointments, the first time he bypassed the requirement for advice and consent of the Senate.
Obama, in a statement today, said he nominated Diamond for the Fed “to help bring his extraordinary expertise to our economic recovery.”
“I hope he will be confirmed by the Senate as quickly as possible,” Obama said.
Robert Gibbs, White House press secretary, said in a statement that “obstructing a nominee as well-qualified as Peter in a time of economic crisis is a harmful attempt to score political points that hurts our middle class and our broader economic recovery.” Obama urges the Senate to confirm Diamond and “dozens of other nominees who are being blocked,” Gibbs said.
Diamond, 70, was nominated in April to be a Fed governor, along with Janet Yellen, San Francisco Fed president, and Sarah Bloom Raskin, Maryland’s commissioner of financial regulation. Diamond, a former teacher of Fed Chairman Ben S. Bernanke, was resubmitted for approval by Obama on Sept. 13. Yellen was sworn in as Fed vice chairman Oct. 4 along with Raskin, now a governor, after they were confirmed Sept. 29.
Diamond declined to comment today on the lawmakers who are holding up his nomination. In a telephone interview with Bloomberg News, he urged Congress to extend unemployment benefits and approve more aid for state and local governments to help them keep teachers and other workers on the job.
Supply and Demand
Diamond shared the Nobel Prize with Dale Mortensen and Christopher Pissarides for research into the difficulties of matching supply and demand, particularly in the labor market.
“This year’s three laureates have formulated a theoretical framework for search markets” such as ones where buyers look for sellers and applicants look for jobs, the Royal Swedish Academy of Sciences, which selects the winner, said today in Stockholm.
Diamond’s nomination may now potentially hinge on whether Dodd can hold a second hearing and the Banking Committee can vote during a so-called “lame duck” session after the Nov. 2 midterm elections. The full Senate would then need to approve Diamond.
“This just puts an exclamation point to Senator Shelby,” said Robert Solow, 86, winner of the Nobel Economics Prize in 1987 and professor emeritus at the Massachusetts Institute of Technology, in a telephone interview. “He’s not just depriving the Fed of a good nominee but of one of the world’s half dozen best economists.”
The six other Republican senators who voted against Diamond in the Banking Committee didn’t immediately respond to requests for comment today through their press spokespersons.
The prize also opens the doors to more prominent or lucrative opportunities that Diamond may find difficult to turn down, Calabria said. Diamond said at an MIT news conference today he has no plans to withdraw his candidacy.
“A Nobel laureate is A-list,” said Calabria, now director of financial regulation studies at the Cato Institute, a Washington research organization. “Even in Washington, a Federal Reserve governor is, at best, D-list.”