Nobel Laureate Diamond Withdraws Nomination to Fed Board
Nobel laureate Peter Diamond, nominated three times by President Barack Obama to serve on the Federal Reserve’s board of governors, withdrew his nomination in the face of Republican opposition.
Diamond announced he won’t seek the position in an opinion article posted yesterday on the New York Times website, saying his opponents failed to appreciate that analysis of unemployment is essential to effective monetary policy. A Massachusetts Institute of Technology professor, Diamond won the Nobel Prize in economics in October for his work on the labor market.
“The Republicans on the committee voted in lockstep against my appointment, making it extremely unlikely that the opposition to a full Senate vote can be overcome,” Diamond said. “It is time for me to withdraw, as I plan to inform the White House.”
The withdrawal ends a 14-month nomination effort resisted by Senator Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, who with party colleagues repeatedly criticized Diamond for supporting the central bank’s record monetary stimulus.
“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,” White House press secretary Jay Carney said today in an e-mailed statement. “The president will nominate an individual for this position as soon as possible.”
Shelby and the other nine Republicans on the banking panel voted last month against the advance of Diamond’s nomination to the full Senate, while the 12 Democrats backed Diamond for the post.
“It is my hope that President Obama will now nominate someone capable of garnering bipartisan support in the Senate,” Shelby said yesterday in a statement. “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.”
While awaiting Senate approval, Diamond voiced support for Fed Chairman Ben S. Bernanke’s plan to purchase $600 billion in Treasury securities. The policy of so-called quantitative easing is aimed at spurring economic growth, averting a broad-based decline in prices and reducing a jobless rate stuck near 9 percent.
‘Crucial’ to Policy
Diamond in the opinion article said his critics held “a fundamental misunderstanding: a failure to recognize that analysis of unemployment is crucial to conducting monetary policy.”
Diamond, 71, affirmed his defense of the Fed’s quantitative easing policy, saying that “concern about the (seemingly low) current risk of future inflation should not erase concern about the large costs of continuing high unemployment.”
In a statement before the committee’s vote last month, Shelby said that Diamond is “an old-fashioned, big government Keynesian” who “supported bailing out the big banks during the crisis” and “supports additional stimulus and quantitative easing.”
He initially won the support of three Republicans on the banking committee. Two of those Senators, New Hampshire’s Judd Gregg and Utah’s Robert Bennett, did not remain in the Senate after 2010. The third, Nebraska Senator Mike Johanns withdrew his support in May saying, “I can no longer support a nominee so vocally in favor of more spending, more stimulus, and more quantitative easing.”
Senate Banking Committee Chairman Tim Johnson, a Democrat from South Dakota, said that “with nearly 14 million Americans unemployed, it is disappointing Republicans would rather play politics than help bring the Federal Reserve to full strength.”
“There was no reasonable justification for blocking” Diamond’s confirmation, Johnson said today in a statement.
A professor at MIT since 1966, Diamond shared the 2010 Nobel Prize in Economic Sciences with Dale Mortensen and Christopher Pissarides for research into the difficulties of matching supply and demand, particularly in the labor market.
“Understanding the labor market -- and the process by which workers and jobs come together and separate -- is critical to devising an effective monetary policy,” Diamond said.
The White House re-nominated Diamond in January, marking a third try at confirmation after the Senate adjourned in December without approving him. Diamond’s initial candidacy was returned to the White House in August under a procedural objection.
“To the public, the Washington debate is often about more versus less -- in both spending and regulation,” Diamond said in the opinion article. “Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better.”
The central bank now has two unfilled seats without a nominee. Fed Governor Kevin Warsh resigned from the central bank on April 2 and the White House has yet to pick a replacement.
Diamond plans to “take advantage of some of the many opportunities that come to a Nobel laureate,” he said in the article. “So don’t worry about me.”
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