Peter A. Diamond is a professor of economics at the Massachusetts Institute of Technology. He was nominated by President Obama to serve on the Federal Reserve Board of Directors. In an op-ed piece in the New York Times this morning, Professor Diamond announced his withdrawal of his candidacy. In doing so, he blamed Republican Senators for being both partisan and incompetent.
The heading “A Nobel Prize is Not Enough” indicates the pride that Professor Diamond rightfully has in his accomplishments. But his pride takes a wrong turn in expressing extreme irritation that any group of Senators would have the temerity to question his ideas. Professor Diamond goes on the offensive in accusing the Republicans of being too ill informed to even make such decisions. For example:
But we should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight. We need to preserve the independence of the Fed from efforts to politicize monetary policy and to limit the Feds ability to regulate financial firms.” [Emphasis added]
Whether he likes it or not, the “independence of the Fed” does not allow Senators to rubber stamp his or any one’s nomination. But much more importantly, I am not convinced that the fully independent Fed we now have is such a good thing. While the most recent recession certainly has been difficult, news abounds about the Fed’s unprecedented and controversial reaction – a reaction that has not been subject to others approval or meaningful critique. It is easy to find large groups of skilled economists that do not agree with the actions that the current independent Fed has undertaken.
The result of this Fed conduct is not yet fully understood. See this article for an explanation of the possible impending Fed-created disaster that comes from the Fed’s own statistics and graphics.
Professor’s Diamond’s appointment challenges can be understood by simply reading this morning’s article. He states:
I … concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing, and thus not a reason to stop an accommodative monetary policy a policy of keeping short-term interest rates exceptionally low and buying Treasury securities to keep long-term rates down. … Concern about the (seemingly low) current risk of future inflation should not erase concern about the large costs of continuing high unemployment. Concern about the distant risk of a genuine inability to handle our national debt should not erase concern about the risk to the economy from too much short-run fiscal tightening.”
Is QED II a great idea? Is the risk of inflation low in light of the historical connection between inflation and growth in the money supply? Is the federal debt challenge “distant”? Sure, Professor Diamond thinks so. Ditto for the White House who labeled the Senate’s inquiries as “partisan obstructionism”. But the three questions leading this paragraph are not a uniformly held position by a long stretch.
The Senators who question Professor Diamond’s position are not just political hacks. They have the obligation to review the expected policies of those who are appointed, and to conscientiously disagree when circumstances dictate. That is each Senator’s job. If Professor Diamond cannot understand that his ideas are genuinely controversial, then he is not nearly as smart as this Federal Reserve Director position requires.