Peter Diamond

Larry Diamond wins the Nobel Prize, continues being blocked by the Senate

For months now, Sen. Richard Shelby has been blocking the nomination of economist Peter Diamond to join the board of the Federal Reserve. "I don't believe he is ready to be a member of the Federal Reserve Board," Shelby said, "I don't believe that the current environment of uncertainty would benefit from monetary policy decisions made by board members who are learning on the job.”

Today, Diamond won the Nobel Prize in economics. Of course, Shelby never said he was not a "skilled economist." He said he didn't know monetary economics. But that's also self-evidently foolish: Before serving on the Federal Reserve Board, Elizabeth Duke worked at a bank. Kevin Warsh worked for George W. Bush. Sarah Bloom Raskin was a financial regulator in Maryland. Ben Bernanke was an economist, and before that, one of Diamond's students.



No one prepares for the Federal Reserve Board by serving on the Federal Reserve Board. Shelby's argument against Diamond is simply cover for his actual objections against Diamond. One of those objections is simple partisan politics. But another, I have heard, is odder: Diamond has done a fair amount of work in behavioral economics (for instance, here). That's been true for a number of the administration's recruits, including Peter Orszag, Jeff Liebman and Cass Sunstein. As such, behavioral economics itself has become polarized among Republicans, and Shelby now considers it a red flag for potential nominees.

Here's a post from Tyler Cowen on Diamond's academic work and influence. Diamond has published in many areas, but two particular points of expertise are labor markets and entitlement programs, both of which the Federal Reserve will need considerable knowledge of over the next few years. Without Diamond -- or someone like him -- on the Board, it is not exaggeration to say they will be learning on the job.