EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

Good Enough for a Nobel Prize But Not Good Enough for Senate Approval

October 11th, 2010 . by economistmom

peter-diamond

NEW, Feb. 2012:  Here’s a translation of this blog post in Romanian, by Alexander Ovsov!

MIT economics professor Peter Diamond is one of three economists who have just won the Nobel Prize in Economics. The AP’s Louise Nordstrom and Karl Ritter note how it was easier for Diamond to get the Nobel than to get confirmed for the Federal Reserve Board (emphasis added):

President Barack Obama has nominated Diamond to become a member of the Federal Reserve. However, the Senate failed to approve his nomination before lawmakers left to campaign for the midterm congressional elections.

Senate Republicans have objected to what they see as Diamond’s limited experience in dissecting the inner workings of the national economy.

[Federal Reserve Chairman Ben] Bernanke was one of Diamond’s students at MIT. When Bernanke turned in his doctoral dissertation in 1979, one of the people he thanked was Diamond for being generous with his time and reading and discussing Bernanke’s work.

And what was the work that earned Diamond his Nobel?  As the same AP story explains:

Two Americans and a British-Cypriot economist won the 2010 Nobel economics prize Monday for developing a theory that helps explain why many people can remain unemployed despite a large number of job vacancies…for their analysis of the obstacles that prevent buyers and sellers from efficiently pairing up in markets.

Diamond…analyzed the foundations of so-called search markets…

Diamond wrote a paper in the early 1980s that found that unemployment compensation can lead to better job matches. Workers “become more selective in the jobs they accept” because of the employment aid. And, that makes for better matches and increases efficiency, he found.

He told a Senate committee during his nomination hearing in July that a central theme of his research has been how the economy deals with risks that affect both individuals, and the entire economy.

“In all my central research areas, I have thought about and written about the risks in the economy and how markets and government can combine to make the economy function better for individuals,” he said in that hearing.

Hmmm…. perhaps what Senate Republicans really object to in Diamond’s nomination is that he doesn’t ascribe to the notion that unemployment compensation makes people lazy.  As Ezra Klein points out, the “lack of experience” argument is a bit hard to swallow given others who serve and have served on the Board.

4 Responses to “Good Enough for a Nobel Prize But Not Good Enough for Senate Approval”

  1. comment number 1 by: AMTbuff

    I think the Senate Republicans were holding out for a different Nobel winner: Paul Krugman. Seriously, it’s good to see a worthy recipient who doesn’t appear to have won the prize on the strength of his left-wing political rants.

    Diamond’s unemployment argument makes sense to me, given the stickiness in the job market compared with other types of markets.

    I don’t fault Diamond’s progressive indexing proposal for Social Security, except insofar as it presumes that the government should not cut Social Security deeper in order to help fund exploding medical benefits. If the public ever agrees to my proposal to turn the clock back by repealing Medicare entirely, then Diamond’s proposal on Social Security could complete the fiscal repair, making all remaining promises fully sustainable.

  2. comment number 2 by: Gipper

    Economistmom,

    Wow! The partisan fangs have been bared. Of course, expertise in labor economics could have close to zero correlation for qualifications in making monetary policy decisions at the Fed. It’s possible. Not saying it’s true in this case, but I wonder about people who think that teaching a subject area in economics at a university somehow makes them qualified to practice monetary policy at the Fed.

    But more likely, the Republicans were simply stalling on his nomination along with all the other nominations Obama has submitted. To sneer at Mr. Diamond’s lack of approval by the Senate reveals a lack of understanding how Washington DC operates. Of course, I know that you know how Washington operates which makes your commentary especially churlish.

    Because all those years running regression equations working at the CBO has made you a bit weak in your microeconomics, let me give you a refresher. Providing unemployment benefits for 99 weeks doesn’t make you lazy, it makes you very, very SELECTIVE about the kind of job you’ll actually accept. And that will inflate the unemployment figures. QED.

    BTW, I fully support this policy because inflated unemployment numbers will only help Nancy Pelosi to work in a smaller office and make Obama’s reelection campaign that much harder.

    For now, it’s great that Democrat economists don’t know jack about microeonomics…… But after the election, we need to get serious.

  3. comment number 3 by: BillSmith

    Workers “become more selective in the jobs they accept” because of the employment aid. And, that makes for better matches and increases efficiency, he found.

    —-

    So both sides are right?

    Higher unemployment benefits let a person stay unemployed longer. During this longer time a person could potentially find a better job match.

  4. comment number 4 by: Gipper

    BillSmith,

    Exactly! Why not offer 200 weeks of unemployment benefits and get even better matches in the job market?