Peter Diamond, a Nobel Prize-winning labor economist (last year) took the Republicans to task in a New York Times editorialfor holding up his nomination to the Board of Governors of the Federal Reserve System arguing that his decades of research on unemployment was “crucial to conducting monetary policy”. The While House press secretary said Dr. Diamond was a victim of partisan obstructionism (and apparently the partisan New York Times agrees by providing space for his rant).
With no disrespect to Prof. Diamond’s distinguished research record (and it is), I would like to suggest that this was the proper outcome.
In simple terms, providing such knowledge should be a staff function at the Fed, which has many fine researchers to advise the Board and who are likely very familiar with his research findings.
What is needed at the Board level is not expertise on unemployment, or regulation, legal issues, or econometrics, but people who understand well the financial system, financial markets and the links between financial and real markets and how the tools available to the Fed which impact financial markets can be used to attain goals in real markets such as higher employment or lower inflation.
A deep understanding of how financial markets work and how, historically, the links between financial markets and the real economy have played out is critical for FOMC members. A Nobel Prize for work in field "A" does not make the recipient an expert in fields "B" through "X" (although some recipients seem to think it does).
So maybe this was really a proper outcome, but those for whom it didn’t work out as planned have decided to make it “political”.
I didn’t see the sense of the appointment when made (at least it wasn’t an SEIU executive). There are many more qualified for the position even if they don’t have a Nobel Prize. Let’s try again, paying more attention to the skill set required for the position.
And congratulations to Professor Diamond, his research accomplishments in the economics of labor markets are deserving of recognition.
William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.