I hope this becomes a bigger mainstream story as the days and weeks go by, but I continually get discouraged by the lack of courage being displayed in Washington, particularly on the substance and implementation of monetary policy. Today, in a New York Times op-ed, Peter Diamond, a Nobel Prize winning economist announced that he is withdrawing his name from consideration for the board of governors on the Federal Reserve. Diamond understands, probably better than most, just how crippling the confirmation process has become in Washington.
“The leading opponent to my appointment, Richard C. Shelby of Alabama, the ranking Republican on the committee, has questioned the relevance of my expertise. “Does Dr. Diamond have any experience in conducting monetary policy? No,” he said in March. “His academic work has been on pensions and labor market theory.”
But understanding the labor market — and the process by which workers and jobs come together and separate — is critical to devising an effective monetary policy. The financial crisis has led to continuing high unemployment. The Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation. If much of the unemployment is related to the business cycle — caused by a lack of adequate demand — the Fed can act to reduce it without touching off inflation. If instead the unemployment is primarily structural — caused by mismatches between the skills that companies need and the skills that workers have — aggressive Fed action to reduce it could be misguided.”
Ezra Klein makes the keen observation that if Diamond isn’t qualified for this position, we should take a look at what the requirements are with greater scrutiny.
“It’s not entirely clear what Shelby thinks monetary policy actually does, but over the next couple of decades, managing labor markets and the pressure from pension policy is going be a pretty big part of the Fed’s job. On Friday, the Bureau of Labor Statistics said that the economy had only created 54,000 jobs in March. If you average out the last three months of job growth, it’ll take us 10 years to return to full employment. And if you look beyond 10 years, social insurance programs like Medicare and Social Security will be putting immense stress on the federal budget. By Shelby’s admission, Diamond is a world-renowned expert on both topics. If he’s what unqualified looks like, I’d love to see qualified.”
In blocking Diamond’s confirmation, Shelby is saying that experience in the labor market is not relevant to a job whose primary function is to establish and sustain growth in the economy. If that’s irrelevant, what exactly is relevant? A conservative with the same credentials would be easily confirmed, which raises the obvious question of why someone with these impeccable credentials is being blocked if not for political reasons. This really is the perfect anecdote for why we don’t have a real plan for jobs at the federal level. People can’t even agree on who should be making policy, let alone what that policy should be. What’s more is that since President Obama’s inauguration in 2009, Republicans have been asking the question: “where are the jobs, Mr. President?” ad nauseum and it is now readily apparent (in case it wasn’t before) that Republicans really don’t care about the economy, they care about winning and that’s no way to govern a country.