His statement is here. There should be no doubt about Diamond’s qualifications as an economist, but oddly his parting statement makes him sound less qualified as a Fed candidate rather than more qualified. It is not so much the case that further analytical expertise is needed, which is what Diamond seems to suggest. What is needed is someone who can help push some fairly simple and already well-understood ideas through Congress. Was Diamond that person? From a distance it’s hard to say, and of course “parting shots” are strategic in their own right. Still, the piece seems overly focused on technocratic issues and it is not obvious that he is the ideal ambassador to, say, Ron Paul. In other words, there is a reasonable chance that this not unexpected development is a blessing in disguise.
For the pointer I thank Jeffrey Deutsch.
Technocratic???
You have a low opinion of the intelligences of members of Congress. I would think someone with average intelligence could read and understand that essay.
Seconded.
I also have a VERY low opinion of the intelligence of members of Congress. Most especially Republicans.
Grow up!
Mark Calabria (who seems wrong on monetary policy, but not particularly hostile to an anti-deflationary argument by one of the free banking crowd) said Diamond’s ineligible for geographic reasons.
“For perhaps the first time in history, all the Federal Reserve governors are from coastal states. Also every single Fed governor is from a state that Obama won. Only one governor is from west of the Mississippi river. How anyone can believe the current make-up of the Board is a “fair representation” is beyond me. Perhaps this is one explanation for the currently low public opinion of the Fed; it has become more a Cambridge-Wall Street-Washington echo chamber than anything else.”
See. See. Hope and change and all that. That’s why conservatives hate change. 99 times out of 100 things get worse.
didn’t realize that monetary policy was different in each region of the country.
It should be, but that’s another issue. Read the link.
It’s supposed to be a meritocracy, not affirmative action for the hick states.
It all evens out in the end when those “hick states” will be bailing out and subsidizing the unsustainable pension systems in those supposedly more enlightened states that take in more total tax monies.
Blue states tend to be net tax-payers the way things are currently, while red states are net tax recipients. Really high income jobs like finance tend to be concentrated in coastal cities, while agribusinesses and military bases are elsewhere.
yea all that change from prehistory to now has been horrible.
testing
like anyone is going to convince ron paul of anything
Seriously?
Have you ever listened to Chuck Schumer, Biden, Rangel, Frank, or any of the usual suspects?
It reads like a cry baby whining. Big bad Republican senators blocked nomination of good Nobel laureate genius. Where is justice? Where the world is coming to?
That was my take as well. Very whiny; not the statement of a leader.
“From a distance it’s hard to say, and of course “parting shots” are strategic in their own right”
The other side is that he’s written off The Fed and D.C. and now he’s addressing his fellow academics.
The Nobel talk is kind of annoying; by his logic, Krugman or John Forbes Nash or Ed Prescott would be great Fed appointees. “My expertise is fiscal policy and unemployment, so you should appoint me to a monetary policy job.”
On the other hand he’d be great on a panel regarding, um, fiscal policy and unemployment.
“In my Nobel acceptance speech in December, I discussed in detail the patterns of hiring in the American economy, and concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing,”
That sounds funny. It’s like he’s saying “In my speech, I discussed how I was right, because I said what the Democrats want.” I’m not being snide here. Isn’t it more and more clear that structural factors ARE important? Particularly long-term fiscal problems and my pet favorite, the cost structure of employment here, what Tyler might call ZMP workers.
“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 Fed’s ability to regulate financial firms.”
The confirmation process certainly is a government program, but it would be interesting to hear his specific views on what we don’t understand. We can’t limit the Fed in regulating financial firms? Because they’ve done such a great job thus far? And oh, he will be working for The Fed. I think he’s still worried about interest rates and short-term fiscal issues when what we have is a fiat money house of cards built on the need to ever expand debt at rates predicted in the past that are never exactly right. I wonder who really understands all this.
“In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.”
Except for the ‘more’ parts, I agree completely.
(All that not to say I oppose the guy. I don’t know him. But Tyler is probably right, he doesn’t play the right game. On the other hand, that might be his greatest qualification.)
Tyler,
You completely miss the entire point of his commentary when you discuss how he might not communicate well with Congress. He is answering his critics that claim he doesn’t have the expertise. He obviously does. He’s obviously more qualified than lots of people Bush II appointed or Clinton or Bush I. Moreover, his expertise in how unemployment and labor issues impacts monetary policy is probably the single most important thing we need on the board right now.
However, you focus on something that was never brought up by any of his critics in his ability to communicate to congress. No one has questioned that ability. A simple 750 word commentary answering a different critique is a very poor sample to use to make that judgement. Your posting is ridiculous.
Lastly, you make the assumption that we should value his ability to communicate with congress over his other qualifications. That is stupid. If that were true, should we not appoint Daschle or Biden to the Fed Board? They obviously have friends in Congress, they obviously know how to communicate with them. They have also proven that with the incoherence of the Republican Party, they can’t get anything done.
The Republicans are able to get a lot done. Mitch McConnell has vowed their top priority is to make sure Obama doesn’t get re-elected. They are doing their best to tank the economy and to make as many people as possible dissatisfied and angry as part of that effort. Given the state of the economy and the general mood, I’d say they were succeeding.
One would have thought that working to not get Obama reelected is trying to save the economy. If you have been paying attention for the last two years.
I think the confirmation process needs alternatives rather than one guy gets an up-or-down vote (or not). By focusing on his particular plight, Diamond is missing the point, I think.
He’s a football claiming to be a particularly nice football.
The only people that should be able to serve on the Fed Board are bankers interested not in what’s best for the American people, but what’s the most profitable course of action for banks, especially the major ones. Just ask Senator Shelby.
Seems a bit harsh to conclude he cannot communicate with Congress based upon a withdrawal letter. If not Diamond, then who could Obama nominate that the GOP would let in? Someone who would also be acceptable to moderates?
Steve
Yves Smith should be the next Fed candidate.
Also, the Fed has a history of ignoring or even stimulating unemployment, decreasing wages (and currency devaluation for that matter) since these are widely considered – by capitalists, of course – to be the best ways to stem a crisis. It’s quite possible that Diamond’s focus on the unemployment variable is what led the block.
It’s rich to condemn his letter, after 2 years of trying to get him nominated which was derailed by obstructionist Republicans. But then, Tyler never mentions the elephant in the room.
First of all, this is a current event. Tyler blogs about it. That’s how this seems to work.
There are probably either problems with the process, with him, with the Republicans, or with Democrats not willing to log-roll on his behalf. I doubt it is just a problem with the Republicans.
I don’t
Maybe we need to remove a certain dumb and egoistic Senator from Alabama instead.
I’ll trade you a dumb and egoistical Senator from Alabama for a certain dumb and egoistical former Senator from Chicago
Give Mark Kirk a chance.
It’s slightly amusing that you consider Obama on the same intellectual level as Dick fucking Shelby.
Shelby thinks that Adam and Eve rode on dinosaurs to work every day and that the planet is cooling down. Admittedly these beliefs are more about signalling than evaluating the facts one way or another, but, really.
Just to scratch the scab over the obvious wound, Mr. Diamond’s letter is the perfect example to free market proponents of the extent the Fed is a part of the problem, not the solution. In fact, while we rubes are still smarting from the Fed’s obvious role in the past financial crisis, not to mention the few that preceded it, that Mr. Diamond pretends we all need more of the same (just more enlightened) ‘management,’ appears more than ironic.
Yes, Mr. Diamond, let us have a discussion. But let us begin more fundamentally with mission statements and job descriptions, and the philosophy and hubris of ‘managing an economy’ of unknowable complexity.
here here
If Peter Diamond is not qualified to be a Governor of the Fed then no economist is. Is there any economist, living, more capable than Diamond? Clearly no. Shelby’s line is that no economist is good enough to be on the Fed, and it is a shame that you accept it.
Did Shelby vote against all Governors less capable than Diamond? No.
@Barry,
you may have a point.
An institution that needs superhuman expertise so it can usefully manage the economy might not be a useful institution. But if we ended the Fed, how could we subsidize Wall Street?
Exactly.
Just as interestingly, where would the largest concentration of financial disaster deniers go to work?
Oops. That answer is easy; in tax payer funded universities no doubt.
Given that Sen. Shelby is in the U. S. Senate it hardly seems that qualifications are required for government positions, as pointed out here.
http://dismalpoliticaleconomist.blogspot.com/2011/06/indiana-conservatives-willing-to-lose.html
It’s hard to know whether this character is a schmuck, a putz, a poseur or all three. As someone else has pointed out:
Diamond sez: “I discussed in detail the patterns of hiring in the American economy, and concluded that structural unemployment and issues of mismatch were not important in the slow recovery we have been experiencing, ”
Don Surber notes:
“Unemployment is “not important in the slow recovery”?
Small wonder Republicans rejected his appointment.
He is credentialed, not educated.
So no, his Nobel Prize is not good enough.”
Like I said. Not smart enough and not worthy. A bit too much in love with the aroma of his own flatulence too.
That would only make sense if one lacked standard economics literacy to utterly fail to recognize that he is talking about a certain type of unemployment when he is talking about structural unemployment and mismatch.
Either that, or were cynical enough to take his quote of of context to completely pervert his statement.
Don Surber seems to have missed the qualifier “structural”.
Missed it or not realized that it is important to what Diamond is saying. Just like vanderleun.
The idea that the Fed should be populated by people who can cajole Congress seems like a perfect recipe for a non-independent central bank. I would have preferred to have someone like Diamond, who might directly take on patently ridiculous ideas circulating through Congress (like Paul’s) in the public sphere. The Fed should be working on behalf of the people, not Congress.
This. I have no clue what TC is talking about, or whether he understands what Fed governors do. I had not thought the Fed was simply a board of lobbyists.
I sometimes think that TC’s ideal blogging home would be Slate.
Diamond’s op-ed got it exactly right. Senator Shelby’s opposition to Diamond is not because of Shelby’s stated worry that Diamond is not qualified but because of Shelby’s worry that Diamond would not follow Republican ideology. Diamond shows that Shelby’s argument about lack of qualification is specious and argues that an ideological FED in either direction is not a good idea. All of the speculation in the comments that Diamond would not make an excellent expositor of FED policy are coming from people who do not know him.
These comments are also coming from people steeped in the anti-analytical, math-phobic Austrian tradition. Some of them run popular blogs, some have sycophantic bio-pieces written about them by Bloomberg journalists, and some have big fans among the Ron Paulites of the world. But the world of analytical economics pays no attention to them at all.
“But the world of analytical economics pays no attention to them at all.”
You mean the analytical guys who said that housing prices in this country could never fall? these guys running things?
I think that was more the Wall Street geniuses.
Both Bernanke and Greenspan made several speaches on this topic. Don’t know what you were doing the last 10 years, but you can go watch the speaches on youtube if you don’t want to read them right off the fed web site.
I wonder if Tyler felt the same way when his sometime coauthor Randy Kroszner had to withdraw his candidacy for the Fed board, i.e. that it was ‘a blessing in disguise’? After all, the fact that the Democrats blocked his nomination indicates that he was not ‘the ideal ambassodor’ to ‘help push some fairly simple and already well-understood ideas’ to win over, say, Barney Frank.
Indeed. Tyler’s silence about RK is telling.
It’s important to remember that what goes around comes around. Last week, a very qualified candidate for the Federal Judiciary was turned down because Republican Senators disapproved of his ideology. This week, as qualified an economist (by objective standards) as is possible to find was forced to withdraw his application because of his ideology. Is this the new test? If so, perhaps the best career move for a good Republican attorney might be to decline when asked to write a brief that Democrats might disagree with.
Two sides can come up with blacklists. If I was in the Senate I would be working on a list right now, and I would make it public. Let’s let 500 smart 35 year old Republican lawyers understand that their careers can be derailed just as easily and for just as frivolous a reason as the Republicans feel free to do to our guys.
As I see it, the Republicans simply do not accept the 08 Democratic victory, and do not respect Obama personally or for the office he holds. It appears to me that the R’s are perfectly willing to risk seeing the country damaged in major ways (debt limit, lack of action on unemployment) to obtain relatively minor political advantages. I understand that it’s fun when you are on the outside throwing rocks, and it may even work once or twice, but the other side is paying close attention and will not hesitate to do as much or worse if that’s how the right wants to play the game. At some point you have to ask yourself if this irresponsible nihilism is how we want to run a Country?
I prefer responsible anarchy to irresponsible nihilism…either beats head-in-the-sand faith in democratic oligarchy.
“Last week, a very qualified candidate for the Federal Judiciary was turned down because Republican Senators disapproved of his ideology. This week, as qualified an economist (by objective standards) as is possible to find was forced to withdraw his application because of his ideology. Is this the new test? ”
No, its one of the standard political tests. You silly technocrats think we have a country run by elites who somehow know better about how the world works than others do… We don’t, we have a country run by self interested and mildly ideological people with substantial power.
Thank you. It seems as though there are a lot of democrats here who believed in Santa Claus until they were about 13 years old…and these democrats think they are really smart because they know some republicans who believed in the tooth fairy until they were 20.
Anyone that identifies with either party in any way has basically just decided they don’t want to understand how things really work.
No, not an idiot, just a realist. The idiots are those who say a pox on both houses and condone the craziness on both sides.
I get that self interest runs things on both sides to a greater or lesser extent. Do you think any third party would be any different if they were somehow to gain control?
Just who is being naive now?
You are right that when any majority can vote to confiscate the wealth of the minority that there will be big problems.
However, you seem to assume that regulatory democracy is the only form of government possible. You ignore various forms of constitutional republics or anarcho-capitalist societies.
If a third party gained enough support to defeat the 2 current parties that are 100% in favor of regulatory democracy and that 3rd party was in favor of severely limiting the power of central governments in many ways then yes things might eventually get a little better.
Good luck with your left-right theatrics.
Talk about blind spots. You call realists out for belief in Santa Claus and the tooth fairy, but believe that somehow a third party could arise that will somehow be staffed and run by incorruptible angels. Good luck with that.
Especially with that idiot Weiner today, I don’t need anyone going for the cheap shot by reminding me that faith in ideology is pretty pointless when ideology is used by unworthy men. I just think the R’s are 90% corrupt and the D’s are about 70%. At least our guys don’t start foolish and useless wars, are not willing to play chicken with the debt limit for partisan purposes, are not sucking up to the religious zealots who think they know how I should live my life and have not completely sold out to the wealthiest fraction of 1% of the Country (maybe- the jury is still out on that last one).
I didn’t say good third party would arise. I said IF one did that met certain conditions then things might improve. I expect the crumbling of the US empire to be similar to the decay of a rotten tree that is still standing.
You really think the democrats are the anti-war party? after starting what 3 new wars the last two years? after faking Gulf of Tonkin?…your are truly blinded by your brainwashing. The guys starting wars now are “your guys”…your language just exposes how programmed you are. Isn’t it sucking up to religous zealots when Clinton and Obama go to their phony politician church in DC or make it a point to make sure that everyone knows they are christian?
And holding hands with Bush supporting the bailouts of Goldman and JP Morgan via the middle clas taxpayers paying off AIG’s credit default swaps and giving GE and other big companies their special exclusions from health care legislation and zero taxes…while funneling trillions to the military industrial….and who is supposed to bear the brunt of austerity? everyone below $500,000/yr…have to cut pensions and all social programs in order to pay interest on debt and the military industrial complex right?
if you are still thinking in terms of “my team” “your team” in regards to the blue and reds then you are being controlled.
“We don’t, we have a country run by self interested and mildly ideological people with substantial power.”
And you think this is something that We the People must not merely tolerate, but rejoice over?
Somehow Obama’s message of ending the partisan divide and ideological stances in favor of pragmatic compromise was a negative in the campaign that lost him an absolute landslide of 80% of the vote???
The thing I find almost amusing is how Obama in seeking to be bipartisan has adopted policies so far to the right that Republicans are forced to adopt irrationally extreme positions,
How is Diamond different from Alan Greenspan? Perhaps the big difference is Diamond has seen Greenspan chastened by his blind faith in his elitist views of Randian economic theory applying to the real world shattered? Perhaps Diamond has more recently tried to connect his economic theories with the natural world instead of assuming as Greenspan seems to have done that the natural world will naturally conform to whatever the economists dictate it should be?
Ultimately, the opposition to Diamond is that he was appointed by Obama, and the only way to oppose Obama is to oppose everything Obama does on the principle that one must oppose Obama.
The GOP should be embarrassed that an Alabama Senator with an Alabama law degree is proclaiming that a nobel prize winning economist from MIT isn’t qualified. Never mind that you can’t blame Obama for what happens to the economy if you don’t even let him staff the government because you’re anti-government and don’t care if the US fails.
It looks like the US is falling apart because a minimum winning coalition of rich people and allies (rural conservative whites largely) are trying to maximize their value using the Senate’s filibuster.
Sorry Tyler, this is a grossly silly argument. The Democrats were absolutely wrong in blocking Randy Kroszner, and the Republicans are equally wrong in blocking Diamond. Remember when you were taught that two wrongs don’t make a right?
Let’s see, Kroszner is considered to have been an important figure in 2001-2003 on the CEA advising Bush on policy and investigating problems of corporate governance. The he served on the Fed which had regulatory responsibility for mortgage origination, for oversight of bank management, and other aspects involving the soundness of the banking system.
Is it ideological to consider Kroszner as not up to the job of Fed governor based on his actual performance on the job?
Of course, the irony of Kroszner is he would have been blocked by Republicans if nominated by Obama based on this from a December 3, 2008 speech he gave:
“In conclusion, I believe the CRA is an important model for designing incentives that motivate private-sector involvement to help meet community needs. The CRA has, in fact, been helpful in alleviating the financial isolation of many areas of concentrated poverty, but as our report illustrates, there is much more that could be done in these communities. Contrary to the assertions of critics, the evidence does not support the view that the CRA contributed in any substantial way to the crisis in the subprime mortgage market. Today’s discussion is an important first step in the process of identifying other initiatives and areas of cooperation between government and the private sector that will effectively address the continuing challenge of poverty in the United States.”
On the other hand, in his June 1, 2007 speech “Outlook and Risks for the U.S. Economy”:
” Further, originating banks are capitalizing on the strong investor demand for these loans by underwriting to distribute them, including through securitization, while holding only nominal exposures themselves. Although defaults and other indicators of borrower distress still remain low, and banks’ exposures are so far quite manageable, supervisors are mindful that high levels of leverage can lead to credit problems relatively quickly for both borrowers and lenders when conditions turn. We want to ensure that any adverse events do not materially affect the banking industry and hope to encourage market participants to employ more-realistic expectations and structures in underwriting riskier corporate loans.
“Turning to inflation risks, the high level of resource utilization continues to have the potential to put additional upward pressure on inflation. And, of course, higher oil prices and the possibility of further increases also pose an upside risk to inflation. With these concerns in mind, the latest statement issued by the Federal Open Market Committee again highlighted the risk that inflation could fail to moderate as expected, and I believe that the risks to the inflation outlook are primarily to the upside. The statement also noted that future policy adjustments will depend on the evolution of the outlook for inflation and economic growth, as implied by incoming information. I will continue to monitor these developments, as well as those in financial markets, very closely.”
A year later everything he said was totally wrong – the leverage and risks were totally unmanageable and the risk of inflation was less than zero.
What sank Diamond was probably this simple statement in a letter to the NY Times:
“If this dichotomy were not false, contaminated consumer products in China and the worldwide financial meltdown would count as ”benefits of a market-based system.” Without good regulations, markets do not provide the benefits they can, indeed, do not function well at all.
“Good regulations increase the benefits from market outcomes. Bad regulations reduce them. What the United States needs is more good regulations and fewer bad regulations. ”Well-regulated free markets” is not an oxymoron, but a necessity for good economic outcomes. Peter Diamond, Lexington, Mass., Nov. 3, 2008″
Conservatives reject this view and consider pollution, employee and public deaths, and economic devastation to be part of the zero sum game of free market economics – to get rich, someone needs to be impoverished. Winning by any means is virtue. No matter what the consequences, Bush winning is virtue to Shelby, and defeating Obama is virtue because that is Republican’s winning. The fate of the economy, the unemployed, the poor is irrelevant.
Somehow not a single commenter here, and not Tyler here, seems to have actually read Diamond’s column. He is making a systematic critique of long terms trends that have been going on in the Congress and in Washington more generally towards a sort of mindless partisanship, and I think he included at least implicitly Democrats in this critique. So, judicial appointments have been subjected to political vetting for quite some time now, particularly ones to the Supreme Court, with this starting out with the Bork case some time ago, with the Dems being the ideological naysayers in that one.
The point now is that this is the first time that this sort of stuff has been applied to Fed Board appointments, which Diamond says is a bad idea, and I agree. Let me also note an important difference between judicial appointments, particularly to the Supreme Court and ones to the Fed Board. The SC ones are lifetime ones; the Fed board ones are not, even if they are for 14 terms nominally. But it has been some time since a Fed Governor served a full 14 year term, and the only one serving more than 14 years recently was not on a 14 year term, but a succession of 4 year ones, Greenspan as revolving Hero Chairman, until he got out before the you know what hit the you know what.
I agree with this, but it’s a problem not cause by the parties. It’s a result of the growth of the media. There’s just too much transparency, which leads to scapegoating and then everyone just votes the party line and then demagoguery is rewarded. I’m not sure there’s a solution. Less heterogenous countries seem to do better, but it could just be luck. That’s the trouble with poli sci data.
“What is needed is someone who can help push some fairly simple and already well-understood ideas through Congress.”
Do we really need another Alan Greenspan?
He believed people were honest so there was no need for policing the financial system, and he pushed for weaker oversight of banking, securities, futures, corporate governance.
Thus we have gone through ENRON, Bernie Madoff, blatant financial contract fraud – the world talked openly of NINJA loans on inflated assessments of property which if sold to Freddie or Fannie were absolutely fraudulent, and is secuirtized and insured by the investment banks almost certainly represented fraud. Greenspan, after testifying in Congress and working behind the scenes to deregulate based on his “simple and fairly well understood ideas”: fraud can’t occur in a market economy, testified before Congress to the effect “my assumptions were wrong”.
Greenspan, a Nobel economist, was totally opposed to the position of Brooksley Born, a lawyer, on the need for regulating derivatives.
Most members of Congress are more closely tied to the law professionally, or as businessmen engaged in negotiating and enforcing contracts, a matter of common law, and especially in the past few decades, religion.
Economists seem determined to define the natural world, which humans are a part, as defined by abstract economic dogma and theory.
Lawyers deal with the conflict between humans, and are faced with all the flaws humans have, especially those of lying, cheating, theft, etc.
Religious leaders in the political space talk constantly of the sins and moral failings of humans, speaking in favor of government enforcing their view of the will of the gods.
The US Constitution puts representatives of the People in charge of writing the laws, both fearing the flaws of the People in their selection of representatives, but recognizing the very clear failings of putting someone who claims superior knowledge, like the knowledge and wisdom of the gods or the knowledge and wisdom demonstrated by wealth and power.
The Fed is a creation of the People who instructed the Fed to do such simple things as regulate mortgages to prevent mortgage fraud because the members of Congress were experienced the real world and knew from personal experience and from the petitions of the People that businessmen and bankers cheat and lie, something the Congress has defined as fraud in great detail. But that the Congress knows from experience is not sufficient because there are always a few very creative bankers who will find new ways to cheap and lie for profit. Operating on the principle that most bankers are moral and honest, Congress put the responsibility for rooting out fraud in the hands of the bankers who are most able to detect the dishonest cheating and lying bankers.
Greenspan though he knew better than the People, Congress, and lots of bankers that all bankers were forced by the market to be totally moral and honest. And he was rather successful in convincing Congress to change the laws so that the economy depended on all bankers, et al being honest and moral.
Ironically, the conservatives who supported Greenspan in this effort view everyone in politics as corrupt, immoral, lying, dishonest cheaters, but they flowed back and forth between banking and government. If Greenspan had paid attention to the writings from Heritage and Cato and AEI, then he would know he was wrong in his views – as someone in government, he was obviously corrupt, immoral, lying, dishonest, as were all the bankers he worked with in the Clinton administration.
Greenspan was very successful at:
“What is needed is someone who can help push some fairly simple and already well-understood ideas through Congress.”
and the costs of his effectiveness are measured in trillions of dollars and in the suffering of tens of millions of people.
This shows which they last very much lengthier and thus saving you income which could otherwise are actually utilized to purchase new ones.nm,,
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