Why A Nobel Prize Is Not Enough

In a recent opinion piece in The New York Times, Peter Diamond, a Massachusetts Institute of Technology economist, wondered how it could be that the Senate Banking Committee hadn’t approved his nomination to the Federal Reserve.

After all, as Diamond points out in his first sentence and in many subsequent ones, he won a Nobel Prize. “Last October,” he wrote, “I won the Nobel Prize in economics for my work on unemployment and the labour market. But I am unqualified to serve on the board of the Federal Reserve – at least according to the Republican senators who have blocked my nomination. How can this be?” (Diamond shares his prize with two collaborators, Dale Mortensen of Northwestern University and Christopher Pissarides of the London School of Economics.)

President Obama nominated Diamond to serve as one of the seven governors of the Fed in April 2010. Diamond was renominated in September, and again in January. On each occasion, his nomination was blocked in committee, and he never received a full Senate vote.

In his quest to understand his situation, Diamond settled on the explanation that senators, at least Republican ones, are too poorly educated to understand his brilliance and the Fed’s need for it. “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,” he wrote.

In making his case to the public, Diamond refers to some of his research, explaining its relevance to the current economic situation. But he never strays far from the argument that – in case anyone had forgotten – he won a Nobel Prize.

Of course, winning a Nobel Prize is no easy feat, but the honour does not automatically qualify anyone for high public office. Diamond, and perhaps a few other laureates, might assume that the Founding Fathers would have given confirmation power to the Nobel Committee if it had existed in 1789, but I doubt it. In any case, such power is vested in the Senate.

Diamond’s argument would carry more weight if the Senate committee had questioned his nomination exclusively on the basis of his credentials, perhaps claiming that MIT was a sham university and that teaching there did not really prove one’s expertise. In reality, however, the senators did not focus on whether Diamond has contributed compelling work to the field, but on whether his theories, as they might be translated into policy, would benefit the country. This is a very different matter from assessing his academic accomplishments.

Far from demonstrating a lack of understanding of monetary policy, the senators who opposed Diamond’s nomination did so largely on policy grounds. Diamond, who specialises in labour dynamics, is a vocal advocate of high levels of stimulus spending and quantitative easing to help lower the unemployment rate. He supports these policies despite the fact that others believe that they could produce runaway inflation and leave the country unable to service its debts. Sen. Mike Johanns, R.-Neb., who initially supported Diamond but later reversed his vote, explained, “I can no longer support a nominee so vocally in favour of more spending, more stimulus, and more quantitative easing.”

Diamond wrote in The Times, “Concern about the (seemingly low) current risk of future inflation should not erase concern about the large costs of continuing high unemployment. Concern about the distant risk of a genuine inability to handle our national debt should not erase concern about the risk to the economy from too much short-run fiscal tightening.” In other words, Diamond argues that today’s problems are real and immediate, while the concerns of those who oppose him are hypothetical and uncertain. His fallacy is to assume that because he gives greater weight to the problems of the present than to those of the future, everyone else should too – because it is he who won the Nobel Prize.

Diamond charges his critics with placing “mistaken, ideologically driven views” before “skilled analytical thinking.” How does he know his views are the product of such “skilled analytical thinking?” Because he won the Nobel Prize.

Though they rejected him for his reasoning, Senate Republicans would have been fully justified in dismissing him for his arrogance as well.

Academics argue as much as politicians do over competing visions of the role of government and the significance of short-term problems in relation to long-term ones. Diamond accuses Senate Republicans of excessively politicizing the confirmation process. Yet since he was first nominated, two other Obama appointees to the Fed, Vice Chairman Janet Yellen and Governor Sarah Bloom Raskin, have won confirmation. It was policy, not politics, that left Diamond’s appointment stalled in committee.

What Diamond really means, evidently, is that the Fed needs to be insulated from politics that he disagrees with. This may seem undemocratic, but then, Diamond wants us to remember two key facts: He is a Nobel Prize winner, and so is the president who nominated him.

Diamond announced in The Times that he is withdrawing his nomination, but he told readers not to worry about him. He promised to “go about my congenial professional existence as a professor at MIT, where I have taught and researched since 1966.” He also plans to “take advantage of some of the many opportunities that come to a Nobel laureate.”

Such opportunities include the right to believe that his high honour certifies him as smarter or wiser than those who disagree with his priorities. I will take this opportunity to wish him many years of congeniality in academia, where he can remind his less-congenial peers whenever he likes that he is a Nobel laureate.

For more articles on financial, business, and other topics, view the Palisades Hudson newsletter, Sentinel, or subscribe to my daily opinion column, Current Commentary.

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