Senator Says Nobel Economics Winner Not Qualified to Serve on the Fed
Peter A. Diamond, Dale T. Mortensen and Christopher A. Pissarides were awarded the Nobel Memorial Prize in Economics today for their work on the inefficiencies of labor markets. The announcement notes Professor Diamond's work on the effect of search costs—the costs of matching sellers and buyers—on labor markets:
In a renowned article from 1971, Peter Diamond examined how prices are formed on a market where buyers look for the best possible price and sellers simultaneously set their best price while taking buyers’ search behavior into account. Even small search costs turned out to generate a radically different outcome compared to the classical competitive equilibrium.Because employment markets have considerable search costs, they do not behave perfectly efficiently, as our current predicament illustrates.
In the classical model of competition, the unregulated market outcome is both unique and efficient. But in a world with search costs, there can sometimes be several possible market outcomes. This was shown by Peter Diamond, who also pointed out that only one of these outcomes can be the best. This, in turn, implies that there is reason for governments to try and find ways of inducing the economy to move towards the best outcome.Professor Diamond can't even get a vote on his nomination to the Federal Reserve. As the New York Times reports, one senator doesn't think Professor Diamond is qualified:
In August, Senator Richard C. Shelby, Republican of Alabama, asserted that Professor Diamond did not have enough experience for the position, saying, “I do not believe that the current environment of uncertainty would benefit from policy decisions made by board members who are learning on the job.”You read that correctly. Even though the current Fed chairman was a student under Professor Diamond, Senator Shelby says he would be "learning on the job." There is no mismatch between Professor Diamond's qualifications and the expertise needed at the Fed to reduce unemployment. The fact that one senator can block his nomination on a whim is shameful.
President Obama had nominated Professor Diamond in April for a position on the Fed board, where he would serve under the economist’s former student and now chairman Ben S. Bernanke. But in August, under an obscure procedural rule, the Senate sent Mr. Diamond’s nomination back to the White House before starting its summer recess.