Today Nobel Prize-winning economist Peter Diamond announced he is withdrawing his nomination to the board of governors of the Federal Reserve System.
Professor Diamond, in the pages of New York Times, blames the opposition to his nomination on both partisan politics and what he sees as a misunderstanding of the relationship between unemployment and monetary policy. Mr. Diamond, however, is the one with a fundamental misunderstanding. We all know unemployment is an important issue and needs to be addressed. The question is whether it can be addressed with loose monetary policy. Mr. Diamond apparently believes it can. There are many who believe it cannot. If all our labor market problems could be solved with loose money, then we’d already be at full employment. In case Mr. Diamond didn’t notice, we aren’t. We also have gone down this path too many times before. The belief in a long-run trade-off between unemployment and inflation has the been source of considerable economic harm.
It is interesting that Mr. Diamond does not address the legal obstacles to his nomination. The foremost is that there can only be one board member from the same Fed district at any one time. As Mr. Diamond notes he has been at MIT “since 1966” and not living in Chicago, as the White House claims. Whatever his academic qualifications, by law he is prohibited from serving on the Fed Board. If congressional Democrats don’t like the law, they can try to change it, but we should not just ignore it. Such only breeds a contempt for the law and a belief that the laws only apply to the masses and not the elite.
So to answer Mr. Diamond’s compaint that ” Nobel isn’t enough,” I would answer: Exactly. A Nobel does not place one above the law. Sorry, Professor, you’re going to have to live with the same rules that apply to the rest of us.