BLOG VIEW: Many people have criticized the Obama administration for being much too willing to compromise with its Washington opponents. However, the administration is not willing to compromise when it comes to bringing Peter Diamond to the Federal Reserve Board of Governors. Indeed, its stubbornness in pushing the Diamond candidacy is fairly amazing.
Diamond's nomination was originally put forward last April, and the Senate Banking Committee voted on July 28 in approval of his candidacy. The following week, however, the nomination was returned to the White House under a procedural rule, thus requiring Diamond to be re-nominated on Sept. 13. The Senate Banking Committee approved the nomination again on Nov. 16, but the full Senate never voted on his candidacy before the end of December. Thus, the Diamond nomination died as the lame-duck session of Congress waddled out of Washington.
There's a new Congress being sworn in this week, and the administration has made it clear that it will re-nominate Diamond for consideration. Ultimately, one has to question whether this endeavor is really a good idea.
For starters, there is the problem of geography. Sen. Richard Shelby, R-Ala., objected to the Diamond nomination due to a law that says no two Fed governors can be from the same geographic region. The White House is offering Diamond as a representative from the Chicago Fed district, which is a stretch since Diamond has been a professor at the Massachusetts Institute of Technology since 1966. Diamond, however, has insisted that his Midwest cred is affirmed by a number of relatively brief teaching stints that he has undertaken at various universities within the Chicago Fed district.
More troubling is the question of whether Diamond has the competence for the job. In an interview with Bloomberg, Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, N.J., openly wondered whether an academic like Diamond knew how to make policy decisions.
‘What you want is a policy-maker that over the course of his or her lifetime has had to deal with the consequences of his or her decisions,’ he said. ‘That is a fundamentally different discipline from developing creative ideas.’
One of Diamond's ‘creative ideas’ Republicans loathed was his opposition to the extension of the Bush-era tax cuts, which he said would ‘not be good policy.’ President Obama, of course, abandoned that principle in the face of intransigence by the Senate's Republican minority. Diamond has not changed his mind, however, which may explain his lack of a Republican fan base.
Strangely, the crowning achievement of Diamond's career is also being used against him – last fall, he was one of three winners for the Nobel Prize in Economics. One might imagine that such a prestigious award would clinch his nomination, but Shelby reacted to the news by issuing a rude statement that said the Nobel committee ‘does not determine who is qualified to serve’ in the Fed's leadership role.
Shelby has already placed a so-called hold against confirmation of Diamond in the immediate future, and that would require 60 votes in the Senate to overturn. The Democrats' majority in the new Senate will be down to a slender 53-47, so it is not immediately likely to see an overturn take place.
Yet the administration is still willing to push the Diamond nomination again for a third time. Considering the administration's strange record of ducking fights on Capitol Hill when it comes to filling regulatory vacancies – the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency are still without directors while the Federal Housing Finance Agency was run by an ‘acting director’ for over a year before the administration nominated a new director – this enthusiasm for seating Diamond on the Fed's board is out of character.
Why is there such an attachment to Diamond? For starters, one of his former students was none other than Ben Bernanke, the Fed chairman. Diamond has also devoted his career to the study of the Social Security system – a subject that the federal government needs to address with a maximum of intelligence and an absence of political jingoism.
And possibly – though it might be wishful thinking – the administration may finally grow tired of caving in on issue after issue to appease the opposition party. The arguments against Diamond's competence are specious and silly, and Shelby's argument about geography is grasping at straws (it was only raised in the second nomination hearings).
Nonetheless, it is easy to assume that Republican bloc in the Senate will abandon its uncharacteristic compromises of December's lame-duck session for the prickly and argumentative personality that has characterized its behavior since it lost its chamber leadership in 2007. Shelby and his cronies will do everything they can to bedevil the Diamond nomination. In the end, more political games will be played while the Fed functions with a board of governors that is missing one person – not exactly a win-win situation for anyone.
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
