Advertisement
Business

Peter Diamond withdraws his stalled nomination to Fed

The decision by Nobel Prize-winning economist Peter Diamond to withdraw his long-stalled nomination to the Federal Reserve Board deepens the bitter rift between President Obama and Senate Republicans over key presidential appointments, a chasm that could make future candidates unwilling to leap into the volatile confirmation process.

The result could be more top government officials serving in acting roles that weaken their power because they’re viewed as placeholders. And it could force Obama and future presidents to make greater use of short-term recess appointments, which bypass the Senate confirmation process but leave the officeholder with a much shorter term.

“We’ve had huge numbers of nominees blocked, and very few of them for reasons to do with the qualifications or character,” said Norm Ornstein, a resident scholar at the conservative-leaning American Enterprise Institute.

“You wonder if there’s anything that could bring some level of shame to those who block nominees for partisan purposes and just take people hostage and leave them twisting in the wind for months,” Ornstein said.

Advertisement

Diamond, nominated by Obama in April 2010 for one of seven seats on the central bank’s board, said Monday that he couldn’t wait any longer. He complained that Republicans who have blocked his confirmation failed to understand the importance of his work on unemployment.

“Last October, I won the Nobel Prize in economics for my work on unemployment and the labor 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,” he wrote in a New York Times opinion column announcing his withdrawal.

“How can this be?” said Diamond, an economics professor at the Massachusetts Institute of Technology.

The Senate Banking Committee has approved Diamond’s nomination to the Fed three times, largely along party lines. But the committee’s top Republican, Sen. Richard Shelby of Alabama, has blocked the nomination from a vote in the full Senate.

Advertisement

Shelby has called Diamond “an old-fashioned, big-government Keynesian” who supported the bank bailouts and would back additional Fed stimulus to the economy.

Shelby said that despite Diamond’s Nobel Prize, the MIT professor did not have “the appropriate background or experience” in “conducting monetary policy, supervising our financial system, and responding to financial crises.”

On Monday, Shelby said President Obama needed to find a better nominee.

“It would be my hope that the president will not seek to pack the Fed with those who will use the institution to finance his profligate spending and agenda,” Shelby said.

Diamond’s decision follows the withdrawal last month of UC Berkeley law professor Goodwin Liu. Republicans had filibustered Liu’s nomination to the U.S. 9th Circuit Court of Appeals in San Francisco. Obama nominated him in February 2010.

Some high-profile nominees have been confirmed, including Fed members Janet Yellen and Sarah Bloom Raskin, who were nominated with Diamond and approved in September.

But stiff opposition from Republicans in the Senate, where individual lawmakers have great power to block votes, has led Obama to withdraw several other nominees or to place them in office through temporary recess appointments.

Another recess appointment could be coming soon as nearly all Senate Republicans have vowed to block any nomination for director of the new Consumer Financial Protection Bureau unless Obama agrees to major changes in the agency’s powers.

Advertisement

With the bureau set to begin operations in July, liberal activists are pressing Obama to use a recess appointment to make Harvard law professor Elizabeth Warren its first director.

Warren has been helping launch the bureau as a special administration advisor — a move that Obama is widely believed to have made last year because he feared Senate Republicans would block her nomination to lead the agency.

White House Press Secretary Jay Carney criticized Republicans for “partisan obstructionism” in blocking Diamond’s nomination, a move he said was made worse because the Fed plays an important role in the economic recovery.

Several key financial regulatory positions are run, or soon will be run, by acting heads. They include the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., where chairwoman Sheila Bair will be stepping down early next month.

“It is vital that we have people in positions, whether it’s at the Fed or elsewhere, who are capable of fulfilling the responsibilities of the jobs that they’ve been nominated for, in the name of improving the economic situation in this country,” Carney said.

Carney called Diamond “one of the nation’s top economists” and said he would have brought “extraordinary expertise and knowledge of the economy” to the Fed.

As did his supporters, Diamond argued that understanding unemployment and the functioning of the labor market was critical to the Fed’s main job of conducting monetary policy.

Instead of serving on the Fed, Diamond said he would continue “my congenial professional existence as a professor at MIT,” and urged people not to worry about him.

Advertisement

But in a shot at Shelby and other opponents, Diamond warned that people should be worried about the “distorted” confirmation process and “how little understanding of monetary policy there is among some of those responsible for Congressional oversight.”

jim.puzzanghera@latimes.com


Advertisement