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Why You Should Care About Peter Diamond

If you're a liberal who follows politics closely but not that closely, then you probably know a lot about Elizabeth Warren but not much, if anything, about Peter Diamond. That's too bad. Like Warren, Diamond could end up with a pretty important position--one from which he could do a lot of good. But, like Warren, Diamond has provoked the ire of some conservatives who want to keep him from that post.

Diamond is one of President Obama's three nominees to the Federal Reserve Board of Governors. The Fed has seven governors total, so each one has considerable influence over Fed policy, which spans everything from financial regulation to the country's money supply. Particularly at a time when conservatives have effectively shut down attempts to stimulate growth through more spending, the Fed's ability to put more money into circulation is probably the most effective means available for strengthening the economy and making sure more people have jobs. Although pushing down short-term interest rates, the usual strategy for easing the money supply, won't work any more, the Fed has other options.

But so far the Fed hasn't acted. Although directed by law to promote both full employment and low inflation, it has focused more on the latter and seems reluctant to change its ways, even with inflation at historic lows.

If Obama's three nominees were on the board, the Fed might take a different approach.

One of his nominees, Janet Yellen, has said publicly that the Fed has an obligation to focus more on employment during times like these. And while I don't know whether Diamond has said similar things, I know enough about his philosophical bearings to know--or, at least, suspect strongly--that he'd push for more employment-focused policies, as well. As Paul Krugman notes today, Diamond wrote the seminal paper on structural shifts in unemployment.

But the Senate hasn't confirmed any of Obama's nominees yet. And it just returned Diamond's to the White House.

Why? Because at least one senator, presumably a Republican, has a problem with Diamond's nomination. Under Senate rules, pending nominations go back to the White House after a long recess. And a long recess is about to begin. Typically the Senate waives this rule by unanimous consent and that's what the Senate did for the other two Fed nominees (Yellen and Sarah Raskin). But somebody objected to holding over Diamond. The leading candidates are Richard Shelby, who has raised loud objections about Diamond before, and Jim Bunning.

(TNR has calls into leadership and into both offices, to confirm whether either or both were the ones who objected. I'll post updates when and if they respond.)

Shelby's ostensible argument, by the way, is that Diamond lacks the requisite experience. This is beyond laughable. He's among the top economists of his generation and, while he doesn't specialize in monetary policy, he's done groundbreaking work on the labor market and government pensions, two areas very much in the Fed's purview. Besides, as Matthew Yglesias points out, three of the sitting governors aren't even formal economists. Two of them are Republican appointees and none, as far as I know, aroused Shelby's suspicions.

So what happens next? The White House can and, I'm pretty sure, will resubmit Diamond's nomination in September, once the Senate is back in session. Since the Banking Committee has already approved Diamond's nomination, along with the other two, full Senate confirmation would traditionally be routine. But, as you probably know, the Senate no longer operates by traditional routine. The refusal to carry over the Diamond nomination is of a piece with the more frequent use of the filibuster and anonymous holds to stall nominations--obstructionist devices that both parties have used in the past but that today's Republicans have deployed far more frequently and with far more devastating effect.

To be clear, the sources TNR contacted about the Diamond nomination all seemed to think it'd go through, eventually. Then again, these sources acknowledged, nobody expected the Senate to return the nomination in the first place. So consider me a little unsettled--and more than a little annoyed. Yglesias and other prominent critics have begged the Obama administration, and liberals more generally, to make a big deal about these nominations given the potential impact they could have. Nobody listened. Maybe now they will. 

Peter Diamond's problem could be that he's a lefty

[non-baseball picture credit Center for American Progress]