Partisan gridlock could cost jobs: Fed will do without Nobel laureate

OK, give U.S. Sen. Richard C. Shelby this, he does acknowledge that the Nobel Prize for economics is "a significant recognition." Lesser people might have overlooked such a resume detail.

Still, Shelby, R-Ala., hasn't gone all goo-goo eyed over the big prize and let it distort his judgment. Be forewarned, economists, winning a Nobel is not a free ticket to a seat on the board of governors of the Federal Reserve. "The Royal Swedish Academy of Sciences does not determine who is qualified to serve on" the board of the U.S. central bank, Shelby said in explaining his opposition to the nomination of Peter Diamond, a professor of economics at MIT since 1966 and recent Nobel award winner, to fill one of the seven seats on the board.

Diamond, according to Shelby, is not qualified. The U.S. Senate must confirm presidential nominees to the Fed board. And that's why Diamond took his name out of consideration Sunday in a column published in the New York Times. He knew he didn't have the votes and, after more than a year of frustration, decided to move on.

This is, of course, all about politics. Diamond is President Barack Obama's nominee, and he has said publicly that he supports the Fed's effort to stimulate the economy by purchasing $600 billion in Treasury securities.

For many Republicans, chief among them Shelby, who is the senior member of his party on the Senate Banking Committee, this policy is anathema. They see it as just another example of out-of-control government spending that must be stopped.

There is plenty of room for legitimate and serious debate about the Fed's approach to the economic downturn, the national debt and budgetary policy. But that debate is destined to produce heat not light while small-minded pols block people like Diamond from having a seat at the table.

Diamond's background is not, as Shelby points out, in monetary policy. However, it is in labor markets and the way that jobs and people link up. Monetary policy, while it may sound distressingly theoretical, is all about how money moves in our economy, which in turn, is about jobs.

We're in a period of prolonged high unemployment. In his column, Diamond points out that his particular expertise is valuable now because, "the Fed has to properly assess the nature of that unemployment to be able to lower it as much as possible while avoiding inflation."

But, alas, Shelby and other Republicans walking in lockstep, don't agree, and the Fed will not have the benefit of Diamond's expertise, at least not as a member of the board.

Diamond eloquently explained the downside of this kind of simplistic and partisan thinking in his column, so we'll give him the last word here: "To the public, the Washington debate is often about more versus less — in both spending and regulation. There is too little public awareness of the real consequences of some of these decisions. In reality, we need more spending on some programs and less spending on others, and we need more good regulations and fewer bad ones.

"Analytical expertise is needed to accomplish this, to make government more effective and efficient. Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better. I had hoped to bring some of my own expertise and experience to the Fed. Now I hope someone else can."