by Mario Rizzo
I read with interest Peter A. Diamond’s opinion piece in The New York Times, “When a Nobel Prize Isn’t Enough.” Professor Diamond, by all accounts a very competent economist at MIT, is complaining that he really IS qualified to be a member of the Board of Governors of the Federal Reserve System. He really IS qualified to make decisions about monetary policy. He really IS qualified because he is an expert on labor markets. He really IS qualified because a top priority must be to lower the unemployment rate. And he IS qualified because he knows how to do this.
I might have been forgiven if I had called this blog post, “Peter Diamond is a Crybaby.” The whole piece is a thinly veiled protest based on hurt pride. One wonders why indeed “a Nobel Prize is not enough” recognition for him. Let that pass.
The main problem with Diamond’s piece is that he thinks that economic policy is primarily a technical matter: “Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views…”
Of course policy requires a good knowledge of the science of economics. But it also has two other components: values and “art.” Because the future is unknown and Fed governors have a long term it is quite relevant to know what general philosophy of government the candidate holds. It is also relevant to know whether the candidate has a good intuitive sense of the features and practicalities of the real world. Not all knowledge is reducible to science as Frank Knight used to remind us regularly.
So, in a sense, Diamond’s technocratic response to his failure to get confirmation is evidence that he really doesn’t understand the world of policy. Whether, on net, this is enough to render him “unqualified” I express no firm opinion – except that his op-ed is evidence against his qualifications for the job.