The Nobel committee has awarded its coveted economics prize to one British Cypriot and two American economists, one of whom, Peter Diamond, has spent the last two months blocked by Senate Republicans from joining the Federal Reserve. President Barack Obama nominated Diamond in August, but Republicans, particularly Senator Richard Shelby, have argued that Diamond is not sufficiently qualified. Diamond and his two colleagues won the Nobel for their work on unemployment, the conclusions of which suggest that further economic stimulus may be needed in today's U.S. economy. So Diamond's Nobel may have real policy implications. Here's how.
- Their Nobel-Winning Work The New York Times' Catherine Rampell summarizes the research.
The researchers spent decades trying to understand why it takes so long for people to find jobs, even in good economic times, and why so many people can be unemployed even when many jobs are available.
Traditional economics, after all, would predict that wages should simply drop, helping the labor supply to meet labor demand automatically and sweeping jobless workers into whatever positions were immediately open.
These researchers’ explanation addresses the complications that come from searching for jobs and job candidates: it takes time for unemployed workers to be matched with the proper opening, since people are not identical, cookie-cutter units, and neither are jobs.
While all this may seem intuitive, in the 1970s it was considered quite radical. The resulting insights about how search costs can affect markets also helped revolutionize not only labor economics, but fields like public finance and housing economics as well. The work is especially relevant today, as policy makers try to understand and combat the causes of stubbornly high unemployment in countries like the United States.
- How It's Relevant Today Economist Edward Glaeser writes in the New York Times of the work by Diamond et al., "Search models are relevant in many settings, including dating, used cars and housing, but above all, these models help us make sense of unemployment. As the United States unemployment rate has remained above 9.4 percent since May 2009, the prize manages both to honor timeless research on core economic questions and to highlight the ways in which economics addresses a most timely global problem."
- Why GOP Is Really Blocking Diamond The New York Times notes that the opposition is "in retaliation for a refusal by Democrats to give a full 14-year term to Randall S. Kroszner, who served on the Fed board from 2006 to 2009." The Washington Post's Ezra Klein reacts, "Of course, Republicans can't say they're obstructing Diamond -- remember, they're in the minority here -- because they're still annoyed over Kroszner. So instead, we're getting this ridiculous dance in which [Shelby] questions the qualifications of a Nobel Prize-winning economist. ... There's no good argument here for further delaying Peter Diamond's nomination. There's a very good argument, however, for either running fewer nominations through the Senate, or radically revamping the process by which the Senate considers -- or doesn't consider -- nominations."
- Republican Senator Reiterates Objection The Washington Independent's Annie Lowrey notes that Sen. Shelby has "double[d] down on his objections" to Diamond. Shelby said, "While the Nobel Prize for economics is a significant recognition, the Royal Swedish Academy of Sciences does not determine who is qualified to serve on the Board of Governors of the Federal Reserve System." Lowrey writes, "No, it is not the Nobel Committee. It is the Senate. Notably, most members of the Senate do think that Diamond is perfectly well-qualified for the position. But Shelby refuses to let them vote to show their support."
- Underscores Senate's Incredible Dysfunction The Boston Globe editorial board fumes, "If there were a Nobel prize for governmental dysfunction, US Senator Richard Shelby would be in contention — but then so would the US Senate as a whole. ... The award is an embarrassment to Shelby, who’s denigrated an eminent scholar just to score political points against the Obama administration. It’s also an embarrassment to the entire Senate, whose arcane rules let individual members hold up important business, including nominations to key government posts. ... While a Nobel Prize shouldn’t guarantee Diamond the Fed post, the breadth and importance of his work certainly should."