Watch CBSN Live

Peter Diamond withdraws Fed nomination with scathing attack on GOP

The Federal Reserve
The Federal Reserve; currency; money; economy, Fed AP

Updated at 1:40 p.m. ET with White House reaction

Nobel Prize-winning economist Peter Diamond announced the withdrawal of his nomination to serve on the Federal Reserve board with a scathing rebuke of this Republican critics.

In a New York Times op-ed headlined "When a Nobel Prize Isn't Enough," the Massachusetts Institute of Technology professor charged that the problem wasn't the Senate's confirmation process, but the GOP's failure to recognize the relationship between unemployment and monetary policy. He suggested his impressive credentials were overlooked because he favors a monetary policy out of sync with Republican views.

"Skilled analytical thinking should not be drowned out by mistaken, ideologically driven views that more is always better or less is always better," Diamond wrote.

President Obama first nominated Diamond to serve as one of the Fed's seven governors in April 2010. After his nomination was blocked, the president nominated him two more times. By the third attempt, Diamond did not even receive any GOP support at the committee level.

"It is time for me to withdraw, as I plan to inform the White House," Diamond concluded.

Diamond's main detractor, Sen. Richard Shelby (Ala.), the top Republican on the Senate Banking Committee, argued that Diamond's expertise in labor market theory was not relevant to the job.

"But understanding the labor market -- and the process by which workers and jobs come together and separate -- is critical to devising an effective monetary policy," Diamond wrote.

He went one step further, arguing that "concern about the (seemingly low) current risk of future inflation should not erase concern about the large costs of continuing high unemployment. Concern about the distant risk of a genuine inability to handle our national debt should not erase concern about the risk to the economy from too much short-run fiscal tightening."

Diamond's argument gets to the heart of the Federal Reserve's challenge of spurring economic growth without forcing the government's balance sheets to become even more out-of-whack. In his first-ever public news conference in April, Federal Reserve Chairman Ben Bernanke announced the Fed was ending its Treasury-bond-buying program -- a program intended to stimulate the economy and create jobs but that received serious blowback from Republican politicians concerned about inflation.

Diamond's nomination -- and now his withdrawal of his nomination -- have elicited strong partisan responses.

The influential conservative group Club for Growth opposed Diamond's nomination -- the first time the group had ever opposed a presidential nomination.

"Let's hope that President Obama's next nomination to the Federal Reserve is not a supporter of big government solutions and interventionist monetary policy, because that hasn't worked and won't work in the future," Club for Growth President Chris Chocola said in a statement today.

Francis Cianfrocca at the conservative blog argues that employment stabilization shouldn't even be an explicit part of the Fed's mandate, and thus, Diamond's strong opinions on the matter would have a negative impact.

"The very LAST thing we need in the United States is to realize the technocrat's dream of politically unaccountable regulators making economic policy, on top of the monetary policy which they SHOULD be making," Cianfrocca writes.

Meanwhile, liberal blogger Jonathan Cohn argues at the New Republic that more economic stimulus is needed to get the economy moving again, and Republicans know that they're blocking that stimulus by rejecting Diamond's nomination, in spite of his sterling credentials.

"Kill the economy. Blame the Democrats. It's the perfect crime," he writes.

Ezra Klein of the Washington Post writes, "We've got a jobs crisis is this country. And yet Shelby thinks it's self-evident that knowledge about the labor market isn't the sort of expertise that monetary policymakers need right now. If you wanted further evidence that Washington has stopped caring about jobs, there it is."

UPDATE: White House Press Secretary Jay Carney released the following statement regarding the withdrawal of Diamond's nomination: "Peter Diamond, a Nobel laureate and one of the nation's top economists, would have brought extraordinary expertise and knowledge of the economy to the Board of Governors of the Federal Reserve. We are deeply disappointed that this candidate, who had initially seen bipartisan support, fell victim to partisan obstructionism at this important time for our economic recovery. The President will nominate an individual for this position as soon as possible and continues to urge the Senate to act on the numerous nominees awaiting confirmation. The President wishes Professor Diamond the very best in the future."

View CBS News In
CBS News App Open
Chrome Safari Continue