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WSJ: Nobel Win Could Aid Peter Diamond’s Fed Confirmation Fight


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The actual economics research is pretty interesting, but for the Tailgate, the political controversy may be more fun.

Economist Peter Diamond’s stalled nomination to join the Federal Reserve’s board of governors looked to receive a jump start Monday after he was among three winners of the Nobel Prize in economics.

Diamond, an economics professor at the Massachusetts Institute of Technology, said at a morning press conference that he has no plans to withdraw his name from consideration to serve at the central bank.

Meanwhile, a top White House economic official used a breakfast speech in Denver to chide Senate Republicans for holding up the nomination.

“My hope is that the minority blocking Peter Diamond’s confirmation to the Federal Reserve board will see that this is still more evidence that he is qualified,” Jason Furman, deputy director of the National Economic Council, told the National Association for Business Economics.

At least one Senate Republican opposing Diamond said Monday’s award didn’t alter his opinion.

‘“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,” Sen. Richard Shelby (R., Ala.) said in a statement provided by his office.


And if you're more interested in the actual economics, here's a write-up from the New York Times:

Professor Diamond began writing about information a few years later, with an article about the “role of the stock market,” in the transmission of knowledge. The 1971 search paper produces a somewhat surprising result: if there are a number of otherwise identical stores, which fix their prices, then competition can lead to high monopoly prices, not low competitive pricing or Stiglerian price dispersion. If consumers think that companies are all charging the same price, then they won’t bother searching. If consumers don’t bother searching, then the only reasonable thing for companies to do is to charge the monopoly price. This result, which is known as the Diamond Paradox, can be weakened if price-cutting companies are able to advertise, but it suggests the enormous ability of search frictions to distort markets.

In the late 1970s, Professors Diamond, Mortensen and Pissarides all turned to the public policy implications of search models. In a 1977 article “Unemployment Insurance and Job Search Decisions,” Professor Mortensen examined the implication of unemployment benefits for unemployment rates. He concluded that the effects were more ambiguous than previously thought, because workers who aren’t currently receiving unemployment insurance benefits will be more likely to take on a low-wage, risky job if they know they can get unemployment insurance if the job doesn’t work out.

The core of Professor Diamond’s work on search models appeared in a three-year window between 1979 and 1982. His work was distinguished both by elegant modeling — building the theoretical tools needed to make sense of labor turnover—and important insights. Perhaps the key idea is the “search externality,” the idea that each “additional worker makes it easier for vacancies to find workers and harder for other workers to find jobs.” In a sense, a flood of unemployed workers can congest the labor market just as a flood of extra drivers can congest a highway. Whenever one worker passes up a job, that worker makes finding a job easier for other workers. This insight led to Professor Diamond’s conclusion that higher levels of unemployment insurance could improve the workings of the labor market by making some workers pass up marginal jobs.

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Seems this economist is anti-collusion and might have incentive to look further into price-fixing, such as what has happened with gas for example. Not surprised there are some politicians wanting to delay the hearing seeing as Diamond looks to be a potential risk to certain big businesses, plus he has research which concluded unemployment insurance should be higher, which is a big no-no to the right. Holding up a nomination seems cowardly to me. If you honestly believe the guy is unqualified, then state your case at the nomination hearing.

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