Economic Outlook: Diamond in the rough

By ANTHONY HALL, United Press International  |  Oct. 12, 2010 at 9:56 AM
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Sen. Richard Shelby, R-Ala. tried very hard not to eat crow Monday, explaining that the Nobel Prize is not a gimme for Federal Reserve Board candidates.

"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," the senator said in a statement, referring to MIT professor Peter Diamond who, Nobel glory now shining on his resume, has been facing Republican opposition to a presidential appointment to the Fed board.

The prize announced Monday gives White House Press Secretary Robert Gibbs a slightly more open hand. What was resistance or reluctance among Republicans a week ago could now be labeled obstruction. "Obstructing a nominee as well qualified as Peter in a time of economic crisis is a harmful attempt to score political points that hurts our middle class and our broader economic recovery," he said.

Diamond himself told the Boston Globe that, "The kind of work I do on the economy is an important part of understanding systemic risk -- the type of risk that can pull down the financial system," which, customized answer or not, is precisely the direction the Fed's new Dodd-Frank reform law mandate takes it.

One of the mandates of the sweeping legislation calls for the Fed to join a council of regulators to focus on firms so large that trouble in the company would ripple or race through the financial system -- territory that is new to regulators and will be difficult to define from a legal perspective.

That is not why Diamond was honored as an economist, however. The research the Nobel Price committee felt was deserving was studies that explain why high unemployment persists despite a high number of job openings, what might be happening, for example, during an economic recovery, when those out-of-work choose to collect unemployment checks rather than apply for a job.

"It is commonplace in a recession to suggest this time is different, this time it's structural, this time we're not going back to lower unemployment. When you hear 'This time is different,' you should be skeptical," Diamond said.

Shelby, of course, is right from a technical point of view and found a diplomatic way to say so, but Republicans might have to take the hint from Sweden, anyway. As far as opposing Diamond at this point: Good luck with that. It may not be a gimme to win the Nobel Prize, but at least the play has moved from the rough to the fairway.

In international markets Tuesday, the Nikkei 225 index in Japan lost 2.09 percent, while the Shanghai index in China rose 1.23 percent. The Hang Seng index in Hong Kong fell 0.37 percent, while the Sensex in India dropped 0.67 percent.

In Australia, the S&P/ASX 200 dropped 1.69 percent.

In midday trading in Europe, the FTSE 100 index shed 0.39 percent, while the DAX 30 in Germany lost 0.21 percent. The CAC 40 in France lost 0.78 percent, while the Stoxx Europe 600 lost 0.39 percent.

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