Peter Diamond

For other uses, see Peter Diamond (disambiguation).

Peter Diamond
Peter Diamond
Born	Peter Arthur Diamond (1940-04-29) April 29, 1940 New York City, U.S.
Nationality	American
Academic career
Field	Political economics, welfare economics, behavioral economics
Institution	MIT University of California, Berkeley
Alma mater	MIT Yale University
Awards	Nobel Memorial Prize in Economic Sciences 2010
Information at IDEAS / RePEc
Notes

Peter Arthur Diamond (born April 29, 1940) is an American economist known for his analysis of U.S. Social Security policy and his work as an advisor to the Advisory Council on Social Security in the late 1980s and 1990s. He was awarded the Nobel Memorial Prize in Economic Sciences in 2010, along with Dale T. Mortensen and Christopher A. Pissarides. He is an Institute Professor at the Massachusetts Institute of Technology. On 6 June 2011 he withdrew his nomination to serve on the Federal Reserve’s board of governors, citing intractable Republican opposition for 14 months, spearheaded by Senator Richard Shelby.

Origins, Education and career

Diamond is Jewish. His grandparents immigrated to the U.S. at the turn of the 20th century. His mother's parents and six older siblings came from Poland. His father's parents met in New York, she having come from Russia and he from Romania. His parents, both born in 1908, grew up in New York and never lived outside the metropolitan area. Both finished high school and went to work, his father studying at Brooklyn Law School at night while selling shoes during the day. They married in 1929. He has one brother, Richard, born in 1934.

He started public school in the Bronx, and switched to suburban public schools in second grade when the family moved to Woodmere, on Long Island.

He earned a bachelor's degree summa cum laude in mathematics from Yale University (1960), and a Ph.D. at the Massachusetts Institute of Technology (1963). He was an assistant professor at the University of California, Berkeley from 1964 to 1965 and an acting associate professor there before joining the MIT faculty as an associate professor in 1966. Diamond was promoted to full professor in 1970, served as head of the Department of Economics in 1985–86 and was named an Institute Professor in 1997.

In 1968, Diamond was elected a fellow and served as President of the Econometric Society. In 2003, he served as president of the American Economic Association. He is a Fellow of the American Academy of Arts and Sciences (1978), a Member of the National Academy of Sciences (1984), and is a Founding Member of the National Academy of Social Insurance (1988). Diamond was the 2008 recipient of the Robert M. Ball Award for Outstanding Achievements in Social Insurance, awarded by NASI.

Diamond wrote a book on Social Security with Peter R. Orszag, President Obama's former director of the Office of Management and Budget, titled Saving Social security: a balanced approach (2004,-5, Brookings Institution Press). An earlier paper from Brookings Institution introduced their ideas.

In April, 2010, Diamond, along with Janet Yellen and Sarah Bloom Raskin, was nominated by President Barack Obama to fill the vacancies on the Federal Reserve Board.

Ben Bernanke, current Chairman of the Fed and Chairman at the time of the nomination, was once a student of Diamond.

In August, 2010, the Senate returned Diamond's nomination to the White House, effectively rejecting his nomination. President Obama renominated him in September.

In October, 2010, Diamond was awarded the Nobel Prize in Economic Sciences, along with Dale T. Mortensen from Northwestern University and Christopher A. Pissarides from the London School of Economics "for their analysis of markets with search frictions".

In June, 2011, following a third round of consideration for the Fed seat, Diamond wrote in a New York Times op-ed column that he planned to withdraw his name. In the column, he strongly criticized the nomination process and "partisan polarization" in Washington, saying he was effectively blocked by Republicans on the Senate Banking Committee. He also detailed the consideration process, saying that in the first and second rounds, three Republicans had favored his confirmation. In the third, when his name was resubmitted in January, 2011, the Republicans all followed ranking minority member Shelby (R, Alabama) in voting against it. Diamond continued, quoting Shelby:

“Does Dr. Diamond have any experience in conducting monetary policy? No,” [Shelby] said in March. “His academic work has been on pensions and labor market theory.” But [Diamond began his reply, in the column] 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 went on to discuss how his expertise would, he felt, have benefited the central bank and his opinion that "[s]killed analytical thinking should not be drowned out by mistaken, ideologically driven views." In a statement, Shelby "wouldn’t be drawn into a public spat with the nominee," saying simply "I have said many times that I commend Dr. Diamond’s talent and career. I wish him the best in the future."

Andrei Shleifer and Emmanuel Saez are two of his doctoral supervisees have won the John Bates Clark Medal for the best American Economist under 40

Professional activity

Diamond has made fundamental contributions to a variety of areas, including government debt and capital accumulation, capital markets and risk sharing, optimal taxation, search and matching in labor markets, and social insurance.

Diamond (1965) – possibility of dynamic inefficiency

Further information: Overlapping generations model

Diamond (1965) extended the standard infinitely-lived agent Ramsey growth model, to a setup where new individuals are continually being born and old individuals are continually dying. He built on a framework developed by Paul Samuelson, who had termed it `an exact consumption-loan model'.

Since individuals born at different times attain different utility levels, it is not clear how to evaluate social welfare. One of the main results of this paper is that the decentralized equilibrium might be dynamically Pareto efficient even though it is ex ante inefficient.

Diamond and Mirrlees (1971) – "Diamond-Mirrlees Efficiency Theorem"

Diamond and Mirrlees (1971) provide sufficient conditions for a second best Pareto efficient allocation with linear commodity taxation to require efficient production when a finite set of consumers have continuous single-valued demand functions.

Diamond and Mirrlees examine a situation in which the government requires a revenue raised by taxes but lump-sum taxation, and therefore a first-best Pareto optimal allocation of resources, is unavailable. However, if there are no other distortions in the economy (e.g. externalities), if firms are characterised by constant returns to scale and if the government can set the vector of indirect consumption taxes independently of production prices then it is optimal to have productive efficiency in the economy. This implies that there should be no taxes on intermediate goods and imports.

The key idea is that when the government can control all consumer prices, the producer prices are disconnected from the consumer prices and the consumption decision part of the optimal taxation problem becomes independent of the production decision.

Diamond (1982) – labor market search and match

Further information: Diamond coconut model

Diamond (1982) is one of the first papers which explicitly models the search process involved in making trades and hiring workers, which results in equilibrium unemployment.

Social Security policy

Diamond has focused much of his professional career on the analysis of U.S. Social Security policy as well as its analogs in other countries, such as China. In numerous journal articles and books, he has presented analyses of social welfare programs in general and the American Social Security Administration in particular. He has frequently proposed policy adjustments, such as incremental but small increases in social security contributions using actuarial tables to adjust for changes in life expectancy and an increase in the proportion of earnings that are subject to taxation.

External links

• Media related to Peter Diamond at Wikimedia Commons
• Peter Diamond at MIT
• Unemployment, Vacancies, Wages 2010 lecture at NobelPrize.org
• Profile and Papers at Research Papers in Economics/RePEc
• Template:Worldcat id
• Appearances on C-SPAN
• Appearances on C-SPAN
• Peter A. Diamond collected news and commentary at The New York Times
• An interview with Peter Diamond, July 12, 2006