Peter A. Diamond
Encyclopedia
Peter Arthur Diamond 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
.
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 was one of three individuals nominated by President Barack Obama
as one of three nominees to fill the three vacancies then present on the Federal Reserve Board; Janet Yellen
and Sarah Bloom Raskin
were the other two nominees.
Ben Bernanke
, the Chairman of the Fed
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:
and capital accumulation
, capital markets and risk sharing, optimal taxation, search and matching in labor markets, and social insurance
.
, 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.
(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 tax
es 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.
involved in making trades and hiring workers, which results in equilibrium unemployment.
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.
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
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
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel , is an award for outstanding contributions to the field of economics, generally regarded as one of the...
in 2010, along with Dale T. Mortensen
Dale T. Mortensen
Dale Thomas Mortensen is an American economist. He received his B.A. in economics from Willamette University and his Ph.D. in Economics from Carnegie Mellon University. He is a member of the Beta Theta Pi fraternity...
and Christopher A. Pissarides
Christopher A. Pissarides
Christopher Antoniou Pissarides F.B.A. is a Cypriot economist. He currently holds the Norman Sosnow Chair in Economics at the London School of Economics. His research interests focus on several topics of macroeconomics, notably labor, economic growth, and economic policy. In 2010, he was awarded...
. He is an Institute Professor at the Massachusetts Institute of Technology
Massachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...
. On 6 June 2011 he withdrew his nomination to serve on the Federal Reserve’s board of governors, citing intractable Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
opposition for 14 months, spearheaded by Senator Richard Shelby
Richard Shelby
Richard Craig Shelby is the senior U.S. Senator from Alabama. First elected to the Senate in 1986, he is the ranking member of the United States Senate Committee on Banking, Housing, and Urban Affairs and was its chairman from 2003 to 2007....
.
Education and career
Diamond earned a bachelor's degreeBachelor's degree
A bachelor's degree is usually an academic degree awarded for an undergraduate course or major that generally lasts for three or four years, but can range anywhere from two to six years depending on the region of the world...
summa cum laude in mathematics
Mathematics
Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...
from Yale University
Yale University
Yale University is a private, Ivy League university located in New Haven, Connecticut, United States. Founded in 1701 in the Colony of Connecticut, the university is the third-oldest institution of higher education in the United States...
(1960), and a Ph.D.
Ph.D.
A Ph.D. is a Doctor of Philosophy, an academic degree.Ph.D. may also refer to:* Ph.D. , a 1980s British group*Piled Higher and Deeper, a web comic strip*PhD: Phantasy Degree, a Korean comic series* PhD Docbook renderer, an XML renderer...
at the Massachusetts Institute of Technology
Massachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...
(1963). He was an assistant professor at the University of California, Berkeley
University of California, Berkeley
The University of California, Berkeley , is a teaching and research university established in 1868 and located in Berkeley, California, USA...
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
Econometric Society
The Econometric Society is an international society for the advancement of economic theory in its relation with statistics and mathematics. It was founded on December 29, 1930 at the Stalton Hotel in Cleveland, Ohio....
. In 2003, he served as president of the American Economic Association
American Economic Association
The American Economic Association, or AEA, is a learned society in the field of economics, headquartered in Nashville, Tennessee. It publishes one of the most prestigious academic journals in economics: the American Economic Review...
. He is a Fellow of the American Academy of Arts and Sciences
American Academy of Arts and Sciences
The American Academy of Arts and Sciences is an independent policy research center that conducts multidisciplinary studies of complex and emerging problems. The Academy’s elected members are leaders in the academic disciplines, the arts, business, and public affairs.James Bowdoin, John Adams, and...
(1978), a Member of the National Academy of Sciences
United States National Academy of Sciences
The National Academy of Sciences is a corporation in the United States whose members serve pro bono as "advisers to the nation on science, engineering, and medicine." As a national academy, new members of the organization are elected annually by current members, based on their distinguished and...
(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
Peter R. Orszag
Peter Richard Orszag is an American economist who is a Vice Chairman of Global Banking at Citigroup. He is also a columnist at Bloomberg View...
, 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
Brookings Institution
The Brookings Institution is a nonprofit public policy organization based in Washington, D.C., in the United States. One of Washington's oldest think tanks, Brookings conducts research and education in the social sciences, primarily in economics, metropolitan policy, governance, foreign policy, and...
introduced their ideas.
In April, 2010, Diamond was one of three individuals nominated by President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
as one of three nominees to fill the three vacancies then present on the Federal Reserve Board; Janet Yellen
Janet Yellen
Janet Louise Yellen is an American economist and professor, who is currently the Vice Chair of the Board of Governors of the Federal Reserve System...
and Sarah Bloom Raskin
Sarah Bloom Raskin
Sarah Bloom Raskin is an American attorney and regulator, who is currently a member of the Board of Governors of the Federal Reserve System. Previously, she served as Maryland Commissioner of Financial Regulation.-Early life and education:...
were the other two nominees.
Ben Bernanke
Ben Bernanke
Ben Shalom Bernanke is an American economist, and the current Chairman of the Federal Reserve, the central bank of the United States. During his tenure as Chairman, Bernanke has overseen the response of the Federal Reserve to late-2000s financial crisis....
, the Chairman of the Fed
Chairman of the Federal Reserve
The Chairman of the Board of Governors of the Federal Reserve System is the head of the central banking system of the United States. Known colloquially as "Chairman of the Fed," or in market circles "Fed Chairman" or "Fed Chief"...
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
Dale T. Mortensen
Dale Thomas Mortensen is an American economist. He received his B.A. in economics from Willamette University and his Ph.D. in Economics from Carnegie Mellon University. He is a member of the Beta Theta Pi fraternity...
from Northwestern University
Northwestern University
Northwestern University is a private research university in Evanston and Chicago, Illinois, USA. Northwestern has eleven undergraduate, graduate, and professional schools offering 124 undergraduate degrees and 145 graduate and professional degrees....
and Christopher A. Pissarides
Christopher A. Pissarides
Christopher Antoniou Pissarides F.B.A. is a Cypriot economist. He currently holds the Norman Sosnow Chair in Economics at the London School of Economics. His research interests focus on several topics of macroeconomics, notably labor, economic growth, and economic policy. In 2010, he was awarded...
from the London School of Economics
London School of Economics
The London School of Economics and Political Science is a public research university specialised in the social sciences located in London, United Kingdom, and a constituent college of the federal University of London...
"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
Op-ed
An op-ed, abbreviated from opposite the editorial page , is a newspaper article that expresses the opinions of a named writer who is usually unaffiliated with the newspaper's editorial board...
column that he planned to withdraw his name. In the column, he strongly criticized the nomination process and "partisan polarization" in Washington
Washington, D.C.
Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
, 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
Alabama
Alabama is a state located in the southeastern region of the United States. It is bordered by Tennessee to the north, Georgia to the east, Florida and the Gulf of Mexico to the south, and Mississippi to the west. Alabama ranks 30th in total land area and ranks second in the size of its inland...
) 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."
Professional activity
Diamond has made fundamental contributions to a variety of areas, including government debtGovernment debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
and capital accumulation
Capital accumulation
The accumulation of capital refers to the gathering or amassing of objects of value; the increase in wealth through concentration; or the creation of wealth. Capital is money or a financial asset invested for the purpose of making more money...
, capital markets and risk sharing, optimal taxation, search and matching in labor markets, and social insurance
Social insurance
Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...
.
Diamond (1965) – possibility of dynamic inefficiency
Diamond (1965) extended the standard infinitely-lived agent Ramsey growth modelRamsey growth model
The Ramsey–Cass–Koopmans model or the Ramsey growth model is a neo-classical model of economic growth based primarily on the work of the economist and mathematician Frank P. Ramsey, with significant extensions by David Cass and Tjalling Koopmans...
, 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 MirrleesJames Mirrlees
Sir James Alexander Mirrlees is a Scottish economist and winner of the 1996 Nobel Memorial Prize in Economic Sciences. He was knighted in 1998....
(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 tax
Consumption tax
A consumption tax is a tax on spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value added tax...
es 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
Diamond (1982) is one of the first papers which explicitly models the search processMatching theory (macroeconomics)
In macroeconomics, matching theory, also known as search and matching theory,is a mathematical framework attempting to describe the formation of mutually beneficial relationships over time. It offers a way of modeling markets in which frictions prevent instantaneous adjustment of the level of...
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 SecuritySocial Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...
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
Actuary
An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries provide expert assessments of financial security systems, with a focus on their complexity, their mathematics, and their mechanisms ....
tables to adjust for changes in life expectancy
Life expectancy
Life expectancy is the expected number of years of life remaining at a given age. It is denoted by ex, which means the average number of subsequent years of life for someone now aged x, according to a particular mortality experience...
and an increase in the proportion of earnings that are subject to taxation.
External links
- Peter Diamond at MIT
- Unemployment, Vacancies, Wages 2010 lecture at NobelPrize.org
- Profile and Papers at Research Papers in EconomicsResearch Papers in EconomicsResearch Papers in Economics is a collaborative effort of hundreds of volunteers in 57 countries to enhance the dissemination of research in economics. The heart of the project is a decentralized database of working papers, preprints, journal articles and software components. The project started...
/RePEc - An interview with Peter Diamond, July 12, 2006