About the Council of Economic Advisers
From the "Employment Act of 1946":
From The Economic Journal, 102 (September 1992), The Council of
Economic Advisers and Economic Advising in the United States, by Martin
Feldstein. Martin Feldstein was Chairman of the Council of Economic
Advisers during the Reagan Administration from October 14, 1982 to
July 10, 1984. This excerpt provides his personal reflections as
Chairman:
Structure of the Council of Economic Advisers
Although the term 'Council' conjures up the image of a large committee,
the CEA actually consists only of a chairman and two members.
The chairman is legally responsible for establishing the positions
taken by the Council. The other two members direct research
activities of the Council in particular fields, represent
the Council at meetings with other agencies, and generally
work with the chairman to formulate economic advice.
In addition to the chairman and two other members, the CEA has
a professional staff that is both small and unusual. A group
of about ten economists, generally professors on one- or two-year
leaves from their universities, act as the senior staff economists.
They in turn are assisted by an additional ten junior staff
economists, typically advanced graduate students who also
spend only a year or two at the CEA. Four permanent economic
statisticians assist the economists in the interpretation
and identification of economic data.
The academic nature of the staff and of most CEA members distinguishes
the CEA from other government agencies. It generally assures
a higher level of technical economic sophistication and of
familiarity with current developments in economic thinking.
Members and staff also use their strong links in the academic
community to obtain advice on technical issues throughout
their time in Washington.
There is of course a price to be paid for this reliance on academic
economists, especially at the staff level. They often come
to the CEA without the institutional knowledge of some of
the issues with which they will deal and without any experience
in the bureaucratic process of decision-making. My experience
however was that most of the senior staff economists learned
quite quickly to be effective participants, and made an important
contribution to the policy debates because of their ability
to apply economic analysis to the issues being discussed,
and to develop new economic proposals that had not occurred
to non-economist participants from the agencies.
How Advice Is Given
The CEA chairman gives advice directly to the President and to
the senior members of the administration. There is also a
broader role of trying to shape public understanding of the
economic issues. The CEA members and staff participate directly
in the inter-agency process, in which policy options are evaluated
and recommendations developed for presidential decisions.
The specific organization of advice-giving undoubtedly differs
from administration to administration, reflecting the overall
form of economic policy making and the particular style and
interest of the president. I can only describe my own experience.
In the Reagan administration, the cabinet as a whole rarely met.
Instead, economic policy issues were discussed through a series
of cabinet councils with more specialized responsibilities.
These included a cabinet council on commerce and trade that
was chaired by the Secretary of Commerce, a cabinet council
that dealt with labour and social insurance issues, a cabinet
council that dealt with regulatory and legal issues, and a
general cabinet council on economic affairs that was chaired
by the Secretary of the Treasury. Each of the interested departments
was represented at the council by the secretary of that department.
Occasionally the deputy secretary or under-secretary substituted
for the secretary at those meetings. I generally represented
the CEA, although occasionally one of the members took my
place at the table. Vice President Bush usually attended these
meetings.
The councils generally met without the president. Roughly twice
a month the president participated in council meetings when
there was a specific issue that required a presidential decision
or, occasionally, a broad area that seemed appropriate for
general cabinet-level discussion with the president.
Any major proposal for legislative action, whether originated
by a department or from Congress, would be assigned to an
appropriate cabinet council for consideration to develop an
official administration position. Initial meetings would be
held at a staff level, with the CEA represented by the senior
staff economist with the relevant expertise. Often discussion
at this level would be sufficient to dispose of the idea,
usually with the conclusion that the proposal was well-meaning
but misguided and would not accomplish its stated purpose
or would do so only at an unacceptable economic cost. This
would quietly bury an internal departmental proposal or lead
to a formal administration position to oppose a Congressional
initiative.
When there was disagreement about the proposal that could not be
resolved unanimously at the level of this working group, a
higher-level meeting would be held. Each interested department
would be represented at a sub-cabinet level, generally by
an assistant secretary. The CEA would be represented by a
member or senior staff economist, since with only two members
it was often true that the CEA only had the expertise at the
senior staff level and preferred to send a real expert rather
than, as in the other departments, to send a more senior official
who was 'briefed' but who did not really understand the issues
himself.
Once again, if this group could not reach a consensus the issue
would be passed up to the full cabinet council, where the
departments were represented at the top level and the CEA
by the chairman. If this group reached an agreed recommendation,
its conclusion would be sent to the President. When there
was disagreement, a summary of the different positions would
be prepared by the staff of the council for submission to
the president for his decision. These decision memos were
carefully prepared so that each side could object to any spurious
arguments put forward by others. On some occasions, when it
was felt that such written summaries were inadequate, the
group would meet with the president to present opposing views.
This process gave the CEA an opportunity to influence both the
specific decisions and the way that members of the administration
thought about particular issues. This was true at every level
from the departmental senior staff that interacted with the
CEA economists to the cabinet level.
In addition to these relatively large group meetings with the
President, there were also smaller meetings dealing with specific
subjects. A central organizing set of meetings each year dealt
with the budget. Here the only regular participants, in addition
to the president and the vice-president, were the Secretary
of the Treasury, the Director of the Office of Management
and Budget (OMB), the Chairman of the CEA, and a small number
of senior White House staff. The series of budget meetings
began with a five-year economic forecast prepared by the CEA.
Technical staff discussions and meetings between a CEA member,
a Treasury assistant secretary and an associate director of
the OMB would review the evidence on which a forecast would
be based. In insisted, however, that the CEA alone was responsible
for the final forecast in order to avoid a repetition of earlier
experience in which the forecast was widely (and correctly)
criticized as over-optimistic, and therefore as leading to
a substantial underestimate to future budget deficits. Needless
to say, this was a source of friction and contention.
Other such small meetings with the president included preparation
for the G-7 economic summits, for his televised national press
conferences, and for discussions of special subjects like
social security reform.
The Secretary of the Treasury and I also met roughly every two
weeks with the president and a few senior White House staff
to discuss subjects of our choice. The Treasury Secretary
frequently used these sessions to discuss monetary policy
or issues currently under development at the Treasury. I frequently
discussed the budget deficit but also talked about things
like the character of unemployment, the nature of the trade
imbalance, and other types of general 'background' information.
These were not intended as decision-making sessions.
In addition to these meetings, I also sent the president brief
memos on particular issues. Occasionally these would be my
thoughts on some issue being discussed in the administration.
There were also almost daily brief memos telling the President
how to interpret important economic statistics that would
be released the next morning so that he would not be caught
unaware of the information (by the press or other visitors)
or uninformed about the significance (or lack of significance)
of the particular statistic.
The CEA also serves as a source of professional economic advice
to other departments and agencies. In some cases, this serves
to reinforce the advice being given by that department's own
economist. In other cases, it fills a gap where the department
does not have an economist or where the CEA can bring better
analysis to a particular problem. As chairman I also met on
an individual basis with the department heads to discuss policy
issues relevant to their department or more general issues
like the budget situation.
A weekly breakfast meeting with the Treasury Secretary and the
OMB Director -- the so-called Troika or T-t group -- provided
an important opportunity to discuss economic issues with complete
candour and without fear of leaks to the press. This small
group was occasionally joined by Secretary of State George
Shultz and on some rare occasions by Federal Reserve Chairman
Paul Volcker.
These breakfast meetings were just about the only time during my
time at the CEA when the Fed Chairman participated in a discussion
inside the administration. He met privately of course with
the Secretary of the Treasury and with various financial regulators.
I had breakfast with him every other week and on those occasions
we discussed the state of the economy, the direction of monetary
policy, banking regulation, and such issues as the developing
country debt problem, in which the Fed worked closely with
the administration.
As the senior economist in the administration, the CEA chairman
is frequently called upon to discuss economic policy issues
in public. These include testimony to congressional committees,
speeches to a wide array of audiences, occasional television
interviews and frequent discussions with the press. I always
regarded these as opportunities to teach economics. An important
challenge was to explain why the dollar had soared and how
that, rather than protectionist policies abroad, was responsible
for our trade deficit. Until the recovery was firmly established,
I would explain why an expansionary fiscal policy was unnecessary
and later I spent endless hours explaining how to assess the
structural budget deficit and why reducing it was important.
The Council of Economic Advisers produces an annual report which
discusses broad issues of economic policy for a general audience.
This report is widely read by the economic press, by Congressional
staff and by academic economists and students.
How the CEA Advises Presidents
"I think our unique system of placing a professional economist
in the White House to report directly to the president works
well. I hope that future presidents continue to use this policy."
The principle of comparative advantage suggests that I, as a former
chairman of the Council of Economic Advisers, convey my knowledge
of this unique and little understood agency. I emphasize the
word "unique" because I believe the CEA is really quite different
from advisory institutions in other countries.
During my time as chairman (1982 through 1984), I had the opportunity
to talk with the senior economic officials in many countries.
I never found one that institutionalized our combination of
characteristics: a professional economist who has direct access
to the head of the government and who participates as an equal
in all cabinet-level discussions.
In other countries, the top economic official is either an economics
minister (i.e., a politician selected from the parliament
who may or may not be a professional economist) or a professional
economist who reports to the minister of finance or some other
cabinet minister. There are also some special situations in
which individual economists are influential advisers to the
heads of government, but these are personal arrangements that
have not been institutionalized in the way that the CEA has
been.
One reason why the American system for giving economic advice
differs from those abroad is that, in our presidential system,
it is the president rather than the minister of finance or
budget minister who has ultimate responsibility for all economic
matters. In other countries, the prime minister or president
is less involved with economic issues and the responsible
cabinet member has a political standing and legitimacy in
his own right. In the United States, the cabinet is in the
last analysis an advisory and management body while all true
decision-making authority of the executive branch is vested
in the president.
The role of the CEA and its chairman undoubtedly differs over
time depending on both the chairman and the president. The
differences can be quite profound even within the same set
of legal rules. For example, during the Nixon administration
there was a period when George Schultz served simultaneously
as budget director and as counselor to the president with
responsibility for overall coordination of economic advice.
But I have not researched the history of the CEA and will
therefore focus my comments on the period of 1982-1984 that
I know from firsthand experience.
I began by saying that the council is "little understood" because
have frequently discovered that people are quite surprised
when they learn how small the council is and how it actually
operates. The term "council" seems to conjure up the image
of a dozen or more people sitting around a conference table
voting on recommendations of economic policy. In fact, the
CEA has only a chairman and two additional members.
Since the days of the Arthur Burns' chairmanship in the Eisenhower
administration, there has been an official executive order
vesting all of the executive authority for the council in
the chairman. In practice, that means that the three members
have informal discussions but do not take votes. It also means
that when a formal recommendation from several agencies is
sent to the president, the position taken by the CEA reflects
the judgment of the chairman just as the position of the Treasury
reflects the view of the Treasury secretary. In giving direct
advice to the president, i always spoke for myself rather
than on behalf of the Council.
The CEA has a small but high quality professional staff of about
twenty economists and four economist statisticians. The statisticians
are permanent civil servants who understand the construction
of official economic statistics and do their best to save
the economists from erroneous use of these data. Because the
senior staff economists come fro universities for a one- or
two-year period, they keep the CEA up to date on the best
academic thinking on a wide range of subjects.
Although the CEA is physically as well as operationally part of the
White House complex (CEA offices are in the Old Executive
Office Building adjacent to the White House and within the
same security cordon), the economic staff functions in a completely
professional and nonpartisan way. My very able and distinguished
staff included Larry Summers, who was prominent as chief economic
adviser to presidential candidate Michael Dukakis.
The tradition of professionalist is so strong that even in a presidential
election year the CEA chairman appoints members of the staff
for the coming academic year with the clear understanding
that they will continue to serve even if the party in power
loses the presidential election. I might just add in this
context that, unlike the practice in some countries, the members
of the CEA and their staff work full-time at their CEA responsibilities.
Indeed, in December and January of each year, the pressure
of working simultaneously on the Economic Report of the President,
the budget, and the issues to be presented in the president's
state of the union message seemed like much more than a full-time
job.
The CEA was created by the Employment Act of 1946 with a Keynesian
heritage and an expectation that it would give advice about
the use of fiscal policy to achieve and maintain full employment.
Needless to say, there has been a profound change in the economics
profession's thinking about macroeconomic policy in the past
forty years.
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