Definition & Reality in the General Theory of Political Economy

by Thomas Cool

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 Shultz 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 I 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.