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.
Commenting on this
Above description of the US CEA shows that it is very close to the Executive. There is ‘professionalism’ - and we may willingly interprete that to mean that one keeps a distance to political scheming and the illusions of the day - but still, this is not auditing, this is not verification for verification’s sake, this is not vetoing David Stockman, this is not sticking to one’s own perception of what the right model is regardless of what the President likes to think. If there would be an Economic Supreme Court, then, indeed, the President would still have need for advice as currently provided by the CEA. One would imagine that CEA staff members would frequent the Court’s offices, and such. But the constitutional powers would be institutionally separated.
We can see that the CEA is so understaffed and so preoccupied with its duties of ‘running about for the President’, that it failed to pick up an important analysis. In April 1993, I sent a major piece of my work to the CEA. And got no reply.
In August 1993, I actually visited the US Treasury, but with little success. See the appendix on presenting the analysis to the US National Press below, and the autobiographical appendix as well.
At the end of August, 1993, President Clinton announced a major increase in the Earned Income Tax Credit (EITC) - see next appendix. I don’t think that my paper and visit contributed to that. If it has, they should have replied - and could have gone much further. (But I do think that the Clinton EITC measure helped, as one factor, to create the subsequent the long boom in the US economy. There was more competition on the labour market, and this helped to reduce wage growth.)
To prof. Blinder
& prof. Stiglitz
Council of Economic Advisers