When President Donald Trump formally announced his Cabinet, one of the surprises was that the list of 24 Cabinet-level officials did not include the chair of the Council of Economic Advisers (CEA).
There is no formal requirement that an economic adviser be part of the Cabinet. However, Barack Obama started a new trend by appointing the last four council chairs as part of his Cabinet. Being part of the Cabinet is important because it ensures economic as well as political considerations are part of presidential decisions.
This apparent sign of disrespect for the role of the CEA, along with the fact that President Trump has yet to actually nominate a council chair, has caused some to worry that he won’t be getting much economic advice from actual economists. A website that takes bets on who will fill various posts in Trump’s Cabinet suggests he may not even fill the position.
There are presently only eight candidates listed for the post. Bettors think there is a less than 30 percent chance that anyone from the group will even get the job. The current favorite to win is Kevin Hassett, a scholar at the American Enterprise Institute, a conservative think tank. He has less than a 10 percent chance presently of filling the position. These are very low odds for a post that was very influential in past administrations.
How the CEA was created
To ensure continuation of the heady growth experienced during the war, Congress wanted to be sure the president got the best possible guidance on economic policy.
The Employment Act of 1946 establishing the council required the president to hire three people who are “exceptionally qualified to analyze and interpret economic developments.”
While there is no requirement that these three people be trained economists, the vast majority of council members have come from academic economic departments. Backing up these three advisers is a staff of roughly 30 people.
What is the CEA expected to do?
The council has only a few formal activities.
First, for the last 71 years it has released a book called the “Economic Report of the President.” This annual publication explains the current administration’s domestic and international economic priorities. It also backs up these priorities with detailed data and analysis.
Another task is to forecast the future state of the economy. The forecasts are important because government revenues and spending are directly based on economic conditions. When the economy is doing well, the government’s tax collections rise and spending on social programs fall. When the economy is doing poorly, revenues decline and spending rises. Predicting future economic conditions can guide federal plans.
It’s also supposed to provide unbiased advice. Since the council comprises three presidential appointees, it has no ties to any particular constituency. Presidents need advice from neutral parties because many times government agencies will have competing interests.
For example, in the debate over whether to increase the minimum wage, the Commerce and Labor departments may be on opposite sides of the issue. Employers will petition the Commerce Department to keep wages low, while union leaders and low-income workers will petition the Department of Labor to boost people’s pay. The optimal solution is to let a neutral adviser determine what is best for the country, which has often been the job of the council.
Of course, the president doesn’t have to select advisers who have neutral, unbiased opinions. Nor does the president always follow their suggestions. Often the president has not.
One famous chairman was Charles Schultze, who headed the council during the Carter administration. While Jimmy Carter frequently met with Schultze, most of the council’s proposals and ideas “were blocked on political grounds.”
Herbert Stein, who led the council in the early ‘70’s, wrote an overview of the CEA in 1996 detailing many of its successes and failures. In his view, the CEA-proposed tax cut during the Kennedy-Johnson era in the 1960s, which spurred a period of strong economic growth, was one of the council’s great successes. Unfortunately, that home run was long ago.
The council has also served as a training ground and recruiting pool for other key economic posts in the federal government, particularly the Federal Reserve, which has a huge impact on economic conditions because of its control over interest rates and the country’s money supply. Four out of the past six Fed chairs previously served as a CEA chair (Arthur Burns, Alan Greenspan, Ben Bernanke and Janet Yellen).
Lastly, the council has helped presidents and department secretaries craft budget proposals for Congress by providing economic guidance and contributed portions of the State of the Union speech that deal with economic issues.
While some commentators have shown concern about the Trump administration’s downgrading of the CEA, a recent U.S. News article explained why “Trump Doesn’t Need Economists,” as the headline declared. The author, an economist herself and voluntary adviser to Trump, suggested the president is not interested in and doesn’t need the advice of professional economists to make sound decisions.
If this is true, then why even bother wasting time and money filling the position of Council of Economic Advisers chair?
The answer’s simple: Filling the position is important for the same reason Congress created the council after World War II. There is always the chance the U.S. could experience another economic catastrophe. The council is like a crew of firemen or lifeguards who tend to be invisible until a disaster or emergency occurs. While economists are very poor at predicting recessions and depressions, proper post crisis management likely shortens the duration and severity of a downturn.
Even Trump may find that having a few professional economists in the White House at his beck and call in case a disaster strikes is a cheap insurance policy for the world’s economy – and his future employment prospects.