When a questioner at a panel discussion here [WORD ILLEGIBLE] sallied forth with a home-made solution [WORD ILLEGIBLE] the nation's economic problems, Charles L. Schultze, chairman of the President's Council of Economic Advisers, wryly reached for his pencil and conspicuously began taking notes.It was good-natured self-mockery, but a twinkle in Schultze's eye flashed an underlying message: When it comes to economics, you can't affort to risk passing up a good idea.
The gesture was ironic for several reasons: Not only was the mans proposal a dubious one (Just encourage everyone to engineer price cuts the way the pocket calculator industry has, he suggested), but the advice was misdirected. Of all the key officials on the administration's top economic policymaking team, Schultze is the one credited with the most new ideas and the soundest analysis. The only problem is, he can't seem to get it across.
When Carter first won office, Schultze seemed closest of all to becoming the President-elect's economic alter ego. With other top officials virtually all new both to Washington and to economic policymaking, Schultze gained Carter's ear and quickly earned his trust. The January economic stimulus package was the logical, well-put-together work of Schultze. There was talk the Brookings liberal would become as close to Carter as Alan Greenspan was to Gerald Ford.
But that closeness quickly faded last spring as the economy proved more buoyant than Schultze expected and the new administration ran into trouble with Congress and business. By April, Schultze stood by and watched as Carter - over his advice - threw out his carefully nurtured $50 tax rebate proposal, and the President began dropping hints that he was disappointed in his economic forecasts.
Since then, Schultze's fortunes in the unpredictable Carter White House have had their peaks and slumps:
The craggy-faced former Johnson administration budget director was almost completely left out of the planning for the Carter energy program last March - having to read about it in the newspapers until virtually the final moment. Schultze got his first look at the plan only in early April, after the proposal essentially was completed - and too late to make any major changes. (Perhaps partly as a result, it's been attacked as an economic boondoggle.)
Schultze has been undercut in virtually all his efforts to begin an anti-inflation program, from the broad-scale wage-price "prenotification" plan he was hoping to put in place last spring to individual actions on specific legislative measures. The Council chairman was overruled flatly, for example, on his warnings that Carter's cargo-preference bill would be inflationary. And he lost, ultimately, to political aides over the farm subsidy bill.
(Along with most other economists, Schultze had argued vigorously that the cargo-preference measure, which would have required that 9 1/2 per cent of all U.S.-bound shipments be transported on American-flag ships, would spur shipping costs seriously. Not only are U.S. ships often more costly to operate, but there aren't enough to fulfill the bill's requirements. Carter rejected this, and endorsed the bill as a gesture to the maritime unions.
(On the farm bill, Schultze opposed the measure on grounds that it would boost subsidy costs unnecessarily and exacerbate the budget deficit. But Bob Bergland, Carter's Secretary of Agriculture, insisted the increases would be necessary to hold Midwestern votes in any coming election. As he has with other measures, the President scrapped the anti-inflation considerations in favor of the political.)
Schultze was partially successful, at least, in preventing hard-liners in the administration from taking a strongly protectionist line on the foreign imports issue. Although the White House ultimately pushed through agreements for "voluntary" quotas on foreign-made shoes and color television sets, it was Schultze who insisted on restricting them only to three years to avert increasing permanent barriers. But even this was a modest gain.
And the presidential adviser won half a loaf on another venture - a bid to prevent another hefty jump in the minimum wage. Schultze succeeded in holding Carter's recommendation for a minimum wage boost only to $2.50 an hour, with a moderate automatic cost-of-living escalator. But in the end, Carter accepted a bill that ultimately would push the minimum to $3.15 - effectively undercutting his own goal of spurring more teenage employment.
By far Schultze's most checkered performance has been his bout over monetary policy - specifically the recent round of credit-tightening by the Federal Reserve Board. When the monetary agency went farther last summer than Schultze thought was tolerable, the Council chairman became the first administration official in recent memory to stand up and say so - provoking a virtual confrontation with Fed chief Arthur F. Burns.
Almost as soon as conservatives began reacting, however, Carter pulled the rug out by publicly denying any differences with Burns and gushing praise for the Fed chairman. As a result, the issue now stands in limbo, with Schultze apparently still apprehensive about the board's credit policies, but unable to do much except wait until Carter decides about Burns' reappointment in January. Whether Schultze will prevail remains to be seen.
To be sure, some of Schultze's problems stem from his own shortcomings as a manager. Although widely respected as a first-rate economist, he's not a good administrator or political infighter. When the administration's Economic Policy Group complained last spring that he was giving too much private advice to the President, Schultze gave up a potentially powerful spot as its chairman to continue his personal role. And his work as Council chairman has been low key.
Still, in the minds of many observers, much of the difficulty stems from the peculiar, helter-skelter way the White House itself operates on economic policymaking. For one thing, in the last reorganization the CEA chairman's role as coordinator of economic policy largely was taken over by Stuart E. Eizenstat, the President's domestic adviser.
For another, critics say Carter himself often has hindered any rational approach to policymaking. As events since have shown, the President erred substantially by putting together his April energy package without sound economic underpinnings. He's lunged ahead, too quickly, in cutting the CEA out of other policymaking. And some analysts say if he hadn't withdrawn the $50 rebate proposal, the unemployment rate might have dropped lower than it is.
Most important, however, has been Carter's propensity to base his economic decisions mainly on political considerations. Muses one longtime observer: "The President's economics has become increasingly constrained by by politics and less directed to what's right or wrong. As a result, the New Economics that Carter was supposed to bring has been bowled over by the old politics" - swamping Schultze right along with it.
Although the administration's beginnings seemed auspicious for Schultze, friends say they get the feeling he's not fully trusted by the White House's so-called "Georgia mafia," which increasingly is taking over the policymaking decisions that count. As a result, says one onlooker, "Charlie doesn't know where he's going to come out on an issue until after the decision has been made. That's a bad thing for any policymaker - particularly the CEA chairman."
A gregarious and blunt-spoken man, Schultze began his government career as a junior economist on the CEA in the early 1950s - ironically, under the tutelage of its then-chairman, Arthur F. Burns.
As budget director in the Johnson administration, Schultze quickly won a reputation as a keen analyst and prolific idea man who understands the practical application of economics as well as the theory. In a stint during the Nixon and Ford administrations at The Brookings Institution, he began an annual "shadow" budget review that immediately became a classic. He also served as unofficial adviser to several committees of Congress.
As an economic idea-man, other economists seem agreed, Charles Schultze has had virtually no peer. It was Schultze who, in the late 1950s and early 1960s, revived the so-called "full employment budget" concept that served as the cornerstone of liberal fiscal policy in the next decade. He's also done pioneering work on the economics and politics of budget making and on concepts involving unit labor costs.
Although ideologically a liberal, Schultze actually has accrued an ecclectic sort of personal economic philosophy that often seems to flout traditional "Keynesian" dogma. Combining this with sharp analytical abilities, he's frequently been in the forefront of attacks on outmoded Democratic policies - a position that has gained him a reputation as an "honest" liberal, but sometimes has brought some pain as well.
Thus it was Schultze, for example, who launched the first (and possibly the most devastating) attack on the Humphrey-Hawkins "full employment" bill - earning him the emnity of blacks and New Deal-style liberals. And it was Schutlze, who, ironically, was the first to point out the foibles of counting on a sizeable "fiscal dividend" - or budget surplus - to emerge from burgeoning tax revenues. (He since has had to support Carter proposals for both.)
There's some speculation Schultze may not be in the post for the entire first Carter term. For one thing, friends say he may not want to continue if he keeps losing influence. For another, Schultze himself seems to be wearing down physically under the job. "His own energies are slowing down," says one onlooker who's been close to the Council chairman for several years now. "He always looks a little haggard now. It's obviously a strain."
To be sure, Schultze may get another chance to see his influence revived in the fiscal 1979 budget and tax-cut proposals now on the drawing boards for January. The White House reportedly is planning a series of major proposals that officials say will set the tone for economic policy for the next several years. If the new package bears the Schultze imprint, the Council chairman may be vindicated yet.
But for now, despite predictions of a "special relationship" when Schultze materminded the President-elect's anti-recession strategy at the famous "Pond House" meeting last January, it's clear that the earlier hopes have gone awry. "Charlie Schultze is the most underused economist in the White House," muses one observer who knows the Carter policy team well. "And considering what's happening to policy, it's just a downright shame." CAPTION: Picture 1, [WORD ILLEGIBLE] of Economic Advisers' Charles Schultze: the most ideas, the soundest analysis. By James K. W. Atherton - The Washington Post; Picture 2, CHARLES SCHULTZE . . . fortunes peak and slump