In 1963, when President John F. Kennedy proposed a massive tax cut to stimulate a lagging economy, the idea was attributed to a small, previously obscure three-member group of economists called the President's Council of Economic Advisers.
It was the council that drafted -- and later promoted -- this thrust into New Economics, as the policy was dubbed. And it was council Chairman Walter W. Heller who led the fight in pushing the plan through Congress. In practical terms, the CEA had put economists on the map.
Now, almost two decades later, economists have sprouted throughout almost every major agency of the government, while the CEA -- as an institution -- has lost its eariler position as the hub of the president's economic policymaking machinery.
Today, under President Carter, the council retains its institutional status as the president's chief economist, but its role in actual policymaking has been muted by the presence of the cabinet-level Economic Policy Group and Carter's old Georgia political advisers.
"There's less than full acceptance of CEA as a policymaking operation," says one former member who has kept a close eye on the institution over the years. "The policymaking process today has become highly political.The council just doesn't have the clout it once did."
Admittendly, the CEA's influence has varied widely over the years -- both according to the style of its chairman and the role the president assigns to the three-member board. (The council, one of the smallest agencies in the White House, has a staff of 32.)
In the Heller days, for example, the CEA was strong largely because of its chairman's own skill as a politician, both in lobbying the president and influential academics. (Heller's memos, now preserved at the Kennedy Library, are more political tracts than economic treatises.)
Even so, it took Heller and the academics, such as MIT's Paul Samuelson, two years to persuade Kennedy to propose the new tax-cut plan, over the virgorous opposition of Treasury Secretary Douglas Dillon, a strict balanced-budget man.
The CEA today still performs the same basic functions it always has over the years: It prepares the administration's primary economic forecasts. It recommends broad economic policies to deal with inflation and recession. And it recently has begun reviewing regulatory policy as well.
But it's in the decision-making process that CEA no longer has quite the say it once did. Although the council was largely responsible for Carter's 1977 economic stimulus package, it was reversed later when the president dumped the $50 tax rebate. Its other ideas have met a mixed reception.
Observers say the council's loss of clout, over the years, has stemmed from a variety of factors:
The itensification of inflation and the energy shortage, combined with constrant pressure on the dollar in foreign exchange markets, has reduced the relative importance of the job the council traditionally has done best -- that of drafting policies to deal with the management of overall aggregate demand.
Like economists in other agencies and outside the government as well, council members essentially are stumped over what to do about current economic and energy problems. "It isn't as straightforward as it was in the Heller days," a former CEA chairman points out.
Over the past several years, the council has had to take a back seat to other policymaking officials -- notably the secretary of the Treasury, who has become the president's chief economic spokesman, and the budget director. (Treasury necessarily has had the leading role in dealing with the dollar.)
The CEA's present chairman, Charles L. Schultze, effectively sanctioned this trend in early 1978 when he gave up the co-chairmanship of the cabinet-level Economic Policy Group to limit his role to that of a personal economic adviser to the president. But the reins had been forfeited before.
The council's power as the sole agency in government really knowlegeable about economics has been eroded steadily over the years by the profliferation of other economic analysis groups -- in key government agencies, in Congress and in the private sector.
Several major departments, such as Labor, Commerce and the Treasury, now have well-staffed economic analysis arms, and competition from private groups has been heightened by the emergence of large computer-model forcasters such as Data Resources Inc.
In the Cater administration, the council's influence has been diminished further by the failure of the president to name -- and rely on -- a single top official to coordinate overall economic policymaking as previous cheif executives have done.
Instead, Carter from the start has listened to a spate of economoc and political advisers, whose views frequently have been so diverse and conflicting that the resulting policies often have appeared inconsistent. "There are just too many voices," one former key administration official says.
The council's road historically hasn't always been a smooth one. The Heller tax cut, for example, actually came during the Johnson administration, when the council also was in charge of running the administration's wage-price guideposts program -- the prototype for similar efforts since then.
But Heller's council failed miserably -- until 1968 -- at pushing through the most-needed policy shift of that era: trying to persuade the president to boose taxes to help finance the Vietnam war. There was a period in which Johnson even concealed the war's true cost from his economic advisers.
In the Nixon years, CEA Chairman Paul W. McCracken saw his own influence subordinated to key White House officials -- first to presidential economic counselor Arthur F. Burns and then to George P. Shultz as OMB's first director and to John B. Connally, the secretary of the Treasury.
And McCracken's successor, Herbert L. Stein, brought on a raft of clucking from outside economists by delivering sharp partisan political attacks while serving as chairman. (Except for Heller, Stein kept perhaps the most prominent profile of any CEA chief.)
But for all its 33-year history, in some ways the council's most influential years unquestionably were those of 1974 through 1976, during the Ford administration -- the result of the close personal relationship between the president and the CEA's chairman, Alan Greenspan.
With Ford's personal backing and approval, Greenspan not only was able to have the last word on most major economic policy moves, but he also exerted influence over other presidential decisions as well. "There simply was no competition," one insider from those years observes.
That highly personal basis for the Ford-Greenspan relationship meant, however, that the other two CEA members and the group's small professional staff -- now 18 economists -- often felt they had no significant role to play. "Alan was a one-man show," says one observer here. "No one else really mattered."
Schultze chose early on in the administration to try to shape the CEA chairman's job along the "president's personal adviser" lines set previously during the Greenspan's term, but not on such a truly personal basis. Not surprisingly, Schultze and the CEA have had less impact.
While Schultze, a highly respected eclectic economist, sees Carter regularly and makes his views known throughout policy-making circles in the administration, he doesn't enjoy the special relationship Greenspan did. Insiders say Schultze merely briefs Carter. There's rarely a response.
Schulte also isn't a classic infighter. He relies instead on the intellectual force of his arguments, which he tempers with political insights gained in long government experience, including a stint as President Johnson's budget director.
"Charlie is great at taking opposing views and putting the choices into perspective," says a friend, "but he won't fight for the president's ear." Adds another: "Charlie effectively gave up the reins of power voluntarily. In retrospect, it was a mistake."
Still, the CEA has made a few inroads under Schultze's tenure. In mid-1978, the council began battling to make regulatory agencies more cognizant of the impact of their decisions on inflation -- and has pushed new procedures to bring that about.
And Schultze this year pushed successfully for the appointment of a regulatory specialist, George Eads, to a vacant post on the council. (The third council member currently is Lyle E. Gramley, a former Federal Reserve Board staff economist.)
Just the same, to many close observers the council is slipping still further in its ability to cope with today's looming economic problems, both in terms of influence and in the staffing needed to deal with key issues these days.
For all of Schultze's changes, the council now has no one among its three members who is a specialist on international economic problems -- traditionally one of its strong points -- and its staff simply is too small to take on the burdens that some believe ought to be in the council's province.
Indeed, Carter several times has publicly voiced suspicions of his economists, all but accusing them of providing him with bad forcasts. (In fact, Schultze's council more often than not has underestimated inflation and overestimated unemployment. But it's been on target on economic growth.)
Whether CEA's current role should be strengthened in administration policymaking circles can be debated at length, with convicing arguments on both sides, but insiders say it's unlikely to be changed until the next council chairman -- or the next president -- takes office.
Meanwhile, the council continues on with less real clout in economic policymaking than most of its recent predecessors.