The plan to abolish the Council of Economic Advisers appears to be a direct result of President Reagan's unhappiness with the economic advice he has received from it questioning his chosen policy course.
Reagan is not the first president to reject the advice he has gotten from the CEA, whose role one former chairman, Charles L. Schultze, summed up as that of a "realistic hairshirt." But no other president has considered abolishing the CEA, a unique institution within the U.S. government and among other governments around the world.
However, no other president also has come to office since the CEA was created in 1946 with a set of policies that challenged so many of the tenets of mainstream economics, and took pride in doing so.
Reagan's first chairman, Murray L. Weidenbaum of Washington University, joined the administration only after the course of economic policy was set. Last summer Weidenbaum wrote, " . . . the president relies on his economists primarily to help him sell and carry out his policies. Those economists quickly use up their good will with the president by pointing out inconsistencies and problems in the formulation of his policies."
Weidenbaum's successor, Martin Feldstein of Harvard University, raised the White House blood pressure repeatedly by stressing the potential long-term damage that continuing large budget deficits could cause and by urging their reduction even if it took some tax increases to do the job. Unforgiveably to the White House, Feldstein kept saying this in public by pointing to a presidential proposal for a contingency tax increase, a proposal that Reagan wanted to ignore but without repudiating it publicly.
Traditionally, the chairmen or the two other members of the CEA have not gone public over policy differences as Feldstein did, though rarely, if ever, did they have an opportunity to do so while backing an official presidential policy that the White House, when asked, reaffirmed.
But a number of former chairmen have criticized Feldstein's public approach, and yesterday Weidenbaum blamed him in large part for the current proposal to drop the council.
Weidenbaum noted that his successor, Feldstein, was designated before he left in the summer of 1982. At that point, the White House gave no thought to not naming a new chairman, "even though my arguments with the president were not appreciated by the senior staff," Weidenbaum said. When Feldstein left last July to return to Harvard, no new chairman was appointed, and neither of the remaining members was designated as acting chairman.
"What's different?" Weidenbaum continued. "While I was there, I kept my disagreements inside the family." In contrast, Feldstein "did more than indicate his personal disagreement" with the policy on taxes with "the idea of locking the president into a position that he didn't want to be locked into," Weidenbaum said.
Feldstein has defended his actions by stressing that he was always strongly supportive of official Reagan policy. Moreover, Reagan neither asked directly nor suggested indirectly that he behave differently, Feldstein said.
William Niskanen, the current senior CEA member, said in a recent interview that he had recommended to the White House that the CEA's "full internal role be maintained and that we reduce our external role, at least relative to the Feldstein period. I think that our role in the Cabinet councils is valued by almost everyone, even when we are in opposition."
But Niskanen -- whose own resignation was sought by senior White House staff in late 1981 because he said that, under certain conditions, budget deficits might not be significant -- has received no reply. He is widely expected to leave the council once its annual report is completed if he is not named to the chairmanship. The remaining member, William Poole, will return to a professorship at Brown University early next year, potentially leaving the CEA with no members.
A new book exploring the role of the CEA in the presidency has just been published. "The President and the Council of Economic Advisers," edited by Erwin C. Hargrove and Samuel A. Morley of Vanderbilt University, is based on interviews with 10 of the 11 CEA chairmen who preceded Weidenbaum.
The introduction sums up how the council traditionally has been used by presidents: "The CEA's substantive mission coincides with presidential political accountability. The president has a strong incentive to seek good economic advice on the theory that knowledge is to be preferred to ignorance.
"It does not follow that the president acts on the advice; there may be short-run political reasons not to do so. But the politics of choice is still enhanced by knowledge. The president should know, and want to know, both the economic and political costs and benefits of alternative choices."
But that summation does not seem to apply in a situation in which the president wants to use a different frame of reference than do his economic advisers. In the summer of 1983, when Feldstein and David Stockman, director of the Office of Management and Budget, were warning about the danger to the then-strong economic recovery if budget deficits were not curbed, senior White House officials ridiculed the concerns.
"This is not the season to let the economists run the shop," one declared. "They wouldn't have been in a position to get tax cuts, to do the things that have brought on the recovery if we hadn't been elected. And we want to get reelected." And said another, "The economists want to fiddle and fine-tune until Election Day. No one is complaining about the economy, so what the hell is the problem?"
The economists who have served at the CEA -- Republicans and Democrats -- believe the institution and its advice are useful to a president.
"I think it is essential that you have some mainstream economists that have the ear of the president," Weidenbaum said.
"It would be a mistake" to abolish the CEA, said Herbert Stein, chairman under President Nixon. "I think the council is an asset to the president."
A CEA is needed "to provide access for professional economic advice and to provide it inside," argued former chairman Schultze, who added, "It's important to bring the president realistic advice . . . that often is a counterweight" to advice from other parts of the government that serve particular constituencies.
Schultze said that the Treasury Department -- one potential place that some of the functions of the CEA might be lodged if it were abolished -- has separate statutory functions and obligations that could cloud its advice. Alternatively, if the CEA chairman effectively became an associate director of OMB, he would have to rely on the OMB director to present economic advice, even though the director already has other sweeping responsibilities, some of which might conflict with such a new role.
And Walter Heller, chairman under President Kennedy, told reporters at a breakfast meeting, "Overall, I think the plan to drop the CEA is more of a reflection on the president than the council. The president needs advice . . . from the only agency in government that doesn't have an axe to grind."
Heller said the CEA has been the only group "that the president has had that would tell things as they are. . . . If he doesn't want to listen to it, that's his and the country's loss. . . . It would be a pity if the only voices he hears are those with an axe to grind."