AEI-Brookings Joint Center Policy Matters 03-37


Mr. President, Bring Your Economic Advisers in from the Cold. Robert W. Hahn and Scott Wallsten.  October 2003.

During the Clinton years Congress tried (and failed) to get rid of the President’s Council of Economic Advisers the old-fashioned way: by taking away the Council’s already modest budget. The Bush Administration seems to have figured out a more effective way to rid the White House of those pesky economists: by taking away their offices.

According to an age-old adage, the three most important attributes of real estate are location, location and location. And what’s true for shopping malls is doubly true for the White House, where proximity to the President says everything about your place in the political pecking order. Unfortunately, the Council of Economic Advisers has recently been exiled to the Washington equivalent of Siberia.
 
Actually, exile came in two stages. Just after 9/11, the economists were moved from their offices in the Eisenhower Executive Office Building next to the West Wing to some interior offices with easy access to a ventilation shaft. And after the departure of Glenn Hubbard, President Bush’s initial choice to head the CEA, things really went downhill. The economists were banished to digs at 18th and G Streets, three blocks and a bevy of security checkpoints from the Oval Office.

Why are we whining on behalf of the President’s “nerdiest” men and women, as new CEA chairman, Greg Mankiw from Harvard, recently called them? Maybe because we both worked at CEA in the good old days when economists hardly had to fight for the access to the boss. But the real reason for telling the tale is that we believe the demotion will lead to a decline in the quality of economic advice given to the President.

Sure, the President has other sources of economic advice. The Secretary of the Treasury has assumed the role in some administrations. And Mr. Bush can always turn to Steve Friedman, a former Wall Street heavyweight who now heads the National Economic Council. But those advisers have explicitly political portfolios–their policy views reflect the push and pull of interest group politics.

The CEA, by contrast, has generally stuck to the high ground. The elite staff members of the CEA, typically recruited from the rising stars of academia, have generally defined their jobs as bringing economic truth to the policy table. And while it would be naïve to think of them as utterly objective, they have usually fought for policies that serve the commonweal rather than the special interests du jour – be they corporate America, the trial bar, or lobbyists for old-age pensioners. Indeed, for over 50 years, the CEA has enjoyed a world-class reputation for providing some of the best economic analysis and advice to presidents that money can’t buy.

 Economists at the top of the profession have happily left their regular jobs to work at the Council at substantially lower pay because they believe in the value of economic expertise in shaping public policy. Many of them are household names--like Paul Krugman of New York Times fame, Lawrence Summers who is now President of Harvard, and even Federal Reserve Chairman Alan Greenspan.

But CEA’s exile creates a very real danger of triggering a White House economic brain drain.  Few good economists are likely to supply their services virtually pro-bono if they have to toil away in offices far from the seat of power. And who can blame them? Would you leave a cushy job at Princeton to do that?

Critics might claim that proximity to the President does not necessarily equate to influence. And they’d be partially right. After all, Bob Rubin never had difficulty influencing President Clinton from down the street in the U.S. Treasury building. And we assume that Defense Secretary Donald Rumsfeld has the President’s ear from across the river.

But the Departments of Treasury and Defense have enormous influence by virtue of their control of huge programs and their large bureaucracies that are in on every White House policy planning group. The tiny CEA, by contrast, has no real mandated task other than to advise the President and the senior White House staff if asked. With CEA on location, it’s relatively easy to get invited to impromptu meetings, to be included in the paper chain, and find out what is happening before the key players get locked into bad policy positions. Out of sight, the CEA is more likely to be out of mind.

How much will it really matter if this elite cadre of economists goes back to the ivory tower? Potentially, quite a lot. The difference between solid economic advice provided by the world’s best economic thinkers and the gospel according to K Street lobbyists could translate into tax policies and regulation that clip tens of billions from the GDP.

Fortunately, the fix is easy. Give CEA back enough real estate in the Eisenhower Executive Office Building to house its small staff.

Sure, space near the Oval Office is scarce, Mr. President, but so is good, fair-minded, economic advice. And you never know when you might need it.

Robert W. Hahn, executive director of the AEI-Brookings Joint Center, and Scott Wallsten, a center fellow, are resident scholars at the American Enterprise Institute.

An earlier version of this article appeared in the Financial Times on October 30, 2003.