The Council of Economic Advisers and the Role of Expert Economic Advice
University of California, Davis
The Issue:During a television interview in the run-up to the Brexit vote in June 2016, British Justice Secretary Michael Gove refused to name any economists who supported Britain’s withdrawal from the European Union but said instead “People in this country have had enough of experts.” Politicians have denigrated expert opinion in the United States as well on a range of issues, including economics. Yet the careful and transparent collection, reporting and analysis of credible economic data is essential to evidence-based policy-making and the functioning of a democratic society. These roles are spread across federal agencies, but when there is conflict between agency analyses, or when the President needs fast, objective, research-based analysis to provide facts relevant to a policy choice under time pressure, the administration’s Council of Economic Advisers (CEA) plays a vital role. The new administration has downgraded the role of the Council of Economic Advisors—its chairman will no longer be included in the President's cabinet-- and, more than a month into the administration, has not named anyone to that body. Agencies responsible for the collection and reporting of data, used not only by the CEA but virtually all government and private sector analysts, also face new threats of budget cuts and political pressure to alter data reporting practices.
The careful and transparent collection, reporting and analysis of credible economic data is essential to evidence-based policy-making.
- The Council of Economic Advisers (CEA) is designed to provide the highest-quality advice to the President. It was established by the Employment Act of 1946, which stipulates that the CEA have three members “each of whom shall be a person who, as a result of his training, experience, and attainments, is exceptionally qualified to analyze and interpret economic developments, to appraise programs and activities of the Government… and to formulate and recommend national economic policy to promote employment, production, and purchasing power under free competitive enterprise.” Past members and support staff have later chaired the Federal Reserve, won the Nobel Prize, and made other important contributions to science and policy.
- CEA Members generally are Ph.D.-trained economists with deep connections to academia, which enables them to provide analyses using the most cutting-edge research tools available. While the frontier analytical tools often come from academia, academics are rarely focused on the issues that policymakers need to address in real-time. The CEA bridges the gap between technical know-how and timely policy focus.
- The principal formal duty of the CEA is to write the annual Economic Report of the President, but statute describes the goal of the CEA broadly as keeping abreast of developments that could affect employment and the overall health of the U.S. economy and of composing studies for the benefit of the President. As part of the Executive Office of the President, the CEA serves as a liaison between the White House and the economists across the Executive Branch who collect and disseminate data on evolving economic conditions. The Council traditionally has chaired the economic forecasting process across the Executive Branch.
- Under the guidance of the President, the National Economic Council (NEC) and the National Security Council (NSC) coordinate and guide an evidence-based economic policy making process with input and technical support from the agencies and offices of the Executive Branch. The members and staff of NEC and NSC often are experts in various aspects of domestic or international economic issues themselves and work closely with more specialized economists from throughout the Executive Branch to shape policy that follows the President’s goals and overall economic agenda. However, the NEC and NSC’s primary function is policy coordination, not in-depth policy analysis or a deep reading and understanding of the economic data to inform the President. Hence, the CEA provides technical support to NEC and NSC during the interagency process. During its 71-year history, the CEA has advocated, among other things for the establishment of inflation-indexed U.S. Treasury bonds (TIPS) and even helped prevent the use of nuclear explosives to widen the Panama Canal.
- The Executive Branch also relies on Ph.D.-trained economists across a number of other agencies and offices to collect, report, and analyze economic data used by virtually all economic analysts. For example, the Department of Commerce collects data on U.S. population growth, gross domestic product, international trade, small and medium-sized business growth, and the Department of the Treasury, collects and reports on data on various financial transactions. The quality and transparency of these data are critical to effective governance. Argentina’s government repeatedly lost face when academic economists showed it was manipulating inflation statistics for political purposes, a factor in its ensuing economic woes and the eventual turnover of the administration. Politicizing or cutting funding to data collection and reporting in the U.S. government could cause instability in the wider economy.
What this Means:
Experts matter. Highly trained economists are essential to the integrity and effectiveness of government reporting and policymaking. In particular, the Council of Economic Advisers has the role of analyzing how proposed policies affect big-picture issues like income distribution, employment across different demographic groups and across various industries, and long-run growth and prosperity. When more specialized economists within particular agencies disagree on relevant numbers or outcomes during interagency processes coordinated by the National Security Council and the National Economic Council, the CEA offers technical support to help synthesize the different approaches as the issue moves up the decision-making chain. This focus on the bigger picture has put CEA in the position of advocating for the greater good across a wide array of issues in its 71-year history. The combination of expertise and commitment to serve the President makes the CEA an important tool when the White House needs fast, objective, research-based analysis to provide relevant facts under time pressure.