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Council of Economic Advisors

About the Council of Economic Advisers

From the "Employment Act of 1946":

  • "There is hereby created in the Executive Office of the President a Council of Economic Advisers (hereinafter called the "Council"). The Council shall be composed of three members who shall be appointed by the President, by and with the advice and consent of the Senate, and 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 in the light of the policy declared in section 2, and to formulate and recommend national economic policy to promote employment, production, and purchasing power under free competitive enterprise. The President shall designate one of the members of the Council as Chairman.

    It shall be the duty and function of the Council--

    1. to assist and advise the President in the preparation of the Economic Report;
    2. to gather timely and authoritative information concerning economic developments and economic trends, both current and prospective, to analyze and interpret such information in the light of the policy declared in section 2 for the purpose of determining whether such developments and trends are interfering, or are likely to interfere, with the achievement of such policy, and to compile and submit to the President studies relating to such developments and trends;
    3. to appraise the various programs and activities of the Federal Government in the light of the policy declared in section 2 for the purpose of determining the extent to which such programs and activities are contributing, and the extent to which they are not contributing, to the achievement of such policy, and to make recommendations to the President with respect thereto;
    4. to develop and recommend to the President national economic policies to foster and promote free competitive enterprise, to avoid economic fluctuations or to diminish the effects thereof, and to maintain employment, production, and purchasing power;
    5. to make and furnish such studies, reports thereon, and recommendations with respect to matters of Federal economic policy and legislation as the President may request.

Remarks by Chairman Alan Greenspan
Receipt of the Truman Medal for Economic Policy
Before the Truman Medal Award and Economics Conference, Kansas City, Missouri
October 26, 2005

I am pleased to be here today and to have the honor of being the first recipient of the Truman Medal for Economic Policy. I want to thank the Truman Library Institute for sponsoring this award and supporting the Truman Library. The Truman Presidential Library performs an important public service by promoting scholarly work and presenting the life and times of President Truman, thereby providing us all with a better basis for addressing today's challenges.  

The Truman Administration marked a time of dramatic change as World War II ended and the architecture of the post-war era was put in place. In the words of Truman biographer David McCullough, that era was "the watershed time of the century and Truman stands forth now--especially now in the aftermath of the Cold War--as a figure of utmost importance."1

Within the realm of economic policy, part of Truman's importance derives from the fact that several key new governmental structures were established during his Administration. Among these were the Council of Economic Advisers (CEA) and the Joint Economic Committee of the Congress (JEC). These organizations were established by the Employment Act of 1946, signed by President Truman on February 20. In my remarks today, I will discuss the origins of the Employment Act and the history of the CEA and will also reflect on my time at the Council.

Two ingredients seem to have been essential precursors of the Employment Act. The first was a deep concern that the problem of peacetime unemployment had not been solved. Although employment roared back during the war, the memory of the Great Depression was quite fresh, and considerable uncertainty attended the economic outlook. Put simply, many feared that the economy would slip back into depression. The second element was the economic thinking of John Maynard Keynes. Keynes argued that the economy could get stuck at a point of inadequate aggregate demand and high unemployment and that deficit spending by the government could provide the stimulus needed to reach and sustain a better equilibrium.

President Truman's memoirs make clear that both of these strands--the fear of depression and the view that the government has a role to play in economic stabilization--influenced his request to the Congress for full employment legislation in the fall of 1945.2  Of course, the legislative process is full of compromise and can lead to unexpected outcomes, and according to some observers, the creation of the CEA by the Employment Act was just such an event. According to Herb Stein's history of the CEA--he was chairman during the Nixon Administration--the CEA was an accident that did not need to have happened.3  Early drafts of the Employment Act enshrined very specific, and simple-minded, Keynesian policy prescriptions that worked backward from estimates of full employment to specific numerical targets for investment and fiscal policy. Not surprisingly, many in the Congress opposed such provisions. In the end, the numerical targets were struck from the act, and "full employment" became "maximum employment, production, and purchasing power." As Stein tells the story, the bill was seen as lacking in substance at this point. That gap was filled by creating new processes and institutions--hence, the CEA, the annual Economic Report of the President, and the JEC. This outcome was indeed fortuitous.

The CEA consists of a chairman and two other members, all of whom are appointed by the President and confirmed by the Senate. In its early years during the Truman Administration, the CEA was not without controversy. The two best-known members of the first CEA--the Chairman, Edwin Nourse, and Leon Keyserling--clashed repeatedly about whether the agency should just provide private advice to the President or should be a public advocate for the Administration's economic program. More broadly, however, the Truman CEA marked a transition from a relatively ad hoc style of economic policy making to a more institutionalized and focused process. The groundwork was laid for an agency that would make lasting contributions to economic policy making.

These contributions have taken several forms. Over the years, the CEA has provided objective and professional economic advice at the highest levels in the White House. Remarkably, this tiny agency has asserted its influence even while filling most of its positions with economists who were on temporary leave from other professional activities. A hallmark of the ethos of the CEA is the pride that its staff members take in providing objective analysis. That devotion first and foremost to objectivity has led to the interesting phenomenon that, while the overall economic views of Administrations have swung widely, the policy advice given by their successive CEAs has undergone far smaller swings.

Even though the average tenure among members of the Council and staff economists is short--often just a year or two--there have been some sources of continuity. Perhaps the most remarkable element of continuity has been the service of Catherine Furlong, better known to her friends and colleagues as "Kitty." She recently retired after fifty-four years of service, with her tenure extending back to the earliest years of the agency during the Truman Administration. Among other important roles, Kitty was the fact-checker-in-chief at the CEA--an important position when the stock of the agency depends critically on its credibility. For Presidents on down, having your material fact-checked by Kitty meant that you were going to meet the gold standard of credibility. The type of continuity she provided is rare in the government and contributed to the CEA's success over the years.

Among its contributions, the CEA serves as an in-house research organization that can assemble, analyze, and present information relevant to an economic decision. Many of the members and staff come from research backgrounds and are uniquely positioned to play this role in the Administration. Because the CEA has retained its small size over the years, it can be quick and nimble in ways that are difficult for some larger agencies.

Moreover, because the CEA is viewed as a neutral agency without ties to any particular constituency, the CEA often has played an important role on interagency committees and working groups, ensuring that economic insights are heard at debates about key issues.

Along those lines, perhaps the most important role of the CEA has been to scuttle many of the more adventuresome ideas that inevitably bubble up through the machinery of government. In every Administration, all sorts of ideas for changes in spending, tax, and regulatory policy are developed by one agency or another and then circulated within the Administration. A few of these ideas are genuinely good. However, many of them are ill-advised and not well thought through and fail miserably the test of benefits exceeding costs. Often, it falls to the CEA to point out the flaws and derail these ideas. This role of the CEA is wholly unheralded--after all, who hears about the idea that never came to fruition--but it serves as an important check in the policymaking process.

As I mentioned, economic thinking at the CEA has been marked by important continuities. Nevertheless, the evolution of thinking at the CEA over the years has reflected the economic challenges of each era as well as continuing developments in economic research. The ideas of Keynesian stabilization that were an important motivation for the Employment Act reached their zenith during the Kennedy Administration. Since that time, the CEA has followed the economics profession away from a belief that fiscal policy can or should fine-tune the level of aggregate demand.

During the 1960s and 1970s, the economy was confronted by rising inflation pressures, a series of energy shocks, and a slowdown in the underlying pace of productivity growth. At the same time, there was considerable ferment within the economics profession, as prevailing views of the inflation process and of the government's role in economic stabilization were challenged. Successive CEAs agonized over these issues and over whether to use the new ideas emerging from the academy and, if so, how.

Since the 1980s, the CEA has focused increasingly on understanding the sources of economic growth and the supply side of the economy. The focus on international issues, too, has intensified as trade and international financial flows between the United States and other countries have grown. I should also note that, despite its overtly macroeconomic origins, the CEA has expanded successfully into the realm of microeconomics, particularly issues related to regulatory policy and market structure.

Notwithstanding these changes in focus over time, there have been important intellectual continuities. In particular, a common theme throughout the CEA's history has been a belief in the importance of market forces, and this belief stands as an important legacy of the CEA.

Of course, as chairman of the Council during President Ford's Administration, I was close to some of these debates and decisions. I was recruited to serve as chairman of the Council by President Nixon's economic team. As it turned out, I was before the Senate Banking Committee for confirmation the day that President Nixon resigned. President Ford quickly renominated me, and I began work at the CEA in September 1974. I was privileged to serve President Ford, and found him to be a very effective leader. Parenthetically, there are some interesting parallels between President Ford and President Truman. Both were serving as Vice President and became President rather unexpectedly; both men had had extensive legislative and budget experience in the Congress; and both men had belief systems anchored by strong core values.

During my years at the CEA, the focus of the economic policy team underwent a number of twists and turns. In the fall of 1974, inflation was the critical issue. Some months later, it became apparent that a recession was under way, and attention turned toward policies for recovery. Subsequently, the focus on inflation returned. It was a challenging time, and we did not solve all the problems that we confronted. Nevertheless, I found my time there quite rewarding and benefited greatly from my work with the other members and with the very highly skilled staff. I could recount much about the work of the CEA at that time, but I will only highlight three themes that recurred during my tenure.

First, economic modeling is as much art as science. Economic policy makers face enormous uncertainty. Economic models provide a set of useful tools to frame future outcomes; but as we were reminded repeatedly during our efforts to forecast the economy in 1974 and 1975, models can go off track in myriad ways. Objective and thorough analysis, as is the norm at the CEA, is the most effective counterweight to this challenge.

Second, high-quality and timely data are crucial inputs to the process of making economic policy. Because we had access to high-frequency data, we were able to see that the sharp further downturn in the economy in early 1975 reflected largely an inventory correction and that final demand was holding up. That insight provided support for the view that, so long as final demand was sustained, recovery was imminent. As it turned out, that was the right call.

Finally, as hard as this can be to achieve, economic policy should take the long view. Although pressures to use the government's tools of economic management to achieve one or another short-term aim are always present, the tools of government are, in fact, most appropriately used to create an environment in which private economic activity can flourish over the longer run.

As I indicated, the focus of the CEA has changed over the years as the economic challenges facing the nation have changed. Through all this history, the CEA has, in most cases, provided the President with the best economic advice available at the time and has, crucially, been a consistent advocate for the importance of market forces. Whether or not all of those involved in passing the Employment Act and creating the CEA realized it at the time, they created an enduring agency that has played a significant role in economic policy making. President Truman apparently had an inkling. He noted in his memoirs:

Occasionally, as we pore through the pages of history, we are struck by the fact that some incident,
little noted at the time, profoundly affects the whole subsequent course of events. I venture the prediction that history, someday, will so record the enactment of the Employment Act.

I concur with President Truman's assessment. Indeed, based on a cost-benefit test, surely the CEA must be one of the most successful government agencies in history.


1.  See David McCullough, Truman (New York: Simon and Schuster, 1992). Return to text

2.  Harry S. Truman, Year of Decisions (New York: Doubleday, 1955), pp. 491-94. Return to text

3.  Herbert Stein "Fifty Years of the Council of Economic Advisers," in What I Think: Essays on Economics, Politics, and Life (Washington, D.C.: AEI Press, 1998). Return to text

From The Economic Journal, 102 (September 1992), The Council of Economic Advisers and Economic Advising in the United States, by Martin Feldstein. Martin Feldstein was Chairman of the Council of Economic Advisers during the Reagan Administration from October 14, 1982 to July 10, 1984. This excerpt provides his personal reflections as Chairman:

Structure of the Council of Economic Advisers

Although the term 'Council' conjures up the image of a large committee, the CEA actually consists only of a chairman and two members. The chairman is legally responsible for establishing the positions taken by the Council. The other two members direct research activities of the Council in particular fields, represent the Council at meetings with other agencies, and generally work with the chairman to formulate economic advice.

In addition to the chairman and two other members, the CEA has a professional staff that is both small and unusual. A group of about ten economists, generally professors on one- or two-year leaves from their universities, act as the senior staff economists. They in turn are assisted by an additional ten junior staff economists, typically advanced graduate students who also spend only a year or two at the CEA. Four permanent economic statisticians assist the economists in the interpretation and identification of economic data.

The academic nature of the staff and of most CEA members distinguishes the CEA from other government agencies. It generally assures a higher level of technical economic sophistication and of familiarity with current developments in economic thinking. Members and staff also use their strong links in the academic community to obtain advice on technical issues throughout their time in Washington.

There is of course a price to be paid for this reliance on academic economists, especially at the staff level. They often come to the CEA without the institutional knowledge of some of the issues with which they will deal and without any experience in the bureaucratic process of decision-making. My experience however was that most of the senior staff economists learned quite quickly to be effective participants, and made an important contribution to the policy debates because of their ability to apply economic analysis to the issues being discussed, and to develop new economic proposals that had not occurred to non-economist participants from the agencies.

How Advice Is Given

The CEA chairman gives advice directly to the President and to the senior members of the administration. There is also a broader role of trying to shape public understanding of the economic issues. The CEA members and staff participate directly in the inter-agency process, in which policy options are evaluated and recommendations developed for presidential decisions.

The specific organization of advice-giving undoubtedly differs from administration to administration, reflecting the overall form of economic policy making and the particular style and interest of the president. I can only describe my own experience.

In the Reagan administration, the cabinet as a whole rarely met. Instead, economic policy issues were discussed through a series of cabinet councils with more specialized responsibilities. These included a cabinet council on commerce and trade that was chaired by the Secretary of Commerce, a cabinet council that dealt with labour and social insurance issues, a cabinet council that dealt with regulatory and legal issues, and a general cabinet council on economic affairs that was chaired by the Secretary of the Treasury. Each of the interested departments was represented at the council by the secretary of that department. Occasionally the deputy secretary or under-secretary substituted for the secretary at those meetings. I generally represented the CEA, although occasionally one of the members took my place at the table. Vice President Bush usually attended these meetings.

The councils generally met without the president. Roughly twice a month the president participated in council meetings when there was a specific issue that required a presidential decision or, occasionally, a broad area that seemed appropriate for general cabinet-level discussion with the president.

Any major proposal for legislative action, whether originated by a department or from Congress, would be assigned to an appropriate cabinet council for consideration to develop an official administration position. Initial meetings would be held at a staff level, with the CEA represented by the senior staff economist with the relevant expertise. Often discussion at this level would be sufficient to dispose of the idea, usually with the conclusion that the proposal was well-meaning but misguided and would not accomplish its stated purpose or would do so only at an unacceptable economic cost. This would quietly bury an internal departmental proposal or lead to a formal administration position to oppose a Congressional initiative.

When there was disagreement about the proposal that could not be resolved unanimously at the level of this working group, a higher-level meeting would be held. Each interested department would be represented at a sub-cabinet level, generally by an assistant secretary. The CEA would be represented by a member or senior staff economist, since with only two members it was often true that the CEA only had the expertise at the senior staff level and preferred to send a real expert rather than, as in the other departments, to send a more senior official who was 'briefed' but who did not really understand the issues himself.

Once again, if this group could not reach a consensus the issue would be passed up to the full cabinet council, where the departments were represented at the top level and the CEA by the chairman. If this group reached an agreed recommendation, its conclusion would be sent to the President. When there was disagreement, a summary of the different positions would be prepared by the staff of the council for submission to the president for his decision. These decision memos were carefully prepared so that each side could object to any spurious arguments put forward by others. On some occasions, when it was felt that such written summaries were inadequate, the group would meet with the president to present opposing views.

This process gave the CEA an opportunity to influence both the specific decisions and the way that members of the administration thought about particular issues. This was true at every level from the departmental senior staff that interacted with the CEA economists to the cabinet level.

In addition to these relatively large group meetings with the President, there were also smaller meetings dealing with specific subjects. A central organizing set of meetings each year dealt with the budget. Here the only regular participants, in addition to the president and the vice-president, were the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB), the Chairman of the CEA, and a small number of senior White House staff. The series of budget meetings began with a five-year economic forecast prepared by the CEA. Technical staff discussions and meetings between a CEA member, a Treasury assistant secretary and an associate director of the OMB would review the evidence on which a forecast would be based. In insisted, however, that the CEA alone was responsible for the final forecast in order to avoid a repetition of earlier experience in which the forecast was widely (and correctly) criticized as over-optimistic, and therefore as leading to a substantial underestimate to future budget deficits. Needless to say, this was a source of friction and contention.

Other such small meetings with the president included preparation for the G-7 economic summits, for his televised national press conferences, and for discussions of special subjects like social security reform.

The Secretary of the Treasury and I also met roughly every two weeks with the president and a few senior White House staff to discuss subjects of our choice. The Treasury Secretary frequently used these sessions to discuss monetary policy or issues currently under development at the Treasury. I frequently discussed the budget deficit but also talked about things like the character of unemployment, the nature of the trade imbalance, and other types of general 'background' information. These were not intended as decision-making sessions.

In addition to these meetings, I also sent the president brief memos on particular issues. Occasionally these would be my thoughts on some issue being discussed in the administration. There were also almost daily brief memos telling the President how to interpret important economic statistics that would be released the next morning so that he would not be caught unaware of the information (by the press or other visitors) or uninformed about the significance (or lack of significance) of the particular statistic.

The CEA also serves as a source of professional economic advice to other departments and agencies. In some cases, this serves to reinforce the advice being given by that department's own economist. In other cases, it fills a gap where the department does not have an economist or where the CEA can bring better analysis to a particular problem. As chairman I also met on an individual basis with the department heads to discuss policy issues relevant to their department or more general issues like the budget situation.

A weekly breakfast meeting with the Treasury Secretary and the OMB Director -- the so-called Troika or T-t group -- provided an important opportunity to discuss economic issues with complete candour and without fear of leaks to the press. This small group was occasionally joined by Secretary of State George Shultz and on some rare occasions by Federal Reserve Chairman Paul Volcker.

These breakfast meetings were just about the only time during my time at the CEA when the Fed Chairman participated in a discussion inside the administration. He met privately of course with the Secretary of the Treasury and with various financial regulators. I had breakfast with him every other week and on those occasions we discussed the state of the economy, the direction of monetary policy, banking regulation, and such issues as the developing country debt problem, in which the Fed worked closely with the administration.

As the senior economist in the administration, the CEA chairman is frequently called upon to discuss economic policy issues in public. These include testimony to congressional committees, speeches to a wide array of audiences, occasional television interviews and frequent discussions with the press. I always regarded these as opportunities to teach economics. An important challenge was to explain why the dollar had soared and how that, rather than protectionist policies abroad, was responsible for our trade deficit. Until the recovery was firmly established, I would explain why an expansionary fiscal policy was unnecessary and later I spent endless hours explaining how to assess the structural budget deficit and why reducing it was important.

The Council of Economic Advisers produces an annual report which discusses broad issues of economic policy for a general audience. This report is widely read by the economic press, by Congressional staff and by academic economists and students.

How the CEA Advises Presidents

"I think our unique system of placing a professional economist in the White House to report directly to the president works well. I hope that future presidents continue to use this policy."

The principle of comparative advantage suggests that I, as a former chairman of the Council of Economic Advisers, convey my knowledge of this unique and little understood agency. I emphasize the word "unique" because I believe the CEA is really quite different from advisory institutions in other countries.

During my time as chairman (1982 through 1984), I had the opportunity to talk with the senior economic officials in many countries. I never found one that institutionalized our combination of characteristics: a professional economist who has direct access to the head of the government and who participates as an equal in all cabinet-level discussions.

In other countries, the top economic official is either an economics minister (i.e., a politician selected from the parliament who may or may not be a professional economist) or a professional economist who reports to the minister of finance or some other cabinet minister. There are also some special situations in which individual economists are influential advisers to the heads of government, but these are personal arrangements that have not been institutionalized in the way that the CEA has been.

One reason why the American system for giving economic advice differs from those abroad is that, in our presidential system, it is the president rather than the minister of finance or budget minister who has ultimate responsibility for all economic matters. In other countries, the prime minister or president is less involved with economic issues and the responsible cabinet member has a political standing and legitimacy in his own right. In the United States, the cabinet is in the last analysis an advisory and management body while all true decision-making authority of the executive branch is vested in the president.

The role of the CEA and its chairman undoubtedly differs over time depending on both the chairman and the president. The differences can be quite profound even within the same set of legal rules. For example, during the Nixon administration there was a period when George Schultz served simultaneously as budget director and as counselor to the president with responsibility for overall coordination of economic advice. But I have not researched the history of the CEA and will therefore focus my comments on the period of 1982-1984 that I know from firsthand experience.

I began by saying that the council is "little understood" because have frequently discovered that people are quite surprised when they learn how small the council is and how it actually operates. The term "council" seems to conjure up the image of a dozen or more people sitting around a conference table voting on recommendations of economic policy. In fact, the CEA has only a chairman and two additional members.

Since the days of the Arthur Burns' chairmanship in the Eisenhower administration, there has been an official executive order vesting all of the executive authority for the council in the chairman. In practice, that means that the three members have informal discussions but do not take votes. It also means that when a formal recommendation from several agencies is sent to the president, the position taken by the CEA reflects the judgment of the chairman just as the position of the Treasury reflects the view of the Treasury secretary. In giving direct advice to the president, i always spoke for myself rather than on behalf of the Council.

The CEA has a small but high quality professional staff of about twenty economists and four economist statisticians. The statisticians are permanent civil servants who understand the construction of official economic statistics and do their best to save the economists from erroneous use of these data. Because the senior staff economists come fro universities for a one- or two-year period, they keep the CEA up to date on the best academic thinking on a wide range of subjects.

Although the CEA is physically as well as operationally part of the White House complex (CEA offices are in the Old Executive Office Building adjacent to the White House and within the same security cordon), the economic staff functions in a completely professional and nonpartisan way. My very able and distinguished staff included Larry Summers, who was prominent as chief economic adviser to presidential candidate Michael Dukakis.

The tradition of professionalist is so strong that even in a presidential election year the CEA chairman appoints members of the staff for the coming academic year with the clear understanding that they will continue to serve even if the party in power loses the presidential election. I might just add in this context that, unlike the practice in some countries, the members of the CEA and their staff work full-time at their CEA responsibilities. Indeed, in December and January of each year, the pressure of working simultaneously on the Economic Report of the President, the budget, and the issues to be presented in the president's state of the union message seemed like much more than a full-time job.

The CEA was created by the Employment Act of 1946 with a Keynesian heritage and an expectation that it would give advice about the use of fiscal policy to achieve and maintain full employment. Needless to say, there has been a profound change in the economics profession's thinking about macroeconomic policy in the past forty years.