The Employment Act of 1946: still working after 50 years

USA Today (Society for the Advancement of Education), Nov, 1996 by Murray L. Weidenbaum

The legislation created the Council of Economic Advisers to provide information to the president. Since the council is not encumbered by special-interest baggage, it serves as a proxy for the public interest.

The first half-century of experience under the Employment Act of 1946 (originally the Full Employment Bill of 1945) likely has disappointed both the proponents and opponents of that innovative law. The impact on national economic policy neither is as bad as the opposition feared nor as substantial as the sponsors had hoped.

Viewed in the most fundamental light, however, the legislation has been successful. The two institutions the 1946 act established remain in operation and the act's then-controversial statement of policy has become accepted as part of the Federal government's bureaucratic fabric. A substantial government responsibility for the over-all performance of the American economy now is widely assumed. In fact, politicians of the opposition party readily hold the administration in office accountable for whatever economic short comings occur.

Of the two organizations established by the 1946 act--the Joint Economic Committee and the Council of Economic Advisers--the CEA has tended to be the more visible and perhaps more influential, but has traversed a very rocky path.

Formally, the CEA has little power. It is a very modest-sized constituent unit of the Executive Office of the President, dwarfed in number of employees and budget by the Office of Management and Budget, National Security Council, and U.S. Trade Representative Office. The council's only statutory functions are to give the president economic advice, though he is under no compulsion to follow it. In 1961, the CEA defined its role: "The Council has a responsibility to explain to the Congress and to the public the general economic strategy of the President's program, especially as it relates to the objectives of the Employment Act.... It is not appropriate or necessary for the Council to go into the details of legislative proposals or of Administrative actions which fall primarily in the domain of operating Executive departments or agencies...."

The influence of the CEA has ebbed and flowed. Soon after leaving the CEA, Edwin Nourse, its first chairman, wrote that "the actual position of the council has undergone such progressive attrition or debasement that it bids fair soon to be negligible." Yet, a golden age arguably was reached in the early 1960s during the chairmanship of Walter Heller in the Kennedy Administration-- a time when the council preached the gospel of the new economics.

To a degree, the success of the Heller council has bedeviled its successors. By demonstrating the important role that could be played by economists at the highest levels of government, its achievements encouraged the various Cabinet departments to upgrade existing economics staffs and set up new positions of undersecretary or assistant secretary for economics. Enhanced employment opportunities for economists are an attractive prospect. In this case, however, that meant a new form of competition for the CEA in presenting its views in the inner councils of the government. It also made possible a cacophony of administration economists, at times confusing the public as to where the administration stood on a given issue.

The recent past provided another period of uncertainty as to the future of the CEA. In 1995, the House of Representatives refused to pass the appropriation for the CEA. The council continued to operate on the basis of temporary funding, though, and a regular appropriation eventually passed. The new chairman, Stanford University economist Joseph Stiglitz, seems to be taking a low public profile, although not quite as self-effacing as Arthur Burns did during the Eisenhower Administration. It is interesting to note that, when the CEA's future was being debated in 1995, every active Republican ax-chairman came to the defense of the CEA as well as the Democrats who served on the council.

The universal feeling in the profession is that the council plays a unique and important role. Of course, it is the profession's key window into Washington. Far more important, the CEA is a source of professional advice to the president from a group that has little, if any, special-interest baggage; thus, it can serve as a proxy for the public interest. The CEA does more than provide up-to-date statistics--it examines controversial issues of public policy from the viewpoint of the president, rather than a specialized department.

To some extent, it is a tribute to the power of mainstream economic analysis to note that, on a great many issues, the work of Democratic and Republican councils is interchangeable. With few exceptions, the CEA can be counted on to present serious arguments against subsidies (whether to business, labor, or agriculture), restrictions on foreign trade, outmoded regulation of industry, and inefficient social regulation that fails to pass a benefit-cost test.