Cost Of Saving $3.5 Million Much Too High

The House subcommittee in charge of appropriations for the President’s Council of Economic Advisers has proposed eliminating the funds for the agency, effectively abolishing it. That would be a serious mistake. Among other consequences, it would be a setback to the cause of running a lean and efficient federal government.

Each of us is a former chairman of the council, one under a Democratic and the other under a Republican president. Given our past ties to the CEA, we are obviously in danger of being classified as special pleaders trying to save some government program from the consequences of deficit reduction. In truth we both do have strong positive feelings about an institution that for 50 years has served up unvarnished, sometimes unwelcome, but highly professional advice at the top levels of government. Even special pleaders can sometimes be right.

As government institutions go, the CEA is tiny. Its annual budget is some $3.5 million. It has a chairman, two additional members appointed by the president and a staff of some 18 to 20 economists, most on a year’s leave from university economics departments. The CEA runs no programs. It represents no special interest or any one segment of American society.

Essentially, it has only one charge: To provide the president and his administration with professional economic advice. It provides such advice not just on the big matters of taxes and fiscal policy but on the steady stream of issues of economic consequence that come before the president - environmental and economic regulation, farm subsidies, trade policy and so on down the list.

Despite the hoary jokes about “two-armed economists” and the alleged inability of the profession’s members to agree among themselves, there is in fact a wide area of consensus among economists on issues affecting public policy. A large part of the agreement among economists goes to a common belief, engendered by their professional studies, that under most, even if not all circumstances, free markets do the best job in providing high-quality goods and services to consumers. And in those cases in which government must intervene, professional economists urge the preservation of as much as possible of the incentives provided by markets. As a consequence, in both Republican and Democratic administrations, the Council of Economic Advisers has always been a strong advocate for reducing unneeded regulation of industry, in sectors like airlines, trucking and financial services.

In policy debates about environmental regulation the council is known for advocating the minimum use of regulations and a maximum of economic incentives and has always urged that the costs as well as the benefits of environmental regulations be taken into account.

Traditionally, the council has taken on the role of skeptic in reviewing proposals that come to the president in administrations of all stripes to solve this or that problem with a new government program or regulation. It is true the government has many economists other than those in the CEA. But these economists, however able, represent the interests of agencies that may not be identical with the interests of the nation or of the president. Moreover, despite the agreement of professional economists on many matters, they have legitimate differences of opinion on others. In these cases it is important that the president have economic advice from a source outside the interested agencies.

We have heard it argued that the establishment of the National Economic Council several years ago eliminated the need for the Council of Economic Advisers. But the NEC, made up of the government’s major economic agencies, with a small secretariat, is essentially an honest broker and coordinator, trying to ensure that the president receives in an orderly fashion all the relevant and often conflicting views on matters that have an economic content. The CEA is not an honest broker. It is an advocate, not for any special interest but for the use of rational analysis, cost-benefit type evaluations and, most usually, market or market-like solutions to issues of economic policy. The CEA is often a hair shirt to presidents - just what presidents often need.

A president makes decisions affecting the performance of a $7 trillion economy. To skimp on giving him the best possible advice in the hope of saving $3.5 million would be shortsighted in the extreme.

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The following fields overflowed: BYLINE = Herbert Stein and Charles Schultze Special to The Washington Post