Who Runs Policy?

Nobody, really--except the man in the Oval Office

During its ten months in office, the Carter Administration has put together an economic policymaking apparatus that often seems to be running a Washington replay of the classic Abbott and Costello baseball routine "Who's on first?" As the President and his aides have zigged and zagged--proposing and then abandoning a $50 tax rebate, touting a major tax-reform program, then delaying it and shifting the emphasis to tax cuts--businessmen, brokers and economic forecasters have complained that the Administration's economic voice is muffled and mystifying.

Such criticism is especially stinging to an Administration that contains an arsenal of economic brainpower. No fewer than five Ph.D.s in economics hold Cabinet-level posts. The President himself, as an ex-engineer and farmer-businessman, is comfortable with the charts and graphs that are the raw material of economic policymaking. Says one Council of Economic Advisers staffer: "Unlike so many lawyers in government, the President is used to thinking in numbers."

Nonetheless, the criticism is at least partly justified: there is in fact no economic adviser who can consistently get the President's ear to set a clear policy line. Instead, Carter gets his primary business and economic intelligence from a tight inner circle of four men. In rough order of present prominence, they are:

Charles Schultze, chairman of the CEA. Although temporarily eclipsed last spring after his $50 rebate proposal was dumped, Schultze has regained his influence. Says one Administration aide: "Charlie's forecasts of economic progress land on the President's desk at the top of the pile." Currently, Schultze is urging a new stimulus program to keep the economy from lowing down late next year.

W. Michael Blumenthal, Treasury Secretary. He has the predominant voice in foreign economic decisions but less impact on domestic affairs. He now appears to be winning a tax plan that would cut rates heavily for corporations as well as individuals. Last week, putting on the record what was already known, he told a Senate committee that the "first priority" of Carter's tax bill will be to lower rates, and that the measure will be kept "relatively simple to build confidence." That apparently means it will contain little reform; as Blumenthal well knows, the President's intention to propose such tough reforms as taxing capital gains at ordinary-income rates has been a prime reason for business anxiety.

Stuart Eizenstat, executive director of the Domestic Council. The only member of this inner circle without an economics background, he is "the keeper of the campaign promises," as another member described him, constantly reminding colleagues of the positions that Carter took before election. Eizenstat rarely raises his voice during discussions of where business is heading, but he injects a strong liberal viewpoint when talk turns to issues like the Humphrey-Hawkins full employment bill, which the President promised last week to support.

James McIntyre Jr., acting Director of the Office of Management and Budget. McIntyre, who was Carter's state budget director in Georgia, was at first retiring in his new post, but he has gained confidence and clout and improved his chances of staying on past the presentation of the 1979 budget, due in January. In policy debates, he plays the devil's advocate, continually arguing against new spending or new programs.

Each Tuesday morning these four, together with representatives from the National Security Council and the State Department (who speak only on international questions), meet for breakfast in the second-floor executive dining room at the Treasury Department. For up to two hours, usually over a meal of scrambled eggs and sausage, they debate policy priorities; Blumenthal presides.

Each month, Blumenthal, Schultze and McIntyre lunch with the President and Federal Reserve Chairman Arthur Burns. Burns also breakfasts weekly with Blumenthal. Despite that regular contact, Burns is not a member of the inner circle, and his insistence on moderate growth is out of step with the Administration's current desire to push the economy ahead at a faster pace. Burns, of course, wields great independent power over the nation's money supply; last week he reaffirmed his determination, despite Administration criticism, to throttle back money growth in order to "undernourish" inflation.

After receiving information from the four key advisers, plus occasional advice from Commerce Secretary Juanita Kreps or Labor Secretary Ray Marshall, the President reaches decisions pretty much by himself. He rarely meets with the inner four as a group; instead he hears them out individually, acting as a stern father confessor demanding a mountain of documentation to back up every policy proposal. Says one aide: "He will decide in Schultze's favor on one issue and then in Blumenthal's favor on the next. There is no principal economic policymaker outside the President."

The amount of detail that the President demands before reaching an economic decision has already become Washington legend. Aides tell stories of Carter correcting the addition of tables in the Statistical Annex, or reviewing every figure on pages dealing with farm-price supports. But in his discussions with advisers, no overall presidential economic philosophy ever emerges. Says Lawrence Klein, Carter's chief economic adviser during the campaign: "His economics are totally non-doctrine. The President's agribusiness experience in Georgia was the most important factor in developing his economic thinking."

The Administration's style of policy-making has spurred many gripes. Harold Malingren, a Washington business consultant, grouses that "part of the confusion on the part of the business community comes from the fact that there is no coherent voice coming out of the Administration." Corporate leaders like Du Pont Chairman Irving Shapiro complain that the Oval Office has seemed off limits for business since the exit of Budget Boss Bert Lance. Last week Carter responded to that criticism by meeting with 25 businessmen to discuss the economy.

Most important, critics assert--correctly--that on many decisions carrying great economic impact the economic advisers have no voice at all or are overruled. Blumenthal and Schultze had only marginal influence on the energy and Social Security reform programs, two of the most important projects affecting the economy since the Inauguration. While Schultze has been urging tax cuts, those two programs will hit the economy with a double whammy of multibillion-dollar tax hikes that may halt growth. Officials concede the economic impact of some programs was not sufficiently taken into account but add that only the President can weigh the social as well as economic factors in a decision.

During the next few months, Carter has the option of changing two key economic players because the Federal Reserve Chairman and Office of Management and Budget Director appointments come up for review. But even if the President decides to replace Burns or McIntyre or both, the hydra-headed style of economic policymaking is not likely to change. Says one longtime Carter associate: "We almost lost the election because we didn't have a chief of staff, and Jimmy didn't change then. He's governed like this since he was running Georgia, so don't expect him to change now."

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