Who Needs' em?

By Stephen Koepp

Reagan rebuffs his economists

"As far as I'm concerned, you can throw it away."

Treasury Secretary Donald Regan made that stunningly blunt remark last February in an effort to disown the 330-page annual report issued by the President's Council of Economic Advisers. The study had warned about the danger posed by the Administration's huge budget deficits. The White House last week went a giant step further, revealing that it may want to discard not only the council's embarrassing statements but the panel itself. The disclosure marks a historic nadir in the influence of the CEA, which was established by Congress in 1946 to be the President's closest source of economic advice. The Administration points out that eliminating the CEA and its 33-member staff would save the Government $2.6 million a year. But most observers think the White House's real objective is to reduce dissent in economic policymaking.

The Administration's attempts to get everyone into lockstep also extend to the Federal Reserve Board. Regan last week blamed Chairman Paul Volcker's tight-money policy for slower economic growth. Though retail sales appear strong, Regan lashed out at the Fed for preventing a year-end shopping boom. "This is not a great Christmas," contended Regan, "and the reason is that people just aren't spending because the credit terms are so high." Regan said that a study was under way about how to get the independent Fed under some form of Administration control.

Many economists harshly criticized the notion of disbanding the CEA. They maintain that among the Government's thousands of economists, the three members of the CEA are the only ones far enough removed from departmental infighting to advise the President objectively. Raymond Saulnier, chairman of the CEA under President Eisenhower, last week sent Reagan a telegram supporting the council. Says he: "I don't know what the Administration is trying to do. I can hardly believe it." But others were less concerned. Said Barry Bosworth, a senior fellow at the Brookings Institution, who once served on the CEA staff: "Almost every Cabinet office now has economists doing the same sort of analysis as the CEA."

The power of the council has varied from President to President and chairman to chairman. The CEA's influence reached its height under Walter Heller, who advised Kennedy and Johnson and devised the very successful tax cut of 1964. Gardner Ackley, Heller's successor, recalls meeting with Johnson as often as three times a day. On occasion they talked economics while rambling around in a Jeep on L.B.J.'s ranch.

In the Reagan Administration, though, the CEA has had little clout. The first chairman was Murray Weidenbaum of Washington University in St. Louis, who resigned after 18 months on the job because he had only minimal influence on policy. He was succeeded by Harvard's Martin Feldstein, the CEA chairman from October 1982 until last July. Unlike such previous advisers as Arthur Burns and Alan Greenspan, who sometimes disagreed with official policy behind closed doors in the Eisenhower and Ford Administrations, Feldstein broke ranks in public, calling for a tax increase and warning that the federal deficit could throttle the recovery. Months before Feldstein resigned his post "the CEA was frozen out by the rest of the White House," says a senior Treasury official. The CEA has languished without a chairman ever since. The two remaining council members, William Niskanen and William Poole, intend to leave by the end of January.

The Administration would need congressional approval to disband the panel, but the President could weaken the council further by failing to appoint replacements. Said Reagan in an interview published in Human Events, a conservative weekly: "I'm considering whether or not I even want to fill [the chairmanship]." From a public relations standpoint, while abolishing the CEA would make economic decisions appear smoother, it might create the impression that the Administration is trying to get rid of anyone who does not agree with it. Particularly if the economy runs into trouble in the next four years, the President will need plenty of help to share the work, and perhaps the blame. --By Stephen Koepp.

Reported by Rosemary Byrnes/New York and Christopher Redman/Washington

With reporting by Rosemary Byrnes, Christopher Redman