The Free Market 17, no. 8 (August 1999)
When Janet Yellen, Clinton’s chair of the Council of Economic Advisors, resigned her post, she said it was for purely personal reasons. But according to inside reports, the personal reasons included frustration at having to lie day-in and day-out. No matter what the economic data of the week, she was expected to give it a spin that would boost the president and smear his enemies.
She was made to tout the glories of Clinton’s proposed Social Security reform in front of Congressional committees. She warned of the dangers of global warming. She sang the praises of Clinton’s commitment to child care and social services. She might as well have been reading campaign literature aloud, which tends to undermine one’s scientific credibility.
No surprise here. To some degree, this is what the economists who held this post have always done. What’s surprising is that any self-respecting economist would take the job in the first place. And to her credit, Yellen always looked vaguely uncomfortable spewing out politically-correct blather as her full-time job. And this was despite the fact that reporters went easy on her because she is a liberal woman working for an administration generally beloved by the media.
Yellen was the third person to hold the post in the Clinton years. The first was Laura D’Andrea Tyson, who made her academic mark on the world by extolling the productive power of Romanian communism. The next was Joseph E. Stiglitz, a respectable economist who immediately reversed his opposition to the minimum wage when Clinton decided to support an increase. Yellen’s previous job was at the Fed, where she surely got her first taste of the fine art of spin.
When the post of head of the Council of Economic Advisors was created in 1946, it was seen as the triumph of Keynesian scientific management. The chairman was to “de-velop 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.”
Take no comfort in the phrase “free competitive enterprise”; the competitive part was intended as a license to antitrust regulation. The view was that enterprise was not competitive on its own but rather had to be hammered into a competitive pattern by government regulators. Overall, the sentence was generally seen as institutionalizing New Deal economics.
The theory was that dispassionate economists, armed with all the recent data and the best economic models, would tell the president how to conduct economic affairs: how much to raise government spending, how much money to flood into the economy, how high deficits should be. The theory presumed that “exceptionally qualified” economists would effectively become economic dictators, bypassing the judgment of markets and the will of legislators.
In the end, of course, the economists caused a fantastic amount of wreckage: economic fluctuations and inflations became ever worse. Why? Reality intervened. The theory behind the job was all wrong, and even if it weren’t, there is no such thing as a non-political economic post in the White House. The presentation of the data and the policy recommendations have always been tainted by politics.
There is a built-in bias in the job description itself: anyone who would take the job believes it is up to the government to steer the economy. Most of the appointments over the years (Arthur Burns, Walter Heller, Herbert Stein) reinforce that bias. Among those who had a free-market orientation, they were glad to trim and sell out for the sake of the office.
The result has been the systematic discrediting of the office itself. It is no longer a position aspired to by the best in the profession, which is truly something to celebrate. But we are far from having achieved what must be the real long-run goal: the separation of economic science from the state.
In our own time, government is a huge employer of economists, who specialize in helping the State to concoct regulatory schemes and generally tighten its grip on economic life.
We need economists, but they should devote themselves to the endlessly interesting problems which the Austrian economists study, and therefore to understanding how the world works. To the extent they involve themselves in politics, it should be to debunk a great myth of our time: that economists can run the economy better than the market itself.
