A Starring Role for the CEA?

When the economy turned sour, Lyndon Johnson could blame the war in Viet Nam. Nixon and Ford could say it was the Arab oil embargo. Jimmy Carter will only be able to blame Charlie Schultze.

Like most Washington wisecracks, that new one contains an element of truth: in the early days of the Carter Administration, Charles L. Schultze, the newly appointed chairman of the Council of Economic Advisers, has indeed emerged as its most important economic policymaker. His clout was evident in the revised program to stimulate the economy that the Administration presented last week. As the changes were worked out, it was usually Schultze, darting in and out of the Oval Office, who explained and justified the revisions to Carter. The idea of giving businessmen a choice of a larger investment tax credit or a credit tied to the payroll taxes they pay was all Schultze's. Although his seat at Cabinet meetings is against the wall rather than at the table, Schultze's words at the early gatherings have carried more weight than those of many department Secretaries.

What Schultze's early prominence seems to indicate is that the CEA, an agency that had its share of reversals, will be a major force in the management of the nation's economy. That idea was reinforced last week when the Senate held confirmation hearings on the two other men who will serve with Schultze on the council. They are Lyle Gramley, 50, who comes to the CEA from twelve years at the Federal Reserve Board, and Yale Professor William Nordhaus, 35. The three should make a compatible team. Philosophically Gramley and Nordhaus, like Schultze, can be expected to argue for vigorous federal action to combat high unemployment. Personally they also ought to get along well with the boss inasmuch as all three share a passion for outdoor sports: Schultze for backpacking in the Blue Ridge Mountains, the aristocratic Gramley for polo and fox hunting. Nordhaus for cross-country skiing.

Boss's Shadow. Gramley, who taught economics at the University of Maryland while Schultze was also on the faculty, describes himself as a "middle of the road, pragmatic, liberal economist." Despite his years at the Federal Reserve, he says "I am definitely not a monetarist [one who places prime importance on money supply]. The growth rate of the money supply is not the beginning and end of economics." He is regarded as one of Washington's best at economic forecasting, a field he will specialize in at the CEA. Nordhaus, bearded and bespectacled, calls himself "an economic theorist rather than an ideological economist --conservative on some issues, moderate on some and radical on others." He is an expert on the economics of energy, and will devote much of his time at the CEA to international, energy and environment issues.

Though Schultze has promised the new members that the council will work as a team, there is a possibility that Gramley and Nordhaus will be lost in the boss's shadow. Schultze, a Keynesian economist who was Lyndon Johnson's Budget Director and later turned out a widely read series of critiques on the budget for the Brookings Institution, knows his way around Washington as well as anyone else in the Administration. Also, though he and Carter knew each other only slightly before the campaign, he has developed a remarkable rapport with the President. Economists who have attended meetings with both say they have rarely seen two men take to each other so instantly and completely. Says Joseph Pechman, a member of TIME's Board of Economists: "There is this chemistry. The President listens more intently when Charlie talks and seems to understand immediately."

Lowest Point. Schultze will need his rapport to maintain a grip on policy. Over the years, the CEA's power has fluctuated wildly according to the performance of its chief and his relationship with the President. Chairman Leon Keyserling so angered Congress by his partisan support of Truman Administration policies that President Eisenhower let Congress put the council out of business briefly in 1953. Walter Heller played a dominant role in shaping the economic policies of the Kennedy and early Johnson Administrations, but President Nixon listened far more to his Treasury Secretaries, George Shultz and John Connally, than to his CEA chairmen. The council reached its lowest point under Herbert Stein, who not only was overshadowed by Shultz in policy-making but also defended Administration policy so incessantly as to arouse suspicion that politics was warping his professional judgment. Alan Greenspan* restored the CEA's professional respectability largely by staying out of the public eye and talking primarily to President Ford--a course Schultze seems most unlikely to follow.

One of Schultze's problems is that the CEA is among Washington's smallest bureaucracies: its staff numbers only about 45, including 25 economists. The result, says Washington Economist Gary Fromm, is that "the CEA cannot anticipate problems and prepare long-range analysis. Without a bigger staff, it has to shoot from the hip." Fromm has recommended doubling the staff, and Schultze has promised to consider the idea. At his present pace, it is difficult to forecast when he will have the time.

* A member, with former CEA Chairmen Heller and Arthur Okun, of TIME's Board of Economists.

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