Change at the National Economic Council: what does it mean?

Charles Blahous Contributor
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The recent announcement that Larry Summers will be departing as head of President Obama’s National Economic Council (NEC) has prompted rampant speculation about what this will mean for future White House economic policy and process direction.

In my time since leaving the White House as deputy director of the NEC for President George W. Bush, I have found that the NEC-led economic policy process is dimly illuminated for the press and broader public. I attribute this primarily to the fact that the NEC facilitates the president’s internal policy coordination, and is not the public face of the administration’s policies as seen during hearings on Capitol Hill and in many other settings. Nor is the NEC the hands-on administrative implementer of administration policies; that role is played by individual departments (e.g., Treasury or Labor). The NEC, however, is the vital entity directing the development of policy for all of the above, and more.

Within the White House complex, the president has three leading senior economic advisors: The director of the NEC, the chair of the Council of Economic Advisers (CEA), and the director of the Office of Management and Budget (OMB). Each has a distinct role.

Very broadly speaking, the NEC’s job is to coordinate economic policy. The CEA’s job is to provide the raw economic analysis in support of that policy development. OMB’s job is to develop the president’s budget (in addition to other important management duties, such as coordinating the regulatory processes of the various departments).

A real-world example is often useful in explaining the distinctions. If the president wanted a report on the state of the employment market, CEA would typically provide that analysis. If the president wanted to develop a policy to boost employment, NEC would direct that process and would involve CEA, OMB and several other departments. In President Bush’s White House, top CEA economists would sometimes refer to their relationship with the NEC as a “client relationship.” We at NEC were the customers, using the CEA’s economic analysis to inform policy development.

NEC as policy coordinator plays a vital “honest broker” role. It is NEC’s job to ensure that the expertise of all of the president’s senior advisors is brought to bear upon a policy decision. It’s also NEC’s job to ensure that materials that go to the president fairly reflect the combined views of his various advisors. Further, NEC must ensure that dissenting views are fairly aired, whether presented orally to the president or in writing. We at NEC especially felt that we had done our jobs well when those on the losing end of a presidential decision would compliment us afterwards for running a fair process.

White House advisors, of course, sometimes wear multiple hats. The NEC has its honest broker role, but the NEC director will have policy views as well. NEC’s coordinating role does not oblige the NEC director to refrain from advocating his or her own policy views, which are sought like those of every other policy principal. At the same time, the NEC director’s own policy views must never become a barrier to running a fair and inclusive policy process.

Similarly, while CEA is charged with providing objective economic information, the head of CEA is routinely a participant in policy deliberations, as well as a public spokesperson for administration policies. Our CEA chair, Dr. Edward Lazear, for example, excelled in all of these roles — providing objective economic analysis, deliberating over policy options, and publicly explaining policy decisions.

Press attention is naturally gravitating to the fact that Dr. Summers is joining CEA chair Dr. Christina Romer as well as former OMB Director Peter Orszag in announcing his departure during the administration’s second year. By the standards for White House tenure, this is actually not uncommon. Two years was roughly the average tenure for directors of NEC and OMB in both the Clinton and Bush (43) administrations. Turnover at CEA has historically been even more rapid (the recent Bush administration went through five CEA chairs).

The press is irresistibly curious about interpersonal dynamics between senior decision-makers within the White House. What might be more important for predictive purposes, however, is to focus on the type of person (and no, I don’t mean whether the person is a woman or has business experience, both current subjects of press speculation) that the White House next selects to run the NEC.

Both the Bush (43) and Obama White Houses turned to highly esteemed economists (Larry Lindsey in our case) to be their first chairs of the NEC. This meant that during these times, both NEC and CEA were led by economists who were both personally capable of informed (and possibly competing) diagnoses of economic conditions. Over the last six years of the Bush White House, a different model was employed in which the head of NEC was a policy coordinator rather than an academic economist. This established a clearer separation of NEC’s role from the analytical responsibilities of CEA. The Clinton White House used a similar model during the time that Gene Sperling (a policy coordinator rather than an academic economist) led the NEC.

While the early stages of the NEC process often focus on policy staff coordination, at some point the process must expand to include those responsible for presenting policies to others: among them those who handle legislative affairs, communications, press, speechwriting, and relations with outside groups (the public liaison office). Though the NEC is not in charge of communications, it nevertheless plays a critical role in that arena. It is the responsibility of NEC, for example, to ensure that the administration adopts public rhetoric that is defensible and well substantiated.

Communications staff will naturally gravitate to what they believe is the most appealing message. Often, the policy staff must act as a check on this tendency by limiting rhetorical claims to those that can be substantiated. By so doing, it is often the policy staff who head off future communications trouble.

Thus, any administration’s communications successes and failures are as much the responsibility of policy staff as of the communications staff. I strongly disagree with many of the Obama administration’s economic policy choices, but there are limits to what it can do to predict and strengthen national economic performance — even if their policy analysis and prescriptions are perfectly optimized. Many of the administration’s political difficulties have arisen not from these factors, however, but from mistakes in policy communication.

A classic example is the administration’s rhetoric with respect to jobs “created or saved” under last year’s stimulus bill. This is the sort of communications mis-step that the policy process should prevent. First, because it is an obvious oversell of the administration’s economic policies (our own administration would have thought it a great luxury to have a press corps deemed so pliant as to allow us to count not only jobs created, but also adding jobs “saved” that would otherwise have been lost). Second, because it is an obvious example of false precision. Economists have difficulty enough counting the jobs that actually exist, without assigning numbers to the dubious counterfactual of how many jobs would otherwise have existed.

The “saved or created” rhetoric has exposed the administration to more than a full year of gleeful critiquing from political opponents and even from otherwise-sympathetic press. It’s exactly the sort of communications over-reach that the policy process should catch and prevent. All administrations make mistakes along this line, especially in their first year in office. As the Obama administration modifies its policy apparatus, it will aim to make fewer such mistakes.

The National Economic Council, as the custodian of this process, plays a critical role in the economic lives of millions of Americans. With the departure of Dr. Summers, the administration will feel the loss of someone reputed for his deep knowledge of economics. If I were advising the White House, however, I would advise them to focus less on replacing this aspect of Dr. Summers’ resume than on finding the person who can best coordinate the combined policy thinking of senior advisors throughout the administration.

Charles Blahous was recently confirmed to serve as one of two public trustees for the Social Security and Medicare programs, and is also a research fellow at the Hoover Institution. This piece was first published at www.economics21.org.