Academic Research

Looking out for the national interest: The principles of the Council of Economic Advisers, Stiglitz, J. (1997). Looking out for the national interest: The principles of the Council of Economic Advisers. The American Economic Review, 87(2), 109-113.The American Council of Economic Advisers and the German Sachverstaendigenrat a Study in the Economics of Advice, Wallich, H. C. (1968). The American Council of Economic Advisers and the German Sachverstaendigenrat a Study in the Economics of Advice. The Quarterly Journal of Economics, 349-379.An assessment of the" official" economic forecasts, McNees, S. K. (1995). An assessment of the" official" economic forecasts. New England Economic Review, 13-24. While the private sector generates dozens of macroeconomic forecasts, only three "official" forecasts emanate from government agencies. The oldest derives from the Employment Act of 1946, which created the Council of Economic Advisers and requires the Council to submit an annual report to the U.S. Congress. Starting in the early 1960s, this report provided an explicit numerical forecast of current-dollar or nominal GNP growth for the coming year; initially, the breakdown between the rate of real GNP growth and the rate of inflation, as measured by the implicit GNP deflator, had to be inferred from the text of the report. The Congressional Budget Act of 1974 created the Congressional Budget Office and requires it to present periodic reports on fiscal policy to the congressional budget committees. Significantly, this Act also established the practice of developing and presenting the federal budget, based on an economic projection, over a five-year horizon. Finally, in compliance with the Full Employment and Balanced Growth Act of 1978 (often referred to as the "Humphrey--Hawkins Act" in honor of its primary legislative sponsors), the Chairman of the Federal Reserve Board reports biannually to the Congress, presenting the economic projections of the members of the Federal Open Market Committee. The Council of Economic Advisers' (CEA's) forecasts have been analyzed and compared with private forecasts many times. (See, for example, Moore 1977 and 1983 and McNees 1977 and 1988.) The Congressional Budget Office (CBO) has analyzed its own forecasts periodically, most recently in Reischauer (1995). This article updates these previous studies of CEA and CBO forecasts through 1994 and presents what may be the first published analysis of the Federal Open Market Committee's (FOMC's) "Humphrey-Hawkins" forecasts. It also incorporates alternative measures of changes in real output and prices recently developed by the Bureau of Economic Analysis (described in Young 1992 and 1993). The results of the broader and longer data set used in this study alter slightly some of the conclusions of the previous research: (1) Previous research almost uniformly has shown that the one-year-ahead "official" forecasts are about as accurate as forecasts obtained from surveys of private sector forecasters.(1) This study suggests the CEA's two- and four-year-ahead forecasts of real GNP have been slightly less accurate than, and the CBO's forecasts about as accurate as, the private sector forecasts. The lower accuracy stems from an optimistic bias in expectations of long-term real growth. On the other hand, the FOMC's forecasts issued each July for the following year are shown to have been somewhat more accurate than a standard private-sector forecast. There are ample reasons to be skeptical that these differences will persist in future forecasts, however. For example, most of the advantage of the FOMC's forecasts derives from a superior performance in the early 1980s; since that time, private forecasts have been about as accurate as the FOMC's forecasts. (2) Previous research has found both nominal and real GNP forecasts more accurate than simple rules of thumb, but at least one earlier study suggested that the "official" inflation... Presidents and economists: the Council of Economic Advisers, Porter, R. B. (1997). Presidents and economists: the Council of Economic Advisers. The American economic review, 87(2), 103-106.The Council of Economic Advisers and economic advising in the United States, Feldstein, M. (1992). The Council of Economic Advisers and economic advising in the United States. The Economic Journal, 102(414), 1223-1234.The 1974 report of the President's Council of Economic Advisers: energy in the economic report, Nordhaus, W. D. (1974). The 1974 report of the President's Council of Economic Advisers: energy in the economic report. The American Economic Review, 64(4), 558-565.The Council of Economic Advisers: From stabilization to resource allocation, Feldstein, M. (1997). The Council of Economic Advisers: From stabilization to resource allocation. The American economic review, 87(2), 99-102. This paper traces the changing role of the Council of Economic Advisers. In the 50 years since its creation, the CEA's focus has shifted from the design of policies to achieve full employment to one of advising on the much-enlarged spending and tax activities of the federal government. The CEA's original attention to achieving cyclical stability through fiscal policy diminished as economists changed their views about the inherent stability of the economy and the usefulness of fiscal policy. With the shift of macroeconomic policy to the Federal Reserve, the CEA's macroeconomic role has diminished but not disappeared. The rapid growth of government spending during the past five decades has greatly increased the role for the CEA in seeking efficient resource allocation. Where you stand depends on how you think: Economic ideas, the decline of the council of economic advisers and the rise of the federal reserve, Widmaier, W. W. (2007). Where you stand depends on how you think: Economic ideas, the decline of the council of economic advisers and the rise of the federal reserve. New Political Economy, 12(1), 43-59.The CEA: An inside voice for mainstream economics, Schultze, C. L. (1996). The CEA: An inside voice for mainstream economics. Journal of Economic Perspectives, 10(3), 23-39. After initially concentrating on macroeconomic policy, the Council of Economic Advisors (CEA) soon began to provide the president with advice on virtually all issues with economic content. On a wide range of issues there has been a commonality of advice given by the CEA to administrations of both parties, reflecting a broad consensus within the mainstream economics profession especially on microeconomics. While the differences within the profession and among various CEAs on issues of macroeconomic stabilization have narrowed, differences in assessing the supply-side effect of changes in taxes have grown in importance. the role of the Council of economic advisers, Weidenbaum, M. L. (1988). the role of the Council of economic advisers. The Journal of Economic Education, 19(3), 237-243.A successful accident: Recollections and speculations about the CEA, Stein, H. (1996). A successful accident: Recollections and speculations about the CEA. Journal of Economic Perspectives, 10(3), 3-21. As originally conceived, the President's Council of Economic Advisers would have a unique relation with the president, using Keynesian analysis to advise him on maintaining full employment. After fifty years, the Council has evolved into being a useful cog in a large decision-making apparatus, dealing with the whole range of federal problems of economic policy and bringing to bear whatever economics has to say. The initial Keynesian predisposition has faded. The Council has participated in some mistakes but it has made a valuable contribution, primarily by persistent representation of the value of the free market.