Clinton’s Economic Appointments--an Impressively Talented Group

The economy was the big issue in President Clinton’s election, and an unusual amount of attention was focused on how he would fill key economic posts after he won. Few of the people who had been close to Clinton over the years and as he launched his campaign for the presidency were trained and working actively as professional economists.

By summer, some top economists were being consulted and one, Larry Summers, became actively involved in the final months of the campaign. Yet even after the election, there was still concern in some camps, and hope in others, that Clinton would steer clear of mainstream professional economists in staffing his Administration.

Now that the appointments have been made, it is time to set the record straight. As of Inauguration Day, a number of top-flight mainstream economists have been named to key posts in the new Administration.

They bring a range of specialties and expertise to their new jobs and are as impressive a group as any incoming President has brought in. They also reflect Clinton’s belief that active government policies are useful in achieving society’s goals.

Two of the most prominent appointees, Alice Rivlin as deputy director of the Office of Management and Budget and Laura D’Andrea Tyson as head of the Council of Economic Advisers, were regular contributors to these columns as members of the Times Board of Economists.

Rivlin’s last column before joining the Clinton team reflects the views she brings to her new job. In it she recognized the potential conflict between using the budget to help stimulate the current sluggish economy and reducing the budget deficit in the long run.

Armed not only with sound economic analysis but also, from her years as director of the Congressional Budget Office, with deep experience in the politics of the budget, Rivlin warned against passing popular stimulus programs, such as tax cuts and highway spending, first and then turning to the politically less pleasant measures--tax increases and cuts in entitlements and other popular spending--that will be needed down the road to reduce the budget deficit.

Instead, Rivlin advocated packaging the goodies with the bitter medicine, because it made both economic and political sense to do so. There were signs of that strategy in the program outlined by President Clinton last week.

Tyson’s career has focused on international trade relations. Her articles in these pages have displayed her deep knowledge of trade issues, especially their impact on high-tech industries both here and in Japan and the emerging nations of the Pacific Basin.

Tyson has also been one of the central figures in the growing “new international trade” literature within the economics profession. That literature incorporates many aspects of trade and industrial development that were not explicitly treated in earlier trade theory.

While far from protectionist, Tyson, along with many others, has been concerned about the failure of Japan and other trading partners to open their markets to U.S. goods and with the possibility of unfair trade practices by some industries exporting to the United States.

The choice of Tyson to head CEA surprised some economists because she has not specialized in domestic macroeconomics, as most of her predecessors in the post had. Clinton obviously appointed her because he was impressed with her professional skill and ability to communicate. In addition, Clinton’s choice may reflect his own feeling that international trade issues and our high-tech industries are especially important at this time. And Tyson can certainly handle general macroeconomics, even if it has not been her specialty.

Alan Blinder, Clinton’s choice for a second seat at CEA, is one of the profession’s stars in domestic macroeconomics, so that central area of CEA’s responsibility is ably covered by a specialist as well. There is a striking precedent for this arrangement at CEA. Walter Heller, CEA chairman under Presidents John F. Kennedy and Lyndon B. Johnson during 1961-1964, was arguably the most successful and publicly admired holder of that post. His specialty was public finance, but he became a forceful and effective advocate of the profession’s views on macroeconomic management of the economy. At that time, a second seat at CEA went to James Tobin, an expert in macroeconomics who subsequently won the Nobel prize.

Larry Summers, one of the most brilliant and versatile young economists of our time, had been the betting choice within the profession to head CEA after he became closely associated with the Clinton team during the election campaign and transition. He will be at Treasury as undersecretary for international affairs, a post that in the past was held by Paul A. Volcker, among others, and which promises to be more demanding and important than ever.

The international economic community is undergoing the greatest strains of the modern era as a result of the historic changes in the former Soviet Bloc and the potential for trade conflicts that is surfacing throughout the world. Nobody should feel that Summer’s talents are not being adequately utilized by the new Administration because of the post he is filling. It remains to be seen whether he gets the voice he should have on economic decisions more generally.

As of this writing, Joe Stiglitz is scheduled to fill the third post at CEA. He is among the most prolific economic theorists of his generation and has pioneered efforts to understand the imperfections in markets that lead real world economies to behave differently than old classical models assume they should. His appointment would be in keeping with the President’s generally activist views on economics and he would help attract the first-rate young staffers that at times have made CEA the most exciting economics department in the world.

Larry Katz, who is the new chief economics at the Labor Department, and David Cutler, who is Robert Rubin’s economics assistant in the White House, are both Harvard professors with expertise in macroeconomics and labor markets.

Alicia Munnell comes to her post as assistant secretary at Treasury from the Boston Federal Reserve, where she most recently had been researching the returns to infrastructure investment and the tax treatment of pension funds, both potentially important issues for the new Administration.

Not only is this group really good, but it represents a change from the economists who populated the administrations of the last 12 years that parallels the difference between Clinton and his predecessors on economic matters. However, politics always sharpens the differences between competing groups, while really good economists usually differ from each other in much more subtle ways. Which is to say that Clinton’s economists may often try to reign in some of his political advisers on issues that have important economic consequences.

It remains to be seen whether Clinton listens to his economists on economic matters. If he is as perceptive as he seems to be, he will. Otherwise, he will be wasting an able collection of talent that can help him avoid a lot of mistakes.