Council of Economic Advisers

The Council of Economic Advisers (CEA) is a body within the executive branch of the United States government comprising three professional members appointed by the president with the consent of the Senate and whose duties and functions are (1) to assist and advise in the preparation of the annual Economic Report of the President; (2) to gather and analyze information concerning economic developments and economic trends and to compile and submit studies relating to these developments and trends; (3) to appraise the programs and policies of the federal [Page 527]government; (4) to develop and recommend national economic policies to foster and promote free market, competitive enterprise, to avoid economic fluctuations or to diminish the effects thereof, and to maintain employment, production, and purchasing power; and (5) to make and furnish such studies, reports, and recommendations with respect to matters of federal economic policy and legislation as the president may request.

The Council and its duties were created by the Employment Act of 1946, signed into law on February 20, 1946, by President Harry S. Truman, who had great hopes for the act and thought its value would be long-standing and significant. This act also created the Joint Economic Committee of the Congress. The legislation was stimulated by two major considerations. The first, a holdover from the Depression era of the 1930s, was the practical concern that a peacetime economy may not reach full employment, and the second, the influence of John Maynard Keynes's development of macroeconomic theory, which purports to show that as a matter of theory free market economies may settle at below full-employment equilibria and therefore his policy prescription that government stimulus is necessary to push the economy toward full employment.

This legislation created the CEA as a formal institution to advise the president. Prior to this time economic advice was given by different agencies, for example, the Treasury, the Department of Agriculture, and/or the Federal Reserve or individuals brought into the president's circle on an ad hoc basis.

This type of “employment” legislation, which, in earlier versions in the United States at least, contained specific targets and goals for macroeconomic variables such as the unemployment rate, was a feature of post-War Western economies, being preceded by several similar Keynesian-inspired recommendations in the United Kingdom, including the Beveridge Report (1943) advocating heavy government influence in the economy and the British government's White Paper on Employment Policy (1944), which committed the government to organize its post–World War II budget policies with a focus on Keynesian full-employment objectives.

Other Western governments brought forth similar papers, with Australia releasing its “Full Employment White Paper of 1944” and Canada its “White Paper on Employment and Income of 1945,” outlining the government's intention to adopt Keynesian economic policies to maintaining a high level of employment and income.

In its early years, the CEA was staffed by economists sympathetic to the Keynesian view, such as Edwin Nourse, Leon Keyserling, and Gerhard Colm. By the 1960s and the Kennedy administration, the CEA was composed of prominent Keynesians with Walter Heller, Kermit Gordon, and James Tobin in the CEA seats and Paul Samuelson, John Kenneth Galbraith, Arthur Okun, and Seymour Harris in the background.

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