Shortly after World War II, President Harry S. Truman signed into law the Employment Act of 1946. The main purpose of the law was to ensure that Americans had jobs as they came home from war and the economy wound down from wartime production. But the law had a much more lasting legacy: It created the White House Council of Economic Advisers (CEA), which has given official economic analysis and advice to presidents for over 75 years.
For the economics profession, the creation of the CEA was a big deal. All of a sudden they had a formal advisory body to the president of the United States. How many other professions get that? Not many.
Despite signing this legislation into law, however, President Truman was slow to appoint members to the council. People started prodding him. And, finally, he was like, “Fine, OK. Let’s let some egghead economists into the doors of 1600 Pennsylvania Ave.”
The president appointed two Ph.D.-trained economists and a lawyer — who had started an econ Ph.D. but never finished — to the three-member council. Of the three, Edwin Griswold Nourse, who got his Ph.D. in economics at the University of Chicago, served as the chair.
Looking back at his time as the first CEA chair in American history, Nourse complained that Truman wasn’t actually very interested in the thoughts of economists.
“U.S. News and World Report once had a lengthy survey of opinion about Mr. Truman and one of the things they said is: ‘Mr. Truman is uncomfortable with scientists and economists. They are too precise and logical. He works on a different beam,’” Nourse recalled in a 1972 interview. “And that, in my judgment, was a very true appraisal of him…. In his decisions he turned automatically to business people, political people, including lawyers.”
While economists were clearly making inroads into policy circles in the 1940s and 1950s, they were mostly just flies on the wall. They had little authority or influence.
As documented by Binyamin Appelbaum in his illuminating book The Economists’ Hour, the Federal Reserve back then, for example, was led by lawyers and businesspeople, not economists. Economists who were employed by the Fed, like Paul Volcker, worked largely in anonymity in the basement of its Washington headquarters. Truman’s predecessor, Franklin Delano Roosevelt, was apparently confused by and slightly disparaging of the work of John Maynard Keynes, a giant in the field. President Dwight D. Eisenhower warned the nation against relying too much on technocrats (which includes economists).
In short, real policymaking authority was in the hands of noneconomists.
But in the years that followed, a “revolution” swept Washington and economists became something akin to high priests of policy.
“The number of economists employed by the government rose from about 2,000 in the mid-1950s to more than 6,000 by the late 1970s,” writes Applebaum. Economists began to shape policy and take leadership roles. “Arthur F. Burns became the first economist to lead the Fed in 1970. Two years later, George Shultz became the first economist to serve as Treasury secretary. In 1978, Volcker completed his rise from the Fed’s bowels, becoming the central bank’s chairman.” (Listen to our episode about Paul Volcker’s storied tenure as Fed chairman here).
From the 1980s until somewhat recently, economists like Milton Friedman and Larry Summers were some of the most influential policy thinkers around.
But now the pendulum seems to be swinging back, with economists and their ideas increasingly being pushed back into the basement. The leading economic thinkers and policymakers are increasingly noneconomists (or, at least, people who do not have advanced degrees in the field).
The chairman of the Federal Reserve, Jerome Powell, is a former investment banker and lawyer by training.
As president, Donald Trump demoted the Council of Economic Advisers when he didn’t include its chairman in his Cabinet.
The head of President Biden’s CEA, Jared Bernstein, studied music and social work. He has no degree in economics.
Some of Kamala Harris’ top economic advisers — from Brian Deese to Mike Pyle to Deanne Millison — are all lawyers.
And on issues from free trade to immigration to tax policy to rent and price controls, both the Trump and Harris campaigns are throwing bedrock economic ideas in the trash can and embracing heterodox, populist ideas that might get you laughed at in economics courses. (The Indicator recently did an episode touching on this).
The Yale Law School Of Economics
In a recent column, economist and Bloomberg opinion writer Allison Schrager identifies one particular school that seems ascendant in economic policymaking circles — and it’s not an economics one. Yale Law School seems to be churning out some of the most important economic thinkers and policymakers around these days.
From Senator and vice presidential candidate JD Vance to FTC Chair Lina Khan to Kamala Harris advisers Brian Deese and Mark Pyle, there are a bunch of Yale Law grads having a big influence on economic thinking and policy.
Even though the acolytes of the Yale Law School of Economics can be found on both sides of the political aisle, Schrager points out, they share a worldview. They are skeptical of free trade. They bash big business. They see the decline of manufacturing not as a natural evolution of the economy but as a policy catastrophe that needs fixing. They support industrial policy, or a more muscular role for the government in shaping industry with policies like tariffs and subsidies. They think a lot about dividing up the economic pie, Schrager says, and less about growing it.
In all this, Schrager says, the Yale Law School of Economics rejects important ideas that have long dominated mainstream economics.
Despite a seeming ideological coherence, however, it’s not like Yale Law School is indoctrinating students with this worldview. The school, Schrager says, is not explicitly or systematically teaching this stuff.
Rather, Yale Law School seems to accept and matriculate a pretty diverse array of thinkers. It’s just that it’s the most prestigious law school in the nation and serves as an important gateway to the Washington elite. Whichever way the political winds blow in Washington, politicians will likely turn to Yale Law School grads because they’re smart, connected, ambitious and politically savvy.
The rise of the Yale Law School of Economics seems to say more about the political winds of our times and the declining popularity of economists and their ideas than anything. Free-market policies — sometimes called “neoliberalism” — are unpopular on both sides of the political aisle right now. Many blame it for widening inequality, the loss of manufacturing jobs and a host of related social ills. “I don't think a lot of economists would call themselves neoliberal, but a lot of ideas in economics do seem consistent with it,” Schrager says.
To put it in economics terms, the demand for economists seems to have declined as voters and politicians seek populist policy solutions. When they had the keys to policy, economists may have pushed policies with outcomes that many voters — especially in crucial Rustbelt swing states — don’t like. Plus, Americans seem to be putting less trust and faith in expertise in general.
Generally speaking, economists may have some serious competitive disadvantages vis-a-vis lawyers in the political world. Schrager says that economists are often “politically out to lunch” and more wedded to economic theory and empirical evidence than most lawyers. Lawyers are trained in making arguments and understanding laws, and politicians do stuff by making arguments and laws. Economists are mostly trained to crunch data and develop theories.
In addition, Schrager says, there may be changes in the economics profession that make economists even less well-suited to the world of politics these days. The profession seems to put more emphasis on empirical rigor. They focus more on finding solid evidence using experiments and fancy statistical work — and that often means trying to answer smaller questions. Schrager says they’re focusing less on big economic questions that may have more relevance for policymakers.
Is the decline of economists a good or bad thing?
Like many others these days, Appelbaum makes clear in his book The Economists’ Hour that he thinks the high tide of economist influence over the last 40 or so years was a bad thing. He blames free-market-oriented economists for pushing a set of ideas and policies that widened inequality and made many Americans worse off.
Schrager disagrees. “I doubt that we had as much power as that book suggests, but I think in the ways we did have power, we were actually pretty successful,” Schrager says. “I would call 40 years of low inflation, decent growth, and rising prosperity pretty good things.”
All this said, there are some silver linings for the profession when it comes to politics these days. First off, they’re not completely on the outs. Economist extraordinaire Janet Yellen, for example, heads the U.S. Treasury Department. And there are a range of Ph.D.-trained economists advising Donald Trump and other politicians, and so on.
Looking forward, economists might do as they tend to do and comfort themselves with some data. Mark Hallerberg, a political scientist who has studied when economists become top policymakers across OECD countries, says that politicians often appoint economists to top positions in times of change or crisis. There’s something about appointing economists to top positions that seems to signal to markets, “We got this. Don’t worry.”
In short, economists might make a comeback if the economy gets rough — or if the populist ideas being pushed by both political parties prove to be dead ends for greater prosperity.
Moreover, let’s not forget: both Donald Trump and Kamala Harris majored in economics as undergrads. That’s another win. Plus, Schrager points to the recent presidential debate.
“In the first couple minutes, Trump and Harris debated whose policies economists hate more,” Schrager says. In other words, they seemed to care what economists think. “It suggests we still have some influence.”
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