Godkin Lecture Series at Harvard University; Walter W. Heller: Advice and Consensus in Economic Policy Making

Politics is sometimes called the art of the possible. The clear implication of this for the economic adviser is not simply that he has to operate within the bounds of the possible but that he has to help the President Bush all those. From this it should be apparent that presidential economic advisors can't wrap themselves in their professional cocoon and hope to be effective. This conclusion has a bearing on the fears of a technician's takeover. Bertrand there's juvenile for example asserts that professional government can promote the general welfare of a can't be made politically Democratic. This seems to me to overlook that it's only by being responsible. By making their product marketable not merely to their number one customer but to the Congress the press and the public that professional advisors can get their message and their policies across. The first series of God and lectures were given here more than 60 years ago

by James Wright the academic year 900 or who lectures lectureship had been set up the previous year to honor Edwin Lawrence God. Who had died in 19 to God going to come to this country from Ireland a hundred years ago. Last year he founded and thereafter for some time continued to edit the nation. And he also was for a time the editor of The New York Evening Post. Harvard gave him an honorary master's degree in 1871. A year or so after a long negotiation during which President Elliott was tried unsuccessfully to persuade him to accept appointment here as a professor of history. So we can claim by virtue of this honorary degree we can claim God can as a Harvard man. He was an eloquent spokesperson.

And courageous protagonist for many liberal causes during his lifetime. The memorial to him at the Queen's University in Ireland describes him as a steadfast champion of good causes and high ideals. The lectures are to be given each year on the essentials of free government and the duties of the citizen or upon some part of that subject. God can decline to except accept appointment here because he was unwilling to sever his connection with the nation. Eliot had insisted that he would have to do this to devote time to teaching and God can just refuse to pay that price. The rather long letter he wrote to Elliott and a summer of 1870 explaining his position contains the following interesting sentences. He said. Will you pardon me if

as a personal friend I make one more remark. I find that one great cause of the small account in which a university education and university man are popularly held in this country is the general belief that they have no connection with practical affairs. The professor is looked on as a sort of bookish monk of whose opinions of the affairs of the world nobody need take any account. If he were alive God can most certainly approve of the university's choice for the god can lecture this year for him. Walter Heller surely we have a professor who is no bookish muck as one commentator said of him when he was leaving Washington a year and a half ago. This spectacled teach you're taught two presidents and a lot of congressmen

that a big tax cut even in a period of federal deficit can be constructive and a little further on. Not in recent memory has this capital budge so humbly low to a man who offered nothing but brain never met a payroll and never hopes to meet one among professors who have recently played active roles in government. Their number is very large. Mr Heller occupies an honored place. Heller graduated from Oberlin College in 1935. Received a Ph.D. in economics at Wisconsin in 1941. He's been a member of the faculty at the University of Minnesota with several rather lengthy periods for a great variety of distinguished extramural service since 1946. Known to everyone as extraordinarily persuasive and effective chairman of the

president's Council of Economic Advisors from 1961 to 1964. We're delighted to have him with us. The God can lecture this year. The title for his three lectures is new dimensions of political economy the subject of tonight's lecture is advice and consensus in economic policy making. My great privilege to introduce you to water health. You see the price Ladies and Gentleman be invited to give the god 10 lectures at Harvard. It is so singular an honor and so renowned the tradition that it's almost an act of presumption to accept. But having accepted. The political economist readily responds to the

God given lectures mandate that President Pusey just read first to deal with the essentials of free government. Surely one of those essential oils is a national economic policy so wisely conducted that it makes individual choice not only free but meaningful and second to deal with the duties of the citizen. Surely one of his most demanding duties today is to comprehend the new dimensions of political economy so that he may participate fully in its ever widening range of choices. I use the term political economy advisedly. Not without a little nudging from the dean for the new dimensions of which I speak in these lectures are chiefly in the uses of economics rather than in its substance chiefly in the weaving of modern economics into the warp and woof of national thinking and policy rather than in the development of new

theoretical tools or the development of new empirical truths together with the gradual closing of this 50 billion dollar production gap that we faced in 1960 61 has come apart as cause part as consequence a gradual and then a swift narrowing of the intellectual gap between professional economists and men of affair between economic advisors and decision makers. The grip of the economic myth and false fears has been loosened if not broken. We had a last except in fact what was accepted into law 20 years ago and the employment act of 1946 namely that the federal government has an overarching responsibility for the nation's economic stability and growth. And we have at last unleashed fiscal and monetary policy for aggressive pursuit. Of these objectives. These are profound changes. And what they've wrought is not the creation of a new economics but the completion of the Keynesian revolution.

Thirty years after Keynes fired the opening salvo out of these changes has grown a new more responsible and more exposed role for the political economist as presidential advisor and consensus seeker to explore that new role and its implications is the purpose of my lecture this evening. Change has also brought a new look at economic policy. Gone is the counter-cyclical syndrome of the 1950s. Policy now centers on gap closing and growth realizing and enlarging the economies non-inflationary potential. My second lecture will deal with the nature of this shift with yesterday's pleasures of expansion. Today's pangs of inflation and tomorrow's promise of fiscal abundance. Among the most exciting of these promises is the forging of a stronger fiscal base for our federalism. I don't mean by expanding our system of federal AIDS but when the demands of Vietnam relent by developing new forms of fiscal support for state local

government. My third lecture will examine the fiscal challenge of federalism and how we can meet it. That The Economist arrived on the new frontier and is well entrenched in the Great Society needs no proof at Harvard. Indeed the worst fears of all those who dread the age of the Economist are confirmed by the list of Harvard economics faculty and Ph.D.s currently or recently serving in high places. For example directors of the budget and a id ambassadors keep policymakers in the White House and Pentagon assistant secretaries of state and commerce Federal Reserve presidents and board members and a lengthening list of members of the Council of Economic Advisors. The CEA and I dare say that the rest of the country's economics departments put together. Could probably match Harvard's list. President Johnson underscored his esteem of the economists and Harvard at the

recent swearing in of a new CA member. He described the occasion as a bit of barter with Harvard University Harvard made us give them back out of time. He wouldn't do it and we wouldn't do it until they gave us Jim Dusenberry as we all know who is as we all known. One of the nation's leading economists. When I was growing up said the president that didn't seem to mean very much. But since I grew up we have learned the error of our ways interwoven with growing presidential reliance on economists has been a growing political and popular belief that modern economists can after all deliver the goods that even if they never meet a payroll. Nor carry a precinct economists who can meet a crisis and help carry an expansion into its sixth consecutive year may still be worth their salt. As BusinessWeek put it recently five years of remarkable growth and stability have raised the prestige of economists especially those who espouse the so-called new economics to an all time high.

How did economists come to such seats of power and prestige and are they there to stay. Answers must be sought in both the internal advances of recent decades in positive economics in the knowledge on which policy must be based and the external advances of recent years in the uses of normative economics as a source of presidential power. At the root of the recent revolution in economic policy an idiology life three decades of progress in economic science highlighted by Lord Keynes spectacular rescue of economics from the wilderness of the classical equilibrium which had assumed away the critical issues of employment and income levels and their determinants. Second Alvin Hansen's Americanization of Maynard which put a translated and enhanced Keynes at the disposal of a whole new generation of economists in this country. Simon cousin it's national income and gross national product concepts translated into the

Annual Department of Commerce National Income estimates by 1934 and GNP estimates by 1942. It's hard to believe that economists have only had the use of those tools since 1942 and the quarterly estimates have existed only since 1947. Further in this development was Paul Samuelson's neo classical synthesis for economies that make the full employment great. And finally the contributions of a new generation of computer oriented economists whose quantitative findings are constantly growing in range and reliability. Part of the political economy is strength then lies in an ever broadening base of economic theory research and statistics. But his influence with decision makers whether in the White House or in the Pentagon or even in the State House also derives from his particular analytical approach. Problems of choice are his meat and drink. His method is to factor out the costs the

benefits and the net advantage of or disadvantage of various courses of action where possible. He does so in quantitative terms where not he substitutes qualitative appraisals of the likely effects of given action but differently the economist thinks in terms of tradeoffs. The trade off between jobs and inflation which that is the problem with which we throw our Phillips curve the trade off between external payments equilibrium and internal expansion for which monetary policy did the twist. The tradeoff between price wage stability and unfettered markets for which we erected the guideposts. Further his discipline constantly conditions him to marginal rather than all or nothing thinking to a balancing of costs and benefits at the margins of policy adjustment and uncertainty and approximation are his natural habitat tradeoffs. Marginal adjustments. Uncertainty approximation.

Small wonder that the economist finds a ready home and finds himself at home in the governmental decision making process. The rising star of The Economist is also correlated with growing professional consensus. True. The shrill voices of minority groups and sharp debate over social goals may obscure this now and then at the Employment Act symposium last month for example Leon Keyserling described the previous night's friendly dinner of the six chairman of the Council of Economic Advisors as the Last Supper. And then proceeded to attack the recent tax cuts as 20 billion dollars thrown into the streets. But comparing economists of today with those of 25 years ago it's surely fair to say that there is more of both the Keynesian and the conservative in us all. Let me explain what I mean it's often said that the study of economics makes people conservative and in the micro economic sense

it does. It's hard to study the modern economics of relative price and resource allocation and distribution without developing a healthy respect for the market mechanism. First I respect for what Robert Dorfman calls the cybernetics of our price system that is for its incredible capacity to receive and generate information and respond. Second for its technical efficiency and hard headedness as a guide to resources and a goad to effort and risk taking. And third for the contribution to political democracy that it makes by keeping economic decisions free and decentralized kind of voting commented on this second point in terms of the profit motive I thought you might enjoy this with me. He even goes so far as to put in a small word in defense of profit as he calls it. Curiously he says perhaps the greatest virtue of profit. As a goal of organizational policy and as a measure of success is its abstractness. The very quality that has brought it into him

most into disrepute with the romantics who yearn and Golding says I confess to a small yearning along with them for a world in which everything is done for love. And if we can't do everything for love there is at least a certain innocence about doing things for money. He suggest this is less romantic than selling people what you think is good for them. Like glory death progress and salvation. But it at least exhibits a decent humility. Well a good word. For prophets of course. I dare not carry respect for the market mag mechanism to the point of reverence not within a stone's throw of the author of the affluent society a professional resolve to maintain our basic reliance on the market process doesn't require us either to admire or to tolerate. The resulting income distribution of the division of resources between the public and private sector or the forces of Monopoly and consumer

deceit which tend to thwart the market process. There may be substantial differences among economists on how far the government should go in protecting consumers or setting guideposts for wages and prices and so forth but there is little difference among them in supporting strong measures to protect the free play of market forces against monopoly in price fixing and in strongly opposing direct wage and price controls. As an inefficient and inequitable substitute for market forces to be considered only as a last resort in a war economy. Now the study of macroeconomics in turn moves us in the other direction. The basic structure of Keynesian macroeconomics and even the basic strategies of hand Sunny and macro policy for growth and stabilization are now the villain's common of the economics community. When Milton Friedman one of the high priests of laissez faire recently said we're all Keynesians now. The profession said man

and that was both the members of his congregation and the rest of us. True. We still there are over the tactics and the timing of fiscal and monetary moves for stabilization. We don't for example agree on exactly when we should tighten the monetary and fiscal turn it gets in an overheating economy. We do however take for granted that the economy cannot regulate itself and that government must step in at some point. An interesting sidelight is this that while the gap between economists and the public on Keynesian policy has been narrowing. The gap in the economics of the marketplace is still huge. A Gallup poll last month showed 45 percent of the public saying yes to this question is a wage price freeze as long as Vietnam lasts. A good idea and only 43 percent said no. Well I guess that forty five percent I should think that perhaps 90 percent of the economics

profession would think it a bad idea at this stage of the game. Why does this divergence not lead to friction and rejection of economists as the earlier Keynesian policy divergence did. Mainly I believe because there's a gap between the layman's pocketbook reaction and his ideology. And the most vocal interest groups who presume to speak for him regularly sound the trumpets for freedom from control. So on proposals for wage and price controls the real divergence between economists and the public is greater than the apparent divergence. And the economist finds himself in the strange position of Angel's advocate. Perhaps the most potent force however in the Economist's rise to influence is something outside the profession itself. I believe it's the growing conviction of presidents that effective economic policy is

essential to their success as a modern statesman and as political leaders as a statesman a president has a president has a vital not to say a vested interest in prosperity and rapid growth on behalf of the nation. They put at his disposal as nothing else can. The resources needed to achieve great societies at home and Grand Designs of broad successful economic policies serve a president's international aims. You know at least three important ways materially. They provide the wherewithal for foreign aid and defense efforts and for a Vietnam on the guns and butter basis ideologically and bigger is American economy is a showcase for modern capitalism for all the world to see a strategic way an expanding economy and a shrinking external payments deficit strengthen the president's hand in international politics a doubling of our growth rate in the past five years moving it from the bottom to the top of the ladder among the advanced

nations as strengthen not only the dollar but our strategic position in dealing with our free world partners. What a change from 1961. When President Kennedy ordered me and that's in quotes not to return from an always seedy meeting in Paris until I had discovered the secret of European growth and what satisfaction he would have found in the reverse lend lease of ideas which today finds European nations studying the American economic miracle and borrowing some of our techniques on the domestic front policies that enable an economy to grow and prosper. Give substance to presidential pledges to get the country moving again or to move toward a great and good society that society takes far more readily in the garden of growth than in the desert of stagnation. When the cost of fulfilling a people's aspirations can be met out of a growing horn of planet. Instead of by robbing Peter to pay Paul. It is a logical roadblock somehow or another melt away and

consensus replaces conflict as a political leader. President Johnson has found in modern economic policy an instrument that serves him well. In giving form and substance to the stuff of which is dreams for America are made in molding a democratic consensus. And third in giving that consensus a capital D and national elections. That the chill of recession may have tipped the presidential election in 1960 and that the bloom of prosperity boosted the margin of victory in 1064 is widely acknowledged especially by the defeated candidates at last month's employment act symposium there was much talk of the gradual evolution of economic policy under the terms of that act. But evolution turned a revolution the moment we had presidents and we now had two with a Keynesian perception to welcome their responsibilities under the Act and to use its mandate and the weapons of political economy to generate both prosperity and presidential power. That goes with it. One

uses the word power with some hesitation for the growth of. Federal or presidential power. Is so often identified with the decline of someone else's power and freedom. Economist might economists might call this a wages fun theory of power that applies here means a minus there but a moment's reflection will show that this is simply not sell. Recent growth in federal power in the economic realm is occurring as occurred side by side with growth of the effective freedom and strength of the individual and of business. In spite of a guidepost here and a guideline there. A climate of vigorous growth has widened the range of choice of private enterprise and made it more vibrant and competitive and open to the entry of new ideas and new products and new businesses and the centralized decision making and freedom of choice are left untouched by the impersonal fiscal and monetary tools that government uses to carry out its responsibility for a high level economy under the employment act. As to the individual

abundance enlarges his options his meaningful freedom to choose among goods and services among jobs and between work and leisure prosperity extends economic freedom more deeply creating jobs and enabling a president to battle the tyranny of poverty for some. Without wrenching resources away from others in the battle against discrimination. Prosperity adds economic rights to civil rights economic liberty can grow in need is growing simultaneously with presidential power. Given the US is a political economy as a source of effective presidential power given the Kumbh compatibility in this context the power of freedom. And given the statutory responsibility for maintaining prosperity and an economy which by its nature can't be self regulating one finds it hard to imagine a future president spurning professional economic advice and playing a passive economic role. The words and deeds of today's leading Republican candidates and democratic heirs apparent

lend substance to this conclusion in political economics the day of the Neanderthal man indeed the day of the pre Keynesian man is past. I like to think of it as bipartisan or nonpartisan. A belief in economists is a little bit like Representative Blaine hawker of Pennsylvania when they were discussing a particularly important public issue and he finally said rather rather emotionally. I'm not speaking as a Republican I'm speaking as a human being and. I. Like to think that. I. Like to think that that's the attitude towards economists today. Let me turn to The Economist has presidential advisor for the reasons I've reviewed I believe that the political economist is now thinks you're in the high councils of government not that his position even apart from personalities will ever be entirely secure or settled.

Thus the skeptic might well ask Won't say is law of economic advice that success creates its own demand. Work in reverse. When expansion turns into inflation when forecasts go sour when good economics clashes with good politics won't presidential enthusiasm wane when the policy coin is turned over and the motto reads not fiscal dividends but fiscal drag. Won't faith in economists ever because people now expect more of them than they can deliver. Admittedly there is some quicksand here but bedrock is only a few inches down bedrock as we've seen consists of the increasing power and reliability of the tools that the economist uses. A growing consensus on the analytical core of economics lessons of performance well done that will not easily be undone. And the fact that active economic policy whatever its limitations is indispensable to the highest purposes of the presidency. I doubt that a new chairman of the Council of Economic Advisors will ever again be asked as I was asked

late in 1060 several times will you handle this from Minnesota or will you have to go to Washington and never again will a member of the council call his position as one did in the 1950s the highest paid fellowship in the profession. The detached Olympian take it or leave it approach to presidential economic advice the dream of the logical positivist simply does not accord with the demands of relevance unrealism nor the requirements of the Employment Act. What are the presidential advisors responsibilities to the president to the public to the profession and to himself. I do not by the way necessarily identify economic advisor with Council of Economic Advisors. The president receives economic advice from many other sources both inside and outside of the government. I don't know why but the Treasury readily comes to mind. And even receives. And even receives advice from sources that are independent but not of the administration.

Yet the forces of both law and practice make it increasingly natural that the major focus of presidential advice should be in the council. So while I use the term economic advisors you nervously I shall be tolerant of listeners who subconsciously add the prefix Council of. The major functions of the economic advisors as I have seen and known them are the following economic analysis and interpretation. The most unique function of the economic advisor is to put at the president's disposal the best facts appraisals and forecasts that economic science statistics and surveys are capable of producing. Second policy advice on a foundation of such analysis and clacked and in the normative environment of Employment Act mandates and basic presidential philosophy. Economic Advisor weighs the effects of various courses of action on competing objectives of economic policy and not ignoring administrative and political feasibility presses the case for some measures and against others he serves up alternatives

and points up conflicting economic and political hazards. Not Thank heaven that they always conflict for an economic advisor I think I would define happiness as a political need that can be filled by an economic good. When the president asks However what ALL THINGS CONSIDERED is your advice he must the economic advisor must be prepared to answer a gardner Ackley aptly said it is economic advisor refrains from advice on the gut questions of policy. The president should and will get another one. Education is a third function experience of recent years has demonstrated that education of the president by the president and for the president is an inescapable part of an Economic Advisors function explanatory and analytical models of The Economist must be implanted at least intuitively in the minds of Presidents Congressmen and public leaders.

If the economic advice is to be accepted and translated into action and I'll deal with his function at some length. Fourth adaptation and translation. This is such a vital activity of the advisor and yet one so dimly perceived by observers in this function of adapting and translating that it merits a separate listing to take a highly refined and purified concepts of economics and convert them into workable and digestible form for services policy guides and focal points for consensus. That is to move economics from a point several abstractions away from the real world right down to Ground Zero involves a constant process of adaptation translation and innovation. The operational concepts of the production gap. Full employment surplus fiscal drag fiscal dividends illustrate this process the terms in which problems are put even their simple semantics have an important bearing on the fixing of political

objectives in the formation of policy. Mr Irving Babbitt saw this very clearly when he said All great revolutions are preceded by a revolution in the dictionary. The foregoing functions inevitably raise some issues of responsible behavior for Economic Advisors. They involve them and value choices in advocacy of presidential programs and in balance balancing what is ideal against what is practicable. And they push him to the outer limits of his data and analysis and sometimes beyond. Let me offer a few personal observations on how one resolves some of these issues. If perchance there is a grain or two eternal truth in these observations so much the better value choices first of all implicit in a great deal of what I've said is that value judgments are inescapable obligatory and a desirable part of life as an economic advisor. Inescapable because as Arthur Smitty's pointed out a dozen years ago.

He tells me he's forgotten this quotation but I'll now remind him concern with policy must be based on ethical or political presuppositions derived from the non-economic world merely selecting objectives. I'm outside his quotation now for economic policy as one must involve us in normative choices. Full employment high growth. Price stability may have a hard economic ring but they are only proxies if you will for such social goals as personal fulfillment or rising quality of life. And equity between fixed and variable income recipients. Obligatory I said. Well they are under the Employment Act that requires the setting of target levels of employment production and purchasing power where 5 4 or 3 percent unemployment 900 92 or 94 percent operating rates at 3 4 or 5 percent growth rates. Answering those questions we're choosing between higher prices and more jobs we're choosing between current consumption

and investment in the future and so on. But quite apart from the fact that they're inescapable and that they're blinkered Tori by law they're desirable. Or to say anything of importance in the policy process process requires value choices. For example meeting the added costs of Vietnam by higher taxes rather than Great Society cutbacks is not just an economic but a social choice. Higher taxes give content to President Johnson whose eloquent pledge to quote call for the contribution of those who live in the fullness of our blessings rather than strip it from the hands of them. Of those in need. The intimate connection between values in and out and analysis between technical and social goals was well illustrated in the original economic thinking that underlay the poverty program as early as May of 1963 Kenna thought Donald told us stop worrying about the tax cut. It will pass and pass big. So worry about something else. Well we had our orders and we did.

We turn to the question of those whom the tax cut would leave behind. Our analysis showed that the tax cut would create 2 to 3 million additional jobs and thus open many new exits from poverty. But those who are caught in the web of illiteracy lack of skills poor health and squalor could make little use of those access a full fledged response to the employment acts insistence on useful economic opportunities as the language of the act has it. For those able willing and seeking to work had to go beyond tax cuts and fiscal policy to measures sharply focused on removal of the road blocks of poverty by mid 1963 I had sent President Kennedy our economic and statistical analysis of the groups beyond the reach of the tax cut and had offered some groping thoughts on an attack on poverty. Obviously we were deep in the realm of social goals and values but much of the problem and much of the solution was economic in nature. I do not feel

that I strayed beyond my preserver as economic advisor. I recall by the way when President Kennedy first expressed some interest in the poverty problem late in 1962 he was getting ready for that three network broadcast telecast and he wanted some information about poverty. And one Sunday I brought some information over the White House for him. As we were talking he and the other sounder and I about the program he raised a really important question should he or should he not smoke a cigar while he was on the program. And I want you to know that I suggested that he shouldn't and he didn't. And this illustrates three important things. That one must draw lessons from one's experience first of all. He was decisive. That's clear. And secondly on the really important questions he did consult me. And Ferdie took my advice.

So I. Think that should be made clear in the history of economic advice in the Kennedy administration. Well no danger then lies. In admitting or even welcoming values to the economic advisory process. Danger would exist where values are permitted to write what the economists advice and slant is facts and analysis. If they advise their cloaks is that your preferences in the guise of scientific findings he's obviously unfit to serve. Let me turn then to advocacy much has been written about the dangers of open advocacy of explanation and defense of presidential policy by economic advisors. The fear is that they may lose their professional objectivity and integrity in the process. And we confronted this fear in our first statement in March of 61 before the Joint Economic Committee saying the council has a responsibility to explain to the Congress and to the public the general economic strategy of the president's program especially as it relates to the objectives of the Employment Act such explanation

seems to me is essential to the understanding the acceptance and the adoption of sound economic policy. Some of said explanation yes defense no. But to draw a line between the two is next to impossible and within reasonable bounds it's unnecessary. Advocacy poses no insoluble problems of integrity and few of objectivity though silence may cage may be golden under the kinds of circumstances which surely characterized the 1960s wonder 66 period. A general harmony of objectives between president and council a presidential readiness to heed even if not always to follow the counsel analysis and advice. And third an administration economic policy bearing the council's imprint in both content and direction. Of course the advisor won't always get his way nor should he. Some policy measures may be ruled out at a given time perhaps by conflicting presidential commitment by an insurmountable insurmountable congressional obstacle or by an unready public opinion.

And that case the ideal solution may have to yield a second best. But to explain and defend a good policy measure under circumstances where the best is beyond the political pale need not offend the conscience of the Economist. At the same time open advocacy does carry with it some dangers and discomforts of its own. When the adviser takes to the economic stump he has to make a more conscious effort to stay within the bounds of his professional competence. And the public makes no fine distinction in advocacy the political economist is seen as more political than economist. He should be prepared for this and for serving as a lightning rod for the angry charges generated by offended vested interests and prejudice. A consequence which is convenient for presidents as it's uncomfortable for advisors. For example wage price guideposts as I'm sure you've seen have been a prolific source of such charges against the council and the AFL CIO as recently stepped them

up to a new peak of intensity accusations of fiscal irresponsibility. Reached their peak early in 1963 just after President Kennedy proposed a massive tax cut in the face of a rising deficit rising expenditures in a rising economy. Hugh Sidey his book on Kennedy reminds me that the president interrupted our conversation one day during that period and said water I want to make it perfectly clear that I resent all those attacks on you. There is the problem of maintaining objectivity in perspective difficult as it may be for the citizen to see there is a deep professional commitment however. Which serves as a safeguard against loss of professional objectivity. The adviser knows he has to answer not only to himself but to his profession. This commitment is strengthened by our American practice might one might almost say our system of moving advisers back and forth between academic and government life the close tie with his professional base and the prospect of returning to it after a period of service and government. Prevent the subtle

accretion of hostages to a political environment that might eventually impair objectivity and bias judgment. This in and out characteristic of American economic advising substitutes in a sense for the British career service tradition as insurance of objectivity. And in addition to objectivity modesty becomes advisers. They need to recognize the limitation of their tools the role of luck. The role of the private sector and the restrictions imposed by various realities some of my finest prose in my paper is devoted to this subject but I don't have time to cover it. I think I'll perhaps give you just a tidbit or two on technical limits. The adviser sometimes has to say I don't know. Even though an educated guess might seem a manlier way out it doesn't mean that he has to forswear judgments and advice until all the facts and analysis are in in the words of Oliver Wendell Holmes.

Every year if not every day we have to wager our salvation upon some prophecy based on imperfect knowledge. I think I should also mention the role of luck. Aptness in government economic policy is based not only on good facts good analysis good timing good judgment and good nerves. But it is based also on good luck. For example the tax cut which I hope chiefly reflects the first five items had some element of the six because it was the council's good luck. Just when the skeptical not to say hostile spotlight was on it. To have the 1964 tax cut come when the economy was already moving forward. If the impact of the tax cut is one as an advisor loses sleep nights is that the kind of thing he loses sleep over if the impact of the tax cut had instead come just at the time of an incipient downturn. Holding the economy up. But not moving it spectacularly forward. We would have lost the force of the whole post hoc.

Ergo propter hoc reasoning that has undoubtedly played an important role in gaining popular acceptance for positive fiscal policy. I think also and something that I wish I had time to discuss someday at some length with my economic colleagues. We have to recognize the difference between the economist on the firing line and the Economist in academic life. Unlike his academic colleagues who can abstract from reality and deal with ultimate values and envision quantum jumps in our progress the economic practitioner has to operate deep in the heart of realism has to deal with movement toward rather than to the ideal and has to be at all times multidimensional and in his objectives a lump sum tax along fortunately never replace replace the lump of taxes we now live with and the principle that a change is good if the gainers which could more than compensate the losers as a sterile guide when in fact the compensation can never be made.

Let me turn now to the education of. By and for presidents President Kennedy early in one thousand sixty one urged the council and I quote to use the White House as a pulpit for public education and economics. On January 5th 1961 especially on the desirable effects of a federal deficit in a recession and he quickly added but always make clear that the recession started last year. That's what's known as a political economist and. He plainly recognized even if his own economic thinking was still in its formative stage that the major barrier to getting the country's economy moving again lay in the Eton economic ignorance and stereotypes that prevailed in the land the copybook maxims of private finance misapplied the federal finance threaten to strangle expansionary policy before it ever started. As Martin long has put it. Natural rights. Individual ism and the teachings of classical economics are profoundly

hostile to attempts to render the economy politically responsible. One thousand sixty one with over five million unemployed and a production gap of nearly 50 billion dollars. The problem of the economic advisor was not what to say but how to get people to listen. Even the president could not adopt. Modern economic advice however Goldman as long as the Congress and the public knew or thought they knew. But it was only fool's gold. The power of Keynesian ideas could not be harnessed to the nation's lagging economy without putting them in forms and terms that could be understood in the sense of fitting both a vocabulary and the values of the public and at the same time conditioning men's minds to accept new thinking new symbols and new and broader concepts of the public interest. And Small wonder then that a large part of the council's time in that period was devoting devoted not only to developing what was economically workable. But extending the boundaries of what was politically marketable in this

process I can assure you that we were keenly aware of the force of Jefferson's observation that a person is less remote from the truth who believes nothing than he who believes what is wrong. How could the power of the Keynesian idea be mobilized in the public interest in the face of the popular economic bogeys of government spending deficits and debt. The difficulty however went beyond the economic state of the popular mind accepted patterns of professional thought and practice that prevailed. In previous policy making were also a serious impediment policy thinking had been centered more on damping down the fluctuations of the business cycle than on realizing the economy's growing potential and there was no standard operators for setting the employment and production targets called for by the provisions of the Employment Act. Still coupled with these obstacles facing the advisor of the 60s was the unprecedented opportunity of working with two presidents whose minds were remarkably open and receptive to new economic

ideas and policies remarkably free of the preconceived doctrines that one might naturally have associated with their backgrounds who are deeply committed to more rapid growth as an instrument of the common good and eager to put the power of modern economics to work who had insatiable appetites for memoranda written by their economic advisors over three hundred economic memoranda went to President Kennedy in his 1000 days and the volume has risen not fallen under President Johnson but unprecedented opportunity should not be read to mean easy pickings as a leaf or two from the Chronicle of President Kennedy's development as an economist will quickly reveal. What has already been told from what you may gain an impression of more or less steady progression on economic sophistication and bold expansionary policy but seen from close by the course of true economics was far from smooth and straight. As I reflect on the early months of the Kennedy administration I must agree with those who feel that judged only in terms of policies actually proposed an adopted modern economics

established a beachhead on the new frontier but not much more than that in 1961. And one should probably accept Seymour Harris's view that Kennedy quote at first seemed allergic to modern economics unquote. How much of that allergy was inbred however and how much of it was a political sensitivity to the sting of Republican charges of fiscal irresponsibility and to a consciousness that tax cuts did not fit his call for sacrifice. One can't readily say several incidents in one thousand sixty one leave at least some doubts. As economists we were thunderstruck when we were told early in the administration in fact in January 61 that the anti recession battle would have to be fought within the bounds of a balanced budget. But relief followed shock when admittedly with our help the commitment was watered down to read in the state of the Union message as follows. Within that framework that is of the eyes of our spending and revenue estimates and I'm quoting now

barring the development of urgent national defense needs or a worsening of the economy. It is my current intention to advocate a program of expenditures which including revenues from a stimulation of the economy will not open by themselves on balance the earlier budget. We counted seven escape hatches. Then later. In March when the President reviewed the draft of the council's March 6th testimony before the Joint Economic Committee where we went up. He went over all 50 pages of it. He showed great Keynesian promise. By personally recasting one of the paragraphs in our testimony to read in part the successive fiscal and budget policies cannot be measured only by whether the budget is in the black or in the red. The true test is whether the economy is in balance. This is March 6 1961. If at the end of this year the unemployment rate is still near seven percent our fiscal policies would have to be viewed with great concern even if there is little or no deficit in the budget

unquote. That even if instead of Especially if suggested that his conversion was not yet complete. And as recovery waxed in one thousand sixty one his interest in the economic matters temporarily waned. I think the Bay of Pigs may have had something to do with that one day. Ted Sorensen seeing the three council members in somewhat glum conclave in the White House staff mess called out for all to hear. There they are contemplating the dangers of an upturn. Advisors have to use what levers of power they can find and recessions in those days were levers of economic advisory power in the summer of 1961 flying in the face of modern economics Kennedy had tentatively decided on a three billion dollar tax increase to finance the Berlin build up in spite of the still yawning gap between the economy's actual and potential performance. It was mainly the opening of a narrow corridor of power by a perceptive kind of thought out

this small corridor of power being the corridor leading into the Oval Office of the president that enabled us to gain access to the president on this issue and bring about a reversal of his tentative decision. A strategically placed ally Paul Samuelson helped the cause with a timely visit to Hyannis Port. It being summer. 1062 Kennedy responded much more positively to the challenge of Keynesian economics and to the promise of bold policies for expansion. The progression was unmistakable even if not unbroken by June of 1962. I'm sure you recall Kennedy had issued his own declaration of economic independence in the justly famous Yale speech on economic mythology as his economic advisors we were confident that this speech marked a new era in American economic policy and his decision two months later to call for a massive tax cut. Early in 1963 confirmed this by the way I think you probably know that President Kennedy wrote much of that speech although each book I read on it has a different author.

He wrote much of that speech was very proud of it and very disappointed on the reception of it again. And he came back. Truly quite crestfallen and said that he wished he had given it a hard time. I. I may also add that he said he himself recognized the significance of that significance of that speech and asked Mac Bundy to find funds to put it in covers and distributed widely. And it's interesting to read that today because it seems not nearly as radical and as shall we say in Himachal to the interests of the audience and he apparently had as it would have at that day. But relapses do occur. Even presidents have self-doubts one of my most upsetting days as economic advisor was December 14th 1062 my notes for that day tell me as of the moment the president is shaken on the question of the tax cut. I

have never seen him so anguished and uncertain about the correctness of his courses on a domestic matter. In the two years that I have served with him. Then I noted that his reaction was a response to three events. First to a call from Senator Kirk saying that that the economic outlook for 1963 even without the tax cut was getting better and better. We didn't need a tax cut. Second his research. It was a response to the long shadow of our ambassador to India which had fallen across the White House with a renewed call for expenditure increases instead of tax cuts. And third it was a response to a cabinet meeting at which Kennedy at my urging had asked his cabinet members for reactions to the projected 10 billion dollar tax cut. The results were a small disaster departmental interests and bigger expenditure programs won out by a substantial majority of the over the general interest in a tax cut. Had the cabinet been a decision making body the tax cut might have sunk on that reef right there even though not far beyond. At least to an economist

where the deeper and calmer economic waters of our great prosperity in which great budgets would be easier to finance. Fortunately this mood didn't last long after his superb least successful attack speech to the Economic Club of New York the very next day he called. When he returned to Washington with as euphoric a reaction as I have yet heard from him. My notes tell me I gave them straight Keynes and Heller and they loved it. But what one of one of the people said on his way and does not bear repeating doubts were gone and he moved steadily ahead on the tax cut course and the educational job needed to put it across. Now I don't want to be misunderstood President Kennedy's occasional doubts and concessions to prevailing economic sentiments stand out only as detours on his road to modernism. What was pleasing to his economic advisors and fortunate for the country was that he was so responsive to analysis the force of economic logic in fact two

analogies. That demonstrated success of Keynesian policies abroad and two anomalies. That is the continued sacrifice of material and human resources on the altar of false concepts of sound finance. President Johnson like his predecessor had been conditioned to fiscal caution if not conservatism. But he also shared with Kennedy about the growing impatience with the performance of the economy and a willingness to explore the potential of new economic ideas. Yet. I think it's fair to say that actual performance the hard evidence of results flowing from policy actions play a larger role in the advance of his economic thinking. And but by the time he became president some of the results were flowing from the 1962 fiscal action and stimulus. Then after. He drove the tax cut through to an act meant early in 1964 the economy responded almost exactly in accord with the economic analysis and projections on which it was found.

And it's at that time that the slow yeast of change which had been working to raise public understanding of new economic ideas gave way to rapid changes in public thinking and acceptance of active fiscal policy and in that process President Johnson who once described his economics to me as old fashioned turned quickly smoothly and effectively to the uses of modern economics.