Last week the White House announced the departure of National Economic Council director Stephen Friedman. I have never been a fan of the NEC as an organization. It has always seemed to be an unnecessary extra layer of bureaucracy that added little to the implementation of economic policy. Indeed, I think the NEC has tended to get in the way, making it harder for established agencies like the Treasury Department and the Council of Economic Advisors to do their jobs.
The NEC was created by the Clinton administration. It grew out of a campaign promise by Clinton in 1992 to elevate the stature of economic policy in the White House to that of foreign and defense policy. Toward that end, he proposed establishing an economic organization equivalent to that of the National Security Council.
The problem is that the nature of economic policy does not lend itself to the same organizational structure required for foreign and defense policy. For starters, the NSC is needed to mediate the institutional policy disputes that inevitably exist in every administration between the State Department and Defense Department. Moreover, the nature of foreign and defense policy makes it extremely time-sensitive, and it generally involves secret data and materials that demand special procedures.
Only very, very seldom does anything like this arise with economic policy. Most of the time, economic issues do not require immediate action and almost never involve national security. Furthermore, the kind of institutional conflict that exists between State and Defense has no counterpart among economic agencies. They may have different roles and opinions, but economic agencies are not inherently at loggerheads with each other, requiring a specialized agency to mediate the ongoing conflict.
Knowing this also explains why some of the criticism of NSC advisor Condoleezza Rice is misplaced. The very nature of her job is to avoid taking sides between State and Defense, which means keeping her personal views to herself. If she had taken sides, as many outsiders have criticized her for not doing, she would have lost her credibility as an honest broker and essentially abrogated her position. Rice would have been of no value to the president or the NSC if her positions were predictable. Attacking her for being a chameleon misses the basic point of her function.
To be sure, there is a coordinating role that someone needs to play on the economic side. In past administrations, the Office of Policy Development director oversaw an Economic Policy Council chaired by the Treasury secretary, which performed this function. On a day-to-day basis, a mid-level staffer organized working groups, set up meetings, and ran the EPC.
One reason why Clinton did things differently is that he wanted a high-level White House position for Bob Rubin, one that would justify a West Wing office and the other trappings of status that go with it. Consequently, the NEC was really designed around Rubin’s considerable abilities. And by all accounts, it operated well during his tenure.
But eventually, Rubin moved on to become Treasury secretary. Since then the NEC has slowly gone downhill. During the early days of the Bush administration, it had a bit of a revival when Larry Lindsey, Bush’s closest campaign economic advisor, was named director. But for unknown reasons Lindsey was fired in late 2002, along with Treasury Secretary Paul O’Neill. Friedman, who, like Rubin, formerly headed the investment firm of Goldman Sachs, replaced Lindsey.
I have always been puzzled by Lindsey’s dismissal. O’Neill went out of his way to be a pain in the neck and was widely viewed as not being a team player in an administration that prizes loyalty above all else. But Lindsey was (and still is) as loyal as the day is long. I continue to feel that he was very badly mistreated. There was no reason to publicly humiliate him the way Bush did. It sent a signal that loyalty is a one-way street in this White House.
The only negatives I ever heard about Lindsey were that he was somewhat disorganized and overly outspoken with the media. So it was not surprising that he was replaced by someone known as a good manager, and someone who was virtually invisible in the media.
President Bush also recently named Office of Policy Development director Margaret Spellings as his secretary of Education. The departure of Friedman and Spellings creates an opportunity to merge the NEC and the OPD and get back to a more efficient White House structure. I think this would improve economic policy and make it easier for Bush to pursue issues like tax and Social Security reform.