[Economic Report of the President (1998)]
[Administration of William J. Clinton]
[Online through the Government Printing Office, www.gpo.gov]

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Economic Report of the President - - - - - - - - - - - - H. Doc. 105-176
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Appendix A--REPORT TO THE PRESIDENT ON THE ACTIVITIES
OF THE
COUNCIL OF ECONOMIC ADVISERS DURING 1997




LETTER OF TRANSMITTAL

Council of Economic Advisers
Washington, D.C., December 31, 1997

Mr. President:
The Council of Economic Advisers submits this report on its activities
during the calendar year 1997 in accordance with the requirements of
the Congress, as set forth in section 10(d) of the Employment Act of
1946 as amended by the Full Employment and Balanced Growth Act of
1978.
Sincerely,

Janet L. Yellen, Chair
Jeffrey A. Frankel, Member
Rebecca M. Blank, Member-Nominee



Council Members and Their Dates of Service
_______________________________________________________________________________________
Names                    Position          Oath of office date     Separation date
_______________________________________________________________________________________
Edwin G. Nourse ......... Chairman ......... August 9, 1946 ......... November 1, 1949.
Leon H. Keyserling ...... Vice Chairman .... August 9, 1946 .........
Acting Chairman .. November 2, 1949 .......
Chairman ......... May 10, 1950 ........... January 20, 1953.
John D. Clark  .......... Member ........... August 9, 1946 .........
Vice Chairman .... May 10, 1950 ........... February 11, 1953.
Roy Blough .............. Member ........... June 29, 1950 .......... August 20, 1952.
Robert C. Turner ........ Member ........... September 8, 1952 ...... January 20, 1953.
Arthur F. Burns ......... Chairman ......... March 19, 1953 ......... December 1, 1956.
Neil H. Jacoby .......... Member ........... September 15, 1953 ..... February 9, 1955.
Walter W. Stewart ....... Member ........... December 2, 1953 ....... April 29, 1955.
Raymond J. Saulnier ..... Member ........... April 4, 1955 ..........
Chairman ......... December 3, 1956 ....... January 20, 1961.
Joseph S. Davis ......... Member ........... May 2, 1955 ............ October 31, 1958.
Paul W. McCracken ....... Member ........... December 3, 1956 ....... January 31, 1959.
Karl Brandt ..............Member ........... November 1, 1958 ....... January 20, 1961.
Henry C. Wallich ........ Member ........... May 7, 1959 ............ January 20, 1961.
Walter W. Heller ........ Chairman ......... January 29, 1961 ....... November 15, 1964.
James Tobin ............. Member ........... January 29, 1961 ....... July 31, 1962.
Kermit Gordon ........... Member ........... January 29, 1961 ....... December 27, 1962.
Gardner Ackley .......... Member ........... August 3, 1962 .........
Chairman ......... November 16, 1964 ...... February 15, 1968.
John P. Lewis ........... Member ........... May 17, 1963 ........... August 31, 1964.
Otto Eckstein ........... Member ........... September 2, 1964 ...... February 1, 1966.
Arthur M. Okun .......... Member ........... November 16, 1964 ......
Chairman ......... February 15, 1968 ...... January 20, 1969.
James S. Duesenberry .... Member ........... February 2, 1966 ....... June 30, 1968.
Merton J. Peck .......... Member ........... February 15, 1968 ...... January 20, 1969.
Warren L. Smith ......... Member ........... July 1, 1968 ........... January 20, 1969.
Paul W. McCracken ....... Chairman ......... February 4, 1969 ....... December 31, 1971.
Hendrik S. Houthakker ... Member ........... February 4, 1969 ....... July 15, 1971.
Herbert Stein ........... Member ............ February 4, 1969 ......
Chairman .......... January 1, 1972  ...... August 31, 1974.
Ezra Solomon ............ Member ............ September 9, 1971 ..... March 26, 1973.
Marina v.N. Whitman ..... Member ............ March 13, 1972 ........ August 15, 1973.
Gary L. Seevers ......... Member ............ July 23, 1973 ......... April 15, 1975.
William J. Fellner ...... Member ............ October 31, 1973 ...... February 25, 1975.
Alan Greenspan .......... Chairman .......... September 4, 1974 ..... January 20, 1977.
Paul W. MacAvoy ......... Member ............ June 13, 1975 ......... November 15, 1976.
Burton G. Malkiel ....... Member ............ July 22, 1975 ......... January 20, 1977.
Charles L. Schultze ..... Chairman .......... January 22, 1977 ...... January 20, 1981.
William D. Nordhaus ..... Member ............ March 18, 1977 ........ February 4, 1979.
Lyle E. Gramley ......... Member ............ March 18, 1977 ........ May 27, 1980.
George C. Eads .......... Member ............ June 6, 1979 .......... January 20, 1981.
Stephen M. Goldfeld ..... Member ............ August 20, 1980 ....... January 20, 1981.
Murray L. Weidenbaum .... Chairman .......... February 27, 1981 ..... August 25, 1982.
William A. Niskanen ..... Member ............ June 12, 1981 ......... March 30, 1985.
Jerry L. Jordan ......... Member ............ July 14, 1981 ......... July 31, 1982.
Martin Feldstein ........ Chairman .......... October 14, 1982 ...... July 10, 1984.
William Poole ........... Member ............ December 10, 1982 ..... January 20, 1985.
Beryl W. Sprinkel ....... Chairman .......... April 18, 1985 ........ January 20, 1989.
Thomas Gale Moore ....... Member ............ July 1, 1985 .......... May 1, 1989.
Michael L. Mussa ........ Member ............ August 18, 1986 ....... September 19, 1988.
Michael J. Boskin ....... Chairman .......... February 2, 1989 ...... January 12, 1993.
John B. Taylor .......... Member ............ June 9, 1989 .......... August 2, 1991.
Richard L. Schmalensee .. Member ............ October 3, 1989 ....... June 21, 1991.
David F. Bradford ....... Member ............ November 13, 1991 ..... January 20, 1993.
Paul Wonnacott .......... Member ............ November 13, 1991 ..... January 20, 1993.
Laura D'Andrea Tyson .... Chair ............. February 5, 1993 ...... April 22, 1995.
Alan S. Blinder ......... Member ............ July 27, 1993 ......... June 26, 1994.
Joseph E. Stiglitz ...... Member ............ July 27, 1993 .........
Chairman .......... June 28, 1995 ......... February 10, 1997.
Martin N. Baily ......... Member ............ June 30, 1995 ......... August 30, 1996.
Alicia H. Munnell ....... Member ............ January 29, 1996 ...... August 1, 1997.
Janet L. Yellen ......... Chair ............. February 18, 1997 .....
Jeffrey A. Frankel ...... Member ............ April 23, 1997 ........
_______________________________________________________________________________________


Report to the President on the Activities of the
Council of Economic Advisers During 1997

The Council of Economic Advisers was established by the Employment Act
of 1946 to provide the President with objective economic analysis and
advice on the development and implementation of a wide range of
domestic and international economic policy issues.

The Chair of the Council

Janet L. Yellen was appointed Chair on February 18, 1997. Dr. Yellen
replaced Joseph E. Stiglitz, who left the Council to become Senior
Vice President of Development Economics and Chief Economist of the
World Bank. Before becoming Chair of the Council, Dr. Yellen served as
a Member of the Board of Governors of the Federal Reserve System. Dr.
Yellen is on leave from the Haas School of Business at the University
of California, Berkeley, where she is the Bernard T. Rocca, Jr.
Professor of International Business and Trade. Dr. Yellen is
responsible for communicating the Council's views on economic matters
directly to the President through personal discussions and written
reports. Dr. Yellen also represents the Council at Cabinet meetings,
meetings of the National Economic Council (NEC), daily White House
senior staff meetings, budget team meetings with the President, and
other formal and informal meetings with the President, senior White
House staff, and other senior government officials. Dr. Yellen is the
Council's chief public spokesperson. She directs the work of the
Council and exercises ultimate responsibility for the work of the
professional staff.

The Members of the Council

Jeffrey A. Frankel is a Member of the Council of Economic Advisers.
Dr. Frankel is on leave from the University of California, Berkeley,
where he is Professor of Economics. He previously directed the program
on International Finance and Macroeconomics at the National Bureau of
Economic Research and is a former Senior Fellow at the Institute for
International Economics.

Alicia H. Munnell was a Member of the Council of Economic Advisers
until August 1997. Dr. Munnell currently holds the Peter F. Drucker
Chair in Management Sciences at Boston College's Carroll School of
Management. The President has nominated Rebecca M. Blank to succeed
Dr. Munnell as a Member of the Council. While awaiting confirmation,
Dr. Blank has been serving as Chief Economist. She is on leave from
Northwestern University, where she is Professor of Economics. Dr.
Blank previously served as the first Director of the Northwestern
University/University of Chicago Joint Center for Poverty Research and
was a faculty affiliate at Northwestern University's Institute for
Policy Research.

The Chair and Members work as a team on most economic policy issues.
Dr. Frankel and Dr. Munnell shared responsibility for domestic
macroeconomic analysis, the Administration's economic forecast, and
budget and tax issues. Dr. Frankel is primarily responsible for
international economic issues and certain microeconomic issues,
including those relating to natural resources, the environment, and
industrial organization. Dr. Munnell was primarily responsible for
retirement, health care, welfare reform, and labor issues. Dr. Blank
has taken over responsibility for these issues. She is also
responsible for child and family policy issues and is working closely
with the President's Initiative on Race. The Chair and Members
participate in the deliberations of the NEC, and Dr. Yellen is a
member of the NEC Principals Committee.

WEEKLY ECONOMIC BRIEFINGS

Dr. Yellen and the Members continued during 1997 to conduct a weekly
economic briefing for the President, the Vice President, and the
President's other senior economic and policy advisers. The Council, in
cooperation with the Office of the Vice President, prepares a written
Weekly Economic Briefing of the President, which provides analysis of
current economic developments, more extended discussions of a wide
range of economic issues and problems, and summaries of economic
developments in different regions and sectors of the economy. This
document serves as a basis for the oral economic briefing of the
President.

MACROECONOMIC POLICIES

A primary function of the Council is to advise the President on all
major macroeconomic issues and developments. The Council prepares for
the President, the Vice President, and the White House senior staff
almost daily memoranda that report key economic data and analyze
current economic events.

The Council, the Department of the Treasury, and the Office of
Management and Budget--the Administration's economic ``troika''--are
responsible for producing the economic forecast that underlies the
Administration's budget proposals. The Council, under the leadership
of the Members, initiates the forecasting process twice each year. In
preparing these forecasts, the Council consults with a variety of
outside sources, including leading private sector forecasters.

In 1997 the Council continued to take part in discussions about the
President's balanced budget plan. The Council also participated in
meetings on a range of budget issues including Medicare reform,
discretionary spending priorities, and the Administration's tax
proposals. The Council participated in discussions regarding proposals
to strengthen the Social Security system, and in an interagency effort
to develop a package of proposed reforms to the private pension system
to promote higher rates of national saving and greater retirement
security.

The Council participates in the Working Group on Financial Markets, an
interagency group that monitors developments related to financial
markets and the banking sector. The group includes representatives
from the Treasury, the Federal Reserve, the NEC, and various
regulatory agencies.

The Council continued its efforts to improve the public's
understanding of economic issues and the Administration's economic
agenda through regular briefings with the economic and financial
press, frequent discussions with outside economists, and presentations
to outside organizations. Drs. Yellen, Frankel, Munnell, and Blank
also regularly exchanged views on the macroeconomy with the Chairman
and Members of the Board of Governors of the Federal Reserve System.

INTERNATIONAL ECONOMIC POLICIES

The Council was an active participant in 1997 in the international
economic policymaking process through the NEC and the National
Security Council, providing both technical and analytical support and
policy guidance. In particular, the Council has helped assess the
economic impact of international sanctions against foreign nations,
and the efficacy of relaxing restrictions in the U.S.-Japan civil
aviation market. The Council has taken an active role on a range of
other international economic issues, including evaluating and
explaining the case for trade liberalization, the Administration's
policy approach to Asia's financial turmoil, U.S. trade remedy laws
(antidumping, countervailing duties, safeguards, and Section 301
actions), and the agendas of multilateral and regional forums such as
the World Trade Organization, the Asia-Pacific Economic Cooperation
forum, and the proposed Free Trade Area of the Americas.

The Council played a significant role in preparing both the
Administration's 1997 Study on the Operation and Effects of the North
American Free Trade Agreement and the 1997 APEC Economic Outlook. The
Weekly Economic Briefing of the President also regularly included
articles on international events and issues.

Because of the growing importance of international economic issues to
the U.S. economy, the Council often represents the United States at
international meetings and forums. In November Dr. Yellen gave the
keynote address at the U.S.-R.O.C. Economic Council Plenary Session.
Also in November Dr. Frankel participated in the annual meeting of the
APEC Senior Economic Advisers, a meeting initiated in 1996 by the
Council during the APEC Leaders Summit. At this meeting Dr. Frankel
presented a Council paper on the long-term determinants of growth. In
December Dr. Frankel participated in the Joint Economic Development
Group with Israel. The Council also continued annual meetings with the
Economic Planning Agency of Japan and the State Planning Commission of
China, the Council's counterparts in those countries.

The Council is a leading U.S. participant in the Organization for
Economic Cooperation and Development (OECD), the principal forum for
economic cooperation among the high-income industrial countries. The
Council heads the U.S. delegation to the semiannual meetings of the
OECD's Economic Policy Committee; Dr. Yellen serves as that
committee's chair. In 1997 Dr. Frankel participated in Working Party 3
on macroeconomic policy coordination. Dr. Steven N. Braun, Director,
Macroeconomic Forecasting at the Council, led the U.S. delegation to
the OECD annual examination of the United States, and to the
Short-term Economic Forecasters' Meeting. Dr. Christopher Carroll,
Senior Economist at the Council, led the U.S. delegation to the
Working Party 1 meeting on structural issues.

MICROECONOMIC POLICIES

During 1997 the Council was an active participant in a range of
microeconomic policy discussions. The Council participated in various
interagency policy discussions on labor market issues, health care,
education, child care, and welfare reform; in the development of the
Child Health Insurance Program; in interagency discussions of
proposals to increase health insurance coverage for older workers; and
in a working group investigating alternative measures of poverty. The
Council also participated in working groups on the minimum wage,
training initiatives for displaced workers, and unemployment insurance
reform.

The Council has been actively involved in the President's Initiative
on Race and is coordinating production of a document that will present
important indicators of social and economic well-being by race and
ethnicity for use by a national audience including educators and
policymakers.

In May the Council issued a report titled Explaining the Decline in
Welfare Receipt, 1993 to 1996. The report examined the causes of the
20-percent decline (2.75 million recipients) in the welfare caseload
that took place between 1993 and 1996 and concluded that roughly 40
percent of the decline was due to the stronger economy, roughly 30
percent to welfare reform policies, and the remainder to other factors
such as the earned income tax credit.

The Council was involved in White House conferences on early childhood
development and child care. In conjunction with the early childhood
development conference, the Council released a white paper titled The
First Three Years: Investments That Pay. This report documented the
importance of programs to encourage children's development in the
first 3 years of life and the high long-term payoff of such
investments.

As a follow-up to the White House child care conference, the Council
issued a report titled The Economics of Child Care. This report
reviewed the economics literature regarding the availability, cost,
and quality of child care and the importance of policies to support
access to affordable, quality care.

In the areas of regulation and competition policy, the Council helped
develop important Administration initiatives to improve the
performance of markets, both domestically and internationally. On the
domestic front the Council took part in interagency efforts to
increase competition in electric power markets in a manner consistent
with important environmental and social objectives. The Council
contributed to the Administration's analysis of whether and how much
to reform product liability law, and to discussions of the Federal
Communications Commission's methods for pricing telecommunications
services. The Council also worked with the Federal Trade Commission,
the Department of Justice, and the Department of the Treasury to
consider questions raised by the proposed industry-wide tobacco
settlement. In addition, the Council worked with the Treasury, the
Department of Education, and the Office of Management and Budget to
develop reforms of the college financial aid system to make it fairer
and more efficient.

With respect to international regulation and competition policy, the
Council cooperated with the Department of State and other agencies to
bring more competition to the satellite communications industry, to
support the OECD's adoption of principles for economically sound
regulation, to promote efficient infrastructure development in the
Asia-Pacific region, and to coordinate merger policy with the European
Union.

The Council was also active in a range of policy discussions on
natural resources and the environment. The Council took part in the
interagency evaluation of National Ambient Air Quality Standards for
ozone and particulate matter under the Clean Air Act and the
implementation plans for the revised standards. The Council was
actively involved in the development and analysis of the
Administration's global climate change policy.

The Staff of the Council of Economic Advisers

The professional staff of the Council consists of the Chief of Staff,
the Senior Statistician, 11 senior economists, 5 staff economists, and
3 research assistants. The professional staff and their areas of
concentration at the end of 1997 were:

Chief of Staff and General Counsel

Michele M. Jolin

Senior Economists

Steven N. Braun .....................Director, Macroeconomic Forecasting
Christopher D. Carroll ..............Macroeconomics and Aging
Aaron S. Edlin ......................Regulation, Industrial Organization, and
Antitrust
Keith O. Fuglie .....................Agriculture and Natural Resources
Maria J. Hanratty ...................Health Care and Labor
Jon D. Haveman ......................International Economics
Sanders D. Korenman .................Labor, Welfare, and Education
Randall W. Lutter ...................Regulation and Environment
Adele C. Morris .....................Environment and Natural Resources
Jeremy B. Rudd ......................Macroeconomics
Charles F. Stone ....................Macroeconomics and Editor, Weekly
Economic Briefing of the President

Senior Statistician

Catherine H. Furlong

Staff Economists

Joseph E. Aldy ...........................Environment and Natural Resources
Amy N. Finkelstein .......................Labor and Public Finance
Mark R. Hopkins ..........................International Economics
Mark C. Rainey ...........................Industrial Organization and
Regulation
Sarah J. Reber ...........................Health Care and Environment

Senior Research Assistant

Ha Yan Lee ...............................Macroeconomics

Research Assistants

Zachary M. Candelario ....................Weekly Economic Briefing of the
President, Labor, and Environment
Daniel K. Chang ..........................Weekly Economic Briefing of the
President and International
Economics

Statistical Office

Mrs. Furlong directs the Statistical Office. The Statistical Office
maintains and updates the Council's statistical information, oversees
the publication of the monthly Economic Indicators and the statistical
appendix to the Economic Report, and verifies statistics in
Presidential and Council memoranda, testimony, and speeches.

Susan P. Clements ........................Statistician
Linda A. Reilly ..........................Statistician
Brian A. Amorosi .........................Research Assistant

Administrative Officer

Catherine Fibich

Office of the Chairman

Alice H. Williams ........................Executive Assistant to the Chairman
Sandra F. Daigle .........................Executive Assistant to the Chairman
and Assistant to the Chief of Staff
Lisa D. Branch ...........................Executive Assistant to Dr. Frankel
Francine P. Obermiller ...................Executive Assistant to Dr. Blank

Staff Secretaries

Mary E. Jones ............................International Economics, Labor, and
Health Care
Rosalind V. Rasin ........................Environment, Industrial Organization,
and Public Finance
Mary A. Thomas ...........................Macroeconomics

Mrs. Thomas also served as executive assistant for the Weekly Economic
Briefing of the President.

Michael Treadway provided editorial assistance in the preparation of
the 1997 Economic Report. Michael A. Toman, Resources for the Future,
served as a consultant during the year.

Student interns during the year were Aryeh J. Aslan, Elizabeth T.
Burns, Carol L. Capece, Quindi C. Franco, Robert K. Kaproth, Mark N.
Levine, Jennifer A. Meyers, Andrew J. Miller, Praveen Rangnath,
Katharine S. Rogers, Ravi K. Sandill, Kristen M. Scarafia, Courtney A.
Sweeney, Harsh N. Trivedi, and Jennifer H. Yoon. The following student
interns joined the Council in January to assist with the preparation
of the Economic Report: Keith H. Monk, Jenny E. Pippin, and Samuel G.
Steckley.

DEPARTURES

The Council's senior economists, in most cases, are on leave of
absence from faculty positions at academic institutions or from other
government agencies or research institutions. Their tenure with the
Council is usually limited to 1 or 2 years. Most of the senior
economists who left the Council during 1997 returned to their previous
affiliations. They are Timothy J. Brennan (University of Maryland,
Baltimore County, and Resources for the Future), William B. English
(Board of Governors of the Federal Reserve System), Phillip B. Levine
(Wellesley College), John D. Montgomery (International Monetary Fund),
Raymond Prince (Department of Energy), Christopher J. Ruhm (University
of North Carolina, Greensboro), Jason F. Shogren (University of
Wyoming), and David L. Sunding (University of California, Berkeley).
Mark J. Mazur became Senior Policy Adviser and Chief Economist at the
Department of Energy.

Staff economists are generally graduate students who spend 1 year with
the Council and then return to complete their dissertations. Those who
returned to their graduate studies in 1997 are Carrie S. Cihak
(University of Michigan), Cynthia K. Gustafson (University of
California, Berkeley), Andrea Richter (London School of Economics),
Cristian J. Santesteban (Stanford University), and Caroline M.
Thompson (Princeton University). Jason L. Furman accepted a position
with the World Bank. Thomas A. Rhoads accepted a position with
Resources for the Future and has since returned to graduate studies at
the University of Wyoming. After serving as research assistants at the
Council, Jennifer C. Daskal accepted a position at the Center on
Budget and Policy Priorities, and Diane M. Whitmore began graduate
studies at Princeton University.

Elizabeth A. Kaminski and Margaret L. Snyder retired in 1997 after
serving the Council for 32 and 36 years, respectively. Mrs. Kaminski
served most recently as Administrative Officer, and Mrs. Snyder
retired from the Statistical Office.

Public Information

The Council's Annual Report is an important vehicle for presenting the
Administration's domestic and international economic policies. It is
now available for distribution as a bound volume, on CD-ROM, and on
the Internet, where it is accessible at http://www.access.gpo.gov/eop.
The Council also has primary responsibility for compiling the monthly
Economic Indicators, which is issued by the Joint Economic Committee
of the Congress. The Internet address for the Economic Indicators is
www.access.gpo.gov/congress/cong002.html.