When President Clinton tapped economist Laura D'Andrea Tyson to head the Council of Economic Advisers, the economics profession went into shock. Tyson, 45, is outspoken and infinitely more interested in the hot-button issues of trade and technology than macroeconomics. Since then, Tyson has had to compete with a slew of Clinton econo-gurus, among them National Economic Council Director Robert E. Rubin, Labor Secretary Robert B. Reich, Treasury Secretary Lloyd M. Bentsen, and Treasury Under Secretary Lawrence H. Summers. All that led to predictions that Tyson's influence would be limited.
It hasn't happened that way. The economics profession may still be in therapy over the appointment, but just listen to President Clinton's tough critiques of Japan's sheltered markets, his support for "results-oriented trade policy," or talk of a U.S. "investment deficit," and you're hearing pure Tyson. Administration insiders say that while she must share authority with other advisers, Tyson's influence on the President remains high.
The relationship is all the more remarkable since Clinton, whose inner circle is made up largely of old friends, hadn't even met Tyson last August, when he gave her a last-minute invitation to the Governor's Mansion in Little Rock for an economic-policy salon. The parlor was filled with more prominent economists--Summers, Nobel laureate James Tobin, and Alan S. Blinder of Princeton University among them. But the talk centered on issues that Clinton--and Tyson--are most interested in: Does manufacturing matter? How can America compete with low-wage nations? Can the huge U.S. defense complex be converted to civilian uses? Just finishing a book on that very subject, Tyson held forth on the need for the U.S. to preserve high-wage, high-skill manufacturing jobs. Clinton was impressed. When, months later, Tyson handed him a first edition copy of her Who's Bashing Whom? Trade Conflict in High Technology Industries, Clinton read the book.
Still, it wasn't exactly an easy climb to the Cabinet for the controversial University of California at Berkeley economist. When her name appeared on the short list of possible CEA chairs, a dubious Warren M. Christopher, co-director of the transition team, ordered an aide to pmll mainstream economists on her writings. But others close to Clinton, particularly trade hard-liners, were more enthusiastic. When Treasury chief Bentsen first met Tyson, he stuck out his hand and exclaimed: "Great book!"
Not all of Tyson's economic colleagues share that view, partly because she isn't a macroeconomist--traditional for the CEA post. Indeed, Tyson is less interested in the theoretical interplay among inflation, employment, interest rates, and growth than she is in practical solutions to festering economic problems. "Clinton is far more interested in the structure of the economy than in economic theory," notes Reich. "Laura's research has always been focused on how things actually work."
KEY FORCE. If Tyson's choice startled the textbook writers, it also signaled that Clinton is intent on remaking U.S. policy on technology, trade, and international competition. And for her part, Tyson seems intent on expanding her influence yet further. By all accounts, she has been at the center of debates over trade policy toward Japan, Mexico, and Europe. And she has been a key force in debates on health-care financing. "When the President clicks off the people he wants in a meeting, Laura is always there," says Cabinet Secretary Christine A. Varney.
Clinton also keeps up a running correspondence with Tyson, sending her notes and newspaper clippings. So frequent have the messages been that Tyson can now almost decipher Clinton's miserable handwriting unaided. Tyson also regularly calls Federal Reserve Chairman Alan Greenspan to report the latest Administration economic statistics.
What is the Tyson philosophy? "She's not the trade hawk that many people regard her as," says one Administration economist. "There's plenty of caution behind her activism." Says Tyson: "I'm not a protectionist. I'm a liberal economist with a cautious, activist bent, so I'm not going to be the favorite of some ideological conservatives."
In fact, her ideas on trade are radical mainly when compared with the hostility of the Bush CEA to anything that smacked of industrial policy. The theme of her book: Japan, France, and Germany have created an artificial advantage for their favored high-tech industries to preserve high-wage jobs. As those industries profited from economies of scale, it became harder for U.S. companies to compete. Hence, Washington may be called on to act as a partner, particularly in fostering technologies with broad applications.
On other issues--regulation, taxes, and spending--Tyson is more of an unabashed liberal. "Americans are not overtaxed," she says, arguing that nearly every other government in the industrialized world taxes a larger share of gross domestic product while enjoying higher savings and investment. "And," she adds, "there is no way we can cut the deficit without an increase in revenues."
Tyson also thinks it's shortsighted to worry about the budget deficit without also considering the "public investment deficit." So she pushes for more spending on education, training, and research. No longer is government, or short-term increases in the deficit, the enemy.
In the tedious Roosevelt Room sessions to craft the Administration's 1994 budget, Tyson argued forcefully that the wobbly economic recovery could not tolerate a dramatic cut in the deficit. She helped talk Clinton out of his campaign promise to cut the deficit in half by 1997. Aided by Bentsen, who argued that Congress would not go along with more drastic cuts--such as a freeze on Social Security benefits--Tyson prevailed over the deficit hawks, Budget Director Leon E. Panetta and his deputy, Alice M. Rivlin. Tyson "spoke up often and was quite effective," says Rivlin. Tyson even persuaded the White House kitchen to add a plate of fruit to the cookies served as a snack at the long sessions.
BIG TEST. Tyson is not above using the tax code for social engineering or income redistribution. She pushed for the Administration's $73 billion tax on the energy content of fuels as a desirable conservation measure. During the campaign, Tyson supported middle-class tax cuts only if offset by hikes on upper-income individuals to "restore greater equity." Similarly, she has argued for taxes on alcohol and tobacco as a way to discourage unhealthy behavior while raising money for health reform. A higher minimum wage without a rise in unemployment? Possibly, she says.
Tyson has helped her own cause by keeping out of Cabinet departments' business. "My job is to explain, defend, help analyze, and make policy," she says, "but not to implement it." Tyson's reputation for avoiding bureaucratic wrangles could soon be confronted with a supreme test, however, over Hillary Rodham Clinton's ambitious health-care plan. Tyson, along with Clinton's other economic advisers, agrees that all of the Administration's economic goals could be thwarted by the unchecked rise in medical costs.
But Administration economists worry that unless the health plan is scaled back, carefully phased in, and stripped of such onerous features as mandatory price controls, the reform effort could founder. Will Tyson & Co. be willing to butt heads with the reformers, including Hillary? Even given the CEA chief's track record to date, Tyson may still find herself odd woman out.
Government THE TYSON PHILOSOPHY Taxes Higher taxes on the wealthy are necessary to reduce the deficit, restore progressivity, and allow needed government investment in infrastructure, education, and training. Taxes can also promote social goals, such as energy conservation, and discourage harmful behavior, such as smoking. Technology The federal government should encourage the growth of high-wage, high-technology manufacturing jobs by funding basic research. Technology-intensive industries pay extra dividends to society in employment, productivity, and research. Trade Because government policy can provide a nation's manufacturers with a comparative advantage in trade, it may be necessary to counter another's subsidies or threaten retaliation for unfair practices. All advanced nations manage their trade in high-technology goods with special strategies, and the U.S. should, too. Compliance Once a nation agrees to open its markets to the U.S., actual growth in sales and market share should be monitored and enforced. DATA: BUSINESS WEEK