Feldstein spoke out of school and now it's back to school

Most presidential economic advisers have followed a basic rule in proposing policy changes to their boss: Give the president your suggestions and opinions; if these are not accepted after a proper hearing within the White House, stay silent in public.

Previous chairmen of the Council of Economic Advisers (CEA), when they differed from the chosen policy, have not usually felt obliged to advocate what they consider wrong measures in their public speeches. But they were expected to be ''team players'' enough to keep their mouths shut.

Dr. Martin Feldstein, President Reagan's current CEA chairman, chose a different course. He spoke out publicly, supporting his own views after the President or his top aides had selected a different course.

Why?

Probably because there were considerable differences between his views and those in the Treasury, which usually won the battles, at least in the first instance. Treasury economists are of the monetarist or supply-side schools of economic thought.

Dr. Feldstein is more eclectic in his economic views, more orthodox in his conservatism. He regarded it as in the national interest to push his own opinions. Since these sometimes matched original presidential position, he could say he was supporting the President. Often he felt vindicated when the White House eventually endorsed his view - as when President Reagan at last decided to support a ''down payment'' on budget deficit reductions.

Further, Dr. Feldstein knew he would be returning to his position at Harvard and as president of the National Bureau of Economic Research. One of the key principles of the bureau, a prestigious body, is that its work be ''scientific'' and nonpartisan. So Dr. Feldstein likely felt a necessity not only to retain his intellectual integrity but to be seen as doing so.

A third factor, possibly, is that Feldstein was not accepted as a real member of the presidential ''team.'' When the final budget decisions were made in the office of Chief of Staff James A. Baker III, Feldstein was not there. But Donald T. Regan, secretary of the Treasury, was, and so was David A. Stockman, director of the Office of Management and Budget, although Mr. Stockman is not popular with Treasury supply-side economists.

To a large degree, Feldstein's advice was ignored at the White House.

In the latest battle, over what to do about Tuesday's jump to 12.5 percent in the key interest rate charged by commercial banks to their best customers, the Treasury sent a memo across the street to Mr. Baker; Dr. Feldstein sent an alternative memo.

Mr. Baker chose the Treasury suggestion - that it attack the Federal Reserve Board's handling of the nation's monetary supply. It rejected Dr. Feldstein's advice that the White House support the Fed's policy.

When his view was rejected, Dr. Feldstein stated it publicly once more to the press. It was his most blatant public refusal to accept White House economic decisions - and as he sent his long-expected letter of resignation to the President the same day, it may be his last involvement in that rank of policy decision. He leaves July 10.

Why did Baker choose Treasury's position, with White House spokesman Larry Speakes soon telling the press that ''it appears the money supply is not accommodating real economic growth''?

As explained by Paul Craig Roberts, a former top Treasury economist who maintains close ties with the administration, the reasons were both economic and political.

There was genuine concern with the recent slowdown in the money supply that this would slow growth in the economy too much, that such a monetary policy combined with a shift toward somewhat more balance in the budget deficit might even cause a recession, before the election.

Mr. Baker feared that his political credibility with the President could be destroyed. Already, on Baker's advice, President Reagan has flip-flopped in his position on the deficit, advocating a package for reducing it. A cut in the deficit would reduce interest rates, the President was told. The President also accepted some cuts in defense spending, which, in theory, was immutable.

Now that a package to cut spending and raise taxes is moving nicely through Congress, interest rates are going up - not down. The Treasury figures Fed Chairman Paul Volcker is sabotaging the reelection campaign of Mr. Reagan through too-tight money.

The President, according to Mr. Roberts, who is now at the Center for Strategic and International Studies at Georgetown University, will be embarrassed for no good reason. He will have flip-flopped his positions but will not have lower interest rates during the election. ''They all feel that Volcker has betrayed them,'' said Mr. Roberts, that the Fed official will gradually inch up interest rates to slow the economy much more than is advisable.

''The President is going to feel he was given bad advice once too often by Jim Baker,'' Roberts added. ''(Volcker) is not supposed to be setting the economic policy of the United States.''

The facts are that money supply has braked sharply. It probably did not grow at all in April. Depending on the period chosen, it has been growing at something like a 4.5 percent annual rate in recent months, close to the bottom of the Fed's own range of 4 to 8 percent. But over a longer period - starting in April 1983, say - it has grown at a 7.6 percent rate.

Most financial economists agree with Feldstein that money-supply growth is adequate, but expect it to snap back this month. If that does not occur, opinions could change, lining up with the White House.