Twenty years ago, Murray L. Weidenbaum, once Boeing Co.'s economist, was preparing to be President-elect Ronald Reagan's chief economic adviser. Today, Weidenbaum, chairman of the Center for the Study of American Business at Washington University, St. Louis, is prepared to offer opinions on some of the challenges facing President-elect George W. Bush.
The incoming chief executive's "overriding" task "will be to restore the public's confidence in the presidency and then to develop good working relationships with the [narrow Republican majority] Congress," says Weidenbaum. But not much farther down the line among several difficult policy issues -- which include tax cuts, tax reform, Social Security and Medicare reform, a militarily stronger China, and a reassertive Russia -- is the U.S. economy. Specifically, "the new administration will find itself on the horns of a real economic dilemma" over interest rates, believes Weidenbaum. Higher rates would help hold any rising inflation in check, but the weak U.S. economy may need lower rates to revive it. For several decades, the U.S. has avoided so-called stagflation -- steadily rising prices accompanied by little or no growth in the output of U.S. goods and services, notes Weidenbaum. "But it is not written in the stars that stagflation will never recur," he stresses.