The Worst Case Scenario

...The fi nancial services sector will be crawling with regulators determined to reduce risk-taking...

...Here are a few guesses...

...There is no chance that Obama will try to privatize these organizations, which back something like three out of every four mortgages written in America...

...Perhaps not...

...The Environmental Protection Agency probably does not need new legislation to change the rules on carbon emissions so that Obama can achieve his goal of making new coal-fi red generation plants totally uneconomic...

...That recovery will come sometime before Barack Obama begins his campaign for reelection...

...The new president inherits ownership of parts of most major banks, insurance companies, and other fi nancial institutions, and has the funds needed to extend government ownership into other sectors of the economy...

...Irwin M. Stelzer is a contributing editor to THE WEEKLY STANDARD, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London...

...Won’t President Obama be constrained by the huge budget defi - cits he will face...

...But even an anemic recovery, especially when judged against the current recession, will allow voters to answer in the affi rmative the question Ronald Reagan famously put to Jimmy Carter in 1980—“Are you better off than you were four years ago...

...There is general agreement that the hybrid structure of the past—with private shareholders, but an implicit government guarantee of Freddie and Fannie’s debt, in return for encouraging home ownership among lower earners—is dysfunctional...

...First, the president-elect meant it when he promised to redistribute income from families earning more than $250,000 per year to those earning $50,000 or less...

...As Obama’s likely opponent, Sarah Palin, might put it in a moment of candor, “You betcha...

...BY IRWIN M. STELZER What will Barack Obama’s sweeping victory mean for the U.S...

...Some of Obama’s advisers are passing the word that he will hold the line at $250,000 and, moreover, won’t risk exacerbating the recession by upsetting the wealth-creating small business sector with an immediate tax increase...

...Taxes on the richer families will go up to fund checks that will be mailed to the lower earners who now pay no income taxes (though they do pay Social Security taxes...

...Then there is the energy sector...

...The rich will be paying higher taxes—no problem for billionaires such as Bill Gates and Warren Buffett, but a big deterrent to the establishment of new businesses...

...The Food and Drug Administration can make it diffi cult if not impossible for pharmaceutical companies to gain permission to market new drugs that the industry’s critics contend are “merely” improvements on existing drugs, or are not suffi ciently effi cacious in the eyes of regulators...

...Instead, he will simply allow the Bush tax cuts to expire at the end of 2010, returning taxes on high earners to the levels prevailing during the Clinton years...

...In the end, it will cost high earners more to live and more to die in 2011...

...But taxes are only one area of concern to the business community...

...Certain sectors are most likely to see major changes...

...Will it be as vigorous as it might have been in the absence of more intrusive government...

...Obama meant it when he said that he would make carbon emissions so expensive that any electric utility attempting to build a coal-burning generator would be bankrupted...

...In short, Obama can obtain large portions of his agenda without asking Congress for new funding...

...So, too, with inheritance taxes: They will go up in 2010 to something like the pre-Bush levels, perhaps with a bit more forgiveness for those passing on modest inheritances or small businesses...

...Not entirely...

...Add to that the “no new nukes” implicit in Obama’s refusal to fund nuclear waste facilities, and the “no offshore drilling” implicit in the terms House speaker Nancy Pelosi will insert in any legislation on that subject, and it will soon be apparent that America will not have suffi cient supplies of energy to fuel its economy, especially when a recovery takes hold...

...By the end of his fi rst term, the Obama administration will be exercising signifi cant control over the allocation of bank credit, and similar if less overt control over the allocation of the nation’s energy resources...

...The Federal Communications Commission can impose so-called “fairness” rules that make it more diffi cult for the largely conservative talk radio stations to challenge his government’s policies...

...Renewables, heavily subsidized, will add a tiny bit to supplies, but if Obama is to avoid watching oil imports soar he will have to do what Democrats since the days of Jimmy Carter have always wanted to do: ration the use of energy...

...A more-than-willing Congress will enable him to redeem his pledge to the trade unions to push through legislation to eliminate the secret ballot in union-recognition elections...

...Housing will be the fi rst in line...

...The supposedly conservative Bush administration has handed Obama significant control over the commanding heights of the economy...

...Many items on his wish list don’t require the direct expenditure of government money...

...Americans will be driving smaller, less safe cars, and reading by dimmer bulbs...

...mandating expensive effi ciency standards for new appliances, and so on...

...Plan accordingly...

...The trade unions will be recovering much of the ground they lost when the musclebased industries gave way to intelligencebased industries...

...rigidly enforcing rules that mandate the use of ugly, unsafe light bulbs...

...On to 2016, which might be a different story...

...Even Federal Reserve Board chairman Ben Bernanke, not exactly a raving socialist, says there is a role for government to play in the mortgage and housing markets...

...Best guess is that Freddie and Fannie will be revived in some form, with a specifi c mandate to do more of what caused much of the mess we ridare now in —make loans to potential homeowners who will have diffi culty meeting even the generous mortgage terms that will be on offer...

...And— here’s the most important part—an economic recovery will be underway...

...The worry is that congressional Democrats will persuade the new president to lower the $250,000 cutoff point to the $150,000 his vice president in waiting, Joe Biden, favors...

...The government has placed the two giant mortgage writers, Freddie Mac and Fannie Mae, in “conservatorship...

...There is little doubt that he will use that control to restrict executive salaries, direct funds to homeowners behind in their mortgage payments, pressure banks to lend to constituencies he and his congressional allies deem worthy, and otherwise exercise more control over the allocation of the nation’s capital resources than any of his predecessors was able to do, with the exception of Franklin Roosevelt during World War II...

...Voters will be comparing the economy Obama inherited with the one over which he is presiding, not with the might-have-been condition resulting from a McCain presidency...

...Not with coupon books, but by increasing fuel-efficiency standards that will shrink the size of cars to European dimensions...

...Biden was more direct—“No coal plants here in America...