Economy heralds Obama’s ‘change’

Published 9:42 pm Tuesday, December 9, 2008

As the New Year unfolds, it is evident that our economy is in big trouble. There are demands for “bail-outs” for iconic institutions like domestic automakers. The government will respond with huge spending plans for them and others. Barack Obama will also approve a comprehensive Federal Infrastructure Plan to stimulate the economy.

Besides revving up the printing presses to pay for it all, there will likely be a significant increase in taxes. We have come full circle in the old discussion of “guns vs. butter.”

In the 1980s, Ronald Reagan demanded significant changes in federal spending. Conservatives demanded support for the largest U.S. military expansion since WWII, and we won the Cold War.

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Now with a left-leaning President coming into power, we are swerving back in favor for big social spending to redistribute the wealth and repair our economy.

The Obama administration will inherit the failing economy, federal coffers with little money left to fix things and a mandate to do something new and big.

There will be direct spending for infrastructure projects, new incentives for “green” energy and other infrastructure changes, such as the electrification of transportation. This policy alone will cost trillions of dollars to implement.

Where will the money come from? Most likely, new taxes and the Fed’s printing of money on a truly historic scale. The only counterbalance to such expansionary monetary policy is the fear of hyperinflation and economic ruin, as in 1920s Germany.

Within these policy changes, we may see an opportunity to fix intractable local problems. With huge federal infrastructure grants for roads and other projects, we may solve some of our toughest local problems.

Significant loans to U.S. auto companies will come with demands for viable electric cars and reduced fossil fuel imports. Along with those cars will come a need for a more robust electrical grid to power them.

As we stagger into this new economic wilderness, it seems clear that a sea change is coming in federal economic policy. With such significant changes to our society, there will be winners and losers. The losers will be those who can’t adapt to these new policies, and the winners will be those who can build under the new rules.

Opportunities will abound for new ideas, including innovative domestic energy production and the electrification of our transportation system. Those who can adapt will prosper, and those who can’t will perish.

Falling oil prices represent an opportunity to raise taxes on fossil fuels to pay for some of the coming changes. So get ready to see higher taxes and fuel costs. For those who recognize the new paradigms and react intelligently, there could be a handsome payoff.