In my previous two predictions about the coming Obama administration, I concentrated on the social issues and what his foreign policy will look like. In this posting, I will concentrate on what he is likely to do economically. Suffice to say, the Democratic majority in Congress is likely to push Obama farther to the Left as will be the case regarding the social issues. He will want to be perceived as governing from the center like Bill Clinton, but Obama doesn’t have a Republican-controlled Congress to keep him in check. That being said, there is plenty of evidence that he will be in conflict with his own party. Obama hasn’t even taken office yet, but he’s already threatened to veto a bill to block the release of the remaining bailout funds.
Whatever the situation may be, my predictions below are reflective of where he is likely to go on economic policy:
1. We will see a general increase in the Federal income tax over time. This goes without saying. It may not take place immediately, but Obama will have to raise taxes in order to pay for the massive amount of spending programs he has planned. Even if he only gets a fraction of those programs passed, he will still need to raise revenues. Expect to see capital gains taxes increase along with various other taxes. The Federal government can only borrow so much and they certainly won’t cut spending any time soon. A general increase in taxes is almost inevitable.
2. Going along with the first point, we should expect to see a huge increase in Federal spending. New social programs, bailouts, farm subsidies, corporate-welfare for “fixing the infrastructure,” subsidies for healthcare, grants to create “green jobs,” foreign aid programs, education subsidies, and countless other forms of unconstitutional spending. Defense spending is likely to remain the same, especially since Obama wants to increase our commitments in Afghanistan. It is an understatement to say that the Federal budget will explode. Worst of all are these massive bailouts which will cause inflation to go through the roof, thus destroying the dollar.
3. There will be virtually no change with respect to international trade. Obama’s promise to “restructure” NAFTA is a farce and any serious person won’t hold his breath waiting for that to happen. Like Clinton and Bush before him, Obama will continue to support free trade agreements like NAFTA and CAFTA. Predatory trade practices by Communist China and others will continue unabated. The deindustrialization of America will continue at roughly the same pace as before, although we will see far more food imports. Whatever the case, the outsourcing of industry and jobs will continue.
4. Immigration, both legal and illegal, will increase. Like Bush, Obama supports an open-borders policy and favors amnesty for illegal aliens. This will place even more downward pressure upon wages that are already stagnant, the people at the bottom being hurt the most. With the labor-market so loose, the effects of the recent unemployment spike will be that much worse. In terms of legal immigration, more workers will be imported via special visas to take white-collar jobs because they will work for less. We’ve already seen this within the IT sector. All of this will further erode the standard of living.
5. There will be a rapid increase in unconstitutional Federal regulations. Regulatory burdens have already hurt businesses across the board and these new regulations will only make the situation worse. For example, the unconstitutional CAFE standards are part of the reason why the American automakers have lost so much market share. When you have central planners in Washington, D.C. dictating which products you make and how much, there is not much room left to actually function properly in a market-based economy. In addition to regulations like these, except Obama to support wage and price controls as well. This will mean more unemployment and higher costs.
Many on the Left are calling for a “New New Deal” or a “second Great Society,” understanding very little about American history. FDR’s “New Deal” during the 1930s was a colossal failure and the same can be said for LBJ’s “Great Society” of the 1960s. Do these folks on the Left really believe it will be any different this time around? Tax hikes, massive increases in spending, new costly regulations, more immigration, and a continued free trade policy make for the perfect storm of a gradual economic collapse. Add to this the Fed’s inflationary policies and the United States will become a third-world nation within a matter of decades. The road to serfdom is already here.