DICK MORRIS’ ‘08 PLAY-BY-PLAY Volume 1, #39

The politics of 2009 will be dominated by a continuation and
deepening of the global Depression. Under the guise of stimulating the
economy, look for Obama to pursue a radical, socialist agenda that will
bring America into conformity with the government domination of health care
and the economy that prevails in the European Union. When the dust clears,
the economy will still be in the tank. The new president’s stimulation
packages will do little or nothing to abate the depression, but they will
transform American life and politics. For his part, Obama will take
advantage of his built-in majorities in Congress to pass his agenda, but
will suffer rapidly dropping ratings. By the end of the year, he will be as
radioactive as Bush is today.

Here’s a detailed look at what I think will happen at home and abroad
during the coming year.

*The Economy* To get a handle on what is happening to the global economy,
consider these basic facts: In the mid 1980s, the total amount of debt in
the world – all debt including consumer, corporate, and public from all
countries, companies and people on the planet – equaled the global GDP. We
humans owed one year’s income. Now, the planet’s GDP is slightly above $50
trillion and the total planetary debt is up over $180 trillion! We now owe
almost four years’ income. (Source: A fabulous book by Charles Morris — no
relation – entitled the *Trillion Dollar Meltdown*. Published in Feb.,2008, it predicts much of what has happened since).

The prosperity of the past fifteen years has been largely based on
debt. Drawing on credit cards, inflated home values, negative interest
policies at the Federal Reserve, and a global willingness to subsidize
American indebtedness, we borrowed our way to wealth. But now the house of
cards is collapsing all around us and won’t stop doing so until we are free
of the debt addiction, several years hence.

The process Schumpeter called “creative destruction” now has to run
its capitalist course, putting inefficient companies out of business and
forcing people to live within their means. It will be a difficult and
prolonged process.

But it won’t be as bad as the Great Depression. Between 1929 and
1933, America lost a third of its GDP and unemployment topped 20%. That
won’t happen now because the governments of the world are willing to douse
the economic conflagrations with streams of money. Obama’s, Japan’s,
China’s and Europe’s stimulus packages are really pain killers – methadone –
as we go through the process of kicking the debt habit. They assure that we
won’t be racked by the destabilizing agony of massive depression. But they
won’t do much to cure the underlying ailment. The cure has to come from the
normal workings of the capitalist system. Creative destruction made easier
to bear by government welfare.

Obama’s stimulus legislation will increasingly be seen by Americans as
a bad joke and his predictions of job creation will ring increasingly
hollow.

At first the new president will try demand-side stimulus through public
works construction. But it won’t work. He will identify public projects
that need doing and fund them. Important endeavors like repair of public
school buildings, the development of alternative energy generation sources,
and the renovation and replacement of our failing national infrastructure of
bridges and roads will all get massive infusions of federal funds. While
these projects are deserving in their own rights, they won’t do much to
alleviate the depression. Only about a quarter of the funds will actually
be spent in the fiscal year in which they are appropriated, the average for
federal public works. It takes time to plan, design, and scope out the
projects and three-quarters of the spending will not take place until
subsequent years. And, of the spending that takes place, most of it will be
used by the workers who get the paychecks to pay down their debts and will
do nothing to stimulate the economy. Terrified by the collapsing economy
around them, consumers won’t embark on bold new purchases, but will use any
increase in pay to reduce their student loans, credit card debt, pay off
their car loans, or just pay that month’s bills. The result? No stimulus.

Next Obama will forget about funding just important new projects.
He’ll just pass out money. But even direct checks to people won’t do much
to help revive purchasing power. As noted, people will just pay down bills
with the money. It is estimated that 80% of the Bush stimulus package of
earlier this year went to debt reduction, not new spending. In 2009, with
mounting terror over the economy, it will be even higher.

Finally, Obama’s centrist economic team, despite the president’s
predilections, will try supply side stimulation. He will cut business
taxes, increase R & D tax credits, and might even cut capital gains taxes.
He will get desperate as the economy gets worse and he’ll begin to try
anything. But, as President Eisenhower noted, “you can’t push a string.”
Giving rich people and businesses money to spend won’t result in new plant
and equipment or new services. Scared to death by the bad economic
environment, they won’t spend the money constructively either and there will
be little real stimulus.

The result of all this will be that the economic numbers and Obama’s
popularity will sink in sync with one another and he will lose more and more
of his real political power.

*Socialism Comes To America* Charles Krauthammer has it about right. Obama
has named a largely centrist team to supervise economic and foreign policy
to pacify these turbulent areas of public policy so he can get on with
passing his basic leftist agenda. But while Obama struggles with a failing
economy, he will use the need for stimulus as an excuse to move ahead with
the conversion of the American economy to a European Union model of social
democracy. He will use the $750 billion bailout voted this year by Congress
as a pretext to demand equity in America’s major businesses. And then he
will use that equity to demand “reform.” At first the “reforms” will be
obvious: limitations on executive compensation and bonuses, investment in
environmentally friendly technology, and other socially worthy objectives.
But Obama will use economic populism to justify greater and greater
government de facto control over the financial and insurance sectors. He
will, for example, move to curtail financing of outsourcing or offshore
business operations. He may penalize companies for layoffs by withholding
bank loans. He may embrace some of the more intrusive programs for
manipulation of the economy. The heavy hand of government “guidance” will
come to corporate America.

Remember that half of FDR’s program was designed to combat the
Depression – Agricultural Adjustment, the National Industrial Recovery Act,
the Public Works Administration, the Works Progress Administration – but
half had nothing to do with recovery but was sold under the rubric of
“reform.” These measures included Social Security, the SEC, and the Wagner
Act, all of which totally transformed the level of government intervention
in the economy. Obama will follow that model, advancing programs that
change our basic relationship of government and business disguised as
measures to fight the Depression.

But nowhere will the transformation be as great as in health care.
Manipulating the national consensus that we must make health care a “right”
and move to cover the 47 million uninsured “Americans” (even though about
7-10 million are illegal immigrants), Obama will fundamentally transform our
health care system into one subject to government control. He has to. He
can’t extend health care coverage from 250 million people to 300 million
with no increase in the supply of doctors, nurses, and hospitals without
introducing rationing. While he may use private health insurance companies
and HMOs as his capos to enforce the rationing, the demand and impetus for
the controls on utilization will come from Washington. As a practical
matter, this change will revive the idea that the elderly have a “duty to
die” as first articulated by former Colorado Governor Dick Lamm. Elderly
Americans will find that they cannot have heart bypass operations or get MRI
exams or CT scans even if they are willing to pay for it themselves. We
will come to emulate the British or Canadian model of health care under
government control. (For a fuller discussion of the changes he will bring to
health care, see our book Fleeced).

So do the math. Right now, the federal government’s spending accounts
for about 20% of our national GDP and State and local government, exclusive
of federal aid, adds another 12%. Their 32% share of our economy is about
the same level as in Japan but markedly lower than in the United Kingdom
(41%), France and Germany (about 48%). Other countries, like Sweden are
even higher.

When the bailouts have run their course, it is not illogical to assume
that the government or the “taxpayers” as Obama likes to call them, will own
about 1/3 of the equity in banks and major insurance companies. The
financial sector accounts for about 20% of our GDP, so that is about 6% that
moves to the public sector (and, of course, the remainder, while still
private, is subject to massive government influence due to the large public
share). Health care consumes about 16% of our GDP and it is about 40%
public at the moment. Under Obama, while not a single payer system,
government will effectively control the whole health care sector though
mandates and rationing. So add another 10% to the public sector. And there
you have it: about 48% government control, just like in Europe.

*Permanent Political Shifts* Obama will use his heavy majorities in
Congress to act on four fronts to try to assure a permanent Democratic
majority in the country.

a) He will pass the union card voting law which will allow labor unions
to intimidate workers into voting for a union by denying them the right to
cast secret ballots in representation elections. His goal will be to
increase the share of the American labor force that is organized (now about
12%) so as to increase labor’s political and economic clout.

b) He’ll move ahead on immigration reform, based on amnesty to legalize
millions of undocumented workers. He will probably adopt the Democratic
proposal that anyone who has lived here illegally for five years can get
amnesty and on a citizenship track. Dodge the cops and there is a reward
waiting for you. His goal will be to increase the Latino vote from the
current level of about 12% to 15-18% to assure Democratic domination of such
red states as Texas and Arizona.

c) He will cut taxes on the middle class. His goal will be to
concentrate the obligation to fund the government on the wealthy, so that a
political minority pays the taxes but an electoral majority consumes them.
Right now, the richest 1% of the nation pays 40% of the income tax revenues
(up from 33% in 2003 and 27% in 1996, according to *Reality Check*, an
excellent book by Dennis Keegan and David West). He wants a situation
nationally akin to that in New York City where landlords are hopelessly
outvoted by tenants and have to face whatever the tenants decide to approve
in terms of rent controls. It will no longer be possible for a Ronald
Reagan to appeal to middle class taxpayers to form a coalition against
liberal tax increases. There will be no middle class taxpayers.

d) Obama will move to squelch talk radio, either by applying the
Fairness Doctrine or, through use of the doctrine of “localism” (i.e. local
control of the management and operation of radio stations as required by
federal communications law) put liberals in control. (Again, see Fleeced
for a full discussion). This measure will strip the right of its most
powerful form of communication.

With Obama’s coming low approval ratings, it is clear that the Republican
Party will make huge gains in the Congressional elections of 2010 and,
perhaps, retake the White House in 2012. Whether the off year gains will
suffice to give the GOP control remains to be seen. But, by then, a lot of
this damage will have already been done and, particularly in the realm of
health care, it will be politically impossible to undo it.

COMING NEXT: FOREIGN POLICY PREDICTIONS