Paul Rubin in the Wall Street Journal:
n 1932, Democrat Franklin Delano Roosevelt was elected president as the nation was heading into a severe recession. The stock market had crashed in 1929, the world’s economy was slowing down, and all economic indicators in the U.S. showed signs of trouble.
The new president’s response was to restructure the economy with the New Deal — an expansion of the role of government once unimaginable in America. We now know that FDR’s policies likely prolonged the Great Depression because the economy never fully recovered in the 1930s, and actually got worse in the latter half of the decade. And we know that FDR got away with it (winning election four times) by blaming his predecessor, Herbert Hoover, for crashing the economy in the first place.
Today, the U.S. is in better shape than in 1932. But it faces similar circumstances. The stock market has been in a tail spin, credit markets have locked up, and a surging Democratic presidential candidate is running on expanding the role of government, laying the blame for the economic turmoil on the current occupant of the White House and his party’s economic policies.
Barack Obama is one of the most liberal members of the Senate. His reaction to the financial crisis is to blame deregulation. He even leverages fear of deregulation onto other issues. For example, Sen. John McCain wants to allow consumers to buy health insurance across state lines. Mr. Obama likens this to the financial deregulation that he alleges got us into the current mess.
But a President Obama would also enjoy large Democratic majorities in Congress. His party might even win a 60-seat, filibuster-proof majority in the Senate, giving him more power than any president has had in decades to push a liberal agenda. And given the opportunity, Mr. Obama will likely radically increase government interference in the economy.
Until now, this election has been fought on the margins, over marginal issues. But it is important to understand how much a presidential candidate wants to move the needle on taxes, trade and other issues. Usually there isn’t a chance for wholesale change. Now, however, it appears that this election will make more than a marginal difference. It might fundamentally change America.
Unlike FDR, Mr. Obama will not have to create the mechanisms government uses to interfere with the economy before imposing his policies. FDR had to get the Supreme Court to overturn a century’s worth of precedents limiting the power of government before he could use the Constitution’s commerce clause, among other things, to increase government control of the economy. Mr. Obama will have no such problem.
Update: Similar thoughts here.