Market Drop Reflects Fear ... of Obama's Policies

Today, as unemployment hits 8.1 percent and investors mull that there have been only two "up" days since Valentine's Day, the Wall Street Journal had Michael Boskin analyze the market slump.

It's hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.

The illusion that Barack Obama will lead from the economic center has quickly come to an end. Instead of combining the best policies of past Democratic presidents -- John Kennedy on taxes, Bill Clinton on welfare reform and a balanced budget, for instance -- President Obama is returning to Jimmy Carter's higher taxes and Mr. Clinton's draconian defense drawdown.

Okay, so Mr. Obama is not a centrist. It gets worse.

Mr. Obama's $3.6 trillion budget blueprint, by his own admission, redefines the role of government in our economy and society. The budget more than doubles the national debt held by the public, adding more to the debt than all previous presidents -- from George Washington to George W. Bush -- combined.

Let that statement swirl around in your brain for a moment or two. (It's awfully early in the morning for this.) More debt than all previous presidents combined!

It reduces defense spending to a level not sustained since the dangerous days before World War II, while increasing nondefense spending (relative to GDP) to the highest level in U.S. history. And it would raise taxes to historically high levels (again, relative to GDP). And all of this before addressing the impending explosion in Social Security and Medicare costs.

By this time you're probably wondering if the WSJ has anything good to say.

To be fair, specific parts of the president's budget are admirable and deserve support: increased means-testing in agriculture and medical payments; permanent indexing of the alternative minimum tax and other tax reductions; recognizing the need for further financial rescue and likely losses thereon; and bringing spending into the budget that was previously in supplemental appropriations, such as funding for the wars in Iraq and Afghanistan.

Let me just say that in comparison to the sins Mr. Boskin has exposed, this is mere window dressing. A bit further down in the article is this:

The president's proposed limitations on the value of itemized deductions for those in the top tax brackets would clobber itemized charitable contributions, half of which are by those at the top. This change effectively increases the cost to the donor by roughly 20% (to just over 72 cents from 60 cents per dollar donated). Estimates of the responsiveness of giving to after-tax prices range from a bit above to a little below proportionate, so reductions in giving will be large and permanent, even after the recession ends and the financial markets rebound.

The real reinvention of American society is tucked away a few paragraphs later. The creation of a permanent class of voters who don't give a rat's behind what tax rates are because they won't pay any.

New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president's budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government.

Or to use Mr. Obama's phrase (which I'm beginning to loathe), these people will have no skin in the game.

Who is John Galt?