Obama Needs a Midcourse Correction, Soon

 have seen the future, and it won't work. Not unless there is a major policy change in Washington. We now know a lot more about what the administration and the Congress will be able to do.

By year-end, some sort of health care bill will pass. It won't be as "transformative" as the president wants, nor "deficit neutral". And it surely won't do very much to stem the rise in health care costs.

We know, too, that some form of cap-and-trade bill will emerge from the Senate, where Democrats will have to pass something to avoid embarrassing the president.

Since Congress has responded to intense lobbying -- you remember, the sort of thing that would be banned from Obama's Washington -- by giving away most of the permits, the bill won't yield much of the $1 billion in revenue it could have brought in. It will drive up energy costs -- a stealth tax on the middle class, and a burden on American industry.

Meanwhile, the deficits will be mounting and the Fed, unless an obedient Larry Summers has succeeded Ben Bernanke as chairman, will withdraw some liquidity from the economy lest inflation take hold.

Some will argue that inflation is not a worry so long as there is spare capacity -- unemployment that prevents workers from pressing for higher wages, and excess production capacity that prevents manufacturers from raising prices.

Not to mention all that low-cost Chinese stuff with which American firms have to compete for shelf space in Wal-Mart's.

My own guess is that notwithstanding all of that, the massive deficits will indeed drive prices up unless the Fed tightens, and perhaps even if it does.

Or unless the president decides that the huge deficits are indeed a threat, which he might well do after a phone call from Beijing advises him that unless the flow of red ink is eliminated or at least slowed, the Chinese have no interest in buying any more of the billions of IOUs being issued by the Treasury.

He could, of course, cut spending, but with a liberal Democratic congress, that is unlikely. After all, there will be transmission lines to be built to hook up all those windmills and solar panels to the transmission system, the hopelessly over-budget health-care information system to be completed, and the cost of insuring all those previously uninsured millions to meet.

He could, of course, cut spending, but with a liberal Democratic congress, that is unlikely. After all, there will be transmission lines to be built to hook up all those windmills and solar panels to the transmission system, the hopelessly over-budget health-care information system to be completed, and the cost of insuring all those previously uninsured millions to meet.

So taxes will have to go up. Watch his lips: The middle class will have to pay, the pockets of the "rich" having been pretty much picked clean. That really won't trouble the president too much, since his egalitarian program includes not only taking from the rich, but from the middle class to give to what he sees as the nation's downtrodden, denied by circumstances beyond their control from a portion of the American dream.

If giving them a slice means creating a nightmare for the vast majority who the president is convinced did all-too-well in the Bush years, so be it.

This grim scenario can be avoided of course, with really minor changes in the policy direction of the government.

Health care reform can be postponed until the recession ends and Treasury receipts rise. After all, there is no grassroots demand for reform: most people are quite satisfied with their insurance coverage and their health care.

The cap-and-trade system can be restored to the original version the president had in mind by auctioning off pollution permits, rather than distributing them gratis in what his own advisers say would be the largest corporate welfare handout in history.

The tax system can be reformed to broaden the base by eliminating corporate welfare, producing increased revenue even as tax rates are lowered, and perhaps including some form of national sales tax.

And a regulatory system can be put in place that allows the orderly bankruptcy of even the largest and most interconnected financial institutions, avoiding the cost of bailouts and other costly measures to shore up the "too big and too interconnected" banks.

Which will it be? The nightmare scenario or the mid-course adjustment? My guess is that it will be both. Obama will stick to his guns: There is more conviction there about how America should be "transformed" than cynics give him credit for.

But soon, perhaps as early as next year, his control of the legislature will be less complete, and what passes for saner heads in Washington will prevail, and convert radical "transformation" into modest reform.