GovernmentExecutive.com

Arguably the most important development that will shape the direction of public policy over the next few years wasn't the Nov. 4 election but the economic calamity that hit in September. The seizing up of the credit markets, the plummet in the stock market, and the realization that the economy was in big trouble changed everything.

Any answer that Barack Obama, Hillary Rodham Clinton, or John McCain gave a year ago to the question of what they would do in their first year in the White House has been rendered obsolete. The central focus of next year's agenda will be economic stimulus -- trying to get the economy out of the deep and worsening ditch that it's in. This would have been true no matter who won the election. For any president, health care reform, tax reform, or a new direction in energy policy would have taken a backseat.

The White House will see every issue -- certainly, every domestic issue -- through the prism of the economy. What are the implications for jobs, for turning the economy around? Is this the right time to do something? Are we in a position to take this on? What is the best way to manage it? Interest groups will be framing every imaginable issue in terms of its economic impact, real or purported.

The differences in the approaches that President-elect Obama will take, compared with those that McCain or Clinton might have taken, are not likely to be big. Significant tax hikes will probably be off the table, as will major spending cuts. Democratic and Republican policies will converge to a certain extent, though the parties' emphases will differ.

The approach that elected officials and the public take to government regulation will be different -- 180 degrees different -- from the days of President Reagan and the Newt Gingrich revolution, and fairly different, for that matter, from the prevailing views as recently as President Clinton's administration. For decades, the bias was in favor of reducing regulation, "getting government out of our lives," and "letting the markets work." Now the mantra will be, "Regulate first; relax rules later." If the pendulum swung too far toward deregulation in the past, it's a good bet that it will go too far the other way in the coming months. But that's the way, for better or worse, that politics and government work.

For business, from a public policy perspective, 2001 through 2006 nearly brought manna from heaven. Republicans held the White House. They had majorities in the House, a majority in the Senate for all but 18 months, a majority of governors, and rough parity in state legislative seats nationwide. Elected officials did not allow business leaders and the private sector to do everything they wanted, but the strong bias was for letting the markets work.

That changes now. Not so much that an Obama administration will be antibusiness; Obama's early picks for key economic positions are clearly from the moderate wing of the Democratic Party, the segment that is least hostile to business. But after the past few months, almost any administration -- whether headed by Obama, Clinton, or McCain -- would take something other than a "let the markets work" approach to issues.

Had Democrats not added a single Senate or House seat, it's pretty safe to say that the new Congress would still take a more skeptical approach to deregulation arguments and show more sympathy for re-regulation efforts.

So now we enter a new world order: more regulation, more skepticism, and more scrutiny. That's what happens whenever the pendulum swings too far one way or the other. In a perfect world, the pendulum would center itself, but this is not a perfect world.

For business leaders, the challenge will be trying to slow the locomotive of over-regulation without sounding as if they are defending the mentality and policies that led Democrats and Republicans on Capitol Hill and in the executive branch, as well as regulators and the Federal Reserve Board, to this economic calamity. For those inside government, the challenge will be to calibrate the correct amount of re-regulation without overdoing it. They all have their work cut out for them.