CEO in chief

    "Government is the most reliable source of short-term growth, the only part of GDP pulling out its wallet these days," says Obama economic advisor Jared Bernstein. "There is a time for budget austerity - this ain't it."

    In the coming weeks and months those purse strings will be loosened, first for another major stimulus package that includes ready-to-launch infrastructure construction projects - and then for producers of clean energy like hybrid-auto technology and low-emission coal.

    His advisors say he's determined to pursue his $150 billion, ten-year energy plan despite the unexpected federal outlays caused by the recession and near collapse of the financial markets. The purse will open again in the form of tax breaks for small businesses and for big companies that create new jobs - but not for firms building operations overseas and not for oil companies, which face the prospect of a windfall-profits tax.

    President-elect Obama will be in a position to shape the future of a fragile housing industry - and its related financial markets - when he decides the fate of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), both now under government conservatorship. That will be a telling episode, pitting Obama, with his personal ties to the affordable-housing movement, and powerful Democrats on Capitol Hill like Financial Services Committee chairman Barney Frank against some of Obama's top advisors, who blame those twin behemoths for helping spawn the current financial crisis.

    President-elect Obama will create a new playing field for globalization, as well as unionization, which are subtly connected in the minds of his economic team. A sharp critic on the campaign trail of free-trade agreements, Obama has embraced the labor leaders who have blocked trade deals. Nevertheless, he claims to be a "free-trader." How will he reconcile that? With deft political dealmaking: If the new President supports legislation to promote unionization at American firms - an effort called "card check" widely feared by business - advisors say labor leaders will grant him more leeway to pass free-trade deals.

    "With Obama there is an opportunity for a kind of horse-trading around labor's agenda, something that didn't happen with Bush or even Clinton," says Bernstein.

    In this new industrial era it will be President Obama who largely determines the fate of the risk takers who have been both the engine - and the peril - of the American economy for three decades. This will be accomplished through a sweeping new regulatory structure. The center of any new financial regulation is likely to feature a "systemic risk regulator" (something that Wall Street supports) that sets standards like capital requirements according to the riskiness of a company's operations. While risk taking in the financial markets will be accepted, it will be managed.

    Obama will bring to the White House a view endorsed by some of his advisors that bigness itself is a source of risk. It was a Republican administration that imposed a policy of "too big to fail" for the rescue of banks and insurance giants, and for loans to the auto industry. As a candidate, Obama issued cautious support for the Bush administration's bailout of AIG (AIG, Fortune 500), the world's biggest insurance firm. Any future decisions on corporate bailouts - including ailing automakers - would be determined by how "interconnected you are to the rest of the economy, both here and abroad," said Bernstein.

    But some Obama advisors argue that the government should use its antitrust stick to prevent the formation of big business in the first place. "Pardon me for asking," Obama advisor and former Clinton Labor Secretary Robert Reich wrote on his blog last month, "but if a company is too big to fail, maybe - just maybe - it's too big, period."

    Reich is especially critical of the federal government's using consolidation as a rescue tool. "They've prodded Bank of America to take over Merrill Lynch (MER, Fortune 500) and Countrywide, J.P. Morgan to acquire Washington Mutual and Bear Stearns. So we're ending up with even bigger giants, with even more power over the economy and politics." By contrast, more centrist Obama advisors, like former Clinton Treasury secretaries Lawrence Summers and Robert Rubin, support those episodes of consolidation.