National Review has had a lot to say about American exceptionalism in the past year. There is no question, in my mind, about American exceptionalism during the 20th century. What about today? How do we stack up with, say, those poor, benighted Egyptians, with their thug president?

Here are some metrics dear to Exchequer’s heart:

National Debt as Share of GDP: USA, 95.6, Egypt, 76. That’s assuming Egypt’s economy takes a significant hit this year. Advantage: Egypt.

Deficit as Share of GDP in 2011 (Estimated): USA: 9.8, Egypt, 8.7. Advantage, Egypt.

Rate of Pillage, a/k/a/ Government Spending as a Share of GDP: USA, 24, Egypt, 27. Advantage: USA. But not by all that much.

Freedom from Corruption, as scored by the Heritage index: USA, 75, Egypt 28. But I think we’re being too easy on ourselves limiting the discussion to Heritage’s very useful index. Corruption is not as widespread in the United States, but the stakes are higher: In License to Steal, Harvard’s Dr. Malcolm Sparrow estimates that Medicare and Medicaid fraud in the United States could exceed $300 billion a year, or half again as large as Egypt’s GDP. Which is to say, Egypt would have to dedicate 150 percent of its economic output to corruption to catch up to Medicare and Medicaid corruption. Advantage: USA, with an asterisk.

Why do I point this out? Because I want to remind you: The conditions that have resulted in 200-odd years of relative peace and prosperity for the American people are not normal. The normal state of mankind of a lot more like Mubarak’s Egypt than Reagan’s America, or Obama’s. Institutions matter, and one of the institutions that matters is sober, responsible  government. Drawing a line forward from 2011 into the future, which does the American government more closely resemble? The one that helped make this nation great by allowing liberty to thrive, or one of the ones that used to be a punchline until such jokes stopped being very funny?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

The Paul Krugman–led chorus trying to discredit Texas’s economic model has been claiming that Texas relied more heavily than any other state on federal stimulus money to close its budget gap. And there is an element of truth to that: Stimulus funds, they point out, covered 97 percent of Texas’s shortfall. Is that because Texas is, in the words of Jason Kuznicki (who should know better), a “welfare queen?” Or is it because Texas had a fairly small gap to begin with, so the federal funds went a lot further in covering it?

That 97 percent figure got retailed all over the place — CNN, Jon Chait at The New Republic, etc. But it is basically meaningless to say that “Texas was the state that depended most” on stimulus funds without taking into account the size of the gap covered. Texas’s was just $6.6 billion. For comparison, California’s deficit in 2009 was more than $26 billion.

The fact is that Texas, at $985 per capita, received less stimulus funding than almost any other state. (Virginia and Nebraska were lower.)

It is no surprise to find Paul Krugman manipulating figures, but I am surprised by the number of people who fell for this storyline.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Today’s CBO report has some bad news about the deficit. But CBO has some really, really bad news about Social Security: It’s officially broke.

The CBO’s revenue/expenditure estimates now place the program in permanent deficit. There had been some hope that payroll taxes would recover sufficiently post-recession to put the program back into the black (the theoretical black) for at least a few more years, putting off the day of reckoning for an election cycle or more. No more: The new CBO estimates put Social Security in the red for as far as the eye can see.

But there’s a bit of camouflage attached: If you include the “interest” that the federal government “owes” the fictitious Social Security “trust fund,” then the program is in the black. Which is to say, if you think that borrowing another $1 trillion from the bond market to shift money from one government account to another government account makes the nation $1 trillion richer, then everything’s hunky-dory. But if you compare the program’s tax income to its benefit outlays, without the “interest” owed, as CBO does, what you get is deficits from this year forward to 2021 of  $45 billion, $30 billion, $28 billion, $30 billion, $31 billion, $33 billion, $44 billion, $59 billion, $77 billion, $98 billion, and $118 billion — by my always-suspect English-major math, about six-tenths of a trillion dollars in the hole.

President Obama has explicitly rejected the recommendations of his own bipartisan deficit panel, specifically the proposal to raise the Social Security retirement age modestly over the course of several decades (to 69 by 2075). But we can only put so many trillions on the national balance sheet before our national chit gets called in, at which point it will hit the fiscal fan.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

I am pleased that Republicans put up Rep. Paul Ryan as the alternative to Barack Obama’s “investment” happy-talk last night. Love the Ryan Roadmap or hate it, Ryan has had the guts to talk realistically about some really hard issues, including putting out proposals for entitlement reform that lend themselves to easy demagoguery by the likes of Chuck Schumer, who has been in Congress for more than a decade without taking one single baby step toward balancing the budget or addressing the entitlement crisis. The Republicans could have put up some unthreatening diversity candidate to babble about inane generalities; instead, they put up a white guy from Wisconsin who wants to go hammer-and-tongs after the hardest problem facing our nation today. That’s a rare bit of political courage from a party usually short on it.

As for the president’s speech: As always, I’m neither an economist nor an investment adviser, but I’d say the outlook for little green pieces of paper produced by the U.S. Bureau of Printing and Engraving does not look so hot. Obama seems awfully impressed by the fact that the for-profit police state based in Beijing makes solar panels. He’s not quite New York Times op-ed page in his enthusiasm for China’s central-planning “investment” model, but he’s getting there.

I liked the fact that the great American Demosthenes stumbled over that story about the Chilean rescue company, saying that volunteers sometimes worked “three- or four-hour days.” Three- or four-hour days? What about coffee breaks? Are these government workers? (He corrected himself: He meant three or four days straight.)

Executive summary: Despair.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Today’s breaking news: Texas took stimulus money. Yeah, I know — breaking news from eons ago. The Left is currently engaged in a fairly transparent campaign to discredit governor Rick Perry and the Texas model of limited, pay-as-you-go government, largely because Democrats cannot abide the idea of a state with a strong economy and no income tax. Former economist Paul Krugman is leading that particular chorus, and the recent nattering from the likes of Jon Chait and Kos over the state’s accepting federal stimulus funds is silly. It is also a rather naked attempt to defuse the continued disgust with Democrats inspired by that particularly spectacular pork-a-thon: “See! See! Republicans took the money, too!”

If Rick Perry had had his way, there would have been no stimulus bill of the sort we saw and will be paying for (for a long, long time). Yes, that would have made balancing Texas’s budget more difficult — to the tune of $6.6 billion in a state with a $1.2 trillion economy. Shock, horror, etc. Texas had more than enough money in its reserves to cover that sum. Perry could have gutted those reserves to make a political point, but he chose not to. That is prudence, not grandstanding. It does not make the stimulus any less of a national shame.

Republicans lost the stimulus fight but are under no special obligation to leave money sitting on the table when Uncle puts it out there, which Texas did rather than tap the billions in its rainy-day fund. If I had my way, there would be no Social Security or federal highway system, but I’ll drive on the interstates, anyway: They’re there, and I pay for them, and I am under no obligation to deny myself the use of the things Joe Government funds out of the money extorted from me. If Texas could have negotiated a deal whereby it neither received stimulus payments nor saw its citizens put on the hook for funding them, I suspect Texas might have taken that deal — just as I would  opt out of Social Security today (yesterday!) if I had a choice. But to treat it as a scandal that a state is accepting some of the money being appropriated from its residents is boneheaded.

Texas’s government revenue is running about $15 billion less than expected this time around. So, what is the state doing? Senate Republicans have just submitted a bill that will — radical idea! — limit spending to the available revenue. AP:

The Senate bill calls for $73.8 billion in expenditures, exactly what the state comptroller said Texas will earn in revenues over the next two years.

The state agencies and the bureaucrats’ lobby want about $100 billion. They are not going to get it. That’s what legislatures are for — not that you’d know from the way our national one operates.

Chait and Krugman cannot abide by Texas’s “Just Say No” model of appropriations, because they are ideologically beholden to the belief that people cannot thrive without a very robust and paternalistic state to mind them. But they can, and do — and, once the bond markets get done with Washington, they will, nationally.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

In case there existed any doubt that Barack Obama (D., Goldman Sachs) is Big Business’s man in Washington, he has named General Electric CEO Jeffrey Immelt to a key economic position: head of the President’s Council on Jobs and Competitiveness, successor to Paul Volcker’s Economic Recovery Advisory Board.

GE, you will not be surprised to know, spent $32 million on lobbying in the last year and is a big political donor.  Like its colleagues in most Big Business sectors, it heavily favors Democrats: It was a large contributor to Barack Obama’s senatorial and presidential campaigns, and the single largest recipient of GE money in 2009–10 was, you will not be surprised to learn, one Barack Obama.

Many in President Obama’s union-goon constituency are disappointed with the decision: Mr. Immelt, they complain, is an “outsourcer,” sending their jobs (“their” jobs) to China. Case in point: GE is shutting down two U.S. factories that made incandescent lightbulbs; the replacements will be made in China.

But hold on: Those incandescent lightbulbs are going the way of the dodo and the pro-life Democrat not because of nefarious plotting by the infernal Chicomms, but because the United States is banning them. Who banned them? The Democrats did, as part of their first-100-hours push upon assuming the majority in Congress. (And who lobbied the Democrats to ban them? GE, of course, for its own Machiavellian reasons.)

Having been the target of a Teamsters picket, I can attest that organized labor is not full of the brightest bulbs in the great American light show. But: How do you give your money and your votes to the party that plans to ban your product and then turn around and whine when they ban your product? Keep up with the news, geniuses.

Speaking of Chicomms, GE was in the process of signing a bunch of deals with them even as Mr. Immelt’s appointment was percolating. Which must have put him in a sweet negotiating position.

GE is the poster child for corporate welfare, having encouraged the supersizing of Obama’s stimulus lard-loaf as a prelude to chasing after its green-tech and energy giveaways. Immelt tagged along with Obama to India, where the president acted as vice president of marketing for the gaggle of CEOs he had in tow.

GE’s cozy relationship with government is paying off: The company has been given a multibillion-dollar contract to build an engine for the Joint Strike Fighter — which already has an engine, built by another company. Having two companies building redundant engines for the same plane was enough to get defense secretary Robert Gates’s attention; he called it a “wasteful boondoggle.” The Pentagon doesn’t want it. But GE got the deal, all the same.

In truth, I can’t think of a more appropriate adviser for an overreaching, arrogant, big-government administration than the head of GE, an overreaching, arrogant, big-government corporation. If we can have a tax cheat overseeing the IRS, why can’t we have a corporate-welfare case telling us how to get productive?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

The good news is that Republicans are at least serious about cutting non-defense discretionary spending back to 2008 levels. The better news is that the RSC has a plan to cut them back to 2006 levels after that.

I haven’t seen any evidence that the GOP is serious about tackling the entitlements and defense spending, but they’re talking a good game so far, and they will be wise to avoid an Obamacare-style overreach that backfires on them. That’s the tricky bit:  They have to go relatively slowly, for political reasons, but they do not have forever, for economic reasons. The tools are all blunt-force implements, but the timing has to be exquisitely fine: juggling sledgehammers.

Here’s the question I put to Sen. Jim DeMint during a brief telephone interview last night:

Chances are pretty good that Illinois, California, and New Jersey, and maybe a dozen or more other states, are going to go broke — because they cannot meet their pension expenses. All told, the states are about $3 trillion short, and they’re going to come looking to Congress for a bailout. Are you going to write that check, or are you going to let them hang and watch the municipal-bond market collapse? Which angry mob do you want to face?

Senator DeMint did not exactly say, “We’re going to let the municipal-bond market collapse,” but it sure sounded a lot like that. Republicans have a three-part plan for the states’ fiscal crises:

First, create a legal process to allow states to renegotiate debts and union contracts in something akin to bankruptcy.

Second, forbid a congressional bailout of the states.

Third, forbid the Fed to buy states’ debt as part of a freelance Ben Bernanke bailout.

In other words, prepare a site for crash-landing state finances and then forcibly guide them to it.

That third part is interesting, no? Republicans are looking askew at the Fed’s new career as at-large bailout-maker.

The Republicans’ plan looks pretty ugly, but I do not see any plausible alternatives. And I see one big opportunity: This is the chance to pry the parasitic government-employee unions off the body politic. They have bankrupted the states, and the resulting crisis gives us the means and the opportunity to put an end to their plunder. When those contracts get renegotiated, Republicans should insist that they address more than pensions.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

I think that the great Bill Kristol is wrong in his call for a “modernized international gold standard” — whatever that might look like — as  part of a program to end the U.S. dollar’s status as the world’s reserve currency. A couple of things:

First, the dollar’s status as a reserve currency is not inherently related to the question of an international gold standard. Whether we have fiat dollars, dollars backed by gold, or dollars backed by something else, nations that hold large foreign-currency reserves may or may not choose to hold as many dollars tomorrow as they hold today. Large institutional investors, be they sovereign-wealth funds or other top-tier players, may wish to hold something backed by gold, in which case they have an obvious alternative: gold. (Or gold-related securities.) Dollars are freely traded on  global exchanges; gold is freely traded on global exchanges; there is never any question about the value of a dollar vis á vis gold. Yes, the value of the dollar fluctuates, and so does the value of gold. There is no inherent economic advantage in uniting those fluctuations; the main attraction of the gold standard is its alleged power to cause governments to conduct their fiscal affairs intelligently and honestly. Alas, it does not.

The question of what a “modernized international gold standard” would look like is worth asking, inasmuch as expecting a motley selection of self-interested sovereign nations to adhere to a rigid international standard that does not serve their political goals has some precedent — the euro’s deficit rules, the Kyoto  Protocols, etc. — and that precedent suggests this: Ain’t never gonna happen. All standards are gameable by sovereign states. Gold standards do not deliver on their promised benefits, and create problems of their own.

I also think Mr. Kristol is wrong when he writes: “It’s the dollar’s status as a reserve currency that has allowed the U.S. government to amass huge debts, debts which the legislatively imposed debt ceiling has been unsuccessful in limiting.” There are lots of countries that manage to amass massive debts without issuing a currency that serves as a world reserve.

The dollar probably will continue to act as the world’s preferred reserve currency, with that position diminishing slowly over time as attractive alternatives prove their mettle (if not their metal). Likewise, U.S. Treasuries probably will continue to be the standard of safety, with that position eroding over time as well. Those are not necessarily bad things or good things. What would be a bad thing is a sudden run on dollars and Treasury bonds, a financial black swan emerging from our troubled accounts. But, if anything, large dollar holdings by China and other governments give them an incentive to help prevent or ameliorate such an event. Hu is long the dollar, after all. Awful long.

In general, I think we put too much weight on things like Chinese dollar reserves, or the fact that the global oil trade is conducted in dollars, and the like. Our real economic problems are far simpler: We spend too much, borrow too much, carry too much debt, have a poorly structured tax system and an overextended national-defense presence, are governed by a Congress of children, and refuse to believe that the laws of supply and demand apply to U.S. dollars and U.S. Treasury bonds.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Kevin Drum makes a good and plausible point about my OPEC post: OPEC may not be able to increase its oil output, even if it wanted to. Drum concludes that oil prices therefore are no reflection of the debased dollar. Okay, so what about: cotton, corn, wheat, urea, gold, soy, silver, wholesale food, etc.? Orange juice prices are up 30 percent; is there some kind of OJPEC of which I am unaware?

Good news for Generic Republican, who already has established himself as a legitimate contender for the White House in 2012: OPEC is not bailing us out. The oil cartel is making it known that it is cool with $100 oil and will not act unless prices move significantly higher and stay there. Oil, like most commodities, has been rising steadily as governments around the world keep their printing presses running to dump new money into the global economy.

Oil producers have a real good to sell, one with intrinsic value. They do not want to be paid in devalued currencies. Neither do producers selling precious metals, fertilizer, farm products, etc., which is one reason why wholesale food prices are going zoom, zoom, zoom.

Oil at $100 and unemployment ~10 percent is bad news for Obama’s re-election hopes, of course. (It should go without saying that it is bad for America, too, and that I do not wish for economic suffering to be visited upon my fellow citizens in order to hamper the Obama administration.)  But you know what’s even worse than $100 oil? $150 oil, which the CEO of Gulf says would not surprise him. There will be tremendous political pressure put on OPEC and the other producers if that happens. But why would OPEC want to bail us out? What is in it for them? Devalued U.S. dollars? If the Obama administration will not get behind a solid dollar for sound economic reasons, maybe narrow political self-interest will be enough.

We spend a lot of time thinking about our competition with China in producing goods and services; but it is equally important, probably more important, that we compete with the Chinese and the other rising economies as consumers of goods and services. The United States is still the big boss in terms of global energy demand, but small, steady changes elsewhere are making it a new game. The energy autarkists who like to rave about the evils of “Arab oil” (never mind that the biggest part of our oil imports are Canadian and Mexican) fail to appreciate that with every passing month it matters a little bit less to the Arab world whether we buy their oil or don’t. Clout has a shelf life, and money talks. What is our money saying, vis-à-vis oil, food, metals, etc.? I think it’s saying “Help me!” in that tiny, terrifying little voice at the end of the original The Fly.

Back to Obama: I’m starting to think that we despairing deficit hawks have to be more politically engaged. I’ve operated for the past several years under the theory that when it comes to the big, macro debt-and-deficit issues, it does not much matter who holds political power: I did not see much evidence that a Republican Congress or a Democratic Congress was going to act before the market acts, forcing fiscal discipline on the United States by jacking up borrowing costs. Yes, there are differences, but the differences between the parties is very small compared with the difference between either of the parties and what reality requires.

But I am starting to reconsider that. The Republican party still is not serious about the fiscal issues, but there is an element within the party that is, and it needs to be encouraged and empowered. Somebody has a chance to own this issue. Who will?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, just published by Regnery. You can buy an autographed copy through National Review Online here.

Republican Rep. Kevin Brady of Texas has proposed some reductions in federal outlays — hoorah! — that amount to . . . not much: about $44 billion in the next fiscal year, and about $156 billion over the next five years. Okay, fine, do it: Go ahead and cut foreign aid and the Robert Byrd memorial scholarship, and collect those billions in unpaid taxes from federal workers. That, along with some military-spending cuts, covers, oh,  about 1 percent of the expected 2011 spending. Which is to say, Brady’s bill eliminates in one year about half of the national debt the geniuses in Washington piled upon us in the month of December alone.

Yes, yes — journey of a thousand miles, and all that. This is not going to get the job done. And it will be hard even to get Brady’s modest little trims through the Senate and past President Obama.

Congress is going to have to make cuts of the size Brady proposes about once every two weeks (fortnightly, as we say around here) to get the budget balanced.

Brady goes for the easy ones, mostly: subsidies for fossil-fuel research (hippies cheer!) and eliminating the Corporation for Public Broadcasting (Republicans cheer!).

Here is what Republicans have to cut: Social Security, Medicare, Medicaid, and the Pentagon: That’s pretty much the whole show, budget-wise. Yes, by all means, take the low-hanging fruit first, do it now — do it today! — but congressional Republicans aren’t going to get out of the hard ones. Remember: You guys asked for this job, begged for it, pleaded for it. And you know what you have to do.

Now go do it. We ran a $150 billion deficit in November, 2010. A five-year plan that covers one month of deficit spending is a start. It is not a good start, not an impressive start, but it is a start.

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, which will be published on Tuesday. You can buy an autographed copy through National Review Online here.

Here is an exercise that requires some assumptions. Just thinking out loud, here.

First: Assume a simple universe, one in which public finances operate according to simple, Newtonian physics–type rules: Higher tax rates mean precisely proportional higher taxes, lower tax rates mean precisely proportional lower taxes, government spending comes in on budget, etc. (Yes, I know — imagine.)

Second: Assume a world in which public policies, to be enacted, must represent, at some level, a compromise between John Boehner, Harry Reid, and Barack Obama. (Assume a political world that is very much like the present political world.) Or between: Boehner, Reid, and a Generic Republican president;  or between Boehner, Mitch McConnel, and Obama.

Third: Assume we as a nation in fact want to balance the budget, and want that deeply enough to do uncomfortable and unpleasant things to make it happen. (That most implausible assumption of these, I reckon.)

Fourth: Assume that we can conduct policy without sending the economy back into recession. (Assume that the positive effects of our budget-balancing discipline equal or outweigh the negative effects of changes in taxing and spending levels.)

Some conditions: We have a very large deficit — 40 percent of federal spending, last time around. We have very large hidden liabilities — unfunded entitlement obligations that will prove massively expensive if we try to pay them and massively disruptive if we do not. There are limitations on our ability to act, and limitations on our ability to not act.

Our issues are taxing and spending. We have some choices, and they are, in the order I prefer them on this particular evening in January:

1.   Cut spending, raise taxes.

2.   Cut spending, maintain taxes.

3.   Cut spending, cut taxes.

4.   Maintain spending, raise taxes.

5.   Maintain spending, maintain taxes.

6.   Maintain spending, cut taxes.

7.   Raise spending, raise taxes.

8.   Raise spending, maintain taxes.

9.   Raise spending, cut taxes.

You may notice a readily identifiable pattern at work here. The Party of Option 1 in Washington in a very small one. Nobody will admit to being a member of the Party of Option 9, but I fear they are in control of the government. (Somebody wants a huge deficit. Is it you?)

The real-world reasons for not raising taxes are many. The ones I find most persuasive are these: 1. Tax hikes have unpredictable effects on taxpayers’ behavior, but one very likely consequence is higher levels of tax-avoidance strategies, resulting in economic inefficiencies; 2. If you succeed in raising revenue, you will simply encourage Congress to engage in higher levels of spending. Okay. I will grant the power of both of those arguments, but I am writing here about a simpler model, in a simpler exercise.

Under my assumptions, I would prefer to cut spending and raise taxes right now, to reduce the deficit as quickly as possible, to eliminate the deficit as quickly as possible, and to begin paying down the debt as quickly as possible. There are many prudential reasons for this, one of which is that I believe the risk of a major crisis in American public finances is very dangerous, more dangerous than is widely appreciated, and ameliorating that risk is worth the price of higher taxes. But I also have simpler reasons for this: We can cut the budget now, and we can raise taxes now. We can cut the NEA and we can cut the military and we can cut Medicare spending. But the debt is piling up, and debt service is, basically, non-negotiable.  As debt service takes up a bigger and bigger share of our budget, that is a bigger and bigger piece of the budget that we cannot cut in the future. The worst kind of fiscal crisis is the one that we can neither tax nor cut our way out of, and avoiding that — avoiding even an elevated risk of that eventuality — seems to me worth the price of firing with both barrels against the deficit now.

Here is the thing: All books must eventually balance. We are going to pay $1 in taxes for every $1 in spending, and for every $1 in borrowing we are going to pay $1 plus interest — very, very low interest, at the moment, but who knows if that will be the case in a year? In five years? If you think interest rates for U.S. sovereign debt will remain low — and I hear from those of you who believe so all the time — what are you willing to risk against the possibility that you are wrong? How did you do predicting the 2008 financial crisis, and do you believe government finance, in the United States, is less complicated than bank finance, or insurance-company finance? My view is that the price of being wrong about that risk is potentially very high.

What kind of tax hike would I endorse? I remain very much in favor of the Simpson-Bowles tax proposal. (And “Simpson-Bowles” already sounds like ancient history, doesn’t it? Like Smoot-Hawley? Like the Great Compromise?) Which is to say, I am sympathetic to a tax increase that reduces overall income-tax rates but eliminates most (I would prefer all) deductions, including the destructive mortgage-interest deduction. Many Americans would pay lower taxes under such a reform; many would pay higher taxes, but the net effect would be a tax increase, albeit a modest one. (My very strong preference is for a flat, no-deductions tax, one rate for all forms of income: personal income, dividends, capital gains, inheritances, whatever.) Simpson-Bowles contemplated a 3:1 ratio of spending cuts to tax hikes. Some conservatives I spoke with said they would prefer 5:1 or 10:1. I think I would prefer 5:1, too, but I would take 1:1.

I believe that restoring order to our public finances is not an issue but the issue, the thing that will be the source of endless contentious post-facto debate forever if we get it right — but will define our era if we get it wrong. (And not in a good way.) I believe our public finances are a more important issue than Islamic terrorism or Chinese mercantilism, and a more pressing threat to our national well-being. (I do not believe that those are unimportant; I believe they are less important.)

That being the case, I cannot agree with those who say, for instance, that military-spending cuts should be off the table, or those who say that tax increases, even modest ones performed in the course of simplifying and improving our tax code, are off the table. (Hello, Ryan.) And I will argue that this is a conservative position, conservatism being rooted in prudence and a certain amount of risk-aversion when it comes to political institutions and their grand plans, such as ending poverty or eradicating evil.

I also have in mind a kind of Pascal’s wager for the debt. If those of you who believe that the debt and deficit are basically manageable problems rather than a clear and present danger to the republic are wrong, finding out you are wrong is really, really going to hurt. If I am wrong — what? We shift taxes forward, paying them ourselves instead of foisting them onto our children and grandchildren. No doubt that will do some economic damage. But we also cut the size and scope of government, which will provide some economic benefits, and which is, separately, something that I regard as desirable regardless of how much government we can afford. (The cost is not my only reason for opposing an expansive state.)

Given that the real-world politics of getting this done are difficult and imperfect, and given that at the real policy level rates of change matter more than absolute levels, am I wrong in my fundamental argument that we should throw everything we can at the debt, as fast as we prudently can?

And if I am wrong, why?

—  Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, which will be published on Tuesday. You can buy an autographed copy through National Review Online here.

Two big things in the news today:

1. California is expected to reveal its state budget. I cannot imagine that there is going to be any good news in there.

2. Texas will reveal its revenue forecast, meaning the state will learn how big a shortfall it is actually looking at.

Should be an interesting compare-and-contrast exercise as the two big guns work out their fiscal woes.

In terms of harbingers of the apocalypse, it isn’t exactly dogs and cats living together or John Bolton exchanging facial-hair-grooming tips over sugary mint tea with ayatollahs, but, brace yourselves: Texas is facing a projected budget deficit. I know, I know: horrors, right?

Paul Krugman is practically rubbing his hands together with glee like some thin-mustached and top-hatted melodrama villain: Bwahahaha! If Texas goes down, conservative economics goes down with it!I shall rule the world! Look for the usual liberal snots to be talking up the story: Texas is finished, baby!

Keep your pants on, professor. Texas is not going to have a budget shortfall.

Texas’s present situation is not exactly unprecedented. It happens in Texas from time to time: You have a state with no income tax, property taxes assessed at the local level (where the taxpayers are apt to fire the taxspenders), and very little else, revenue-wise — Texas has one of the lowest tax burdens in the country — which leaves the state sales tax and the 1-percent “franchise” tax, which is a fancy way of saying a weird little business-revenue tax on firms with more than $1 million in sales. (Hey, New Jersey:  How’d you like to trade your current state-tax burden for a 1-percent business tax and a 6.25 percent sales tax? You get most of the nation’s  new jobs in the deal, too.) So, money’s always tight for Lone Star State government, and lots of Texans kind of like it like that.

But Texas, despite its small-government reputation, is not exactly Galt’s Gulch — you’ve still got to pay those menacing state troopers and the surly fat lady down at the DMV, etc. On top of all that, Texas has a boomier-bustier economy than most other states do, mostly because of the outsize role the oil business plays in the economy, and hence in the tax-revenue stream.

Ergo, the occasional shortfall projection.

Except that Texas doesn’t do shortfalls. Texas starts from scratch: Every year is basically Year Zero when it comes to the state budget — there is no assumption that next year’s funding will match or exceed this year’s, and the state’s constitution explicitly forbids any legislature to tie the hands of a subsequent legislature, financially or otherwise. When necessary, Texas implements zero-baseline budgets, in order to keep the state living within its means, even if Paul Krugman thinks it beastly.

Rick Perry established a pretty good standard for gubernatorial brass-dangling the last time there was a projected budget shortfall, in 2003. Governor Perry and his colleagues in the Texas legislature took a radical right-wing approach to government budgeting, inasmuch as they started by asking: “How much money do we have?” (Insane, right?) After they figured out how much money they were going to have, they then decided how to divvy it up, in total and radical and right-wingish contravention of the Washington model of budgeting, which goes: Spend everything you have, spend everything you can borrow, and then spend some more, regardless of how much you actually have to spend. And then spend some more; repeat. Which is totally how James Madison wanted it, I am sure.

In 2003, Governor Perry and Texas Republicans took the state’s budget baseline to zero, and told state agencies to write new budgets, based on what they actually needed to spend to accomplish their missions, rather than based on increasing by 3 percent or 4 percent or 30 percent or 40  percent what they spent last year. And the Republicans handled the politics pretty well: Instead of calling state agency chiefs down to the legislature to be dressed down by pompous elected types or denouncing them from the governor’s office, they had a bunch of what must have been drearily tedious private meetings with them, and helped them to sweat their budgets down in a rigorous but respectful way. It worked. Texas balanced the books, and the place does not look like Afghanistan.

Republicans like to brag that they balanced the budget with no tax increases, which is almost true (some fees and such went up, and some new ones were created). The franchise tax, which had originally kicked in at around $300,000 in revenue but had been pushed up to $1 million, is coming back down to a $600,000 threshold. It’s a tax increase, but it’s not much of one. If congressional Republicans in D.C. performed as well as Republicans in Austin, we’d be pinning medals on their chests.

Texas’s low-B.S. approach has had some salubrious effects, as I’ve documented here and here. It also left Texas with surpluses that allowed the state to put about $10 billion in its rainy-day fund, which could come in handy now that the economy seems to be clouding up a little. Could, but probably won’t: Republicans plan to introduce a budget that comes in within current revenue without touching the rainy-day fund. Get your head around that: There’s a multibillion-dollar pot of cash sitting there in front of politicians who must be just slavering inside at the thought of it, and they aren’t going to touch it — even though they have a pretty good excuse. Imagine a Congress that could do that.

They haven’t delivered yet, but Perry’s Republicans did the stand-up thing last time around and reaped the rewards. Expect them to do it again.

And it may not be all that hard: Pace Krugman et al., Texas’s potential shortfall probably is not $25 billion. The inside guys talk about $11 billion to $15 billion, spread out over a two-year budget. (Texas writes one budget every two years, and has a legislature that meets every two years.) Even the liberal bedwetters over at the Center for Budget and Policy Priorities expect the budget hole to amount to about 10 percent of the whole enchilada, as compared to more than 50 percent in basketcase California.

Of that $11–$15 billion, about $8 billion will be Medicaid  — and that is the real budget problem faced by Texas and many other states. Rules changes associated with Obamacare will add about 71 percent to Texas’s Medicaid expenses over the first ten years of implementation — that’s Texas’s out-of-pocket expense, not money that the feds reimburse under Medicaid — an increase that quite literally threatens to bankrupt the state. Analysts predict that Medicaid expenses could outstrip all state revenue within a few decades — meaning that Texas could not pay its Medicaid expenses, even if it dedicated 100 percent of its tax revenue to them. That is going to have to change, and I’m going to bet that Texas has better ideas for fixing that problem than Paul  Krugman does.

Texas doesn’t need a new tax to fix it; it ain’t broke.

UPDATE: A reader points out something I should have pointed out:

Krugman points to our middlin’ unemployment rate, saying “it’s about the same as the unemployment rate in New York or Massachusetts.”

Well, that is true. But he forgets one thing. Texas has a 7.9% unemployment rate after a net inflow of 1.78 million job seekers and their families over the  last ten years, while New York’s 8% unemployment rate come after 847,000 people left the state.

If Mr. Krugman would look at the data with a more discerning eye, he’d realize how amazing this statistic is.

Indeed, it is. I also winced a little at Krugman’s assertion that Texas has to create lots of jobs just to keep up with all the people moving there. Why does the good professor think people are moving there in the first place? Ballet Lubbock is great and  all, but I suspect it’s the jobs.

– Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, now available at Amazon.com. You can buy an autographed copy through National Review Online here.

Ezra Klein, he of recent “the Constitution’s old, and stuff” fame, is one of the great and most persuasive cheerleaders for the belief that Republicans cannot repeal Obamacare and remain fiscally responsible since — as everybody knows! — Obamacare reduces the national debt by $100 billion over the next ten years. He makes his case here. Taking a slightly different but in many ways similar view in National Review Online, Avik Roy concedes that, purely as a matter of parliamentary process, Obamacare’s deficit-reduction features have to be taken into account. (Roy is no doubt correct in his analysis of the process questions.)

Klein makes a persuasive case, in the same way that a lawyer who knows his client is guilty makes a persuasive case. Yes, if we confine ourselves to a very narrow range of debate and a very narrow selection of possible outcomes, then Obamacare does reduce the deficit over the next ten years, and its repeal would add to it over that time.

But there is a bit more to the story than that.

First, it is worth asking how complete and how accurate the CBO’s estimates are. You know who has some useful insights into that question? The CBO. For instance, CBO director Douglas Elmendorf readily concedes that “estimates of the effects of comprehensive reforms are clearly very uncertain, and the actual outcomes will surely differ from our estimates in one direction or another.” One direction or another. (Guess!) It will not come as a shock to observers of federal activities ranging from the ethanol program to the Iraq war that — unthinkable as it may seem — a government program may under some circumstances exceed its budget. If Obamacare spends not a nickel more than the CBO estimates, and if Obamacare produces every dime of the revenue promised, then it will prove a deficit-reduction tool over the next decade, by definition: That’s $411 billion in spending and $525 billion in revenue. I wonder if Ezra Klein would like to place a very large bet with his own money on the possibility of that happening. I would. In fact, I am willing to bet not only that there will be significant variation, I am willing to bet on the direction of that variation, at least insofar as the spending goes. (I would not be surprised if revenue projections fell short, too: Those tax increases are going to be even less popular when people start paying them.)

You know who seems sympathetic to my position? Douglas Elmendorf of the CBO, who writes: “CBO’s cost estimate noted that the legislation maintains and puts into effect a number of policies that might be difficult to sustain over a long period of time. For example, the legislation reduces the growth rate of Medicare spending (per beneficiary, adjusting for overall inflation) from about 4 percent per year for the past two decades to about 2 percent per year for the next two decades. It is unclear whether such a reduction can be achieved, and, if so, whether it would be through greater efficiencies in the delivery of health care or through reductions in access to care or the quality of care. The legislation also indexes exchange subsidies at a lower rate after 2018, and it establishes a tax on insurance plans with relatively high premiums in 2018 and (beginning in 2020) indexes the tax thresholds to general inflation.”

Take a look at the 1965 cost and revenue projections for Medicare and compare them to the reality of Medicare today. In 1965, Medicare was going to be totally solvent on a 1 percent payroll tax. How’d that work out?

And it is worth noting that Obamacare does not vanish into the legislative ether after this ten-year window we’re talking about. What happens in 75 year? In 100 years? There are very reasonable estimates that Obamacare will add many billions of dollars to the national debt over a longer timeline, even assuming that the bill is not monkeyed with piecemeal to reduce the taxes and increase the benefits — which is to say, assuming Washington suddenly is populated by saints and stoics.

This discussion, as framed by Klein, also rewards the Democrats for engaging in dishonest parliamentary shenanigans. As Klein well knows and the CBO reminds us, the Medicare “doc fix” was spun off into a separate bill specifically in order to keep some costs from being counted on Obamacare’s tab. As Cato’s Michael Tanner notes, “In a letter to Congressman Paul Ryan (RWI), the Congressional Budget Office confirms that if the costs of repealing the payment reductions, known as the “doc-fix,” as reflected in HR 3961, were to be included in the cost of health care reform, the legislation would actually increase budget deficits by $59 billion over 10 years.” This is a cheap accounting gimmick, conveniently excluded from the discussion. But it certainly is convenient to be able to account for the costs of Obamacare without having to account for the cost of bribing the doctors, and the congressmen who are most sensitive to them, to accept it. That is, of course, far from the only cost-shifting mechanism at work.

More broadly speaking, what the Obamacare-reduces-the-deficit argument neglects is this: Repeal is not the end of the story. Repeal need not be followed by . . . the void. If we want to reduce the federal deficit by $100 billion over ten years, there are lots of ways to cut $10 billion a year from spending. The federal government in 2004 estimated that it spent $10 billion a year on services for illegal aliens. Cut it. Done. Color me skeptical that we have to spend nearly $1 trillion over a decade to get $10 billion a year in spending cuts. If I’m reading the budget right, HUD spent $45 billion in 2007. And Republicans have some very good ideas for health-care reform that also will reduce federal outlays, thereby reducing the deficit. It is not as though the choice is Obamacare or nothing.

Treating the CBO ten-year estimate as though it is the alpha and the omega of the Obamacare-deficit discussion is a debater’s trick, one that we should not fall for. We have a good deal of history and experience on our side, and good reason for skepticism — if only we had a word for a political philosophy grounded in history, experience, and skepticism, in standing athwart history . . .

– Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, wherein you can learn more about the socialistic intrusions of Obamacare, and which now available at Amazon.com. You can buy an autographed copy through National Review Online here.

It is helpful to remember that there are two sides to every transaction. If the price of an ounce of gold goes up $100, you can say that the price of gold has gone up in terms of dollars — or you can say with equal accuracy that the price of dollars has gone down in terms of gold. A trivial and not exactly blazingly original insight, but one to keep in mind.

Food prices are hitting record highs. Sugar, meat, oils — boom, boom, boom. Food-related products, like fertilizers, are on a pretty steep upward trajectory. (Even the reliably pessimistic cotton farmers are celebrating.) Inflation is nipping at the Chinese economy and threatens to exacerbate social unrest in the world’s largest for-profit police state.

Meanwhile, oil prices are zooming, and the boom in gold and other precious metals has been too amply remarked upon to bear further commentary here.

So, what’s happening? Has the entire planet suddenly got a serious case of the munchies? Sure, there are specific factors contributing to all of this — population growth, higher demand in Asia, non-economic events such as crop failures and droughts, etc. — but we ought to consider another interpretation: The price of food and petroleum isn’t so much rising as the price of dollars, euros, yen, and renminbi is dropping. The financial crisis, the continuing fiscal incontinence of the U.S. and European governments, and the global attempt to stimulate our way out of our recent economic troubles has undermined confidence in government finances, and with it confidence in government-issued currencies, which have no inherent value. (No, I am not setting up an argument for gold-buggery.)

Yesterday, I put up a picture yesterday of a guy sporting my new favorite tattoo: one of the old supply-and-demand graph familiar from your Econ 101 textbook over the motto: “These Laws Cannot Be Broken.” (I want every joker elected to federal office to get that tattoo on his voting hand.) What is underappreciated is that the laws of supply and demand apply to currencies, too: You create new money (and, boy howdy, have we been creating money!), you increase the supply, demand does not change, and the price goes down. Usually, this is reflected in currency exchange rates: Uncle Sam creates lots of dollars, and the greenback falls against the euro and the yen. But when all of the major currencies are being pumped up at the same time, the exchange rates won’t move in the same way, since they’re all being devalued at the same time.

Another underappreciated aspect of our current currency situation: One of the biggest stimulators out there — and one of the biggest money-supply inflators — has been China. China’s money supply, by some estimates, increased by 50 percent during its stimulus campaign. Part of that is the familiar ChiCom program for keeping its currency artificially cheap and its people artificially poor to keep the exports sector booming, but part of it is Beijing doing exactly what they’ve been doing in Washington and London and Tokyo: flooding the economy with free money in the hopes of stimulating economic activity — i.e., the crystal-meth approach to economics.

It seems to me entirely plausible that what we are seeing is a giant, global vote of no confidence  in the economic policies of the world’s major economies: Europe and the United States, sure, but China, too. I used to say that you could judge how seriously a man took his beliefs about the future by how much of his own money he was willing to bet on a given proposition. But there are things that people take even more seriously than money: things with real value, like food and fuel. Inflation happens when the money supply is increased, regardless of whether it shows up in the Consumer Price Index. CPI jumps are not inflation, they are a reaction to inflation. But don’t tell me that at a time when the market is putting high or record prices on everything of inherent value that everything is hunky-dory on the inflation front. When one country devalues its currency in a last-ditch effort to stave off crisis, it’s a banana republic. When the United States, Europe, Japan, and China do it in a coordinated fashion, we’re all part of the Banana Federation of Greater Bananastan.

Supply and Demand: These Laws Cannot Be Broken.

– Kevin D. Williamson is a deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, now available at Amazon.com. You can buy an autographed copy through National Review Online here.

Or so they say.

I say: You wish.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, now available at Amazon.com. You can buy an autographed copy through National Review Online here.

Exchequer’s new favorite tattoo: 

According to Jonathan Cohn, cutting spending to 2008 levels is radical:

As many others have noted, the demand of going back to 2008 spending levels is radical and, not coincidentally, highly unrealistic: According to the Center on Budget and Policy Priorities, it’d amount to a one-fifth cut in discretionary spending–forcing cuts that could damage the fragile recovery and starve programs like Pell Grants that most Americans value.

Starving Pell grants? Not Pell grants! My heart races at the prospect.

Radicalism should be made of sterner stuff.

This is buffoonery, but buffoonery of an interesting sort, inasmuch as it throws some light on the thought processes at work here.

There are, I suppose, two ways of looking at 2008 spending levels vs. 2010 spending levels. One is to look at 2008 in independent terms: Did we have a radically small or austere government in 2008? I’d say no. Maybe Citizen Cohn feels differently. Or we could ask, Are 2008 levels radically lower than 2010 levels? Twenty percent? Sure, let’s call that radical. But if a 20 percent change is radical, then we could as easily say we’ve had radical, irresponsible growth in government spending since 2008 as say a 20 percent discretionary-spending cut today would be radical. And would not that be more accurate? Increased spending, after all, is the moving variable. It’s not like we’ve had 20 percent population growth since 2008.

But ratchets by definition only go one way. And this ratchet is a racket.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, now available at Amazon.com. You can buy an autographed copy through National Review Online here.

The state of Kansas now has a permanent legislative committee on the public-pension crisis.

Prichard, Ala., has stopped paying its municipal pensions.

Indiana considers allowing “Chapter 9″ bankruptcies — bankruptcies for cities.

Rhode Island’s worst basketcase heads for bankruptcy.

A Michigan basketcase heads there, too.

Bankruptcy is a possibility for San Diego.

State-bankruptcy law is suddenly a hot subject.

I hope investors are holding out for really, really good yields on municipal bonds. Ah, good.

Have a gander at America’s 17 most-bankrupt cities, and consider the party variable: Two Republican mayors, two independents, one city so bankrupt that it is in state receivership — and twelve Democratic mayors, meaning the Democrats lead 70.5 percent of the most-bankrupt cities, by my always-suspect English-major math.

And you thought their record was bad in Congress.

And get a load of the size of these budget shortfalls: Camden, N.J., at 15 percent, Hamtramck, Mich., at 17 percent, Paterson, N.J., at 24 percent, Central Falls, R.I., at 22 percent.

The state of California cannot afford to bail out San Francisco, Los Angeles, San Diego, and San Jose; the state of Illinois cannot afford to bail out Chicago and Joliet; New Jersey cannot afford to bail out Camden, Patterson, and Newark. The outstanding municipal-bond obligations are huge. Vero has some thoughts here, and here’s one sleep-disturbing fact:

But municipal bonds have not yet lost their low-risk reputation. According to the Investment Company Institute, $84 billion went into long-term municipal bond mutual funds in 2010, up from $69 billion in 2009. And the 2009 level represents a 785 percent increase from the 2008 level of $7.8 billion. Artificial incentives have lured investors into thinking that lending cash to bankrupted cities will be profitable.

New Jersey already has been accused of fraud for running what amounts to a muni-bond Ponzi scheme.

Questions: Why do city voters continue to elect these mayoral specimens? And why do the markets continue to lend city councils vast amounts of money? And which one of those trends comes to an end first?

The French, God bless them, are picky about what foreign words get adopted into their language. But I was not surprised to see that one hated Anglo-Saxon term has made it into the Francophone world unmodified: subprime.

France is on the verge of losing its AAA sovereign credit rating. Other European nations surely will follow.

This is a good news / bad news thing for the United States, I think. Short term, we will continue to benefit from the flight to the dollar and U.S. Treasury bonds — so long as the world does not offer much of an attractive alternative, our debased currency and our flimsy government securities will continue to look good, and so we’ll enjoy a meaningful subsidy. But it’s the subsidy that comes from being at the end of the domino line rather than at the beginning. The longer Washington enjoys artificially cheap borrowing and a propped-up dollar, the worse it is going to be when it comes down. The problem is the boom, not the bust. Even if the boom hasn’t felt like much of a boom.

Wildcard: Chinese inflation. If inflation continues to run high in China, those relatively low-yield investments in Treasuries and other sovereign debt are going to start looking a lot less attractive, no? The portion of our publicly held debt owned by the Chinese government and Chinese institutions under government control is often exaggerated, but it is still a big chunk. China is still a very poor country — one where food prices are going up at an uncomfortable rate. Beijing might very well decide to buy fewer bonds and more rice, or decide to hold fewer U.S. dollars and more oil.

Question: When does the United States lose its AAA rating? Give me your predictions in the comments section.

In the hotly contested Amazon category of books about socialism . . .

You can help build my lead over Marx here or buy an autographed copy from National Review here.

Our regularly scheduled deficit panic will now resume.