In Lyndon Johnson and the American Dream, Doris Kearns Goodwin (just Doris Kearns in NR’s copy of the book — we’re old-school) has one interesting observation about LBJ: He never got out of the legislative mind-set, and his measure of success when crafting his hallmark programs, from Medicare to the Civil Rights Act of 1964, was simply getting the bill passed. Never mind the contents of the program: Just get something signed into law. Tragically for LBJ, he didn’t have a Nancy Pelosi around to tell us that we had to pass Medicare so we could find out what’s in it.

I get the same feeling for President Obama’s new mortgage settlement: Never mind what it does, or whether it does any good, just get everybody’s signature on the deal.

Here’s what it does not do: It isn’t going to prevent a lot of foreclosures (and may in fact cause some), it isn’t going to assuage the terror in the mortgage markets, and it probably isn’t going to clean up the system that caused some number of homeowners to be foreclosed on without proper documentation.

Like the fiasco that was HAMP, this settlement will encourage homeowners to become delinquent on their loans: There’s $10 billion set aside for principal writedowns for delinquent homeowners, but paid-up borrowers only get $3 billion to encourage the refinancing of underwater mortgages. U.S. homeowners are upside-down to the tune of more than $750 billion, with more than a fifth of homeowners underwater. So, even if you think that the federal government ought to be in the business of trying to micromanage mortgage refis, this is four-tenths of 1 percent, assuming maximum utilization.

Also, those writedowns are going to cover (probably exclusively) mortgages that have been securitized. Guess who owns those? Fannie and Freddie have a pot of them, as well as pension funds, particularly large, government pension funds. So the banks are going to be taking a writedown: The taxpayers are going to be taking a writedown. (Though the markets probably have already discounted those securities by this point, so that point may be moot.)

And one of the biggest problems — the mortgage documentation system — goes largely unaddressed. Basically, the new rules say to fast-and-loose mortgage servicers: “Don’t do that again, and pay $1,500 to $2,000 to everybody you foreclosed on without proper documentation.” Given the complexity of assembling proper documentation and the legal costs involved, $2,000 per offense is a great bargain for the wrongdoers, practically an invitation to keep doing exactly the same thing. Everybody gets worked up about robo-signing, but robo-signing is not the root of the problem, only a symptom of it: The root of the problem is that the underlying system for keeping track of mortgage ownership in an age of securitization and mass default is entirely inadequate to the task. So far as I can tell, the new servicer rules basically say, “Document stuff the right way next time,” but don’t do much to spell out what that looks like and creates incentives not to comply. If the price of fraud is lower than the benefit to be derived from the fraud, then what is the disincentive to fraud?

None of this will stop President Obama from doing a little preening and bragging that he got the banks to cut homeowners a break, even though this deal costs the banks basically nothing and does basically nothing for homeowners.

I am not super-enthusiastic about most kinds of financial regulation, but the basic rule of law requires that you be able to legally document your right to foreclose on a house before you foreclose on it, and the current system does not provide that easily. We’d have been better off taking $27 billion to Google and asking them to design a proper document-management system.  

Remember 2007? Glory days, right? Everything was booming, and nothing was booming quite as much as real estate — especially commercial real estate. Malls, hotels, warehouses, industrial parks: Everything was being built, and everything was being financed on ridiculously generous terms. Remember interest-only loans? Good times.

But commercial real estate is different from residential in one important way: Your standard residential mortgage goes 20 to 30 years. Your standard commercial loan goes for five years, at the end of which you either make a big balloon payment (what it is that balloons remind me of?) or you refinance, the idea being that five years is long enough to get your project built or developed, to secure tenants and leases, get your cash flow flowing, etc. Five years: Seems like it was only yesterday. By my always-suspect English-major math, that means that a whole bunch of commercial mortgages written at that poisonous sweet spot when prices were highest but lending standards were lowest are coming due . . . oh, any minute now.

In New York City alone, there’s about $70 billion worth of commercial mortgages — some of which have been sold off as mortgage-backed securities, naturally — coming due this year. The national total is more than $150 billion, or a bit more than 1 percent of U.S. GDP. That’s going to be a little awkward: The value of U.S. commercial properties has declined by an average of 45.7 percent since their all-time high in 2007, according to Real Capital Analytics. Those 2007 vintage loans weren’t exactly bulletproof: Typical terms included a 20 percent down payment and a five-year payment schedule that required little more than interest payments. An $80 million mortgage on a $100 million property is not so bad, but an $80 million mortgage on what is now a $60 million property is a problem. More than half of the 2007-vintage loans are expected to have trouble refinancing, and maybe well more than half.

This is true even for borrowers who have never missed a payment. Banks are required to take into account a number of factors when rating commercial mortgages. One of the most important is the loan-to-value ratio, which has a lot of borrowers over a particularly uncomfortable barrel: They may have the cash to make their payments, and they may have the cash flow to continue making payments on a refinanced loan, but their properties still are worth less than their mortgages, so nobody wants to refinance. And those are the lucky ones: Just as those loans were mostly for five years, most commercial leases are for about the same length of time. With retail and office-space rentals down, lots of commercial borrowers are sitting on largely vacant properties that are not producing much in the way of cash flow. Among the more high-profile cases, the WTC 3 tower at the World Trade Center still has not located an anchor tenant, which could put the much of the project on ice. Thousands of strip malls across the fruited plains have empty storefronts, and thousands of office buildings have floor upon vacant floor.

Standard & Poor’s advises: “One-third of maturing loans are for office properties, for which five-year lease terms are fairly common — and if tenants don’t renew these leases, securing new, long-term lease commitments may be more difficult in the current environment. Those leases [were] signed in 2007, at peak rents will likely reset to lower levels as five-year leases roll.” S&P’s bottom line: “50%-60% of the 2007 vintage five-year-term loans maturing next year may fail to refinance, and retail loans are at the greatest risk.”

Translation: Armageddon at the strip mall.

And it’s not just a problem for New York City and other big, coastal cities. Richmond, Va., has it worse than Manhattan, Washington, or Los Angeles, according to the local Times-Dispatch, which reports that a dozen large commercial properties have gone into foreclosure recently and that 12 percent of the commercial properties in the Richmond-Norfolk market are “distressed.” In Bergen County, N.J., commercial foreclosures are up 7 percent this year over last year. In the first year of the recession, there were 373 foreclosure actions filed in Bergen County, while in 2011 there were 1,586. Commercial foreclosures are up 10 percent for the state as a whole.

In hard-hit Phoenix, about half of the commercial mortgages backing securities are at risk of default, and a couple of hundred, mostly strip malls and other retail, office buildings, and apartments, already are in default.

Taking a look at the commercial MBS (CMBS) market, Standard & Poor’s issued this advice: “Buckle Up.”

Trepp, a CMBS-analysis firm, in its most recent report (data as of October 2011) finds that the delinquency rate for multifamily-property mortgages is 16.73 percent; for hotels, 14.12 percent and rising; for offices, 8.95 percent and rising; for industrial properties, 11.59 percent and rising; and for retail, a steady 7.61 percent. Trepp managing director Matt Anderson does not sound like a ray of sunshine: “Overall, we do not expect 2012 to be a repeat of 2008, but there will be more disappointments than pleasant surprises in the New Year. The banking sector has not yet returned to ‘normal’ despite two years of earnings growth. With increased regulation and the temptation for banks to take additional risks in order to preserve margins, 2012 should be a very interesting year.”

Not as bad as 2008 — is there a better example of damning with faint praise?

Trepp gets to the real concern here, which is that these mortgages and mortgage-backed securities are sitting on the balance sheets of a bunch of still-wobbly banks. How wobbly? About 100 banks went under last year, and about 250 are expected to go under this year. Trepp finds that, of the banks that went toes-up in 2011, bad commercial real estate accounted for two-thirds of their failing loans.

This is a textbook case for the Austrian business-cycle theory: Artificially low interest rates and loose money produce overinvestment, by both bankers and builders, in a bubble — this time, offices, apartment buildings, and retail space — that can’t be sustained once the artificial stimulation comes to an end, as it must. In this case, that malinvestment has to be worked out at two levels: At the financial level, among the lenders and borrowers, but also at the physical level: There’s going to be a lot of dark storefronts out there, with serious long-term consequences for nearby neighbors and for local real-estate markets: Foreclosures will put more property onto the market, driving down rents and subsequently making existing loans less tenable as the cashflow of commercial properties is diminished. They called the Depression-era tent cities “Hoovervilles.” The next time you see a mile of half-abandoned strip malls, think “Obamaville.” 

Not as bad as 2008? Probably not — and let’s hope it is not even close. But there’s a $3 trillion commercial-mortgage market lurking out there, and a lot of CMBS investors — banks and insurance companies in particular — that Washington thinks are “too big to fail,” a problem we persistently refuse to address.

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

1964: “It was a teenage wedding and the old folks wished ’em well / You could see that Pierre did truly love the mademoiselle.”
2012: New York Times: “Families Resigned as Young Americans Put Education, Careers on Hold.” — “The New Face of Poverty.” 

1964: “And now the young monsieur and madame have rung the chapel bell.”
2012: New York Times: “Economic Downturn Brings Backlash against Working Women.” Associated Press: “Child Brides, And Not Just in Afghanistan.”

1964: “C’est la vie say the old folks.”
2012: New York Times: “Elderly Americans in Desperate Need of Additional ESL Funding.”

1964: “It goes to show you never can tell.”
2012: New York Times: “For Elderly, a Time of Uncertainty.”

1964:  “They finished off an apartment with a two-room Roebuck sale.”
2012: New York Times: “With homeownership increasingly out of reach for young Americans, Pierre and his partner were forced to move into a sparsely furnished two-room rental.” — “The New Face of Poverty”

1964: “The Coolerator was jammed with TV dinners and ginger ale.”
2012: New York Times: “With food-stamp funding failing to keep up with soaring need, more young American families are resigned to a diet of cheap, frozen food and sugary soft-drinks. First lady Michelle Obama has declared her nutrition campaign ‘the moral equivalent of war.’” — “The New Face of Hunger.”

1964:  “And when Pierre found work, the little money coming worked out well.”
2012: New York Times: “Young Americans, still feeling the pinch of the Bush recession, are increasingly reliant upon low-wage jobs. ‘Little money is coming,’ says one marginally employed and wretched and basically destitute young man.” — “The New Face of Unemployment.”

1964: “C’est la vie say the old folks.”
2012: New York Times: “A Generation Later, Overlooked Immigrant Community Remains Largely Unassimilated.”

1964: “It goes to show you never can tell.”
2012: New York Times: “Elderly Americans Increasingly Insecure about Prospects.”

1964: “They had a hi-fi phono, boy did they let it blast / Seven hundred little records, all blues, rock, rhythm, and jazz / But when the sun went down, the rapid tempo of the music fell.”
2012: New York Times: “Though spending on consumer goods remained strong, the savings rate remains precariously low, especially among the young.” 

1964: “C’est la vie say the old folks / It goes to show you never can tell.”
2012: New York Times: “Among Elderly Non-English-Speakers, a Sense of Helplessness, Resignation.”

1964: “They bought a souped-up jitney / it was a cherry red ’53.”
2012: New York Times: “Americans Struggle to Keep Up with Car Payments.”

1964: “And drove it down to New Orleans to celebrate their anniversary.”
2012: New York Times: “With family vacations increasingly out of reach, young Americans make do with weekend road trips to nearby cities.” Associated Press: “For one young couple, the year brought a bittersweet anniversary.” — “Families Struggle in an Age of Reduced Expectations.”

1964: “It was there where Pierre was wedded to the lovely mademoiselle.”
2012: New York Times: “Gays Still Denied Marriage Rights in Much of South.”

1964: “C’est la vie say the old folks / It goes to show you never can tell.”
2012: New York Times: “For Struggling Elderly, Future of Social Security Remains Uncertain.” — “The Wrinkly Old Face of Poverty”

1964: “They had a teenage wedding and the old folks wished ’em well / You could see that Pierre did truly love the mademoiselle / And now the young monsieur and madam have rung the chapel bell  / C’est la vie say the old folks, it goes to show you never can tell.”
2012: New York Times: “Rural Americans Caught in a Cycle of Poverty.” — “Poverty: The Familiar Refrain”

One of my other jobs is writing the theater column for The New Criterion, but I rarely get to write about movies. But, wow, lucky me, I finally get to share some cinematic observations. Having watched every minute of When Mitt Romney Came to Town, the Gingrich-affiliated super-PAC hit film about Mitt Romney’s career at Bain Capital — the things I do for you! — I have concluded that it promises to be a career-ender, and that the career it will end is Newt Gingrich’s. It is the most embarrassing, vulgar, illiterate outburst you are likely to find.

What should worry Mitt Romney is this: When it comes to filmmaking, the Democrats have a much deeper bench, better skills, and more effective distribution channels. When it comes time for Hope and Change Features to proudly present a Barack Obama production along the same lines, the Democrats will not make the same mistakes. If he wants to be president, Mitt Romney had better get a lot more persuasive than he is today when it comes to explaining his business career.

When Mitt Romney Came to Town employs every anti-capitalism cliché in the book: You want a guy blowing cigar smoke nefariously? You got it. Ominous fades to black-and-white? It’s in there. An attaché case full of $100 bills? Aplenty. (Because, as everybody knows, Wall Street tycoons do their business in old-fashioned paper Benjamins, and in fact derive all their professional practices from Wesley Snipes in New Jack City.) You want cheap xenophobia? Get a load of “He took foreign seed money from rich Latin Americans.” (Translation: “Eek! A Mexican!”) You want a sad-faced toddler watching the news (really, a four-year-old watching CNBC) while the talking heads go on sadly about the closure of KB Toys outlets? Yeah, they did that, and they superimposed a Red Chinese flag on one scene, too. Et cetera ad literal nauseam.

The sort of people who are going to be influenced by this illiterate little film weren’t going to be voting for Romney, anyway, since they’re busy occupying Portland or occupying Austin or occupying anything but an honest job. They’re Democrats or Ron Paul voters, if they are voters at all.

Spare a moment of sympathy — but not too much — for the laid-off workers exploited by the makers of When Mitt Romney Came to Town. They are hurt, angry people who are not terribly articulate, but who can be riled up to say banal and ignorant things for the purposes of cheap political theater. One woman, whom the filmmakers like so well they have her repeat the line three times, protests: “It hurt so bad to leave my home because of one man that’s got 15 homes.” But of course there are limits to sympathy (and this, among other things, is why I’ll never be president), and one is tempted to retort: “If you really think that the value of your labor is that high, how do you explain the fact that nobody else wants to hire you at the wage you were earning before your firm went out of business, and doesn’t that disparity suggest that the company was not especially well-run?”

I know, it’s hard to give that speech to Grandma. But the fact is that output is the production of an interaction between labor and capital and, as it turns out, those executives who are always saying “Our people are our most important asset!” often are not telling the truth. When capital gets put to more productive uses, the labor left behind discovers that its value without the capital that had been at its disposal is relatively low. That’s a hard fact to live with, but a fact nonetheless. If you want to improve the value of labor, you get it more capital to work with — and where might you go for that? The answer is: investors, including private-equity investors such as Mitt Romney. If you want to improve American employment and American wages, your main tools are going to be improving the American education system and improving the American investment climate.

On the other hand, if you view jobs as entitlements and believe that workers should be permanently protected from changes in the marketplace, you believe that profits from investing are nefarious, believe that less-productive enterprises should be somehow sustained indefinitely in order to preserve the less-productive jobs associated with them, then — wait, why are you voting in the Republican primary again?

Left-wing blogs and Mitt Romney’s presidential-primary rivals — and who can tell those apart this week? — have charged that Bain & Company, the firm Romney once headed, was the beneficiary of not one but two bailouts: one from the FDIC, and one from the federal Pension Benefit Guaranty Corporation. These allegations are nakedly false.

A little background: Romney began his career at Bain Consulting in 1977 and then led the effort to spin off a separate company, Bain Capital, a private-equity firm, in 1984. He was good at it: During Romney’s years at the firm, its average annual return on investments was 113 percent. But back at the mother ship, Bain & Company, things were not going as well. There were disputes among the senior leadership, and there was the usual Wall Street horror show of irresponsible debt. It was a classic case of corporate self-dealing — in fact it is a textbook case, as a number of analysts have pointed out, and you can read all about it in The Governance of Professional Service Firms.

Basically, what happened was the founder, Bill Bain, and other senior executives wanted to cash out their ownership in the company, but it is really hard to sell consulting firms, because they don’t have a lot of assets other than smart people and expertise. They got somebody to value the firm at a price that allowed them to sell 30 percent of it for $200 million, and split the cash up among themselves. The “buyer” in this case, though, wasn’t really a buyer: The partners created an Employee Stock Ownership Plan (ESOP), which borrowed the $200 million and took the senior partners’ equity on the behalf of the junior partners. (If the junior partners did not think this was a good idea, nobody was much listening to them.) It was your classic strategy of taking some cash in hand while leveraging up the firm on overly optimistic assumptions about future growth, kind of like American public finances writ small.

The inevitable happened, as the inevitable does: The firm did not grow as quickly as planned, cash became tight, and the debt service on that borrowed $200 million — $25 million a year — soon began to look like it might be too much to support. The firm also owed money to other creditors, including $38 million to the Bank of New England, which was itself in trouble. (More about that in a bit.)

Bear in mind, this happened before Mitt Romney’s watch. In 1991, he was asked to return to Bain & Company to clean up this mess, which he did, with what basically all witnesses describe as an awesome display of technocratic competence.

Romney may have caught flak for saying that he likes being able to fire people, but at Bain he showed that he knows how to handle underperforming executives — including his old boss and mentor, Bill Bain. Romney wrested control of the firm from the senior partners who had run it onto the rocks, and twisted their arms into returning more than $100 million in cash and securities. In return for his doing so, many of Bain’s creditors agreed to write down some of the firm’s debts. When somebody owes you money, the last thing you want is for him to go into bankruptcy — better to get back 85 cents on the dollar of what you’re owed than to get back $0.00. Among the Bain debts written down was that owed to the Bank of New England, which had by that time gone bust and been taken over by the FDIC. Bain’s sole involvement with the FDIC in the matter was that the regulator, acting as receiver for a failed bank (i.e., doing its job) agreed to a run-of-the-mill debt writedown, like any number of creditors do any given day of the week.

The free-market purists among you might believe that there should be no such thing as an FDIC, but that is, at this point, a philosophical question. The FDIC, as I have argued in National Review, is the best-performing financial regulator we have, and what it does is the opposite of bailing out institutions. Bailouts are retrospective, cooked up after a company gets into trouble. What the FDIC does is prospective, ensuring that banks can cover their deposits and providing insurance in case of insolvency. Bailouts involve transferring taxpayers’ money to banks; the FDIC charges banks a fee (essentially an insurance premium) for its services. It is, in other words, exactly the kind of institution we wish we had in place to prevent bailouts. The FDIC is not perfect, but it gets the job done.

The Pension Benefit Guaranty Corporation is a similar organization: It charges pension funds a fee and guarantees pension benefits in the event that a fund becomes insolvent. That was the case with GS Technologies, a failed steel mill in which Bain was a major shareholder. When the company collapsed in 2001 (after Romney had left Bain, incidentally), its pension fund was severely underfunded, and the PBGC ponied up $44 million to make sure that pension checks got cut. Which is to say, the PBGC did what the PBGC was there to do. The PBGC is a less well-run organization than the FDIC, and its standards probably ought to be higher than they are, but those facts do not tell us anything about Bain’s investment in GS Technologies.

One might argue that the PBGC creates a moral hazard, encouraging managements to intentionally underfund pensions while offloading the risk onto the federal agency, but it would be difficult to make the case that this describes Bain’s actions in the GS Technologies case. Simply put, the U.S. steel industry got wiped out by lean and wily foreign competitors in those years: Half of the U.S. steel industry went belly-up around the turn of the century. Bain had both good luck and bad luck with its steel investments. Some of the firms thrived, and some did not. That is the nature of investing, which is another word for risk-taking.

If anything, Romney’s record in the Bain turnaround looks even better on closer examination — money was clawed back from no-account executives, and ownership of the firm was transferred to the general partners from the senior partners who led the company to disaster. Whatever else it was, it was nothing like a “bailout.”

— Kevin D. Williamson is a deputy managing editor of National Review.

Paul Krugman has a notably sloppy column today, about which one could write words of criticism outnumbering the words in the article. (And, as it turns out, I have.) His argument is that Mitt Romney, and Republicans at large, do not really care about the equality of opportunity they are fond of celebrating. Because, as you know, conservatives hate the poor, their hatred for poor men being surpassed only by their hatred for poor women and poor children, which itself is surpassed only by their hatred of clean air and water. (If there were poor homosexuals, Republicans would hate them the most, but of course no Republican ever has encountered a poor homosexual.) Everybody knows this, if by “everybody” one means Paul Krugman and the voices in his head.

What is particularly irritating is that Professor Krugman’s opening gambit includes the Ivy Fallacy, the act of implicitly generalizing from the circumstances of elite institutions and the people associated with them to the general public. Professor Krugman’s opening data point:

At the most selective, “Tier 1” schools, 74 percent of the entering class comes from the quarter of households that have the highest “socioeconomic status”; only 3 percent comes from the bottom quarter.

Muppet News Flash: Nobel laureate economist sifts the data, engages in esoteric statistical regressions, and concludes that Princeton is expensive. Allow me to posit that attendance at our most selective, Tier 1 universities is not the best indicator of the general accessibility of the good life in these United States. But if you are the sort of person who finds it impossible to believe that one might achieve a satisfying and productive life without having attended Princeton—or, angels and ministers of grace defend us, without having secured a college degree at all!—then Tier 1 admissions stats are the first data point that leaps to mind, apparently. Tuition (just tuition) at Princeton runs about $148,000 for four years, or about 300 percent of the median household income in the United States, or 111 percent of the median price of a home in the Midwest. Four years of tuition at Princeton costs about as much as an Aston Martin Vantage, ownership of which, I am willing to wager, also is concentrated among the top quarter of wage-earners. Not every Tier 1 school is Princeton expensive, but they fall in the aggregate on the spendy end of the education market. It takes a special kind of economist to be surprised that very expensive goods are disproportionately consumed by the well-off.

It is because of this kind of thinking that the battle over affirmative action has been waged at places such as the University of Texas law school. Which is to say, it has been waged on behalf of the people who are the least likely to need intensive institutional help in life: If you are right on the edge of being admitted to UT law and do not get a little nudge to put you over, your next stop  is not Skid Row—it is UCLA. And that’s not so bad. I am not much worried about who goes to Tier 1 schools. I am worried about who drops out of high school and why. You can tell yourself a very pleasing story about the relationship between Tier 1 admissions and Head Start, food stamps, or your favor welfare program, but that is not the same thing as doing the intellectual work of figuring out the facts.

Professor Krugman is right to be concerned about the relative lack of economic mobility in the United States, which does lag behind many other developed countries on that front. But of course it is easier to assume bad faith on the part of the other side than to engage the other side’s ideas. As it turns out, even the running dogs of plutocratic privilege at your favorite magazine are concerned about the state of economic mobility. To care about improving the prospects of the poor is not the same as improving the prospects of the poor. (Merely to say that one cares is another degree of separation removed from reality.) So, what to do? Professor Krugman writes:

Someone who really wanted equal opportunity would be very concerned about the inequality of our current system. He would support more nutritional aid for low-income mothers-to-be and young children. He would try to improve the quality of public schools. He would support aid to low-income college students. And he would support what every other advanced country has, a universal health care system, so that nobody need worry about untreated illness or crushing medical bills.

Notice that Professor Krugman, when confronted with the high price of college, seeks not to lower the price but to increase the subsidy, i.e. to extract more money from taxpayers, including middle-class and poor taxpayers, and shunt it into the institutions from which Professor Krugman, his professor wife, and his professor colleagues draw professor paychecks. Confronted with the poor quality of public education, he seeks not to reform the system with choice and accountability on behalf of the poor but to fortify the position of his political party’s upper-middle-class financial benefactors. Because he cares about the poor so much that he is willing to have his friends and benefactors and colleagues accept more of your money on their behalf.

One might as easily write: If Paul Krugman really wanted equal opportunity, he would be very concerned about the inequality of our current system. He would support education reform that would bring more choice and resources to the poor instead of entrenching an overcompensated public-sector monopoly insulated from even the most rudimentary forms of accountability. He would support initiatives to reduce tuition at public universities. He would support entitlement reforms that helped the poor to build wealth across generations instead of consigning them to lifelong welfare dependency. He would support reforming a perverse and shameful welfare system in which only 35 percent of all transfer payments go to the poorest 20 percent of Americans. And he would support what every other advanced country has, a sensible immigration  regime, so that neither the social safety net nor the lower end of the labor market would be strained by the large-scale importation  of poverty.

Or he could save himself (and us) 795 words and just write “Republicans bad! Ooga-booga!” next time, which is what he has written amounts to.

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

Newt Gingrich has received the endorsement of J. C. Watts, a former member of Oklahoma’s delegation to the House and an influential conservative even after nearly a decade in political retirement. The endorsement speaks well of Gingrich.

Among other things, Watts had this to say:

When you consider where we are today, and you think about the good old days — of balanced budgets, entitlement reform, and paying down our national debt, getting tax relief — as a Republican majority, Newt Gingrich was the speaker. We haven’t seen things like that in the last thirteen years.

No, we sure haven’t. I am pleased that Watts put the balanced budget at the center of his case for Gingrich (even though the budget was not really balanced, once you account for the debt held by the so-called trust funds associated with Social Security and Medicare — it still was a good start).

But I wonder if Watts has considered all the implications of his argument. As speaker, Newt Gingrich superintended a real reduction in federal spending as a share of GDP: It was 21 percent in 1994, and down to 18.2 percent by 2000. That is, in my view, his most praiseworthy legislative accomplishment. But, as I argue in the current edition of National Review, the notional surpluses of the Gingrich era were the result of a double-barreled approach to fiscal balance, built in part on two significant tax increases. Gingrich et al. opposed those tax increases, but did not rescind them.

In 2000, the year of our largest notional surplus, tax collections hit nearly 21 percent of GDP. In 2011, they’ll be about 14.4 percent of GDP, according to the Congressional Budget Office, only about 70 percent of their 2000 level.

Economic conditions and tax policy are of course quite different in 2011 from what they were in 2000. Consider the longer-term picture: From 1994 to 2000, taxes averaged 19.2 percent of GDP, hitting a high of 20.6 percent in 2000. Even accounting for the surpluses, we ran a net deficit during that period, with the average annual deficit at 0.3 percent of GDP. In contrast, 2000–11 tax collections averaged 16.8 percent, a difference of 2.4 percent compared with the Gingrich era. The average deficit from 2000–11 was 4.2 percent of GDP. Put another way, the difference in tax collections during those two periods was 2.4 percent, and the difference in deficits was 3.9 percent. Spending increased during the post-Gingrich era, and increased radically in recent years: From 1994–2000, spending averaged 19.6 percent of GDP; from 2000–11, spending has averaged 20.8 percent of GDP. That’s a significant difference, but not an earth-shaking one. On the other hand, consider that from 2009–11, spending has averaged a much larger 24.7 percent of GDP, a level that would be sustainable at no level of tax collections in American history, including the years of World War II. 

As a share of GDP, Americans paid higher taxes in the Gingrich years than they pay now — significantly higher. Likewise, government spending as a share of GDP was substantially lower. So, my fancy new economic theory goes like this: higher taxes + lower spending = smaller deficits. Democrats might recall that the 1990s were not a time of Dickensian austerity or a national policy of Social Darwinism; Republicans ought to remember that the 1990s, despite the higher taxes, did not result in the Swedenification of America. For comparison, consider that the average tax level of the Reagan years was 18.2 percent of GDP, closer to the Gingrich years than to the present.

A balanced budget is the result of tax policies and spending policies. If Watts is calling for a return to the taxing-spending balance of Gingrich’s speakership, he is calling for a significant tax increase, which puts him at odds with the man he just endorsed. Practically speaking, anybody who is calling for a balanced budget who has not proposed something on the order of $1.5 trillion in annual spending cuts is calling for a tax increase. That does not mean that he is calling for a tax increase of the sort that Barack Obama and his congressional allies wish to see implemented. But it does mean that he is calling for a tax increase of some sort.

Gingrich, of course, is not calling for a tax increase, but for a very large tax cut. Which is to say, he wishes to return to the attractive fiscal outcomes of the 1990s without returning to the policies that produced them. This does not seem very sensible to me.

It bears repeating — daily — that taxing and spending is in the main the outcome of decisions made in Congress, not in the White House, which is why it makes sense to write about the Gingrich surpluses, rather than the Clinton surpluses. And which is why an intelligent Republican presidential candidate might want to begin his fiscal agenda with this guiding principle: “I shall be joined at the hip with Paul Ryan.”

A final thought: Those Gingrich supporters who dismiss Jon Huntsman on the grounds that he served as an ambassador under the Obama administration should take to heart this 2008 Associated Press report:

J. C. Watts, a former Oklahoma congressman who once was part of the Republican House leadership, said he is thinking of voting for Obama. Watts said he is still a Republican, but he criticizes his party for neglecting the black community. Black Republicans, he said, have to concede that while they might not agree with Democrats on issues, at least that party reaches out to them.

“And Obama highlights that even more,” Watts said, adding that he expects Obama to take on issues such as poverty and urban policy. “Republicans often seem indifferent to those things.”

Now, who wants to call J. C. Watts a RINO? Anybody?