The word “denier” has had a strange political career. It began with Holocaust deniers, that execrable little group of closeted Nazis. Next, in order to libel global-warming skeptics with an echo of Holocaust denial, environmentalists began to call them “deniers” — global-warming deniers, climate deniers, etc. Now comes Forbes writer Ralph Benko with “prosperity deniers,” a group of miscreants that includes, according to Mr. Benko, your obedient servant.

At issue is a recent exchange between the great Larry Kudlow and yours truly on the issue of economic growth. Jack up economic growth, Mr. Kudlow argues, and all this budget-balancing stuff gets easier. Not so fast, says I. If we had the ability to know in advance how much growth particular economic policies would produce — or even whether they would produce growth at all — then we would never have a recession. We would always be at the sweet spot of maximum real growth. But we are limited and fallible creatures, and right-wing political macroeconomic management is no more reliable, or predictable in its outcomes, than is Keynesian political macroeconomic management. The economy is not a machine, and any time a politician says, “If we will adopt Policy X, we are sure to achieve Statistical Abstraction Y,” he is talking through his hat. The best government can do is maintain stable rules and liberal institutions and try to stay out of the way.

One can hope for growth beyond the trend line, but counting on it is something else. (And the something else it is is foolishness.)

Mr. Benko summarizes the exchange thus: “Now, the obvious if ambitious goal of bringing economic growth rates from under 2% to 5% has been charmingly attacked by NRO’s erudite Kevin Williamson as ‘magic unicorns’. This ridicule was elegantly and decisively repelled by his host, Larry Kudlow, who stated, factually and fairly, ‘I did it once, Kevin, and I can do it again.’”

My impression is that Mr. Kudlow was making a joke there. (But do watch the video and decide for yourself.)  My chief piece of evidence for that hypothesis is the fact that Mr. Kudlow is a bull, not a jackass. But if this is to be taken as an “elegant and decisive” refutation, a few facts are relevant.

If you chart the growth in real per capita GDP of the United States — the growth in economic output relative to the size of the population — you will see a remarkably straight line indicating about 2 percent real growth per year. There are ups and downs, of course, but the consistency is notable. Thanks to Jake at Econompic Data for charting it:

The period of 1929–2009 includes a great variety of economic policies without proportionally varied outcomes in the big picture. The most plausible explanation of that consistency is that, short of the Great Depression or World War II, the effects of incremental policy changes in the relatively consistent political environment of the United States are small relative to other factors affecting economic growth. Add to that the fact that the outcomes of economic policies are not known in advance or necessarily consistent over time: Nobody wanted a financial crisis or a real-estate meltdown, but we got them. We probably credit politicians too much for good economic outcomes and blame them too much for bad economic outcomes. The economy is big and complex; public finances are less so, and we could, right now, enact policies that would address the imbalances in those public finances, and do so in an orderly and largely predictable way. But that means making very unpleasant choices of the sort that are bound to be keenly unpopular with voters in New Hampshire, Iowa, Florida, etc.

Mr. Benko himself sees the same data but makes something else of it, writing: “Last week Eric Cantor produced a piece of a sure-enough path to prosperity, some of the real deal after several GOP false starts. The GOP has forfeited its credibility with us mere voters. How? Every Republican administration since Reagan has provided economic stagnation: GDP growth averaging around 2%. That is economic and political disaster. Every American has been, on average, treading water for the past decade.”

Two percent average real GDP growth is far from disaster: It doubles the national economic output every 35 years. That’s not so bad. More would be better, of course, but we can get government finances in order on 2 percent real growth. 

Mr. Cantor’s plan is based around what he calls “gazelles,” innovative early-stage startup companies. Mr. Cantor likes them because they are responsible for a disproportionate number of new jobs. So, let’s have some more gazelles, then, herds of them, which will supercharge growth and employment — and, in the process, spare Mr. Cantor and his colleagues the pain of making some very hard decisions they would really rather not make. Well, okay, fine: Let’s let the entrepreneurial geniuses in Congress put their heads together (it’ll sound like a bowling alley) and inspire a bunch of new startups. See what they come up with. After we’re done laughing, we can go back to arguing for the usual dose of regulatory liberalization, tax reductions, and fiscal prudence that Dr. GOP prescribes for every malady. (First we cut taxes, afterward we cut taxes, and next we cut taxes. Clysterium donare, postea seignare, ensuita purgare.) But here’s the thing: Fiscal prudence, deregulation, and a lighter federal hand are good things in and of themselves. Conservatives would be arguing for those if the growth rate were 1 percent, 5 percent, or 105 percent. Will they lead to 5 percent growth driven by early-stage startup firms under present economic conditions? Nobody could possibly know. (Not even the guys at Forbes!)

Don’t bet the Treasury on it.

The conservative economic arsenal is familiar enough. But Mr. Benko has a killing stroke to add, a policy proposal from the very bleeding edge of innovation: a return to the gold standard. I’d like to quote him at some length in order to give you the full flavor of his thinking:

Spending, regulatory and tax reform are necessary but not sufficient. To get to 5% we need a trustworthy monetary policy. As Kudlow suggests, there’s only one way tried, true, with Tea Party constitutional integrity: the gold standard. Avoiding it just got monumentally harder.

The second shift: Prof Robert Mundell is the ur-guru behind Reaganomics with the “Mundell-Laffer Hypothesis.” He is the father of the euro, the holder of a Nobel Prize in Economics. This writer has called him “the greatest living humanitarian since the death of Norman Borlaug.” Mundell broke silence on May 25th and issued a public endorsement of the gold standard.

On Pimm Fox’s Bloomberg Television “Taking Stock” Mundell joined his authority with Elder Statesmen Lewis E. Lehrman, Steve Forbes, Larry Kudlow, Jeffrey Bell, William Kristol and Charles Kadlec, and young turks Sean Fieler, Judy Shelton, Brian Domitrovic, John Tamny, and others — all gold standard proponents.

Breakthrough. The sound you heard? The hinge of history turning.

(Miscellany: I am not sure what an ur-guru is. It sounds like something for which you would want penicillin. And I wonder whether Professor Mundell (or anybody) still wishes to claim paternity of the euro, which is not a model of sound money at the moment. Also, there is no Nobel Prize in economics, really. It’s kind of made up. No, don’t ask me to explain it; ask Jay. But I am sure that next to his medal for the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, Professor Mundell has a brass plaque reading: “Greatest Living Humanitarian Since the Death of Norman Borlaug—Ralph Benko.”)

A return to the gold standard is unlikely. I expect to see a very large herd of magical unicorns galloping across the Third Avenue Bridge into the Bronx, kicking up rainbows in their wake, before I see the United States government choosing to return to a gold standard. And I do not think that a gold standard would solve all the problems gold-standard enthusiasts think it would. It would have economic consequences that are not predictable. But, yeah, that is the plan: unusually high growth rates and a gold standard. If that fails, maybe the Growth Fairy will leave $14.3 trillion under our pillow.

I recently got a bit grumpy about a similar argument from the George W. Bush Institute, published here, that argued, in essence: “Hey, all we have to do so solve our fiscal problems is achieve and maintain a level of growth that is substantially higher than that in our historical experience.” Okay, great: What’s Plan B? Hope is not a policy. Wishful thinking is not a substitute for mindful thinking.

It is important to work toward growth, of course, and to adopt good economic and monetary policies that we think will encourage it. (Gold standard? I would prefer privatizing the money supply.) But counting on optimistic assumptions about growth beyond current projections is, for the most part, a way to evade the very difficult business of reconciling our public income with our public spending. We have to work with what we have, with the reality before us. By all means, encourage production wherever you can, but stop trying to sell us a free lunch.

An aside . . .

I very much enjoyed this little bit of snark:

Mr. Williamson. You have succumbed to an optical illusion: mistaking gazelles for magical unicorns. Understandable. The Reagan architects of such growth did their “voodoo” when you were in grade school in Lubbock. Consistent Gazelle-like growth in the economy has been so rare that it’s easy for a youth to confuse a glimpse of a gazelle with a claim of a unicorn.

True enough: During the 1984 election, I was the lead Reagan guy for the mock-election debate in my sixth-grade class. I ambushed poor Mike D., to this very day a misguided Mondale man like his father before him. “Tell me the truth, Mike: Is your family better off than you were four years ago?” They were, so he had to answer in the affirmative. The Gipper carried the day at E. J. Parsons Elementary School, in a landslide that prefigured the actual election. (Recount Minnesota!) I failed to work in a “There you go again, Mikey.”

But Mr. Benko is entirely correct that gazelle-like growth in the economy has been quite rare — which ought to suggest that it is not so easy to achieve as Mr. Benko thinks it is. Like Reagan in ’84, I will not make age an issue in this debate, though I’ll thank Mr. Benko for pretending that I still am a “youth” and lament that his hoary locks and reverend age do not proclaim a fiscal sage.

—  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.

A thing you can do if you really want to go off the deep end for about twenty minutes: Go to regulations.gov and have a good hard look at politics in action. You want to tuck into the federal regulations dealing with migratory birds? Review, in all its glory, Kathleen Sibelius’s mandatory obesity rating for every American (another gem tucked into the stimulus bill)? It’s all in there, and the reasoning for making a federal issue out of your fat can is documented in excruciatingly precise language.

Just take a random sample for the flavor, if you can bear it:

Proposed subparagraph (h) also proposes to require the importer to maintain these records in an organized manner and either electronically or in a central location, at or in close proximity to the NHP facility, to allow CDC to inspect the records during CDC site visits during regular business hours or within one hour of such visits. Before distributing or transferring an imported NHP, an importer must communicate to the recipients of NHPs, in writing, the restrictions and definitions of permitted purposes and obtain written certifications from the intended recipient that the NHPs will be used and distributed for one of the permitted purposes before the NHPs are sent to them. CDC is soliciting public comments on these proposed requirements.

That’s from the regulations touching what Americans are and are not allowed to do with an imported monkey. (Approved purposes for monkeys include getting them high on cocaine, another project funded by the stimulus.) I’m not sure whether that monkey in The Hangover 2 is a domestic NHP (that’s non-human primate) or an imported one, but you can be sure that, either way, the handling of it is subject to regulation from more than one federal entity. (The bananas, too.)

If you go to regulations.gov and do a search for all of the existing and proposed rules, the listing of headings alone runs more than 6,000 pages, containing more than 61,000 items. That’s not the whole shebang, of course — just what’s available on the web site. The Federal Register, within living memory about the size of a family Bible, today takes up about 30 feet of shelf space.

Out of these millions of words of small-print lawyerese, Obama’s regulatory czar, Cass Sunstein, has identified about 30 regulations he’d like to see repealed, as part of a review of regulations mandated by an executive order. That’s nice. In 2010 alone, Mr. Sunstein and his colleagues inflicted 43 new “final rules” (which is what regulators call regulations), on the country, half again as many as the total number of regulations he has sifted of the vast galaxy of administrative law. The trend is against us.

And more regulations are on the way. A surprising number of our regulations are intended to improve regulation, reduce paperwork, enhance transparency, etc. If you want to pull all your hair out, read the federal regulations about improving regulatory practice.  

Some of the regulations Mr. Sunstein has targeted are nice candidates for repeal. For instance, because milk contains fat, it is regulated the same way as petroleum is — milk fat being an organic oil. That means that people who ship and package milk have to be prepared to clean up the Exxon Valdez, basically, spilt milk being the same thing as spilt crude in the eyes of the bureaucrats, costing the dairy industry about $67 million a year. This has led to a lot of “crying over spilt milk” jokes, and it is easier to repeal regulations that make people laugh. So, there’s one down.

Mr. Sunstein shares his thoughts on the matter in the Wall Street Journal today. You would think that the attention he has lately paid to the millions of wasted man-hours and trillions of wasted dollars entailed by our gigantic regulatory apparatus would have him rethinking the scope of the regulatory enterprise. You would be wrong.

You’ll note I wrote “trillions of wasted dollars” above, not billions. That’s not a typo: The annual cost of regulatory compliance in the United States runs about $1.75 trillion a year. As the Heritage Foundation points out, that means that regulations cost Americans more than do individual income taxes.

With that in mind, I cannot honestly write, “Thanks for nothing, Mr. Sunstein.” Instead, I’ll offer: Thanks for the functional equivalent of nothing, Mr. Sunstein.

—  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.

Pres. Barack Obama’s stimulus is a bit like an Easter egg: It was first experienced as a brightly colored bauble intended to signify a new beginning, then it got lost somewhere along the way, and now it’s stinking so badly that we have to revisit the issue.

One can always tell what the Obama administration is not taking seriously — it’s the stuff it puts Joe Biden in charge of. Biden’s in charge of meeting with congressional leaders to identify deficit-reduction measures, for one thing, but, before that, he was put in charge of stimulus oversight. You remember: “Don’t mess with Joe,” and all that rot. While Joe was being messed with, billions of dollars in stimulus contracts went to deadbeats who owe a total of three-quarters of a billion dollars in taxes. It would have been no surprise if one or two tax scofflaws had sneaked by — even by the ever-watchful Joe Biden — but, in fact, it was more than one or two, or three or four, or a few hundred: 3,700 firms awarded stimulus contracts owe taxes — $757 million worth.

If you’re like me, the first thing you wondered was: Which firms? And how much money did their executives donate, and to which politicians? Which leads me to the worst part of the scandal: The Government Accountability Office (bitterly ironic name if ever there was one) is refusing to release the names of the miscreants. GAO argues that, because it is a tax matter, they cannot make the names public. So much for the most transparent administration in American history.

This is not simply a tax matter. It is, presumably, a law-enforcement matter, potentially a criminal matter, and unquestionably a matter of government accountability. Insofar as this subject is concerned, the GAO is helping the Obama administration to evade accountability rather than take it up.

Interestingly, several of these deadbeat contractors are nonprofits, community organizers of a sort. (Which? Don’t ask GAO.) Here’s what GAO has to say about one of these organizations:

• Nonprofit organization primarily owes payroll taxes from the mid to late 2000s. Nonprofit organization did not make any federal tax deposits for several periods.

• On multiple occasions, the nonprofit organization defaulted on installment agreements with IRS. IRS records also indicated that the nonprofit organization may have submitted an offer in compromise to delay IRS collection efforts.

• An executive was assessed a TFRP [trust fund recovery penalty]. IRS records indicated that this executive was responsible for numerous questionable business expenses. In addition, the executive had numerous transactions with casinos totaling hundreds of thousand [SIC] of dollars each year. IRS records also indicated that IRS assessed a TFRP on this executive for another entity that went defunct.

• IRS records indicated that the nonprofit organization failed to meet employee payroll obligations on numerous occasions in the late 2000s.

• According to one executive, the nonprofit received millions of dollars in government grants.

• IRS filed federal tax liens against this organization.

Lots of financial transactions with casinos, dodgy expense-account activity, questionable business practices, deadbeat executive — and millions in government grants: but GAO is not saying who.

Oddly, government isn’t always so close-lipped about tax investigations. I happen to know that the kabbalah center favored by Madonna is under tax investigation. How did I come across that top-secret information? It was in the newspaper. If memory serves, the IRS wasn’t exactly secretive about tormenting the Christian Coalition back in the day. But these deadbeats get shielded.

We spent more trying to stimulate our economy out of recession than we spent on the Iraq and Afghanistan wars combined, and the American Recovery and Reinvestment Act was a big piece of that. It was an obvious rip-off from Day One, and the rip-off is looking worse the closer it is studied. That this rip-off enriched tax cheats makes it a double rip-off, perpetrated by an administration with a famous tax cheat in the cabinet.

Release the names, and let’s see who’s connected to whom and how.

— 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.

Detroit, the standard specimen of urban dysfunction, has, you will not be terribly surprised to learn, a serious municipal deficit. The numbers and trends will be familiar to anybody who has monitored the evolution of that fascinating modern parasite, the government employee: Having destroyed the city’s economic base and rendered most of the city proper unlivably dangerous, the political powers of Detroit have maintained a consistently large government work force, which subsequently has grown entirely out of proportion to its declining population. Detroit today employs one city worker for every 55 residents, as opposed to one city worker for every 109 residents in Charlotte, which is just barely bigger than Detroit (the Motor City has indeed declined so much) and one city worker for every 101 residents in El Paso, which is one spot down from Detroit on the population rankings. And on its Spartan city budget, El Paso maintains the nation’s second-lowest crime rate among large cities (behind Honolulu), despite its being conjoined to besieged Juarez, Mexico, one of the world’s most dangerous cities. Detroit was found to be America’s most dangerous city in a 2009 Forbes study.

Detroit maintains 13,000 government workers but has 22,000 government retirees burrowed into the body politic, and their health-care subsidies alone account for nearly $200 million of the city’s budget. Pensions alone already account for a quarter of city spending; in three years, they will account for half. Pensions and city workers’ health-care subsidies account for $561 per year from every resident of Detroit, which has a very poor population — average monthly income of barely $1,200 before taxes, a fifth of the population in poverty, etc. The official unemployment rate is 30 percent; the real rate is much higher.

One would think that a city in that condition would engage in some austerity measures, if only small and largely symbolic ones. But then one would fail to appreciate the sort of willful malevolence that put Detroit into its current condition. Rather than cut corners, the city recently finished a multimillion-dollar renovation of a single library branch, installing designer chairs from Allermuir at $1,000 a copy. That’s a lot of library for a city in which about half of the adult population was estimated to be functionally illiterate in a 1998 National Institute for Literacy study. (I was not able to find a more recent estimate, but I cannot imagine that the numbers have much improved, especially since Detroit mayor Dave Bing is pressing to include Detroit natives currently resident in out-of-town abodes of the sort with armed guards and doors that don’t unlock from the inside as part of the city’s population. (That is not purely a matter of civic pride; with its population fallen below 750,000, Detroit is not legally entitled to collect a city income tax.)

Having exhausted all its other options, Detroit’s nominal city government finally is turning to the root of its fiscal problem, and is asking for concessions from the labor unions, which are the city’s real government. The main targets are pensions and health-care costs, along with sheer  work force size. The unions are not inclined to budge. The city council is poised to make things worse by reducing its payments to the city’s pension fund, which will not save money — the pension payments still will be made – but will simply hasten the day on which those pensions will either be rendered insolvent or will require even more direct taxpayer support, i.e., it’s fiscal nonsense on stilts.

Dartmouth College faced a big deficit this year, too, its endowment having been double-decimated (it declined by one-fifth) as a result of the market turbulence of 2009 and after. Dartmouth enjoys many benefits not available to the city of Detroit: Its governance is democratic in only the very loosest sense, and its left-wing maniacs are of the variety who mostly know how to count money. But it also has disadvantages: It cannot levy taxes, for instance, nor issue tax-free bonds on the muni market.

This is how Dartmouth closed its deficit: It fired about 40 employees outright and bought out more than 100 more. It eliminated 82 more positions through attrition, cut raises, and reduced health-care benefits. Dartmouth does not have the ability to levy taxes, but it did raise the cost of attendance (by replacing some grants with loans). The faculty howled and no doubt will continue howling. But Dartmouth acted more or less as if the school believed that its main obligation is to the students, present and future, that it will educate, and not to its employees, whose professional duty is to serve that obligation. Detroit, on the other hand, like most cities (and states and other government groupings) proceeds as though its main obligation is to its employees; in Detroit, that probably is the politically intelligent thing to do, since the citizens are fleeing as fast as they can, while the bureaucrats are staying put.

If there is a lesson to be had from these examples, which admittedly are very different, it is this: Matters of essential fiscal prudence should be isolated from democratic pressures to the extent that it is possible to do so. The main reason that our states run balanced budgets (other than their ability to mask their deficits) is that they are not legally able to do otherwise. While I remain skeptical of the model of problem-solving that says, in essence, “Pass a constitutional amendment saying the problem is solved,” I am increasingly sympathetic to the case for a balanced-budget amendment, and for attaching one to the debt-ceiling bill. True, it would take years for such a thing to become law, if ever it did. But it would be worth the wait.

—  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.

Koch vs. Pickens.

The federal government wants to sell some old buildings and vacant land. This is not a bad idea, so far as it goes. What it is not, though, is a plan for reducing the federal deficit — though in some quarters it has been embraced as such. That is ridiculous.

The proposed Civilian Properties Realignment Commission, modeled on the old Base Realignment and Closure Commission, which was charged with rationalizing our military-installation footprint starting back in the 1980s, would identify underused federal real-estate assets to offload, if buyers could be found. Federal holdings are a mess: George W. Bush was the first modern president to even order an accurate inventory of them to be taken. Federal waste in asset management is of course vast and deep — but neither vast enough nor deep enough to make much of a hole in the deficit if it is redressed. The Obama administration reckons that about $3 billion could be saved in the first year. (The real savings come from avoiding the cost of maintaining the buildings, not in generating revenue from their sale; i.e., these are permanent reductions in spending rather than one-time revenue gains, a fact that is to be celebrated.)

So, $3 billion saved: Cheers to that. In 2011, the federal government is spending about $3 billion every seven hours or so.

I am not opposed to finding efficiencies. Thrift is a great American virtue (or was once). But these sorts of penny-ante projects, which generate a lot of happy talk about belt-tightening and prudence and sobriety as often as not end up being a way to not talk about the serious budget reforms that must be enacted.

Our friends at the Heritage Foundation have identified a larger asset they’d like to see the government liquidate: its gold holdings. These are worth a couple of hundred billion dollars — real money, but still only a few months of this year’s $1.6 trillion deficit. As much as I’m for downsizing Leviathan and doing what it takes to reduce the deficit, I’d advise against selling off the gold: If the United States should ever need to rebuild its currency — say, in the wake of a dollar collapse from hyperinflation resulting from incontinent spending and the monetization of the resulting deficits (Crazy, right?) — some gold might come in handy, particularly since Standard & Poor’s and the big bond investors are not convinced that the “full faith and credit” of the United States is what it once was.

Repeat as necessary: Medicare, Medicaid, Social Security, and national defense is where the spending is. Raising taxes enough to cover that spending and stabilize the debt would mean an 88 percent increase in every federal tax — not just for “the rich,” but for everybody, according to IMF estimates. Raising taxes on the middle class to support Social Security and Medicare for the middle class is a shell game. You may as well just cut the benefits: essentially the same outcome, but more cleanly executed.

You are not going to balance the budget on tax hikes only on people you do not like. You are not going to balance the budget on pulling out of Afghanistan (wise as that might be) or on eliminating foreign aid (desirable as that is) or on shuffling Uncle Sam’s real-estate portfolio (prudent though that may be). You are not going to balance the budget on eliminating waste, fraud, and abuse.

There is a caveat to that last one: We spend most of our money (more than half) on entitlements and welfare, and those are rife with abuse. Prof. Malcolm Sparrow of Harvard estimates that net health-care fraud in the United States runs $100 billion to $500 billion a year, with a great deal of that paid out by the federal government. (Miami alone is estimated to account for $3 billion in Medicare fraud annually.) Peter Orszag has estimated that 30 percent of Medicare spending (which totals more than a half-trillion dollars a year) is wasted, largely through overpayment for services. Sen. Orrin Hatch has put combined Medicare-Medicaid fraud at $200 billion a year. For comparison, the Iraq War cost $140 billion in its most expensive year.  

Getting a hold on entitlement fraud is not going to balance the budget, either, not alone, but it will do a heck of a lot more than a federal garage sale — and it’s something that should be done even if we were running a surplus.

—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.

Why am I not entirely confident that having five little Fannies and Freddies will be better than having two of them?

The U.S. government is not very good at being in the mortgage business. The GSEs have been sties of corruption and fraud, staffed by the worst sort of bottom-feeding political careerists this country is capable of producing. The distortions that government policy introduced in the housing and mortgage markets were a key factor (though not the only factor) in the housing bubble and the financial crisis of 2008.

Rather than liquidate the portfolios of Fannie Mae and Freddie Mac as a prelude to shutting down these government-backed financial malefactors and allowing the market to price mortgages (and houses) as it will, a bill unveiled today would replace the two GREs with five GREs, the securities of which would be explicitly guaranteed by the federal government. This is a “bipartisan compromise,” meaning that it is the product of roughly equal inputs from the Stupid Party and the Evil Party.

In the end, replacing Fannie and Freddie with Onesy, Twosy, Threesy, Foursy, and Fivesy would still leave taxpayers on the hook for bad mortgage-backed securities, meaning that securitizers, mortgage lenders, bankers, and everybody else on down the real-estate food chain would continue to have mortgage risk subsidized by the U.S. government, with all the problems that attend that situation.

Yes, there are some good things in the bill: The new entities would have significantly higher capital requirements, and their securities would be insured by an FDIC-style fund charging a premium for its services. All to the good — but that still leaves the fundamental problem of political manipulation of the mortgage market unaddressed.

The basic problem is this: Mortgages are long-term investments that a lot of lenders do not want to keep on their balance sheets — at least at current mortgage-interest rates. Socializing mortgage risk means that mortgage lenders are willing to write loans at lower rates, meaning that buyers can take on larger loans at lower payments — and everybody in the market is thereby encouraged to take on excessive debt and risk, bidding housing prices up. If the government ceases to socialize mortgage risk, then interest rates on mortgages probably will go up, borrowers will take on smaller loans, and there will be downward pressure on the price of houses, a bad thing if you’re a seller and an excellent thing if you’re a buyer. Mankind has been buying and selling real-estate for a few thousand years or so, and, for most of that time, central-government intervention was not thought to be necessary. This is a case in which we can predict with some confidence that markets will work.

We tend to think of home equity as being a general social good: Homeowners are thought to be, in effect, better citizens than renters. But as Reihan Salam has documented, it matters what kind of homeownership you’re talking about. Low-equity and negative-equity homeownership is probably a net loss, socially speaking, bringing none of the benefits of high-equity homeownership and imposes real economic costs — for instance, by trapping unemployed people in jobless areas.

The GRE compromise is the wrong kind of compromise. The real solution is to establish a reasonable timeline for selling off the GRE portfolios — ten years, twenty years, whatever — and allowing markets to price mortgages as they will, with the government explicitly disavowing any future guarantee of any privately issued security or private financial institution. Given that we have a shiny new “resolution authority” under the Dodd-Frank financial-reform bill, disavowing future bailouts should be no problem, right? Right?

—  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.

Have you heard about these nuts who think that the world is going to end in May?

Not those nuts. These nuts.

Which is to say, Austan Goolsbee is full of it. He told the Chicagoland Chamber of Commerce: “If we hit the debt ceiling, we default.”

No, we don’t.

Debt service accounts for about 7 percent of federal spending. Current revenues will more than cover that, regardless of whether the debt ceiling is raised. We can pay our debts  — and our troops, too — out of present revenues. But if we fail to raise the debt ceiling, we’re going to have to economize on some other things: discretionary spending, for sure, but probably also Social Security, Medicare, and Medicaid. But here’s the thing: Any meaningful budget-reform deal is going to have to address discretionary spending, Social Security, Medicare, and Medicaid, in the long term. There is no way around that. (Defense spending needs to be cut, too, but defense is a different thing from farm subsidies and NPR money: a core national priority. You don’t lump national defense in with national embarrassments such as the Small Business Administration or research grants for Obama’s magic unicorn-powered economy.)

Default? No.

In truth, the federal government expects to collect $2.2 trillion in revenue this year. The problem is that it wants to spend $3.8 trillion.

You can do a lot with $2.2 trillion. You can fund Social Security, Medicare, Medicaid, SCHIP, debt service, unemployment, welfare, and national defense at their 2008 levels. My recollection of 2008 is that it was not exactly a time of Spartan fiscal discipline.

Funding the majority of the federal government at 2008 levels is not “default.” It’s not anything like default. It’s not in the same category of things, events, or concepts as default.

So, don’t buy what Austan Goolsbee is selling.

What Republicans should do from here is to follow up on present plans to enact legislation ensuring that spending is properly prioritized — debt service first, then defense, then everything else — and take their sweet time about moving the official debt ceiling. They probably won’t get entitlement reform before 2012 — sorry, I wish it were otherwise, but I don’t think so — but they can get serious cuts and, more important, procedural limits on future borrowing and spending. And that’s what they should hold out for.

If a temporary return to 2008 spending levels is going to throw this country into shock and horror, then deficit hawks may as well pack it up and go home now, and just wait for the bond market to cut up Uncle Sam’s credit card — because what really has to be done is going to be more painful than that. But I don’t think there’s going to be blood in the streets.

I’ve heard responsible people on both sides of the aisle concede that they have a pretty good idea of what a deal probably will look like: a watered-down version of the Ryan entitlement reforms combined with something like the Simpson-Bowles tax increase — which is structurally a lot like the Ryan tax cut (lower rates, fewer exclusions and deductions). (For whatever it’s worth, Wall Street expects taxes to go up, and nobody seems terribly distraught about it.) Grover Norquist will scream that Republicans have violated their pledge — and he’ll probably be right, and it will still be the right thing to do if it balances the budget and constrains the future growth of the government.

And that’s the fight conservatives still have not won: We like to think that the American people are on our side when it comes to the size and scope of government, but they aren’t. Reforming entitlements is still going to be hard. Even reforming stupid spending is going to be hard: We all had a good laugh at Harry Reid’s federally subsidized cowboy poetry festival, but there are a million morsels of pork just like it, not to mention big non-pork spending that has to be addressed, too. And now, with a weak economy and a gloomy near-term outlook, conservatives are stuck doing the job we really should have done back in 1994–2000. But it’s not going to get any easier.

But on the debt ceiling? Let them sweat.

—  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.

The Democrats would have you believe that the current fight over raising the debt ceiling is a game of Russian roulette with the economy at stake. But people with money on the line — Treasury bond investors — do not seem to think that a default is exactly at hand. Bond yields are in fact quite low. I do not expect that to last forever, but the idea that we are seriously at risk of defaulting as a consequence of the debt-ceiling fight is a bunch of sound and fury signifying nada, mostly intended to preempt debate and minimize Republicans’ ability to pry further spending concessions out of the Democrats.

Don’t believe the hype.

What’s Turbotax Timmy up to in the mean time? For one thing, he’s putting the ongoing bailout of state and local governments on ice. (No, it’s not an infrastructure project;  it’s a bailout.) That is a good in and of itself, and to be celebrated. Treasury has been issuing a whole lot of “State and Local Government Series Securities” (SLGS), which are kind of an interesting thing. Treasury created the SLGS in the 1970s to help state and local governments effectively break federal law. Congress passed a law that stops state and local governments from issuing tax-free bonds at one rate and then earning arbitrage profits by reinvesting the proceeds at a higher rate. Since the locals can’t do that with their own tax-free bonds, Treasury created special securities for precisely that purpose. (And you thought Congress made the laws!) State and local budgeteers are up to their green eyeshades in debt (not to mention enormous pension liabilities for ex-bureaucrats sunning themselves on retirement-community beaches), and Treasury is helping them avoid the consequences of their decisions.

Bailout Nation lives, and one of the main reasons that Washington wants to raise the debt ceiling is that it wants to continue to camouflage how bad the overall, coast-to-coast, comprehensive government-debt situation is.

Hey, forget about all that budget-balancing stuff I’ve been writing about: All we really need is a historically atypical high rate of growth, schools that suddenly are an order of magnitude better than the ones we have, and the enactment of nine-tenths of the conservative economic agenda. It’s all so obvious.

If I were the head of something called the George W. Bush institute, I would not make fiscal policy my opening gambit.

Economic growth. Why didn’t I think of that?

As expected, the biggest news out of Fed chairman Ben Bernanke’s press conferences was not anything that he said — it was the fact that the chairman of the Fed held a public press conference for the first time ever. Meet the kinder, gentler Federal Reserve. Bernanke may not be able to do much about all those fortysomethings who’ve been out of work for 18 months, but he wants them to know he cares.

The Fed is in a difficult political situation: Its loosey-goosey money policy has not produced the growth in employment that the administration (and Congress, and the electorate, and unemployed people and their families) desire to see; at the same time, the general rise in commodities prices and the significant spikes in food and energy prices suggest that tightening eventually must come. Bernanke hinted that rather than start by raising interest rates, the Fed might move to tightening by ceasing to reinvest the proceeds from the Treasuries and mortgage-backed securities it already is holding.

Bernanke was, in his quiet way, insistent that none of the inflationary signs on the horizon are the result of the Fed’s massive money creation. Rising food and energy prices, he said, were the result of “largely non-monetary factors,” prominent among them Mideast unrest and that favorite go-to, rising demand in China, India, and other developing countries. That’s probably not an entirely adequate explanation: Mideast tensions don’t explain record prices for things like cotton and gold, and the factors leading to increased demand in the developing world (rising incomes, population growth) have been  moving in a much more gradual way than commodities prices have been.

The indicators are not pretty. The Fed’s just-released forecast for economic growth was pared back to 3.1 percent to 3.3 percent, from an earlier estimate of 3.4 percent to 3.9 percent. Meanwhile, its inflation estimate was revised significantly in the other direction: to 2.8 percent from 2.1 percent.

Higher inflation, slower growth: bad news for people with dollars in the bank. Treasury’s Timmy Turbotax says the United States is pursuing a “strong-dollar policy,” which is not entirely consistent with Helicopter Ben’s recent program of creating dollars by the trillion through quantitative easing. The Fed has a dual mandate — stable prices and maximum employment — but the relationship between interest rates, inflation, and unemployment is not nearly so straightforward as most economists thought back when the Fed was created. As Milton Friedman put it:

Monetary growth, it is widely held, will tend to stimulate employment; monetary contraction, to retard employment. Why, then, cannot the monetary authority adopt a target for employment or unemployment — say, 3 per cent unemployment; be tight when unemployment is less than the target; be easy when unemployment is higher than the target; and in this way peg unemployment at, say, 3 per cent? The reason it cannot is precisely the same as for interest rates — the difference between the immediate and the delayed consequences of such a policy.

Alan Greenspan’s tenure made the Fed chief a totemic figure: The God of the Economy. But what can be accomplished through monetary policy alone is much more limited than many people think. And what can be accomplished through monetary policy as conducted by the Fed is even more limited: The central bank has limited tools (even when it’s giving itself new ones) and significant limitations. If we were designing an agency to implement monetary policy from scratch today, we probably would not design the Federal Reserve. (We’d probably design something much worse. Why, you ask? Just a hunch.)

Because the Fed’s plans have long been telegraphed, Bernanke predicted that the discontinuation of quantitative easing this summer would not have any effect on the financial markets. That declaration had, to my ear, the quality of a prayer. He also repeatedly said that the signs of inflation were the result of “transitory” factors. But when the government is borrowing 40 cents on the dollar to finance unprecedented deficits and the Fed is creating money to make that happen, inflation is baked into the cake. And there’s a danger of vicious-circle effect: Inflation hits, the Fed has to raise rates in response, economic growth slows or reverses into a new recession, and deficits widen, fanning the inflationary flames. Bernanke met the press to reassure the public, but it is far from clear that we should be reassured about anything.

I have some tongue-in-cheek thoughts about the debt ceiling over on The Corner. But here’s a serious one: The statutory debt ceiling is not the only debt ceiling. There’s a real debt ceiling, too. Who wants to find out where it is?

(If you are interested in Jim Rogers, you can read my interview with him, “Jim Shrugged,” here.)

Among sentences I do not like to write: Andrew Leonard is mostly right about this one. Tax cuts do not generally increase revenue, and Republicans should stop saying otherwise.

But he’s not quite right to treat all these statements as equivalent:

Here’s Rep. Joe Walsh, (R-Ill.) the self-styled “conservative Tea Party activist” who upset Democrat Melissa Bean in the 2010 midterms, on ABC’s “This Week.”

“In the ’80s, federal revenues went up,” said Walsh. “We didn’t cut spending. Revenues went up in the ’80s. Every time we’ve cut taxes, revenues have gone up. The economy has grown.”

Walsh may be a freshman in Congress, but he’s got the party line down pat. Here’s Senate Minority Leader Mitch McConnell saying in July that the Bush tax cuts “increased revenue, because of the vibrancy of these tax cuts in the economy.” Here’s Speaker of the House John Boehner saying last June that “over the last 30 years . . . lower marginal tax rates have led to a growing economy, more employment and more people paying taxes,” he said.

Walsh’s statement is false if you read it as having an implicit “because.” It is true that revenue went up in the 1980s, that we did not cut spending, and, as Mr. Leonard himself points out, that revenue has gone up following tax cuts, etc. One could make a useful (and true) argument that we can in many situations expect revenue to increase following tax cuts — but, in most cases, not by as much as it would have without the tax cuts. For instance, if the U.S. government were not laboring under a crippling deficit and debt (Imagine!), one might plausibly argue that we could both cut taxes in a given situation and maintain current levels of spending without increasing the deficit. (Might! Might! You’d obviously want some high-grade forecasting on that.) But our current straits suggest that the longstanding Washington compromise — Democratic rates of spending and Republican rates of taxation — produces very large deficits.

McConnell’s statement is false.

Boehner’s statement, like Walsh’s, depends on how much implicit causality you read into it. That is not a trivial distinction: Low tax rates really can and do contribute to a growing economy, which can and does contribute to growing tax revenue. What is not true is that income-tax rate cuts pay $1.30 on the dollar, and that revenue has risen mostly because of (rather than despite) tax cuts — and Republicans should stop claiming otherwise.

The scale of the growth effects of tax cuts is important inasmuch as the naïve supply-siders’ argument credits tax cuts with basically 100 percent of economic growth. But we probably were going to have some economic growth in the 1980s or 2000s without the tax cuts. We’ll probably have some growth from 2011–20 with or without tax cuts (or tax increases).

I am all for having the budget police take revenue effects into account when scoring tax policies, but those effects are not as dramatic as Republican rhetoric would have it. And we should also take into account the possibility that large and persistent deficits may diminish economic growth (this seems to have occurred to a few Republicans already) and consequently that tax cuts that contribute to such destructive deficits have doubly negative effects on revenue. (I do not know that to be the case; I believe that it is a possibility that should be kept in mind.)

There are no free lunches in taxation, or anywhere else.

—  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.

As I have argued (repeatedly, endlessly, ad nauseam, I know!), our real national debt is not that $14.3 trillion we always hear about, but more like $140 trillion. Another thing to keep in mind: That $14.3 trillion is not just one national debt, but four of them.

There are two flavors of national debt: debt held by the public and intragovernmental debt. The first category — securities held by investors, basically — is the one we mostly worry about. (I worry about the other one, too, but that’s another story.) If I may be permitted to express it in its full glory, the debt held by the public as of April 15 amounts to $9,679,202,714,701.01. (Love, love, love that penny on the end — can’t say Treasury isn’t minding the details! Wasn’t it Ben Franklin who said, “Mind the pennies and the trillions will take care of themselves”? Or something like that?)

That debt held by the public is really four debts, because we have four main ways of financing our borrowing: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). Bills are the shortest-term security, the attention-deficit-disorder case of the U.S. sovereign-debt world, maturing in one year or less. Notes, like liberal-arts graduates, mature in one to ten years, and bonds, like a mortgage (remember mortgages?), go from 20 to 30 years. TIPS are a mixed bag, in five-year, ten-year, and 30-year versions. TIPS are a relatively new thing, having been introduced in 1997. They’ve grown popular, from accounting for $33 billion of the national debt in their first year to $640 billion as of March 2011.

Now, when you’ve got $9,679,202,714,701.01 in debt floating around out there in the marketplace, and you’ve got S&P sort of frowning in a meaningful way at your ledger, and bond funds are wishing you the very best of British luck as they dump your debt and refuse to buy any more, but you just can’t help yourself and have to buy a shiny new windmill whenever you see one — in that sort of a situation, you might be keenly interested in how much of your debt is financed through short-term bills vs. how much is locked into 20- or 30-year rates with the long bond. We are starting to have that discussion just now. And it ain’t pretty: The average maturity is 59 months, and about $1.7 trillion of the publicly held debt is in short-term notes, which presents real, sobering risks of the standing-on-a-ledge variety should interest rates spike up.

Here’s the thing: It costs more to finance your debt with 30-year bonds than with 30-day bills. (Yeah, I know, they’re 28-day bills, but cut a poet some slack.) That’s because investors, like men with options, are commitment-shy. If you’re going to lock your investment down for 20 or 30 years, you want a pretty high rate of return. But for 28 days? Less so. But there’s a tradeoff: Interest rates change, sometimes dramatically and often unexpectedly. When the 28-day bill comes up and you still haven’t balanced the budget, you have to refinance that debt. Ben Bernanke and Ramesh Ponnuru are working hard to keep Washington’s short-term borrowing rate at basically zero right now, so there’s a lot of incentive to use short-term rather than long-term financing. Sometimes that works out well: The Clinton administration pushed a lot of our debt into shorter-term instruments back in the 1990s and helped save a bundle on borrowing costs. (The other way to save a bundle on borrowing costs: Stop borrowing.) But sometimes taking the short-term deal and leaving yourself open to unexpected changes in debt-service costs is really, really stupid: Ask somebody who signed up for one of those brilliant adjustable-rate mortgages that take you from free money to pawn-shop rates overnight. A lot of people, myself included, worry that we’ve got too much short-term debt and should use more long-term financing to protect ourselves from interest-rate risk, even if it costs more to do so. Why? Because debt service is one of those checks the government absolutely has to write, and you don’t want surprises. That’s how you get the sort of fiscal crisis that leaves you with banana-republic finances while the Canadians laugh at you.

Incidentally, the Obama administration may be the world-champion deficit spenders, but maturity rates actually hit their low during the Bush administration: In 2008, average maturity was only 48 months. In 2000, long-term bonds accounted for 21 percent of the total debt; by 2009, bonds were down to just under 10 percent of the debt. They’ve climbed a bit since then, up to 10.3 percent. (If you want to check my math, there’s a spreadsheet o’ Treasury figures here.)

The real action seems to be in the medium range, in the notes: In 2008, we owed about $2.8 trillion on those; by 2010 it was $5.6 trillion, and it was $5.8 trillion as of March 2011. Let’s hope we get our finances in order before those come due.

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

Standard & Poor’s decision to downgrade the long-term outlook for U.S. sovereign debt came as a shock. It shouldn’t have. Credit-rating agencies (CRAs) such as S&P are a government-chartered cartel, with constraints on competition and a customer base guaranteed by statute. They are the sleepy backwaters of the financial world — and they are always the last to know. As one investment strategist put it to me this morning: We’ve been watching this train go by for a while now, and this is the caboose.

The textbook example of this is the case of Enron. All of the credit-rating agencies had Enron rated like stacks of solid gold until a few weeks before Jeff Skillings’s financial underpants finally hit his ankles. But long before the CRAs woke up, the markets had driven Enron’s stock price down to almost nothing. The ratings agencies aren’t the opening act — they’re the fat lady sweating out the final aria in our national fiscal Götterdämmerung.

A little over a year ago, the markets already were telling us that the government’s story about how it is finally going to fix its finances is pure fiction. Yields on U.S. Treasury bonds went higher than those on a number of blue-chip corporate bonds, leading your obedient servant to remark:

Who has better credit than Uncle Sam? If you ask the bond market, that elite list includes Berkshire Hathaway, Procter & Gamble, Lowe’s, Johnson & Johnson, and a host of other blue-chip corporate borrowers. The U.S. government has the ability to levy taxes on the largest national economy in the world, a vast and fearsome revenue-collection apparatus, and more than two centuries of constitutional government under its belt. P&G has Tampax.

As in the case of Enron, the smart money gets gone long before credit downgrades start hitting the headlines. As noted in this column, PIMCO, the world’s largest bond fund, got clear of U.S. Treasuries some time ago, following the lead of a number of hedge funds. The oil-exporting countries are dumping U.S. debt, too. Perhaps they know something we don’t?

Actually, they know something we do: Nothing about this is a secret. In the phrase adopted by Rep. Paul Ryan, what is coming is the most predictable economic crisis in our history: a nominal national debt of more than $14 trillion, a real national debt ten times that, and Barack Obama standing between the reformers and the needed reforms with a veto pen and excellent chances of being reelected in 2012. This isn’t sophisticated macroeconomic analysis; this is that anvil falling out of the sky onto the head of Wyle E. Coyote, and you don’t have to be a super-genius to figure out that it’s going to hurt like hell when it hits him. Even S&P gets that.

And that’s probably the reason this announcement hasn’t really sent big-time shock waves through the markets: It’s just confirming what everybody already knows: Washington’s finances are Enron writ large.

But unlike Enron, Washington has the power to tax, the power to print money, and an executive able to resist financial realities for a remarkably long period of time. Thus we have Obama administration officials lashing out at S&P today — as though it were the agency’s fault that Obama delivered an entirely implausible speech about deficit-control last week. Austan Goolsbee declared: “I don’t think that the S&P’s political judgment is right.” (What about their financial judgment?) Taking the prize for mealy-mouthed politics-speak is Treasury official Mary Miller, who said, “We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation.” Never mind the vacuousness of her claim and the banality of her language — “come together,” indeed — did she not watch the president’s speech last week? Because he made it pretty clear that coming together with fiscal reality is not on his agenda, never mind coming together with Republicans to do something about the entitlement bomb or even discretionary spending. Look for more kill-the-messenger rhetoric from the Obama administration as the meltdown heats up.

Here’s the thing to watch: Nobody really knows what interest rate the bond market is going to demand to finance U.S. debt in the future. Right now, the Fed is buying most of the bonds Treasury puts up for sale, and simply printing money to do that. This “quantitative easing” is scheduled to end this summer, at which point Washington will find out what it is really going to cost to finance its debt. In FY2010, we spent $164 billion just on interest payments on the debt — up 18 percent from the year before. And that’s at historically low interest rates. If rates should go back up to their 1970s or 1980s levels, we could easily end up spending more on debt service than we spend today on big-ticket items like Medicare or national defense. That’s the hidden landmine on our national balance sheet: We don’t have to be worried only about the trillions of dollars in new debt that Obama proposed to load upon our backs, but also about what that proposal is going to do to the cost of paying interest on the debt we already have. We already know that we cannot afford the new debt that Obama would have us endure, but the real crisis will come when we find out that we cannot afford the debt we already have.

—  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.

“Gross mismanagement and potential fraudulent activity.” Think about this one all day Monday, especially on your way to the post office (which your doctor’s office soon will resemble) to drop off your taxes.

Got disturbing examples of grotesque and hideous abuses of the public purse? Let’s hear about them in the comments.

House Republicans have planted their flag. Now the Senate gets to vote.

Here is what the Senate is voting on: Whether we have a fiscal crisis or we do not. It is that simple.

A few people have sent me that “Nine Things the Rich Don’t Want You to Know about Taxes” article that’s making the rounds today. I have some criticisms here.

Our current unfunded entitlement liabilities run about $100 trillion.

President Obama proposes to “strengthen” Medicare through a price-fixing panel called the Independent Payments Advisory Board (IPAB).

CBO took a look at IPAB and estimated that it might save us $28 billion over the next ten years, i.e., next to nothing.

And then it took another look and lowered its estimate from next to nothing to nothing:

For 2015 and subsequent years, the IPAB is obligated to make changes to the Medicare program that will reduce spending if the rate of growth in spending per beneficiary is projected to exceed a target rate of growth linked to the consumer price index and per capita changes in nominal gross domestic product. CBO’s projections of the rates of growth in spending per beneficiary in the March 2011 baseline are below the target rates of growth for fiscal years 2015 through 2021. As a result, CBO projects that, under current law, the IPAB mechanism will not affect Medicare spending during the 2011-2021 period.

You have to admire the president: To go out and give a morally preening speech like that, with IPAB front and center, on the assumption that nobody’s reading the footnotes.

As predicted, the recent budget deal and the Ryan plan have the Democrats wishing in the direst way they’d hopped on Simpson-Bowles. But among Democrats, Simpson-Bowles was dead on arrival: There simply is no plan that credibly controls spending that Democrats are inclined to accept. Now that Republicans have proposed something well beyond the Simpson-Bowles framework, Democrats are ready to celebrate a plan that they dismissed out of hand — “simply unacceptable,” the lady called it.

Ryan and the Republicans will accept the strongest deficit deal they can get; Obama and the Democrats will accept the strongest deficit deal they are forced to: That’s the basic dynamic that shapes this debate between now and November 2012. They have no credible budget plan — they didn’t even pass a budget last time around. Welcome to the Party of No, Mr. President; Mrs. Pelosi will show you the secret handshake.

The Democrats want 2012 to be about anything other than deficit-reduction. Expect an onslaught on the social-issues front, from abortion subsidies to gay marriage. Conservatives should not let them change the subject.