Charles Koch on why he’s an activist. Excellent stuff.

There is a Wisconsin talking point that will not die: Everything was fine until Scott Walker got some business-incentive tax cuts passed. I just heard it from Erica Williams of the Center for American Progress. Rachel Maddow has trafficked in this nonsense, as have some more respectable lefty types.

Help an English major out, here: How exactly do $137 million in tax cuts cause a $3.6 billion deficit in two years? I am dying to know.

Those tax cuts may or may not be a good idea; I am generally skeptical of using special tax breaks as a tool of economic development. (Low general taxes, a simple tax code, a sane regulatory environment, and a sane tort environment seem to me much better tools.) But getting a $3.6 billion deficit out of a $137 million tax cut is a pretty good rabbit-outta-the-hat trick.

Wisconsin, it should be noted, has one of the better-managed public-pension funds in the country, inasmuch as they’ve actually socked away the money they are supposed to sock away to pay their pensions. (Surprisingly enough, the other decently managed funds are New York — really — Florida, and Washington.) It’s the Sweden of the United States: a big, expensive welfare state with high taxes, run with relative efficiency. But even in comparatively well-run Wisconsin, pensioners already have seen reductions in their benefits, in the form of reduced “dividend” payments. Why? Because the pension-fund managers have been planning on making just under 8 percent a year on their investments, but over the past decade have made far less — about half, in fact.

Which is to say, Wisconsin’s fight is going to be one of the easier ones. What happens when it’s California and Illinois? If the recent news from Greece is any indicator, Wisconsin’s pension managers might want to put some tear-gas suppliers and riot-shield manufacturers in their portfolio, and see if they can’t get those returns up.

—  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.

Ezra Klein says research shows that Wisconsin’s public employees are not overpaid, but in fact are underpaid. Not so, says Jim Manzi.

I’ve just read the study in question, and my sympathies are with Manzi, inasmuch as the control categories do not seem to me nearly sufficient to capture the real diversity of the work forces. As anybody who has ever met a high-school vice principal can attest, not all masters’ degrees are created equal. (The study controls for lots of things, like sex and ethnicity, but not the ones I’d be interested in, like I.Q. or standardized test scores. It also doesn’t control for such niggling factors as whether those government workers work, which strikes me as something that would be useful to know.)

Bearing in mind that none of this addresses the more fundamental question of whether those government workers are being paid/underpaid/overpaid to do anything necessary or even useful, which admittedly is hard to capture, here’s a thought: Mr. Klein claims to be an empiricist — so, how about an experiment? Let’s have Wisconsin cut its government workers’ pay by 5 percent and see if the state has trouble filling those government jobs. Let’s cut their pay by 10  percent and see if anybody notices.

Anybody want to place a bet on the results of that experiment?

—  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.

There are 49 more Wisconsins waiting to erupt. At least half the states are positioned to be bankrupted by their government-employee pension systems, but even the best-governed states are facing insolvency because of a factor that is mostly beyond their control: Medicaid. It’s interesting that the first battle is being fought in Wisconsin, but that is mainly because Illinois, the true-blue embodiment of fiscal imprudence, has basically surrendered without a fight.

What does this mean for near-term politics? Leave it to USA Today to get it exactly wrong:

In last year’s congressional elections, AFSCME, the largest public-employee union, gave $2.2 million to Democrats and $10,000 to Republicans, according to the Center for Responsive Politics, a non-partisan group that tracks money in politics. In 2008, AFSCME, founded in Wisconsin in 1932, spent $2.3 million opposing Sen. John McCain, Obama’s Republican opponent.

Union support will be vital to Democrats next year, especially in battleground states such as Wisconsin, to offset the flow of corporate funds into campaigns allowed by a 2010 Supreme Court decision. Last year, 11.9% of U.S. workers were represented by unions, down from 20% in 1983, the Labor Department says.

“Offset the flow of corporate funds.” This is the old “Big Business Backs Republicans” canard. It is not true. It has not been true for a long time. It would be difficult to find any Big Business sector that backs Republicans as lopsidedly as unions back Democrats. (And let me remind you for the 11,000th time that Barack Obama & Co. were carried to power on a wave of Wall Street money, with Goldman Sachs leading the way.)

For instance, take the software industry, a very big business indeed. Out of the five biggest recipients of the software racket’s political money in 2009–10, all five were Democrats: Patty Murray, Suzan DelBene, Barbara Boxer, Charles Schumer, and Harry Reid.

What about the mortgage bankers and the real-estate gang, a.k.a. the Committee to Reinflate the Bubble? Three out of five of the bankers’ top recipients in the last cycle were Democrats — Paul Kanjorski, John Adler, and Barney Frank, purported scourge of the banking world. The real-estate lobby’s top recipients were three Democrats — Schumer again, Alexander Giannoulias, and Kirsten Gillibrand — one independent trying to defeat a Republican — Charlie Crist — and one Republican — Carly Fiorina.

What about the fine gentlemen of the private-equity industry, fighting tooth and talon to defend the carried-interest tax rules that give them an enviably low tax rate? Their top dogs were Democrats Schumer (again!) Gillibrand (again!), Reid (again!) Michael Bennet, and one Republican, Mark Kirk.

Republicans do kill with dentists and coal miners. (Although Democrat Joe Manchin was the blacklung lobby’s No. 2 recipient.)

When people scream about the wicked evil corporations and their influence in Washington, they usually are really talking about the FIRE businesses — that’s finance, insurance, and real estate. Taken together, these industries do, at the moment, slightly favor Republicans, though their two largest recipients were — see if you can guess — Schumer and Gillibrand, again and again. But it is a myth that Republicans own Wall Street, or that Wall Street owns Republicans. As Open Secrets puts it: “The sector contributes generous sums to both parties, with Republicans traditionally collecting more than Democrats. Yet in the past two election cycles, bankers have suddenly shifted their cash toward Democrats.” But look at the charts for 1990 through 2010: hardly a runaway advantage for the Republicans, and nothing like the 220-to-1 advantage the Democrats enjoy when it comes to treasury-raiding union goons like AFSCME.

The narrative of Wall Street vs. Labor in the race to buy political influence is a false one. As often as not, Wall Street and Labor are on the same side, as they were when they helped elect Barack Obama.

What do Wall Street titans and Wisconsin government employees have in common? Above-average incomes, for one thing, and tight relationships with government that help them to maintain them. You bailed out the first gang of miscreants in 2008, and a lot of them came back for more. You bailed out the second gang of miscreants under the stimulus, and a lot of them are coming back for more, too. And they will keep coming back for more until one of two things happens: A. There’s no money left, or B. We stop them.

My money’s on A. Where’s yours?

—  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.

Simpson-Bowles lives!

Sort of.

A “Gang of Six” in the Senate — Republicans Coburn, Crapo, and Chambliss, Democrats Durbin, Warner, and Conrad — is working to create legislation that would put many of the Simpson-Bowles deficit-reduction proposals into effect. That means raising the Social Security retirement age to 69, reducing Medicare benefits for higher-income oldsters, and raising taxes by getting rid of the mortgage-interest deduction and other special-interest tax breaks.

The Simpson-Bowles plan is by no means perfect — no more perfect than recent Republican efforts to make modest cuts in non-defense discretionary spending, no more perfect than Paul Ryan’s Roadmap. But each of those imperfect options represents a step in the right direction — which is to say, a step toward national solvency.

The tax part of the plan is especially good, in my view, even though it is a net tax increase for the country. The proposal would lower overall income-tax rates in exchange for eliminating a lot of special-interest tax breaks, notably the mortgage-interest deduction. The mortgage-interest deduction is a destructive force on its own, encouraging would-be homeowners to take on larger debts than they should, and to pay more interest than they should, contributing significantly to the inflation of the housing bubble and the subsequent financial crisis. It is difficult to imagine that as many people would have signed up for interest-only mortgages without a tax code that richly subsidizes them. Getting rid of it would be a good idea regardless of revenue considerations or tax-rate considerations; getting rid of it in exchange for lower income-tax rates and $4 trillion off the deficit (I know, I know — there’s a leap of faith in there, but if we’re going to spend $1, we have to tax $1) seems to me a very good deal.

The lower corporate tax is worth having, too.

All that being written, a note: This is not the most inspiring group of senators to be found. I think highly of Senator Coburn but have my reservations about any plan that leans heavily upon Senator Durbin.

In any case, I think the Republicans have already missed an opportunity on this one: An Obama-appointed commission’s bipartisan chairmen produced a program with real cuts and real improvements to the tax code — why not run with that? Why not get what’s worth getting out of Simpson-Bowles and then push for the next round? They are getting a second bite at the apple with the Gang of Six, and they should take it.

—  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.

Yikes: Chris Christie has been governor of New Jersey for a year and a month, not for a month, as I managed to say about four times on Red Eye last night. It sure seems like he just took office . . . 

I’ll be hearing about this all day, so, apologies for the stupid error.

As several insightful Exchequer readers predicted, the federal bailout of the most irresponsible states has started with Obama’s loan-forgiveness scheme.

Under an initiative to be attached to the president’s budget proposal, our fiscally incontinent states would be further subsidized by the federal government through a moratorium on interest payments owed to Uncle Sam. These states, having spent all the money they had, borrowed billions from Washington to continue making unemployment-benefit payments. Of course, lending money to broke parties is a very good way to ensure that you are not repaid, and that is what Washington is headed toward: delaying interest payments today and, in all likelihood, simply forgiving interest (and probably principal) tomorrow.

This is the first step toward federalizing state and local debts, and it should be stopped.

Thirty states owe the federal government a combined $42 billion — chump change compared to the nearly $1 trillion in bailout schmundo already showered on the states. But the real story here, as I have argued before, is the acute fear in Congress, and the state and local governments, of being shut out of the credit markets. Legislation to allow states to reorganize their finances under something like bankruptcy is being fought tooth and talon, because the mere prospect of such a thing is sure to drive up governments’ borrowing costs. And Washington is willing to throw another $42 billion at our insolvent states because the municipal-bond market is spooked — and banks and money-market funds are holding about a half-trillion dollars in junky munis. Most munis are held by individual investors — hello, grandma! — but pension funds own them, too. Which is to say, this is a big bag of bailout bait begging to be bitten.

The fundamental problem is that all of these one-time gimmicks — stimulus shots, bailouts, accounting shenanigans — are being used in a vain attempt to finesse permanent recurring deficits. We can bail out the states this year, but those pension funds are still going to be broke next year. We can put off Fiscal Armageddon this quarter, but Medicaid is still going to bankrupt the states — even the fiscally prudent ones — in the near future. That which is unsustainable will not be sustained.

Oh, and here’s some bad news: Remember how we were all going to be a lot more sober about credit and risk after the financial crisis? Well, get this: Back in the heady, risk-loving days of 2005, about 57 percent of municipal-bond issues were insured. Today, in the Age of New Sobriety? About 6 percent. That’s gonna hurt.

We cannot go on carrying these states forever — Washington simply does not have the money. We’re going to have a national public-finance crisis if Washington tries to take all this trouble off the states’ hands. We have to force the states to balance their budgets and rationalize their finances — especially their pensions — right now. We do not have the time or the capital to put this off.

And attaching this wreck to a tax on job creation? That is pure Obama.

(EDITORIAL NOTE: I’m writing this post from just outside the Texas capitol, where Obama’s proposal is not going to be well received.)

Republican budget boss Rep. Paul Ryan drops the bomb, with a plan to reduce non-defense discretionary spending to 2008 levels — this year, not at some distant remove in the theoretical future.

If you haven’t been following the ins and outs of the Republican intramural budget battle, here’s a bit of news for you: This is a compromise, and not one that the deficit hawks really wanted. The original plan was to cut a full $100 billion this year; some Republicans argued instead for a prorated cut that reflects the fact that part of the budget year already has passed, applying the 2008 standard only to the remaining seven months. That’s what we got — a  compromise that hawks ought to be able to live with.

Good stuff, here: $58 billion off the president’s request in non-defense spending, and $16 billion off the military.

Republicans could be out there saying, “Well, let’s wait until we get the Senate back,” or “There’s not much we can do while Obama’s in the White House.” And lots of conservatives would cut them slack if they did. But they aren’t, and that is an excellent sign.

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

Here are some metrics dear to Exchequer’s heart:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Executive summary: Despair.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Second, forbid a congressional bailout of the states.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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