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

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

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

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

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

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

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

1.   Cut spending, raise taxes.

2.   Cut spending, maintain taxes.

3.   Cut spending, cut taxes.

4.   Maintain spending, raise taxes.

5.   Maintain spending, maintain taxes.

6.   Maintain spending, cut taxes.

7.   Raise spending, raise taxes.

8.   Raise spending, maintain taxes.

9.   Raise spending, cut taxes.

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

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

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

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

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

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

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

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

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

And if I am wrong, why?

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

Two big things in the news today:

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

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

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

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

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

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

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

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

Ergo, the occasional shortfall projection.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Supply and Demand: These Laws Cannot Be Broken.

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

Or so they say.

I say: You wish.

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

Exchequer’s new favorite tattoo: 

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

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

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

Radicalism should be made of sterner stuff.

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

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

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

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

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

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

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

Rhode Island’s worst basketcase heads for bankruptcy.

A Michigan basketcase heads there, too.

Bankruptcy is a possibility for San Diego.

State-bankruptcy law is suddenly a hot subject.

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

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

And you thought their record was bad in Congress.

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

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

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

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

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

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

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

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

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

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

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

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

Our regularly scheduled deficit panic will now resume.

The Politically Incorrect Guide to Socialism hits store shelves on January 10. You can pre-order from Amazon here or buy an autographed and personalized copy from National Review here.

Jack Fowler tells me that a few unsigned copies were sent out to people who had ordered signed copies. We’re waterboarding the guy in charge of that all weekend, but if you happen to get an unsigned copy when you’d ordered a signed one, your signed copy should be on the way. If you have any problems, e-mail me at kwilliamson@nationalreview.com and I’ll straighten it out for you.

Thanks to all you early-ordering readers! We sent a big stack of signed books out the door today and are ready to send some more. I’m grateful for your support.

Today is definitely a love day in my love-hate relationship with the Republicans. A 2,000-page pork-bomb replaced with a one-page continuing resolution? That is some nice work, Senator McConnell.

Other words that do not trip easily from my keyboard: John McCain really pulled it through.

Something has got into the Republican leadership, and that something is: fear. Wonderful, salubrious fear. For this we can thank the Tea Party movement, for several reasons. The first is that, while our European cousins are out rioting in the street for more and more government spending, the one significant, genuinely popular movement afoot in American politics is demanding the opposite. No Washington poobah wants to get yelled at by rowdy constituents at a town-hall meeting back in the district. They really hate that.

Funny what catches the notice of politicians. I was a newspaper editor for years, and I’ve had at least a dozen politicians tell me: “We don’t really give a damn what you write about us in the editorials. We don’t even really read them. But if we start seeing letters to the editor, we notice. Any time one constituent is ticked-off enough to take the time to write a letter, that’s significant. One guy writing a letter means that there are 500 more who agree but don’t take the time to write.” One guy writing a letter represents a few hundred people in the mind of Joe Congressman. Those Tea Party rallies, too, loom a lot larger than the raw numbers would suggest, impressive as those raw numbers have been. Joe Congressman does not want to see that crowd camped out on his doorstep.

The second reason used to dabble in witchcraft. Say what you like about Christine O’Donnell and her incompetent nut-cluster of a campaign, she showed the Republican establishment that the Tea Party, and the fiscally discontent at large, are willing to run a kamikaze candidate against any RINO target of opportunity. And not all of the challengers are going to be O’Donnell-type buffoons. Sharron Angle was a much more serious candidate and ran a much more serious campaign. Pat Toomey chased Arlen Specter out of the Republican party and then put the smackdown on his Democratic opponent — a retired admiral, let’s remember, not some wild-eyed hippie — in the general. Pat Toomey scares the old guard. They do not want to see a dozen Pat Toomeys showing up in Republican primaries next time around. Kay Bailey Hutchison does not want some Stetson-wearing Toomey showing up in her backyard.

The third fear factor is: reality. In Washington and in statehouses around the country, the reality of the pending Fiscal Armageddon is starting to seep into the thick skulls of the elected class. Jerry Brown pronounced himself “shocked” once he got a good peek at California’s balance sheet. Off the record, politicians of both parties are starting to concede that a lot of the old ideological disputes at now moot, because there simply isn’t any money. It’s not a question of whether there are going to be deep cuts and fundamental restructuring, but when and how much.

I do not agree with the David Frums of the world that religious and social conservatives are a net loss for the Right, and I honestly do not much care whether we have a Don’t Ask Don’t Tell policy or something else. (My own preference is for letting the brass of the various services decide for themselves; the military gets lots of consideration for logistical concerns, in my view.) But here’s what I did notice about that fight: The fact that the Republicans have made spending their line in the sand, and not some relatively inconsequential but symbolically important question about gay soldiers, seems like good news to me. And the Democrats folded, as did the Republican appropriators — they didn’t really try to defend the spending, because the spending is indefensible.

Stopping the omnibus was huge — and if you haven’t read our very fine you-are-there coverage from Costa and Stiles, do read it now. This is a good day for conservatives. We can move  back the hands on the Fiscal Doomsday Clock a full 60 seconds.

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

Governor-elect Moonbeam is finding out that things are even worse than he thought:

Gov.-elect Jerry Brown said Tuesday that he wants to complete a budget agreement within two months of unveiling his budget, an accelerated timeline that would allow a late-spring special election for potential tax increases or other revenue generation.

… “We’ll present a budget on Jan. 10. It will be a very tough budget, but it will be transparent,” he said. “We’ll lay it out as best I can. We’ve been living in fantasy land. It is much worse than I thought. I’m shocked.”

What does it take to shock Jerry Brown, I wonder?

The state faces a $28-billion budget gap for the next 18 months, and roughly $20-billion deficits annually through the 2015-16 fiscal year. Non-university education accounts for roughly 40% of state spending, so cuts tend to significantly affect the state schools.

The nonpartisan Legislative Analyst’s Office has forecast that the K-12 school system and community colleges will receive $47.5 billion in the upcoming fiscal year, $9 billion less than four years earlier. In the past, state leaders relied on one-time gimmicks, some of which made the state’s deficit worse, and one-time cash infusions to patch over flawed spending plans. Those days are over, Brown said.

Brown says there are more cuts coming. “No there aren’t!” respond the unions:

Educators responded by calling for an end to cuts, asking for greater discretion at the local level as to how dwindling dollars are spent, urging the state to seek more federal funding and requesting legislation that would allow them to increase local property taxes with 55% of the vote rather than the current requirement of two-thirds.

The fact is that California could max out its tax rates and probably still not get out of the hole it is in — and a lot of states and municipalities are in the same condition. Which is why we need to push for action — action right now — on the Nunes-Ryan-Issa bill banning bailouts of state pension systems. That would be a good HR1 for the incoming Republican majority. The fiscal collapses in the states are an avalanche headed toward Capitol Hill, and is has to be headed out before the unthinkable becomes the inevitable.

Say this for the Democrats: They’re trying to go out in style, with a pork-packed, earmark-laden, shameful embarrassment of a spending bill, full of junk on practically every one of its 2,000 pages. It is the political equivalent of a raised middle finger to the fiscally sobered-up American electorate that just threw them out.

I think the Democrats have just handed another big political win to the Republicans, who can and should kill this bill. Republicans who vote for it all but demand a swift and brutal visit from the Club for Growth and the Tea Party.

A stinging observation from John Cochrane:

If you really believe Keynesian Stimulus, you think Bernie Medoff is a hero. Seriously. He took money from people who were saving it, and gave it to people who were going to consume it. In return he gave the savers worthless promises that look a lot like government debt.

Brutal. And this:

The current policy attempt, consisting of  stimulus now, but strong promises to address the deficit in the future, can have no effect whatsoever. If you think stimulus works by fooling people to ignore future tax hikes or spending cuts, then loudly announcing such tax hikes and spending cuts must undermine stimulus!  Augustinian policy, “give me chastity, but not yet,” will not work. Casanova is needed.

Cochrane’s essay, “Fiscal Stimulus, R.I.P.,” is well worth a read.

Chef Nick Gillespie cooks up a balanced budget.

Watchdog.org makes a mighty contribution to the sum of national despair with this report:

Nine groups representing state and local government employees slammed a House bill Wednesday that would penalize state and local governments that failed to meet disclosure and accounting requirements for public pension systems.

. . . The Public Employee Pension Transparency Act would require pension administrators to report pension funding status and contributions to the government, and forbid federal aid to distressed systems.

The state and local government organizations opposed to the bill say that there already are strict accounting and disclosure standards in place, and that the Transparency Act would be superfluous. But it’s that last provision — forbidding a federal bailout of bankrupt state-government pension funds — that is most likely bothering them. Three Republicans — Devin Nunes, Paul Ryan, and Darrell Issa — are sponsoring the bill, which would hit non-compliant states right where it hurts: by rescinding federal tax breaks for their bonds.

The unfunded liabilities for state and local government retirees pensions add up to trillions of dollars, a truly shocking figure. As many as 27 U.S. states are facing insolvency because of pension costs alone — and the other 23 should not end up on the hook for them. Illinois and California are going to come calling, and without this bill in place, or another one like it, their chances to securing a federal bailout are pretty good.