So, it turns out the people who handle federal debt for a living do not believe the persistently repeated claim that Obamacare actually would reduce the national debt:

Treasuries rose, pushing 10-year note yields down from a six-month high, as a federal judge ruled against the U.S. health-care overhaul, easing concern that the government will struggle to contain record deficits.

Bonds also advanced as less U.S. debt was submitted to the Federal Reserve in its buyback today. Treasuries dropped earlier on speculation Congress will support economic growth by passing President Barack Obama’s agreement to extend tax cuts.

“The latest bump-up in Treasuries comes from the ruling about Obama’s health-care being unconstitutional,” said Larry Milstein, managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “If we are not going to be spending a trillion dollars over the next 10 years it’s a significant reduction in deficit spending, which means less debt being issued.”

But getting rid of the mandate does not get rid of Obamacare in toto, and, in fact, it makes the economics of it even worse: As things stand, insurance companies still will be required to cover those with pre-existing conditions, and now nobody has an incentive to buy insurance before he gets sick.

Two obvious options if the mandate stays thrown out: One is that Congress decides to keep all or most of the rest of Obamacare, replacing the individual mandate with gigantic subsidies to the insurance companies to offset costs associated with the pre-existing conditions rule. There are many insurance companies that probably would be happy with that arrangement, if the subsidies are fat enough. The other option is a more or less complete repeal –  which is the better option, and therefore the less likely to happen.

Good piece from Sarah Palin in today’s WSJ. Interesting that she singles our Paul Ryan’s business-consumption tax, offered as a replacement to the corporate income tax, for praise.

The Roadmap would also replace our high and anticompetitive corporate income tax with a business consumption tax of just 8.5%. The overall tax burden would be limited to 19% of GDP (compared to 21% under the deficit commission’s proposals). Beyond that, Rep. Ryan proposes fundamental reform of Medicare for those under 55 by turning the current benefit into a voucher with which people can purchase their own care.

Palin is sounding the alarm bells on Fiscal Armageddon, but she’s fairly optimistic. (Maybe too optimistic.)

Our country is on the path toward bankruptcy. We must turn around before it’s too late, and the Roadmap offers a clear plan for doing so. But it does more than just fend off disaster. CBO calculations show that the Roadmap would also help create a “much more favorable macroeconomic outlook” for the next half-century. The CBO estimates that under the Roadmap, by 2058 per-person GDP would be around 70% higher than the current trend.

In any case, it is tremendously helpful and heartening to have Palin’s big megaphone operating in service to the Ryan Roadmap and fiscal sanity more generally.

– 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.

“Many multiples of nothing is still nothing.”

And check out this graph.

. . . change my diaper.

Glenn Beck on how we’re ripping off the future. Outstanding.

Jim DeMint will work against the Obama-GOP tax deal, on excellent principled grounds: It contains unfunded spending and it increases uncertainty by leaving tax rates temporary. This is what serious fiscal leadership looks like: There is not much political juice for DeMint in opposing the tax plan — socialist Bernie  Sanders is threatening a filibuster, too — but he is serious about the deficit.

There is much that I do not like about the new bipartisan deal on tax rates. One of those things is the extension of unemployment-benefit spending without compensatory cuts elsewhere in the budget. I think unemployment insurance is one of the better social safety-net programs, but that $56 billion still has to come from somewhere. There’s a $161 million NEA budget, the $600 million a year that ethanol subsidies put in the pockets of BP alone, $16.5 billion in 2010 earmarks . . . that failed $50 billion foreclosure-prevention program would have just about covered it. It’s not like there are no cuts to be made.

What is worse is this: It is yet another product of consumer-driven economic policy, premised on the mistaken belief that robust consumer spending, which is alleged to (but does not) account for 70 percent of the nation’s economy, is the key to recovery. Buying stuff does not make you rich; making stuff makes you rich. Investing in the capacity to make stuff and provide needed services makes you rich. What does the tax deal do for people who want to save and invest their money in productive enterprises that create real wealth and real jobs? Not much.

The payroll-tax holiday will probably mean that the average American family goes out to dinner once a month more often: If a guy earning $50,000 gets a temporary income boost of $84 a month for two years, that is walking-around money. If you want to put some cash in Americans’ pockets, better to give them the whole $2,000 at once — they might use it for something more useful, like paying off a credit card (or catching up on a late mortgage payment or two). They might even pop it in an investment account, which would be an excellent use of the money. Dribbling it out means it will get dribbled away, which is counterproductive.

Nobody is launching a new business or hiring a full-time employee on a temporary 2-point payroll-tax cut. What about the people who are in a position to make large investments and create new enterprises? If anything, this deal makes their lives even more complicated: It uglies up the fiscal picture, further complicates the tax code, and necessitates another tax fight in 2012. Which is to say, it increases uncertainty. As Edmund Andrews and Jim Tankersley put it over at National Journal:

Those who place high importance on being able to plan ahead—corporations planning billion-dollar capital investments or individuals deciding how much of their income to save or spend—still don’t know what to expect two years down the road.

Precisely.

There is room in politics for these kinds of piecemeal, go-along-get-along deals — I advocate them on spending cuts, for example: A nearly perfect scenario would see Republicans trading $1 in cuts reducing spending on things that they like for $1 in cuts to spending Democrats favor — lather, rinse, repeat, 1.4 trillion times or so. But there is a deeper problem that is not getting addressed: All of this effort to pump up consumer spending is the crystal meth of economic policy, a collection of short-term feel-good measures that serve mostly to camouflage deeper problems in the economy. We are directing our efforts at spending — at the depletion of savings and capital — rather than measure to encourage the accumulation of savings and capital, which is to say, at investment. Real investment only comes from real savings — forgoing present consumption for future gains — but that takes a deeper policy game and a time horizon longer than two years.

Meaning, do not expect this to do a lot of good. I have my differences with the supply-siders on some specifics, but  they are correct on a crucial insight: You treat investment poorly and subsidize consumption, you get less investment, more consumption.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Uncle Sam is getting out of Citigroup. Hooray.

But we’ve still got that dodgy insurance company and automobile maker on our national balance sheet. And Fannie and Freddie.

We turned a little profit on our Citi stake, meaning that the nominal cost of TARP is now down to about $25 billion.

For those of you keeping score at home, that means that the foreclosure-prevention stuff passed on the coattails of the bank bailouts will end up costing at least three times what the bank bailouts themselves cost.

An interesting op-ed from William Beach and Dustin Siggins at Heritage:

Someone will have to bear the brunt of this fiscal freefall. Who will it be? Seniors have earned every dollar of their Social Security and Medicare, paying more than 15 percent of their lifetime incomes into these programs. We can’t ask them to work much longer than they already have. And it’s highly unlikely that Congress will cancel these programs any time soon just because they’re insolvent.

Instead, it will be the Debt-Paying Generation – Americans between five and 30 – that will carry that burden. With education and health care costs skyrocketing and the older members of the DPG generation unable to find work to begin saving and invest in their futures, this burden will indeed be a great one.

How’s the chorus from that Sex Pistols song go? “No future! No future! No future for you.” Flowers in the dustbin, etc.

When I think about the financial burden we are leaving on future generations, I like to imagine some very cheesed-off looking toddlers, in diapers and tri-corner hats, with muskets and a banner reading: “No Taxation without Representation.” The Class of 2028 did not ask for this.

Which brings up a serious political question: Had enough, suckers?

Bond traders can count.

Interpretation 1: The tax deal will be good for U.S. economic growth, therefore investors can get out of safe, conservative Treasuries and go hunting for higher returns in other markets.

Interpretation 2: A few hundred billion in new spending and forgone tax revenues, with zero attention paid to compensatory cuts, is bad news for the U.S. deficit. The markets want higher returns to hold our bonds.

Which is it?

Nick Gillespie and Veronique de Rugy share the bad news:

Since Bill Clinton left the White House in 2001, total federal spending has increased by a massive 60 percent in inflation-adjusted 2010 dollars. In fiscal year 2010, which ended September 30, the federal government spent $3.6 trillion, or 25 percent of Gross Domestic Product. That’s the most spending, in terms of percentage of GDP, since 1946. Likewise, last year’s $1.5 trillion deficit, as a percentage of GDP, was the largest deficit since 1945.

Most economists talk about a debt-to-GDP ratio of 60 percent as a trigger point that makes investors very nervous about a country’s ability to pay its obligations. The debt to GDP ratio was 63 percent this year and the Congressional Budget Office (CBO) projects it will be 87 percent in 2020. Just three years ago, it was 36.5 percent.

In other words, stock up on bottled water and canned goods.

But they have, if not exactly a plan, then an argument that the budget can be balanced without higher taxes and without draconian cuts. They argue that higher tax rates will not produce higher revenue. I am a bit skeptical that there is some hidden law of taxation that ensures that government’s share of GDP cannot exceed 19 percent, a claim they endorse, but we can agree that, for whatever reason, federal revenue tends to stay in a fairly narrow band. But it is not that narrow: There’s a big difference between revenue equal to 15 percent of GDP (right about now) and revenue equal to about 20.5 percent of GDP (the millennial surplus). I’d prefer to see federal revenue equal to something more like, oh, 7 percent of GDP, presuming that federal spending also is equal to about 7 percent of GDP. We spend way too much, and 20 percent of GDP is way too much government for my taste, but I am not convinced that a government that spends 20 percent or 21 percent of GDP cannot collect 20 percent or 21 percent in taxes. (Again, not that I want it to.) And I also believe that the deficit is more dangerous right now, and worse for the country, than tax hikes would be. If you balance the budget and reduce spending, you can repeal a tax hike; you cannot repeal a fiscal crisis.

So, I think things are pretty dire and that radical action is needed. But Nick and Veronique argue for relatively painless cuts:

A balanced budget in 2020 based on 19 percent of GDP would mean $1.3 trillion in cuts over the next decade, or about $129 billion annually out of ever-increasing budgets averaging around $4.1 trillion. Note that these are not even absolute cuts, but trims from expected increases in spending.

Meaning, we’ve got a $1.3 trillion deficit, so cut $1.3 trillion out of spending growth in the next ten years and you’ve got a balanced budget.

Which is true. But you’ve also got ten more years’ worth of crushing deficits piling up, the economic effect of which is unknown. The United States is not much like Japan (it is not much like any other country) and it probably cannot carry a debt load of proportional weight. We do not which T-bill will be the one that breaks the camel’s back.

That being written: Cutting $1.3 trillion would be a heck of a good start — it beats the status quo. I’ll send John Boehner flowers if he announces $1.3 trillion in spending reductions.

But here’s a question for Nick and Veronique: Do we have ten years?

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

But the deficit lives on, and so does the march toward Fiscal Armageddon.

National Review’s initial editorial take was cautious optimism; as the plan was chewed over, the ratio of caution to optimism increased. Exchequer has been a bit of an outlier in its enthusiasm for the general shape of the plan.

Ezra Klein argues that, as an intellectual framework, Simpson-Bowles will live on. If it does, keep in mind this from Heritage, some of the smartest criticism of the plan from the right. I don’t agree with all of it, but there is much useful thinking here:

Measured against the baseline, the commission would reduce deficits by $8 trillion between 2011 and 2020. Revenues would rise by $3.3 trillion, program spending would fall $3.5 trillion, and $1.3 trillion would be saved in net interest costs. So despite nearly all long-term deficits arising from soaring spending, the commission report nearly splits the difference between tax hikes and spending reductions in the first decade (see Table 1 and Chart 1).

Digging deeper, the commission would reduce Social Security and health spending (the cause of nearly all long-term deficits) by just $442 billion in the first decade—a 2 percent reduction from the projected $20.2 trillion spending level. The growth rate of these programs would merely dip from 6.5 percent to 6.2 percent annually. Other mandatory spending, which has grown immensely over the past decade, would still spend 95 percent of its baseline level over the next decade.

The only real significant spending reductions would come in discretionary spending. And here the commissioners are sorely misguided in their approach to cutting defense spending, which is already under-funded.

I don’t think defense spending is under-funded, not by a long shot — practically every slice of the federal budget pie is due for a reduction. But I do agree that defense is one of the few areas of federal activity in which policy has to take a very strong precedence over budget. (Remind me again why we have all those troops in South Korea? Okinawa?)

Here’s the case for pessimism: You can pass a plan — and you can even, in theory, pass a good plan — but that doesn’t mean that the plan will get enacted. If you can’t make cuts in one  program, you can’t make cuts in a thousand programs.

So, instead, Uncle Same is issuing about $100 billion a month in new bonds. Which is to say, every month we’re expecting the bond markets to absorb new Treasury debt equal to five General Motors IPOs, or roughly twice the total market value of Ford, or the quarterly revenue of ExxonMobil in a decent year — and ExxonMobil usually is neck-and-neck for the title of World’s Largest Corporation — so that’s a  lot of money. Annually, that deficit adds up to something between the GDP of Canada and the GDP of Brazil. The Fed is buying that debt right now — monetizing the debt in the name of “quantitative easing” — but it cannot do that forever. What happens then? And what happens when the markets have had their fill of U.S. debt?

So, Simpson-Bowles or no Simpson-Bowles, we are going to have a balanced budget. The question is whether Washington is going to balance the budget or the bond market is going to balance the budget for them. Which is to say, we have the choice between an orderly transition to a smaller state with more austere finances or a fast-and-dirty, disorderly, banana republic-type transition.

Paul Ryan is possibly my favorite congressman, and he has excellent ideas about the budget, but he does not have an S on his chest. I like Mitch McConnell, but he couldn’t get Republicans behind a measly little earmark moratorium in the Senate. And even if Simpson-Bowles or something like it had advanced, a good number of conservatives would campaign against it in order to preserve preferential tax treatment of mortgages and the like.

So, that being written, I’m going to spend the weekend researching investment options that short Treasuries.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

. . . and the reliably sophomoric tax lobbyist Ryan Ellis of Grover Norquist’s Americans for Tax Reform calls him a liar, arguing that he has broken his no-tax-hike pledge. With friends like these, who needs lobotomies?

The Simpson-Bowles proposal would reduce tax rates but eliminate lots of deductions, meaning that some Americans would pay less taxes, some would pay more, and the federal government would, net, collect more revenue. (In theory, of course; actual mileage may vary.) We would stop providing special benefits for homeownership and the like. Higher net revenue: Ergo, it is tax hike, and Tom Coburn is a liar.

But: Certain naive supply-siders also believe that cutting tax rates also means that the government collects, net, more revenue. But somebody has to write a tax check for that higher revenue: Ergo, tax-rate cuts are tax hikes, and everybody is a liar. A paradox!

And, more important: We are running a deficit. Those bonds have to be paid someday. If the U.S. government spends $1 today, that is $1 that has to be paid in taxes — regardless of what today’s tax rates are. Meaning that,  in the real world, the actual tax-hikers are Grover Norquist and company, inasmuch as their preferred political approach has led inexorably to higher deficits, and therefore higher debt, and therefore, to higher taxes at some point in the future. If Simpson-Bowles helps to reduce the long-term deficit, then its supporters are in fact tax cutters, from the point of view of anybody smart enough to follow the timeline long enough. Holding tax rates steady today is not the same thing as fighting tax increases — not when there is a deficit. Norquist should call his outfit “Americans for Tax Deferral.”

ATR has done some good work in the past, but Ellis, with his loose language — and his even looser thinking — makes them look foolish. Worse, ATR reinforces the worst of Republican political habits: Tax like libertarians, spend like socialists.

I am grateful that Tom Coburn is in government and Grover Norquist and his henchettes are not.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Do conservatives want a government shutdown over spending? Should we want a government shutdown over spending?

Grover Norquist wants one:

The head of the influential Americans for Tax Reform is encouraging the new House Republican majority to adopt a take-no-prisoners approach to federal spending — and if that leads to a 1995-style government shutdown, so be it.

Midterm voters “were voting to stop the Obama spendathon, and that’s what people were sent to Washington to do,” Norquist said in an interview for POLITICO’s “Taxing America” video series.

“That’s what all the freshmen are going to do. That’s what the fight’s going to be about,” he said of the party’s majority-makers, who are spoiling for a showdown with President Barack Obama. The president “will be less popular if — in the service of overspending and wasting people’s money — he closes the government down, as opposed to now, when he’s just wasting people’s money.”

But veterans of that 1995 fight — and in particular incoming House Speaker John Boehner — are ambivalent about Norquist’s shut-it-down push. They saw what a setback the shutdown turned out to be for the party, and Boehner in particular doesn’t sound eager for the same thing to happen to his Republican caucus.

Dick Morris also has predicted a shutdown. And this time, he says, Republicans will win the debate. Why? “Because you have me on your side.”

I like Dick Morris a lot. I think Dick Morris is a hoot. I also think Dick Morris predicted that Republicans would win the Senate this time around:

The Democrats will lose both the Senate and the House. They will lose more House seats in 2010 than the 54 they lost in 1994 and they will lose the Senate, possibly with some seats to spare.

I would not bet much of my own money on predictions made by Dick Morris.

Most conservatives have been hostile to the Simpson-Bowles deficit-reduction plan, and there are reasons to be cautious: We could end up with a big tax hike and no real spending cuts. On the other hand, we could end up with a tax hike that takes the form of significantly lower personal-income tax rates combined with the end of a bunch of deductions and special tax breaks in the code, which would be, in my view, preferable to the current system. I’d rather see a top rate of 28 percent with no deductions than a top rate of 35 percent with lots of deductions. Simplification of the tax code is a good thing. Flat is great, flatter is good.

The main problem with Simpson-Bowles is that it establishes too high a baseline for both revenue and spending. But it would substantially reduce the deficit, and a stronger conservative congressional caucus — if such a thing materializes in 2012 — would be much better positioned to reduce both taxes and spending if Republicans have already pushed forward with deficit reduction under a plan endorsed by the bipartisan chairmen of  President Obama’s deficit panel.

Simpson-Bowles goes to a vote on Friday. I expect it to go down in flames. Conservatives basically have a choice to go in the Simpson-Bowles direction, to go in the Grover Norquist/Dick Morris/scorched-earth direction, or to do nothing. Keep this in mind: If you think Simpson-Bowles doesn’t go far enough with spending cuts, you can always enact more cuts down the road. There’s nothing about Simpson-Bowles that forecloses further conservative reform. If you shut down the government and get your head handed to you at the next elections, you lose the opportunity to enact further reform. If you do nothing and coast, you get what we’ve been getting for the past ten years or more and invite the question: What is the point of having a Republican majority?

Nothing about our current fiscal situation is simple or obvious. But it seems to me that there’s a pretty persuasive case to be made that the Simpson-Bowles framework represents the best politically achievable course of actions for conservatives at the moment. If we can actually get a smaller deficit, a simplified tax code, and meaningful controls on spending, that’s a victory — not just a political victory, but a real victory.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

So says Dallas Fed chief Richard Fisher. That’s not the half of it, Sunshine.

As the Financial Times puts it:

The Federal Reserve’s revelations underscore the might of unelected central bankers. The Treasury’s Tarp rescue fund, at $700bn, was considered so audacious that Congress at first refused to authorise it. But the Fed doled out no less than $3,300bn in loans to banks and companies without a congressional say-so.

Three-point-three-trillion dollars in loans, basically no oversight.

I’ve long been wary of the Ron Paul/“Audit the Fed”  gang’s critique of the central bank, not because the Fed is so great, but because the mostly likely alternative — getting Congress  heavily involved in day-to-day monetary-policy  operations — seems to be very likely to be much, much worse, probably destructive, and possibly catastrophic. You may not like Ben Bernanke, but do you want Nancy Pelosi calling the shots? Barney Frank? Charles Schumer? Pick the congressional Democrat you’d rather have had in charge of monetary policy since 2006. Don’t worry, I’ll wait. (Heck, pick the congressional Republican you’d have wanted running the show during the 2008 crisis. Nobody leaps to mind. Candidate McCain’s performance in those dark days was wince-inducing.)

That being written, I don’t think we can have the central bank making multi-trillion-dollar loans to ailing banks and troubled non-financial firms without prior notice. Reforming the Fed is a can of worms that I am not particularly eager to see opened up at this moment, because the ranks of would-be reformers contain very few people that I would trust to do the job. (Approximately zero, in fact.) But it looks like it has to be done.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

A gazillion-dollar deficit, but we still find the money to help underwrite a little gay incest porn at the Smithsonian.  Egad.

The American cultural establishment may be the only national institution more fraudulent than congressional bookkeeping.

The Committee to Reinflate the Bubble — the National Association of Realtors, the builders’ lobby, and the rest of the gang committed to using government policy to artificially increase real estate prices, enriching themselves while undermining the economy and imperiling the nation — is now the Committee to Increase the Deficit. The Simpson-Bowles panel has released its deficit-reduction report, and, to nobody’s great surprise, the proposal to reduce bubblicious tax subsidies for homeowners has drawn a pledge of resistance from the most self-interested parties. Reports the WSJ:

Joe Stanton, chief lobbyist for the National Association of Home Builders, said his organization would use “the full weight of our grass roots” to prevent any reduction of the mortgage-deduction tax break. “You are already talking about an industry that is completely battered, and this will kill us,” he said.

If your industry cannot survive without special benefits from the government, then it deserves to die, whether you’re an ethanol huckster or the National Association of Home Builders. Never mind that Mr. Stanton is totally full of beans — lots of builders will survive, and houses will continue to be built, when it makes economic sense to do so — but consider this: During the boom, Stanton’s crew got rich in part because of government policies that artificially drove up the price of houses and the incidence of homeownership. Nobody profited from the housing bubble like the builders — ask Bruce Toll. It being inescapable that unsustainable trends will not be sustained, the builders now are suffering from the results of the very same policies that once padded their profits, and they are willing to sacrifice the good of the nation, which is critically threatened by our enormous deficits, for their own narrow financial self-interest. So much for Ask not what your country can do for you . . . .

In public-choice theory, these kinds of problems are described as concentrated benefits vs. dispersed costs. The nation’s need to reduce the deficit is real and it is acute, but it is also general and diffused. A deficit-reduction measure that costs 1 million people $1 million will get nobody’s attention, but if the same program costs one person $1 million, he’ll pay very close attention, indeed. The Committee to Reinflate the Bubble has a very concentrated interest in doing everything possible — including irresponsible, economically destructive things that are bad for the country and impoverish their neighbors — to keep housing prices artificially high. People with concentrated interests will dedicate a lot of capital and energy to politics, so they are apt to get their way, and they generally don’t give a fig about the consequences for anybody else.

That, to me, is the real case for limited government. I’m a sucker for misty talk about our ancient liberties, at least as much as the next conservative, but set aside the philosophical ruminations and bear this in mind: Every time the government does something — anything – some apple-stealing miscreant will find a way to use that to rip off his neighbors. That is what the National Association of Home Builders is promising to do here: to fight necessary fiscal reforms to ensure that the price is paid by anybody but the very people who profited from the bubble in the first place. And they don’t even have the decency to be ashamed of themselves.

That’s just one little example in one little panel, the recommendations of which probably will be ignored, anyway. But it is an epidemic — and it’s a big part of the reason we’re in this debt mess to begin with.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Ireland does not have enough money to both bail out its banks and pay its government debts, Citi’s top economist says.

Accessing external sources of funds will not mark the end of Ireland’s troubles.The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent. The Irish sovereign cannot from its own resources ‘bail out’ the banks and make its own creditors whole. In addition, a fully-fledged bailout (permanent fiscal transfer) from EA [that's euro area] partners or the ECB is most unlikely. Therefore, either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring with an NPV haircut, even if it is not a condition for accessing the EFSF or the EFSM at present.

But in our view, it has long been clear that the sustainability of the debt of an EA sovereign — however difficult it is to establish in the first place — is not the only, and maybe not even the most important, factor to determine the incidence of sovereign debt restructuring, including haircuts. Political concerns about the survival of the EA play a role. But importantly, concerns about the liquidity of fragile banking systems (the risk of deposit runs or a freeze in wholesale funding) or the solvency of banks (the ability to stem losses resulting from haircuts on holdings of sovereign debt) have led EA policymakers to delay the day of reckoning for the sovereigns in the hope of muddling through without another round of bank bailouts. Less visibly, potential losses from sovereign restructuring to pension funds and insurance companies may also have featured.

If two insolvent halves make one insolvent whole, what do 27 or so insolvent states out of 50 add up to?

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Mort Zuckerman seems to think so. I suspect so, too. Reason: I have a radical belief that setting great trillion-dollar piles of money on fire will not lead to increased production of goods and services. Just a hunch!

Zuckerman’s in a black mood, meditating upon Oswald Spengler, of all people:

Read today, Spengler’s forebodings have an uncanny and chilling association with our present predicaments. He was not saying Western civilization would vanish overnight in a puff of smoke. It would erode more slowly, as did some ancient civilizations—not to vanish forever but with symbols of their power and influence surviving (the Pyramids, the Aztec temples, the Parthenon), with the potential to re-emerge as civilizations many centuries later.

Are our current plagues—the riots first in Athens and then in Paris, our global economic crisis manifest in the riots and rampant sovereign debt—merely a symptom of a deeper decay of a civilization in the autumn of its existence? A civilization unable to recognize its own vulnerability? The riots were certainly as much an example of myopic lethal self-indulgence as the sovereign debts in all the leading countries of the West. In France, students took to the streets protesting against a rise of just two years in the age of subsidized retirement—a system destined to bankrupt the state long before they, too, want the comforts that will be impossible to sustain.

Among Spengler’s convictions was that money, instead of serving mankind, would betray the Western civilization as it had others—and money in politics and media especially.

The truth is, we betrayed the money before the money betrayed us.

I am not yet ready to give into Spenglerian agony. Here’s the optimistic take: The modern welfare state as we know it is an obsolete piece of technology, the Commodore 64 of politics (without the cool sound effects).  It does not do what we want it to do, and it is beyond upgrading. The choice we really face, short-to-medium-term, is whether we will make the necessary changes that will allow us to develop new institutions and protocols to replace the welfare state and its unsustainable model of entitlement and expense, or whether we will ruin ourselves and impoverish our progeny by clinging stubbornly to a set of practices that had their time but no longer serve our interests.

We’re not eager to make big changes, for the same reason that some middle-aged people still use AOL: Change is uncomfortable and, even though what we have right now doesn’t really work all that well, it works well enough for the moment. But, eventually, we upgrade. It can be painful and expensive (I just spent a small fortune on upgrades for my elderly MacBook, forced to do so just to make a new toy work), and there’s a learning curve that gets less and less pleasant as you get older, but things work better afterward.

To the extent that I am optimistic about the long-term prospects of our economy and our society, I am optimistic because nobody wants to be poor, miserable, and vulnerable. There are better ways to organize shared life, distribute risk, and to solve truly public problems, and we know what some of them are — and, better still, we know how to create the conditions for discovering better solutions even though we do not know what those solutions are, or even what they will look like. We want to have cool stuff and lead long, healthy lives with lots of options for work and play, and, ultimately, that desire will push us to make better decisions and  to develop better institutions than the ones we have.

We have 900 kinds of shampoo but one major pension plan, a crappy one run by the government, into which everybody is obliged to enroll. That’s simply not destined to last — especially not when it is imposing an unpayable multi-trillion-dollar obligation on future generations. We thirtysomethings already are cursing our Baby Boom forebears for their short-sightedness and stupidity, but the people under eighteen right now are the ones who have a real shot at seeing things radically improved before they’ve spent their prime working years paying half their incomes into an array of failed and unproductive programs rooted in dead politics. But somebody has to have the guts to make the first move. Spengler may have been correct about the Europeans, but I still think Americans have guts.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

That’s gonna sting!

The additional €35bn (£29.8bn) being ploughed into Ireland’s banks has shocked experts, who have expressed concern that tonight’s bailout would not contain contagion in the eurozone.

Brian Lucey, associate professor of finance at Trinity College Dublin said he was “stunned”, adding: “We’ve already put at least €32bn into them, so that’s going to be €67bn, which is 50% of GNP, that’s a world record”.

He also warned that a new government next year could rip up the deal. “Sovereign governments have a right to effectively do whatever they want,” he said.

The EU authorities had hoped that the Irish bailout would draw a line in the sand and halt the threat of Spain and Portugal needing international assistance. But tonight, investors and analysts were far from certain that this would be achieved.

Ashok Shah, chief investment officer at investment firm London & Capital, said Ireland might now enjoy some “temporary relief”, but that bond investors’ concerns could now switch to Portugal and Spain.

“Portugal is already in the borderline, it will have to be rescued soon, maybe within a matter of weeks. The market will also focus on Spain. It will remain very volatile.”

A bigger-than-expected bailout for Ireland — does anybody expect Portugal or Spain (or Italy) to do any better? And what if it’s not just the PIIGS?

Years ago, a fellow calling himself Gekko wrote a column for National Review, called “Random Walk.” He predicted that the euro would be inherently unstable, because the economies it covers are so different from one another. I suspect Gekko is starting to feel vindicated, and I hope he has invested accordingly.

Prediction: The fiscal imbalances about to be worked out, probably violently, in the markets and budget committees will change our lives more than Islamic terrorism has or will.

The European disease is headed to these shores. As Michael Barone points out today, California, Illinois, New Jersey, and possibly New York are headed toward insolvency. Once you look at the crisis in public-employee pensions, twenty or thirty U.S. states may be headed for insolvency. We may end up in a situation in which 35 states are looking to the other 15 to bail them out. And when the house of cards starts to tumble, it will happen faster than anybody expects. Texas isn’t going to be able to carry the Union by itself.

I am surprised to find myself writing so many agreeable words about Erskine Bowles lately, but the former Clinton man hit it right upside the head with this one:

“The markets will come. They will be swift and they will be severe and this country will never be the same.”

On the other hand, once politicians are cut off from the endless stream of free money that has made being in government so much fun for the past couple of generations, maybe they will make less trouble. I find that possibility inspiring.

Less inspiring is this from Mark Zandi of Moody’s:

It may seem odd given all this, but I’m optimistic. Our problems are big, but they are manageable. As the economy improves (believe me, it will) the deficit will narrow, tax revenue will grow, and the extraordinary government spending used to combat the Great Recession will wind down. Under reasonable assumptions, the annual deficit will shrink from its current $1.3 trillion to $800 billion. Unfortunately, this isn’t good enough. We have to knock an additional $350 billion off our annual deficit, otherwise the interest payments on our outstanding debt will swamp us. This will be difficult – for context we spend more than $100 billion a year in Iraq and Afghanistan – but it is doable.

Particularly encouraging is the intellectual consensus now forming. You can see it happening around recent proposals from two different bipartisan commissions formed to tackle long-term federal budget issues. While the proposals will not become law, they lay down important benchmarks and establish the basis for a healthy and ultimately successful debate.

What part of “unacceptable” is eluding Mr. Zandy, I wonder? That’s how Nancy Pelosi described the bipartisan proposal around which he believes a consensus may be forming. The Democrats are standing by her, the unions are howling, and President Obama is showing no signs of getting behind the chairmen of the deficit commission he appointed.

There will be reform. It may come from Republicans, over the protests of Pelosi, Reid, et al. I think more likely it will come from the bond-market vigilantes, and that it will be “swift and severe, and this country will never be the same.”

But, hey, everybody ran up their credit cards last Friday, and it some alternate universe that apparently is good news. Don’t worry: You’ll get to pay that Visa bill off in devalued dollars. Merry Christmas, suckers.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Unemployment takes a dip:

Applications for unemployment benefits in the U.S. fell more than forecast last week to the lowest level since July 2008, reinforcing evidence the labor market is healing.

Jobless claims declined by 34,000 to 407,000 in the week ended Nov. 20, Labor Department figures showed today in Washington. The median projection of economists surveyed by Bloomberg News called for a drop to 435,000. The total number of people receiving unemployment insurance decreased to the lowest in two years, and those on extended payments also fell.

Fewer firings lay the groundwork for a pickup in job creation that will generate incomes and spur consumer spending, which accounts for 70 percent of the economy (Exch: No, it does not). Even with companies firing fewer workers, unemployment will be slow to decline, according to the Federal Reserve’s latest forecast in which policy makers also lowered their growth projections.

If this holds, it is welcome news, and we should give thanks for it.

I have a few policy-oriented thoughts about unemployment that are a little off the conservative reservation, I suppose, one of them being that unemployment insurance is one of the least destructive and most useful of our social-welfare programs. (Do I think it should be privatized? Yes, I do.) Is 99 weeks too long for an unemployment benefit? I do not necessarily think so, though the fact that these benefits are publicly paid makes that a politically charged issue. We tend to insure against all the wrong things, buying health-care coverage to cover routine expenses like eyeglasses and check-ups, but leaving ourselves too much exposed to things like chronic illness, disability, and loss of income. A lot of our welfare state could and should be replaced by a smarter insurance market (and smarter insurance consumers).  

But, as Thanksgiving is upon us, let me share a non-policy thought about unemployment: It is miserable. I’ve never been seriously sick, but I am confident in writing that my one extended bout of unemployment (broken up by some desultory underemployment) was hands-down the worst period of my life. It is not just the lost income, though the living-standards downgrade was no fun. The worst part was the sense of idleness and uselessness, the creep toward dependency, which I imagine must be multiplied tenfold for unemployed people with children to support. It stinks. No, it isn’t cancer or genocide in some godforsaken faraway land. But a man who wants work and cannot get it is in a hard place, and there are far too many of our countrymen in that situation right now. Economics is not really about numbers — as Mises put it, economics is about human action. And too much human action is being frustrated. The real price of bad economic policies is not lost GDP, it is squandered human potential.

I myself have always been really lucky when it comes to work, for which I am grateful — and nothing will make you grateful for your job like being out of one for a few months. So say a prayer for the out-of-work this Thanksgiving — and then fight like hell to unburden the American worker and the American investor so that we can well and truly unleash this nation’s massive human capital, which remains the most innovative and productive force on earth.

We traditionally engage in acts of charity during the holidays, but the best kind of charity is ensuring that a man doesn’t need it.  

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.