I am not at all convinced that congressional Republicans are serious about refusing to raise the debt ceiling, but I am pleased that Mike Lee and others are getting ready to make an almighty stink about it. As somebody famous once said, elections matter — and the Democrats, along with a few lukewarm Republicans, are about to get their first real experience of what Americans sent to Congress in November.

Advice to Republicans: You had better hold out for some real spending cuts.

You can already see the outlines of a deal shaping up in Washington, one in which Republicans give in on the debt ceiling in exchange for Democrats’ agreeing to extension of all the Bush tax cuts. That’s a bad deal for Republicans, and for anybody else who cares about fiscal discipline: It’s a bad deal for Republicans because, unless they do something stupid, they’re going to get their way on the Bush tax cuts, regardless. Nobody wants to raise taxes right now, and it is unlikely that freshly shellacked congressional Democrats will fight hard for a tax hike on their donors at just this moment. If the tax cuts are to be extended, then Republicans should insist that they be written into regular law  instead of coming up for renewal every few years, and then impose compensatory spending cuts to zero out the deficit impact. (My more enthusiastic supply-side friends will not be surprised that I do not think that the government should bother accounting for growth effects of  the lower tax rates; the effects are real, but they aren’t reliably predictable, and if we leave them out of the calculation then that extra revenue is gravy — and it can be put toward further deficit and debt reduction.)

My best guess is that the debt ceiling is going up. Nobody reasonably expects a Republican House to be able to prevail upon a Democratic Senate and President Obama to balance the budget today. But Republicans can — and must — insist on a real deficit-reduction program that is very largely focused  on spending cuts rather than tax hikes, one that has some real teeth on the enforcement end of things. The timeline doesn’t have to be tomorrow, but it had better not have a 20-year grace period, either: Real cuts should start kicking in right now, and the deficit should be significantly reduced within five years and radically reduced within ten.

Both politically and economically, I still think the Simpson-Bowles proposal is the best starting  point. House Republicans can and should remind voters every day that the deficit-commission chairmen appointed by President Obama have recommended an array of spending cuts, and then get to work. They can pass the cuts as a package or they can force them through one at a time, but get going now: The fact that these are Obama-appointed chairmen is politically powerful at this moment, but if the full panel waters down its recommendations, that will take away some of the fire. Now is the time to move the ball forward.

And, speaking of Simpson-Bowles and the Bush tax cuts, I much prefer a Simpson-Bowles tax system (no deductions, top rate of 23 percent) to the Bush tax regime (crazy complicated deductions, top rate 35 percent). So, House Republicans could say, “Hey, look, we’re offering you jokers a bipartisan olive branch: We’ll drop the whole argument about the Bush tax cuts if we can go straight to implementing the bipartisan Simpson-Bowles program, for which we thank the chairmen and President Obama, who appointed them.” No, Simpson-Bowles is not perfect: But passing it does not preclude passing additional spending cuts down the line or additional reforms of our tax system. And if you want to get something in exchange for raising the debt ceiling, a program that actually lowers the deficit would be appropriate. 

Why now? Why move so aggressively? Here is one reason: We are not out of the fiscal woods yet, by a long shot, and the Greco-Irish disease is going to make a showing in California, Illinois, New Jersey, and elsewhere. We had better have a real plan for controlling the national debt in place before we have to deal with the coming state meltdowns.

– 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 is headed for a massive international bailout, and it is no surprise that the national governments quickest to put up loan money — Britain and Sweden — are not members of the single currency. The euro-holdouts are to European finances what the United States is to world military order: the knuckle-dragging, unenlightened, anti-social misfits that everybody goes running to when real trouble hits.

Nobody is making much of a stink about bailing out Ireland, and there is something significant in that — but it isn’t Britain’s purported sentimental feelings for “a friend in need.” If Ireland had not been in the euro — if it had been in control of its own monetary policy — then a massive devaluation would have been its likely response to its untenable fiscal position. But that option has been foreclosed, which leaves either a bailout or a much nastier alternative: default.

The short-term reason that Britain and other major powers dread an Irish default is that their banks own a lot of Irish debt. Bondholder haircuts are nobody’s idea of a good time, and the Irish are positioned to put the high-and-tight on their former colonial oppressors but good.

But the long-term reason is narrow governmental self-interest: If Ireland defaults, that is going to make borrowing a lot more expensive for every government in the world. Even with the bailout on the way, borrowing costs are going up, for Ireland (obviously) but also for fellow PIIGS-club member Spain. Politicians fear lots of things — honest labor, easily understood and headline-friendly scandals, constituents who read Hayek — but above all they fear having their credit cards taken away. A government that cannot borrow cheaply is a government that cannot pawn off hard decisions on future generations; it is a government that has to govern, with prudence and thrift, rather than merely to enjoy the pleasures of exercising power. That’s a lot less fun than the current model of political life, and less lucrative in retirement, too.

No surprise that the parties most open to raining pain on bondholders are the Germans, who are in the habit of dealing with fiscal challenges like adults (or at least, as people who behave maturely by European standards.) The New York Times reports:

“Policy makers face the same dilemma as in any crisis with respect to haircutting bonds, and the real-life decisions are always extremely difficult,” said Robert E. Rubin, the former Treasury secretary, who faced just such a quandary in 1994, when he helped arrange a $47 billion rescue package for the Mexican government as it teetered on the verge of default.

“Holding bondholders harmless contributes to moral hazard and increases risks elsewhere,” Mr. Rubin added. “But imposing bond haircuts can make future market access expensive or impossible for an extended time and can create serious contagion effects elsewhere.”

… One signal that the policy pendulum may be swinging away from bondholders came earlier this month when the German chancellor, Angela Merkel, supported by President Nicolas Sarkozy of France, tried to persuade other European leaders that bondholders needed to accept some of the risk in future bailouts.

The move spurred a bond market rout, and Ms. Merkel had to retreat.

… Even so, any talk of default — or a debt restructuring, the term that bankers and technocrats prefer — remains anathema in capitals like Athens and Dublin. Their leaders fear that they would be put in a financial penalty box and denied fresh access to funds.

A similar problem probably will be played out in the United States as unsustainable pension obligations and general fiscal incontinence threaten to send dozens of U.S. states and scores of municipalities into insolvency. Municipal bonds and state debt have long been a preferred investment vehicle for millions of Americans and a great number of retirement funds, both because of the (alleged!) security of government debt and the tax-preferred status of munis. When Illinois, California, and New Jersey come knocking on Congress’s door looking for a bailout, they won’t be alone: Millions of Americans will be lined up behind them, because they stand to lose a great deal of their savings, including retirement savings, if U.S. states go into default — and a default by any U.S. state would probably send borrowing costs skyrocketing for every other state. Lot of elderly muni investors live in swing states such as Florida and Pennsylvania, which are our grayest states. Republican governors and legislatures will have a strong incentive to support Democratic governors and legislatures. (Not that Democratic states are the only ones that will need bailouts, but Republicans are notionally more opposed to state bailouts than Democrats are. I hope.)

In the U.S. as in the EU, saying no to bailouts won’t be easy.

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

I’ve been out for the last week helping National Review reduce its deficit (and adding marginally to my own). What have I missed?

Ireland is circling the drain.

Josh Barro is still a lot more persuasive than the guys at Americans for Tax Reform. ATR’s Ryan Ellis is still relying on a variant of the Appeal to Authority without being a very credible authority, basically saying: “If you disagree with me, you’re not really a conservative,” and pleading for National Review to stop publishing stuff that makes his poor head hurt.

The commodities markets are still going nuts trying to figure out which currency is crashing fastest and which economy is in the most trouble.

Sarah Palin is still more persuasive than some of the guys at The New Republic. Noam Scheiber writes: “Don’t get me wrong: I think criticizing the Fed is an entirely healthy thing,” but also calls Palin’s criticizing the fed “sinister.” Scheiber, falling into that weird Obama diction (Make no mistake, Let me be perfectly clear, etc.) writes:

Let’s be clear: Even with the help of what was presumably a pricey speechwriting team, Palin’s ignorance of monetary policy is difficult to repress. The recent path of food prices was hardly the only curious claim in her Phoenix speech. There was, for example, her discussion of quantitative easing as though it were sorcery. “And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air,” she complained. True-ish. But, as Ben Bernanke explained shortly after the Fed announcement, that’s pretty much how all of monetary policy works.

Scheiber is kind of funny here: He treats Palin as though she’s a big doofus for arguing that food prices have risen, and he cites as evidence the fact that consumer prices for food haven’t risen all that much as of the last survey. But consumer prices are the end of the chain, and lots of farm commodities have been hitting record highs of late, or coming close to them. I’m no convicted insider-trading scofflaw George Soros, but I suspect that there is a directional connection between the price of food on the commodities markets and the price of food at the grocery store. Just a hunch.

And that last bit — “that’s pretty much how all of monetary policy works” — is not much of a defense; exnihilating money is the problem, particularly on a scale of nearly $1 trillion.

And, finally, the L.A. Times has a big scoop: “California public pensions underfunded.” Thanks for the Muppet News Flash, L.A. Times. I hear there’s pension trouble elsewhere, too.

Nihil novi sub sole, in other words.

A reader asks: “So an Obama commission proposes a $1 trillion-plus tax hike, and you, a managing editor at the flagship conservative publication, endorse it? Exactly how or why is this a conservative position?”

Answer: A conservative’s first duty is to deal with reality — not with the theoretical world we wish existed, not with ideology, and not with wishful thinking. We are running a deficit of 40 percent, and it is implausible to think that a government with a Republican House, a Democratic Senate, and Obama in the White House is going to balance the budget by cutting 40 percent of spending.

I think it is equally implausible that a government with a Republican House, a Republican Senate, and Ron Paul/Sarah Palin/Mitch Daniels/Rush Limbaugh/The Ghost of Ronald Reagan in the White House is going to balance the budget with spending cuts alone. Why should I rely on the performance of theoretical Republicans when I have the evidence of actual Republican Congresses and actual Republican administrations to inform me that radical spending cuts are unlikely under a unified Republican government?

The burden of taxation is not equal to what the government collects; it is equal to what the government spends. Deficit spending just greases the skids for ever-more-incontinent fiscal shenanigans — I’d rather the taxpayers bear the pain of government spending as the money is spent than evade it, kicking the taxes down the road to the next generation. We can either pay the taxes today or pay them in the future — with interest, trillions of dollars in interest. The Bowles-Simpson proposal is far from perfect, but it is three-and-a-half times better than anything I expected from a panel with any political proximity to Barack Obama. It’s a good start, and it’s politically viable. If the Republicans are smart, they’ll run with it and remind voters every five minutes that this is the proposal of the Obama deficit commission’s co-chairmen.

If I see a better plan with a real chance of being enacted, it will have my support. But given a choice between an ideologically pure program that never is enacted and a problematic one that gets the job done, albeit imperfectly, I’ll take real deficit reduction over theoretical deficit reduction every time.

Nancy Pelosi hates it. That’s a useful piece of evidence, too.

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

I am surprised that the president’s deficit-reduction panel has produced such a sensible set of proposals: Eliminating tax write-offs while lowering tax rates is a big tax hike — a $100 billion-a-year tax hike, maybe more — but it is the right kind of tax hike, in my view. The simplification of tax filings for most Americans will provide additional private savings in the form of lower compliance costs. Raising the Social Security retirement age, reducing Medicare payments, capping federal revenues, chopping into discretionary spending — all are welcome. I do not think that the authors have “harpooned every whale” as Alan Simpson put it (Obamacare still haunts the fiscal depths), but it’s a very solid start, one that Republicans can pick up and run with.

Alas, I am destined to spend my days disagreeing with Ramesh about the child tax credits — I think taxes are about revenue, not about social engineering — and I very much like the idea of simply getting rid of special exemptions categorically, with a meat ax, rather than reducing them surgically with a scalpel.

I stand corrected.

We’ve got goldbugs at the World Bank!

The soaring price of gold reflects international unease about the strength of large developed economies that must be taken seriously by the Group of 20 leading nations, according to Robert Zoellick, president of the World Bank.

Mr Zoellick on Wednesday said the increasing use of gold as a monetary asset was an “elephant in the room” that was being ignored by policymakers in the debate over how to correct global trade and fiscal imbalances.

. . .  Mr Zoellick dismissed criticism of his proposal in Monday’s Financial Times for a new international monetary system involving multiple reserve currencies and including a role for gold as a reference point for market expectations of inflation and future currency values.

He said critics had misunderstood his proposal as a call for a return to the gold standard – the framework of fixed exchange rates backed by gold which was replaced after the second world war by the Bretton Woods system of fixed but adjustable exchange rates.

Looked at another way, the price of gold is not soaring; the price of dollars, yen, and euros is tanking. (And not just in terms of gold.) Monetary-policy authorities are in a race to the bottom, devaluing national currencies in response to weak growth: Every country thinks it can be China and export its way out of making hard economic decisions. All you need to make that model work is an impoverished population, a government-dominated economy, and a for-profit police state. Super.

Count me as against a new Bretton Woods, even one incorporating some sort of gold-derived controls, and in favor of the free-market alternative to international monetary-policy shenanigans: privatizing money.

Conservatives usually are fans of privatization and foes of government price-fixing. We do not like government-monopoly schools or government-monopoly health-care systems. So why do we assume that we must always have government price-fixing and government-monopoly supply-management in the most fundamental commodity of all: money?

We want money to do a couple of things: The first is facilitating exchange, the second is providing a relatively stable store of wealth. The dollar excels at the first but not at the second: What other asset do you hold expecting an annual loss of around 3 percent, forever? None, is my guess. You’re telling me we cannot come up with a non-government alternative for that relatively straightforward task?

Technology and financial innovation are going to catch up with, and surpass, the state’s monopoly on money; if I had to guess, I would predict that it will happen in the near future, though not in the United States, where private-currency innovators are preposterously prosecuted  as counterfeiters. My bet would be on a far-sighted innovator based in a market-minded financial upstart like Singapore or South Korea. But why not here? We have 900 kinds of shampoo and one kind of currency — government monopoly money. In what other marketplace does a government monopoly provide the best value?

I don’t get the gold fetish, and I suspect that a currency tied to a single commodity or metal would not be the most stable option. But a currency based on a market-basket of commodities (gold, crude — take your pick, and the more the merrier) could provide a very stable store of value with a basis in something more concrete than the acumen of Ben Bernanke and his fellow committee members, smart guys though they are.

Am I crazy? Let me know in the comments.

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

Here’s a headline that should disturb your sleep:

Fed’s Printing Press to Fund Deficit for 6 Months

Printing money at the Fed, printing bonds at the Treasury. Very cozy.

To find a buyer of all the government debt he’s printing, Treasury Secretary Tim Geinthner doesn’t need to travel to China, just walk a mile over to the Federal Reserve building.

With the Federal Reserve set to print $600 billion in order to buy Treasury securities, it is essentially funding the $1.2 trillion deficit for the next six months, according to Ed Yardeni, President of Yardeni Research. It’s even more if you count the reinvestment of proceeds from its mortgage-backed securities portfolio.

“You essentially have the world’s largest hedge fund down the street from the world’s largest prime brokerage,” said Yardeni, who has held positions at both the Federal Reserve and the U.S. Treasury. “I think that QE-2.0 is a very bad idea because it increases the odds of a trifecta of bubbles in stocks, bonds, and commodities.”

Bubbles are what you have when you forgo real productive investments. Here’s some totally, completely unrelated news:

Dollar dives:

The dollar fell against its higher- yielding peers after the Federal Reserve said it will buy an additional $600 billion of Treasuries to boost the U.S. economy.

Stock market hits record high — in India:

India’s benchmark Sensex index has closed at a record high, after the Federal Reserve’s decision to buy US$600 billion in government bonds to shore up the shaky U.S. recovery drove a surge of foreign investment into the world’s second-fastest growing major economy.

The benchmark Sensex index closed up 2.1 percent, at 20,893.6 points, just topping a January 2008 closing high of 20,873.33, according to Bombay Stock Exchange data. The index touched an intraday high of 20,917.0, just 290 points of its January 10, 2008 all-time intraday high.

“It’s the Fed’s quantitative easing,” said Nandan Chakraborty, head of research at Mumbai’s Enam Securities. “It’s great for India.”

Gold hits new record high on inflation concerns:

Gold prices set a fresh record Thursday as investors flocked to the safety of the precious metal amid escalating inflation and currency worries.

. . . The Federal Reserve’s $600 billion monetary stimulus, announced Wednesday afternoon, helped jump start gold’s rally Thursday. The program aims to stimulate the economy by expanding the money supply, but market participants are concerned the excess liquidity will drive up inflation and depreciate the dollar without generating growth.

If this keeps up, the conspiracy kooks are going to stop sending me “proof” that President Obama was born in Kenya and start whispering about his secret life in Zimbabwe.

– 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 the price for the Fed’s next round of pump-priming turns out to be: $600 billion.

Here’s the rationale:

Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising, though less rapidly than earlier in the year, while investment in nonresidential structures continues to be weak.

It’s not entirely clear how this new round of quantitative easing will actually do much to address any of that. If businesses aren’t investing when interest rates are almost zero, then they probably aren’t going to invest a lot more when interest rates are even closer to zero. If credit is tight when interest rates are basically zero, credit probably will be tight when interest rates are even closer to zero. And none of this is going to address that “lower housing wealth” — which, of course, it shouldn’t: Continued efforts to prop up housing prices or to reinflate the housing bubble are part of the problem.

The Fed is, practically speaking, out of arrows in its quiver. This is really Congress’s problem now — it will take congressional action to clear away the barriers to saving, investing, and production that are preventing a robust recovery. Unfortunately, one of those barriers is … Congress. That new Republican majority in the House has an enormous task in front of it, and I am not entirely convinced its members are up  to it.

UPDATE: Business Insider points out that $600 billion isn’t really the whole show. The Fed will also be reinvesting proceeds from other securities in its portfolio, driving the real number up to nearly $1 trillion.

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

Today the House of Representatives. Tomorrow . . . what? Turning around the direction of the country and dodging Fiscal Armageddon is going to take more than a working majority in the House. Keeping in mind the usual caveat that politics alone may not be enough to get the job done, it is probably going to require a large conservative majority in the Senate. And it is probably going to require the absence of Barack Obama and his administration. Which brings us to the next election.

When I suggested that Sarah Palin be made chairman of the Republican National Committee, the committed Palin partisans came charging out of the penumbras, detecting in my suggestion a sinister plot to keep her from running for president in 2012. It wasn’t — I was still skeptical that she’d run, and I still am, a little. But it’s getting kind of hard to deny that she looks a whole lot like a candidate, and a frontrunner.

About that: I don’t have particularly strong feelings about Palin. She’s not my first choice for president of the United States, but she’s not my last, either. I’d much prefer a Palin administration to another Obama administration. Here’s the problem: People think she’s intellectually unserious. Before you hit that e-mail send button, re-read that sentence: I don’t think she’s a lightweight — I really don’t — but that’s her reputation. Big swaths of the American electorate believe her to be unqualified to serve as president, and she hasn’t done much in the past year or so to change voters’ minds.

So, here’s an idea for Sarah Palin, if she wants to run for president: She shouldn’t just announce her own individual candidacy. Instead, she should announce an administration: herself, possibly a vice presidential candidate, and at least a half a dozen key cabinet secretaries, especially treasury, state, defense, and commerce. Add to that a chairman of her Council of Economic Advisers. The question in 2012, then, won’t be Barack Obama vs. Sarah Palin — it will be the Obama administration vs. the Palin administration: a very different kind of question.

You don’t have to think Sarah Palin is dull to agree that expounding on fine-grained policy detail has not been her forte — she’s an inspirational figure, and her appeal is more about values than about policy proposals. But somebody has to talk about the policy stuff, too. Announcing a Team Palin from Day 1 would totally change the conversation — and possibly help to thin out the primary field, too.

This isn’t just a political gimmick: 2012 is a key election for conservatives. There is a real chance to turn around the direction of our country, one that should not be missed. The stakes at present are very high, and the issues at hand are larger than any individual’s political ambitions. A conservative Republican unity ticket dedicated to restoring fiscal and economic sanity in Washington could, if played right, change history.

So, here’s my entry into conservatives’ favorite parlor game:  Staff the Palin Administration. I know there are enormous problems with these choices — not all of these people are even Republicans or conservatives, some of them aren’t particularly well-disposed toward Palin, some of the business types would be hesitant to enter politics, etc. — consider it more my personal dream team than a set of plausible picks.

Got better choices? Name your own team in the comments section.

Vice President of the United States
Mitt Romney
WHY: The strongest 2012 candidate right now is “Generic Republican,” and Mitt Romney is as close to a generic Republican as the world is apt to see: silver spoon, plain brown wrapper. He is the vanilla ice cream of American politics: nobody’s favorite, but nobody’s least favorite, either. Smart, decent, reliable.  Good to have a guy around who knows how to read a balance sheet, and excellent to have one who has actually turned a profit as a profit-turning enterprise.

Secretary of State
John Bolton
WHY: Because he will strike fear into the hearts of our enemies. Our friends, too. Most awesome political mustache since Bismarck. 

Secretary of the Treasury
Mitch Daniels
WHY: “The Knife” is the man you want standing athwart Treasury, yelling, Stop!

Secretary of Defense
David Petraeus
WHY: Somebody has to be good cop to Bolton’s bad cop. Also, General Petraeus has more credibility than just about anybody else on the scene. Unflappable.  

attorney general
Wallace Jefferson
WHY: The Texas Supreme Court chief justice is a super-smart lawyer and a Washington outsider, well positioned to reform and streamline the way DOJ does business: the necessary antidote to four years of Eric Holder.  

Secretary of the Interior
Jerry Taylor
WHY: The Cato scholar understands federal regulations better than the regulators — who better to reform them? But he’s no patsy of the business interests who profit from federal corporate welfare, either.

Secretary of Agriculture
Pat Woertz
WHY: The Archer Daniels Midland CEO is steeped in the subtleties of the commodities markets and the real business of agriculture. Want to sell more stuff to China? How about we start with food? She’d be perfect, if we can afford her.

Secretary of Commerce
Indra Nooyi
WHY: As CEO of Pepsico, she’s been one of the most successful executives of our times and a first-rate negotiator. Now is the time to start cutting new trade deals and get the economy moving again.  

Secretary of Labor
Lincoln Diaz-Balart
WHY: Poetic to have Fidel Castro’s Republican nephew slugging it out with the labor unions that remain the last robust vestige of old-fashioned thug socialism in the United States.

Secretary of Health and Human Services
Bobby Jindal
WHY: Has actually fixed a health-care system. That’s saying something. Put him in charge of replacing Obamacare with a consumer-driven, market-based system.

Secretary of Housing and Urban Development
Robert C. Merton
WHY: Because we need a smart financial economist to help us unwind the housing-securities mess and send Fannie and Freddie bye-bye. Nobel Prize in Economics is a nice line on his résumé.

Secretary of Transportation
Ronald Utt
WHY: The Heritage Foundation scholar has a nose for waste when it comes to infrastructure spending. DoT is hog heaven when it comes to federal pork — and Utt is the sort of guy who might actually enjoy cleaning it up.

Secretary of Energy
Lynn Elsenhans
WHY: She’s the CEO of Sunoco, a hugely profitable oil company that is also the industry’s model for good corporate citizenship when it comes to the environment. She knows how to strike the balance. Likes to play hoops, too.

Secretary of Education
Harvey “C-Minus” Mansfield
WHY: Because the Harvard don believes in defending standards and not in suffering fools.

Department of Veterans Affairs
Unfilled. Why is this still a separate cabinet department? Send it to DoD, for Pete’s sake. If only there were some senior Republican senator, maybe a nationally famous war hero with a longstanding interest in veterans’ affairs, to shepherd through the legislation. Suggestions?

Secretary of Homeland Security
Rudy Giuliani
WHY: Because we need some steel in our spine on everything from border-control to straightening out TSA. Also, why should Tina Fey dominate all the wig-and-dress action in a Palin administration? Also, Rudy owes the world an act of penance after failing to run for governor of New York, leaving the field to Carl Paladino.

Chairman of the Council of Economic Advisers
Tyler Cowen
WHY: We’re going to need a monetary economist — just a hunch. Also, can provide the cabinet with excellent advice on out-of-the-way lunch spots in the D. C. area. Generally brilliant.

The reliably clueless Cynthia Tucker of the Atlanta Journal-Constitution checks in with some feckless deficit punditry, writing:

So, if the GOP wins the House, as expected, what will happen to the deficit? Here’s my prediction: Two years from now, the deficit will be no smaller. It may even be larger. Why? Because Republicans won’t do much to rein in spending. And if they cut taxes, there won’t be enough revenue to fund the budget. It’s simple elementary school math.

Egad, where to start. How about here: “And if they cut taxes, there won’t be enough revenue to fund the budget.” There’s already too little revenue to fund the budget — that’s why we have a deficit, no? Consult a dictionary, for the love of God: Too little revenue to fund spending is pretty much the definition of deficit. You write for a living, right, Tucker?

Abuses of English aside, there’s plenty of substance trouble here, too: “Republicans won’t do much to rein in spending.” The real question, I think, is whether Republicans send President Obama legislation that reins in spending — legislation he almost certainly will veto, unless Senate Democrats can maneuver to keep it from reaching his desk in the first place. That’s what 2012 is going to be about. A GOP House majority will have a lot of power, but not power to unilaterally reduce the deficit.

Then comes the string of banal talking points:

Republicans, aided by the rightwing communications machine, have persuaded voters of a couple of things that happen to be wrong. One is that President Obama has substantially increased spending on wasteful government programs. In fact, one-third of the stimulus was in the form of tax cuts. And the bank bail-out, which started under George W. Bush, has mostly been paid back — earning taxpayers a profit. The health insurance law will reduce the deficit over ten years, not add to it, according to the non-partisan Congressional Budget Office.

Tedious, but let us address them. 1. Right-wing communication machine? So long as NPR exists and receives taxpayer funding, no Democrat ought to be able to utter that stupid cliché without blushing. 2. Substantially increased spending on wasteful government programs: check.

3. “In fact, one-third of the stimulus was in the form of tax cuts.” Badly designed, ineffectual tax cuts. But you can’t excuse the stimulus shenanigans and their deficit effects by protesting that they were tax cuts and then write: “a huge tax cut for rich Americans will certainly make the deficit larger. That’s a fact.” Tax cuts add to the deficit no matter who receives them. And that’s a fact. 4. “And the bank bail-out, which started under George W. Bush, has mostly been paid back — earning taxpayers a profit.” Except for the parts most hotly lobbied for by Barack Obama and his colleagues: the mortgage-relief program, which is an enormous money-loser, the auto bailout, which is a money-loser, and the Fannie-Freddie shenanigans, the price tag of which recently has doubled. The Bush administration’s piece of the TARP seems to have worked reasonably well. The Obama administration’s bottomless line of credit at Treasury for Fannie and Freddie, less so. 5. “The health insurance law will reduce the deficit over ten years, not add to it, according to the non-partisan Congressional Budget Office.” True, assuming that the steep taxes on high-dollar union health-care plans actually kick in (they won’t) and that doctors’ Medicare payments are reduced by a fifth or more (they won’t). Hint: When government promises to save you a few billion dollars by spending a trillion dollars, you aren’t going to save anything.

The deficit-reduction benefits of Obamacare may be the least honest talking point in American politics at the moment. Who thinks that we really are going to cut doctors’ payments by 21 percent or more? Who really thinks that the Obama administration is going to savage the health-care plans of its most important constituency after Goldman Sachs?

Question: Is the Atlanta Journal-Constitution bankrupt yet? Because they could copy and paste these illiterate partisan talking points off of DailyKos or Keith Olbermann’s web site for free every day. Save a few bucks.

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

I saw a performance of Richard II over the weekend. With the commoners hostile to the spendthrift king, the nobles lay out their complaints against him, including this line, in which his prodigal ways are compared to those of his predecessors:

More hath he spent in peace than they in wars.

Shakespeare: always relevant.

Heritage offers what strikes me as a surprisingly painless hit-list for the first $343 billion in budget cuts. I like.

A couple of thoughts for a pre-election Friday afternoon:

1. The End of . . . Clintonism: The all-but-inevitable historic pounding that the Democrats are about to suffer is, of course, a repudiation of Obama’s overreach specifically, of the Obama-Reid-Pelosi model of unified Democratic government, Obamacare, stimulus, etc. It also, I think, spells the end of the Clinton economic aura. Since Carter, Democrats had had the worst sort of reputation when it came to the economy, and for good reason: Everybody remembered the gas lines, ridiculous stagflation, etc. And then along came Clinton. Amazing man, Bill Clinton: He inherited a recovery from George H. W. Bush, handed off a recession to George W. Bush, and somehow, in the middle, made himself look like an economic genius, claiming credit for the booming growth of the 1990s and the nominal budget surplus.

In retrospect, it’s pretty obvious that just as every investor looks like a genius while he’s riding up the bubble — and the dot-com stock market was a big one — every politician looks like a genius when the bulls are on the rampage. Clinton’s Big Government ambitions — see Hillarycare — got nipped in the bud well and early, and the Gingrich-Armey monkey-wrench gang kept the Clinton machinery in check. But subtract the bubble and the whole decade looks a lot less impressive, and the Democrats’ campaign paeans to the Clinton economy do not sound as impressive in 2010 as they did in 2000. Americans are starting to internalize the meaning of bubbles, and to re-evaluate.

2. Revenge of the Rubes: As of this morning, the DJIA is down 18.25 percent from where it was three years ago. NASDAQ is down 10.61 percent. Wall Street is a gloomier place. But: Commodities prices are hitting record highs, especially farm products. Cotton is at a record high. Wheat prices are up. Rice is rising so fast that the Chinese are enacting controls on futures trading. Part of this is regular old demand, particularly in China. Part of it is that the specter of the Fed engaging in more “quantitative easing” — debasing the dollar to prop up securities — is directing money from cash to commodities. (And: Guess which country in the world is a great big giant exporter of a lot of this stuff?) In other words, after a few years of bailouts and free-money economics for the benefit of Wall Street, brought to you by Barack Obama (D., Goldman Sachs) the result is likely to be a significant wealth-and-power shift from the financial world to the farming-and-mining world. (My cotton-growing friends in West Texas are a happy bunch just now.) Meaning that Lamborghini will sell fewer of these to second-year investment bankers and more of these to third-generation commodities producers.

That’s one possible outcome, anyway. The future is unknowable and is largely what we make of it — something to keep in mind Tuesday.

In case your staff hasn’t alerted you, you’re destroying the dollar. Thought I’d pass that along, just in case it matters to anybody.

A challenge to the Class of 2010:

The Brits cut spending.

The Romanians cut spending.

Spain cut spending.

The Czechs cut spending.

The Irish cut spending.

South Africa is cutting its deficit.

Even the French are cutting some spending.

Who’s not cutting the deficit?

Mexico’s deficit probably will get bigger: 0.5 percent of GDP, rather than 0.3 percent. Our deficit is bigger than Mexico’s entire economy.

Greece’s deficit is getting bigger. Who wants to be Greece?

And there there is us.

Obama’s deficit panel does not seem to be packing the gear to get the job done: It has focused mostly on tax increases, in the form of eliminating tax breaks such as the mortgage-interest deduction and the use of pre-tax dollars to pay for health-insurance benefits. As Vero has argued persuasively, the problem is not really revenue, it’s spending. I’m no fan of the mortgage-interest deduction, which distorts the housing market, and there’s probably a good case to be made on the pre-tax health-insurance spending — but neither of those measures is going to do a lot of good unless it is part of an overall rationalization of the U.S. tax system, which is a national disgrace. GAO estimates of the efficiency costs of our tax code — meaning the economic loss our tax regime imposes on the economy above and beyond the revenue collected by Uncle — run as high as 5 percent of GDP, i.e., roughly the cost of all U.S. national-defense spending combined. Federal tax-compliance costs alone run 1 percent of GDP. That is insanely wasteful.

We aren’t going to close the gap by working on the unholy trinity of “waste, fraud, and abuse.” By all means, cut waste, fraud, and abuse — but that isn’t enough. NPR and foreign aid? Sure, but that’s chickenfeed. Until you start tackling the hard stuff — which means entitlements and defense spending, among other things — you aren’t getting serious.

Here are some things to do:

First, reduce the federal head-count, even if that means paying a few federal employees higher salaries than we’d like. (Yes, first.) The nasty long-term costs are in benefits and pensions: Here’s the tradeoff: We don’t cut the bureaucrats’ pay, or cut it all that much, but we have a lot fewer of them, and we don’t put as much up for health-care and pension costs. This works even better at the state and local levels, where bureaucrats’ pensions tend to be defined-benefit plans rather than defined-contribution plans.

Second, see if Sarkozy will lend Republicans the necessary gear to raise the Social Security retirement age and start means-testing all of the major entitlements. How severely should we means-test? Enough to put them on a stable financial footing without a payroll-tax hike. Enough to remind people that they are welfare programs, not a retirement plan. Enough to make replacing them with private retirement plans, private disability insurance, and the like in a decade or two more palatable. You want to head off Fiscal Armageddon, then the total government payroll, its pension obligations, and the major entitlements are the place to start.

Third, just savage the hell out of discretionary spending. That’s the fun part, and Republicans  should enjoy themselves. It’s also a chance for Republicans to reclaim their party’s reforming soul and throw some of their own favorites on the fire — farm subsidies, the scam that is the Small Business Administration, etc. I like the idea of butchering one Democratic sacred cow and one Republican sacred cow in pairs: two by two they go down — public broadcasting and farm subsidies, Amtrak and foreign-military financing.

Fourth, straighten out the tax system, preferably with a broad-based single-rate tax. The level of taxation ultimately will be set by the level of spending, but there’s plenty of room for improvement in the tax code. If Congress got really ambitious about putting a flat tax on all income — salaries, dividends, capital gains, inheritances, whatever — then there’s no reason to maintain a special carried-interest carve-out for the Wall Street weasels who funded the Obama campaign. (Hey, just sayin’.) That wouldn’t be terrible politics, and it would add tens of billions to tax revenues, too. Democrats will whine that it’s regressive. Republicans should respond that under a flat tax a guy who makes $200,000 a year pays twice as much as a guy who makes $100,000 a year, who pays twice as much as a guy who makes $50,000 a year. That’s progressive enough, and it’s a winnable debate.

And we’d save ourselves a lot of tax-compliance expenditures, lawyers’ fees, and grief by taxing all income at the same level. You know who was a fan of taxing capital gains at the same rate as ordinary income? The Reagan administration. Not a bad idea.

Fifth, develop a better plan for defense spending. Unlike practically everything else in government, fiscal considerations should take a back seat when it comes to national security — but not too far in the back. We need to fundamentally rethink our military priorities and our commitments around the world — rediscovering what is really essential to our national interest — and then redirect spending accordingly. A return to pre-2000 military spending seems to me a reasonable goal, and it is possible that further reductions are possible.

Also, a little politics: Step 1 (fewer bureaucrats) plus Step 4 (everybody pays the same tax rate) means a smaller permanent constituency for Big Government and Big Spending.

I’m not married to any of this. Got a better idea? Let me know in the comments.

A very nice catch from J. P. Freire at the D.C. Examiner: Treasury is looking for FOIA help — to frustrate FOIA filers, specifically somebody schooled in the:

“Use of FOIA/PA exemptions to withhold information from release to the public.”

What are they up to over at Treasury?

Uncle Stupid is dumping $109 billion in new debt on the bond market this week. This week alone, taxpaying chumps. And everybody has his eye on the new issue of inflation-protected bonds, which hit the market at 1 p.m. today. And what an interesting development it is:

The government bond market this week will also have to contend with $109 billion in new debt. Auctions kick off at 1 p.m. Monday with a $10 billion sale of five-year Treasury Inflation-Protected Securities. The notes are likely to be auctioned at a negative yield, the first ever negative yield for the issue. TIPS yields have declined as buyers have stepped into the market on the belief that more QE could stoke inflation down the road. TIPS return real yield plus inflation, and provide protection from rising prices.

Inflation fears are now sufficient that investors are prepared to take a less-than-zero yield on government bonds, calculating that the inflation bonus will be more profitable than the next-to-nothing yields everything else is paying in our present loosey-goosey cheap-money environment. Inflation is a cruel and rapacious tax on the people who make the economy go — savers, who provide the capital for real investment. With an economy in dire need of a lot of new saving and investment, Washington is getting ready to put the screws to the people best positioned to help turn us around. To what end? More dubious stimulus? Fiscal stimulus is not working and monetary-policy stimulus is not working, because the problem is not lack of consumer appetite. The problem is a broken banking system, a trillion dollars or more in dead or devalued capital, and a national commitment to sustaining the ragged remains of the real-estate bubble that helped to cause this mess.

That sound you hear? That is the sound of future generations cursing us for the tax we are levying on them today.

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

Really, Harry? Really?

Tom Vilsack, secretary of agriculture, came out Thursday with an announcement sure to warm the cockles of progressive hearts all across the fruited plains: The Obama administration backs the indefinite extension of massive tax cuts for multinational oil corporations and protectionist trade measures to enrich U.S. corporate giants such as Archer Daniels Midland, Monsanto, and ConAgra.

Ethanol: Is there anything it can’t do? It won’t save the environment, slow global warming, or achieve the phantom of U.S. “energy independence,” but it has made the Obama administration come out in favor of tax cuts for the rich and politically connected oil companies. It’s sort of magical that way.

Critics of the massive corporate-welfare program known as U.S. ethanol policy have jokingly referred to Archer Daniels Midland as the “Exxon of ethanol.” But you know who the real Exxon of ethanol is? Exxon. Just as BP gets subsidized to the tune of some $600 million a year through the ethanol tax credit, Exxon and the other oil giants collect millions of dollars in taxpayer subsidies: 45 cents for every gallon of ethanol they blend into their gasoline. “It’s not just a reduction in somebody’s tax rate — it’s an actual check that’s made out to these oil companies,” says Marlo Lewis, who keeps an eye on ethanol shenanigans for the Competitive Enterprise Institute. “They get a check from the general fund of the Treasury — from us, the taxpayers.”

It’s a big stack of money, to be sure, but even Exxon does not think the program is a great idea. Exxon would just as soon forgo the subsidy, provided that its competitors didn’t collect it, either.

So, if even the suits at Big Oil are a little bit ashamed of a program that dumps hundreds of millions of dollars a year into their lap, who is in favor? “It’s the makers and the corn growers who are screaming that we have to keep doing this,” Mr. Lewis says. Only the blenders actually receive the refund checks, but corn growers and ethanol processors benefit because the demand for their products increases.

Vilsack said Thursday that the administration is in favor of a temporary and “fiscally responsible” continuation of the ethanol tax credit and the associated tariffs that keep cheaper, sugarcane-based ethanol off the market in the United States. When pressed by a reporter to define “temporary,” Vilsack demurred. When pressed by the same reporter to define “fiscally responsible,” he again declined to answer. Meaning: status quo ad infinitum. Vilsack, as Mr. Lewis points out, has been talking that same temporary-and-fiscally-responsible jive since he was a governor. (Either that, or he literally does not know what “fiscally responsible” means, which is possible.)

Two bills were floated in the last Congress to extend the tax credit and the tariff: one introduced by Sen. Chuck Grassley and one introduced by Rep. Earl Pomeroy. Neither made much progress. The danger is that while those bills have foundered, their essential provisions — extending the tariff and the tax credit — could be sneaked into a tax or energy bill during the lame-duck session. Look for some green-jobs camouflage to be attached to it, but keep in mind: If it quacks like corporate welfare, it’s corporate welfare.

But this is federal spending we’re talking about, so it could always be worse. “The good news,” Mr. Lewis says, “is that Vilsack did not call for a Marshall Plan for biofuels or a Manhattan Project for biofuels. And that’s what the ethanol lobby has been pushing for.” There’s a split in the ethanol lobby at the moment, with one camp focused on protecting the current basket of goodies and another arguing for a massive new federally subsidized infrastructure project, with 200,000 new ethanol pumps serving up E85, a sprawling new pipeline system to keep those pumps pumping, and a mandate that automakers deliver 120 million flex-fuel vehicles a year to the U.S. market. That’s not on the agenda — for now.

Keep ethanol in mind when Obama, Al Gore, and the Wall Street guys who are positioned to benefit from “green energy” programs talk about “temporary” measures to protect a fledgling start-up industry. The day never comes when these industries can stand on their own — because they never were economically viable in the first place. They’re selling a product nobody wants at a price nobody wants to pay. “We’re still waiting for Godot here,” Mr. Lewis says. “Ethanol will always be an ‘infant industry,’ no matter how big it gets. The U.S. industry is the biggest in the world by far — twice as big as Brazil’s. If it had to compete, it might actually become innovative. But it’s easier to have entitlements.”

The Obama administration is dead-set on raising the taxes of thousands of small-business owners, the so-called rich who benefited from the Bush tax cuts. And, at the same time, his administration is arguing for a massive tax cut for some of the most profitable multinational corporations in the world, some of which don’t even want it. Which is what you get when a president brought to you by Goldman Sachs promises to take on the fat cats.

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