Tags: Fiscal Armageddon

Not Pell Grants! Defining “Radical”


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

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

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

Radicalism should be made of sterner stuff.

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

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

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

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

Tags: Debt , Deficits , Despair , Fiscal Armageddon , General Shenanigans

Public Pension Rumblings


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

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

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

Rhode Island’s worst basketcase heads for bankruptcy.

A Michigan basketcase heads there, too.

Bankruptcy is a possibility for San Diego.

State-bankruptcy law is suddenly a hot subject.

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

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Pensions

How Do You Say “Subprime” in French?


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

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

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

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

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

Tags: Bonds , Debt , Deficit , Despair , Fiscal Armageddon , Public Finance

A Few Words In Praise of Fear


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

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

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

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

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

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

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

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

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

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Hope , Pork

‘I’m Shocked’


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

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

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

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

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

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

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

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

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

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Moonbeam Economics , States

Omnibus Shenanigans


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

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

Tags: Debt , Deficits , Democrats , Despair , Earmarks , Fiscal Armageddon , General Shenanigans , Pork

Bernie Madoff, Keynes, St. Augustine, and Cassanova


A stinging observation from John Cochrane:

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

Brutal. And this:

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

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

Tags: Bonds , Debt , Deficit , Despair , Fiscal Armageddon , General Shenanigans , Stimulus

The Battle over the State Pension Bailout

Text makes a mighty contribution to the sum of national despair with this report:

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

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

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

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

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Unions

Why the Stimulus Stimulated Nothing


Treasuries Decline after Tax Deal


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?

Tags: Debt , Deficits , Fiscal Armageddon , Treasuries

Simpson-Bowles Is Dead


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.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Politics

Should Republicans Raise the Debt Ceiling?


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.

Tags: Debt , Deficits , Fiscal Armageddon , General Shenanigans , Politics

Why Is the World Bailing Out Ireland?


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.

Tags: Debt , Deficits , Fiscal Armageddon , General Shenanigans , Pensions

Ireland Going Down . . . Who’s Next?


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.

Tags: Debt , Deficits , Fiscal Armageddon , General Shenanigans , Taxes

Real Deficit Reduction vs. Theoretical Deficit Reduction


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.

Tags: Debt , Deficit , Despair , Fiscal Armageddon , General Shenanigans

First Thoughts on Bowles-Simpson


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.

Tags: Debt , Deficit , Fiscal Armageddon

Helicopter Ben Fires Up the Chopper


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.

Tags: Debt , Deficits , Despair , Fiscal Armageddon , Monetary Policy , the Fed

The First $350 Billion Is Always the Hardest


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

Tags: Congress , Debt , Deficits , Fiscal Armageddon

The Election and the Economy


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.

Tags: Bill Clinton , Democrats , Elections , Fiscal Armageddon , General Shenanigans , Politics

Hey, Chairman Ben


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.

Tags: Ben Bernanke , Debt , Deficits , Fiscal Armageddon , Stimulus


Subscribe to National Review