Since he became governor Mitch Daniels has been obsessed with getting jobs for the people of Indiana. Companies like Honda, Nestle, and BP among others have invested more than $15 billion in the state since he became governor. A typical announcement of the governor runs like this:

Governor Mitch Daniels says economic development deals announced today continue a diversification of Indiana’s economy and serve as a buffer from the turmoil in the nation’s financial and credit markets. This morning, health care equipment manager TriMedxsaid it will expand its national headquarters in Indianapolis, creating more than 100 jobs over the next five years. This afternoon, Italy’s Brevini Co. will confirm plans to re-locate its U.S. headquarters from Illinois to Delaware County. The company will also build its first U.S. manufacturing facility there, creating approximately 455 jobs. Brevini will manufacture gears and components for use in the wind power sector.

In his campaign for reelection in 2008, Daniels was keen to show to audiences a powerpoint presentation that I believe he probably used in meetings with business leaders.  The presentation pointed out that Indiana ranked

#1 in the Midwest and #12 nationally for business climate in the country, #8 for overall cost of doing business and #1 in international investment in our country in 2007.  CEO Magazine has rated Indiana #4 in the Midwest and #8 nationally for the best place to do business.  Since taking office 60,000 new good-paying jobs have been committed by 2012 and now 50,000 more Hoosiers have jobs than in 2005.  New jobs created in Indiana have an average annual salary of more than $39,000 which is about $5,500 more than the average Hoosier salary.

None of this of course was accidental. Since Daniels became governor he followed a very meticulous path in order to restore the finances of the state and keep taxes low. He cut more than $250 in spending and renegotiated state contracts saving another $190 million. A tax amnesty bill brought in another $224 million and he reduced the state government payroll by five thousand employees. He reduced the growth of government spending from 5.6% to 2.8% and eventually an $800 million deficit became a $1 billion surplus. For the first time in its history Indiana got a AAA rating.

One of his most important decisions was to privatize the toll road connecting Chicago and Ohio in northern Indiana.  Selling a 75 year lease to a European company proved initially a very unpopular decision. In a MitchTV video available on YouTube, Daniels gets an earful from an elderly voter in a diner. He calmly and attentively explains the benefits of the decision. The old system generated only $130 million in profits for the state in over 50 years of operation. A figure that would be surpassed in one year only from the interest generated by the $3.85 billion Indiana got the private company.  Over time the vast majority of Hoosiers came to see the deal Daniels’s way.

But Daniels proved to be something more than the typical business-friendly Republican governor. In 2007, he passed the Healthy Indiana Plan which covers Hoosiers who earn lees than 200% of the federal poverty level.  The plan established a health savings account where the state contributes $1,100.00 and the individual up to 5% of his income to provide for basic health benefits. If the funds are depleted catastrophic coverage kicks in.  It’s a plan that covers the uninsured while it helps them develop healthy habits and it does so by keeping the costs of the state down and introducing consumer choice in the healthcare system. The Healthy Indiana Plan is very popular with Hoosiers.

It’s a great example of how Republicans can find a way of providing conservative solutions for the problems that the voters face today. As Daniels said to National Review’s Mark Hemingway:“Our health-care plan is health savings accounts for poor people. Our telecommunications policy is deregulation. Our infrastructure policy was the biggest privatization in state history.”

Hoosiers gave him an 18% reelection victory in 2008 at the same time as they were voting to elect Obama for president. Daniels won by gathering an unusual electoral coalition for a Republican in that year. As Mona Charen noted, Daniels’s “margin of victory included 24 percent of Democrats, 20 percent of African-Americans, 51 percent of the youth vote, 67 percent of the elderly, and 57 percent of independents.”

His Indiana record and his appeal to groups that Republicans don’t seem to do well with recently have brought Daniels to the spotlight for the 2012 presidential election. It also helps that Daniels has solid Washington experience having been Reagan’s policy director and George W. Bush’s budget director. Add to that his private sector resume of having been head of Eli Lilly’s North American operations and chief executive of the Hudson Institute and you’ve got yourself a very attractive candidate.

Simple, direct, knowledgeable, effective and conservative. Sounds like the man that Americans may be looking for in 2012.

Step 1:
Generate huge multiyear budget deficits. It’s the first very important step to financial turmoil. Of course not every budget deficit is the same. Consistency is important (multiyear) but also quality. Deficits that are generated by spending in a multitude of programs serving a plethora of constituencies are to be strongly preferred to those generated by tax cuts.

Step 2:
Focus on creating a sclerotic labor market and lots of government red tape. This might seem tangentially related but it is actually very crucial. What you are looking for is an economic environment where economic growth is steadily below debt growth. In Greece people in their 20s and 30s have a 25% chance of being unemployed while at the same time the government bureaucratic costs to the economy are estimated to be around 6% of the GDP.

Step 3:
Do absolutely nothing about the incentive structure of government entitlements. Furthermore convince yourself that any new expansion of any entitlement without any fundamental change in its architecture will lead somehow to the process by which its long-term costs will come under control (see Krugman, Paul)

Step 4:
Ignore demographic trends. Make the central and implicit assumption of all your budgeting the absolutely false certainty of many future baby booms. Make sure that the costs of retirement and care of an exploding growing elderly population are borne by an already heavily taxed and shrinking young demographic.

Step 5:
Assume that the many special interests heavy on tax consumption will act altruistically in a time of crisis. This will be the final blow as the political class will belatedly realize that not only has it created a sclerotic economy but also an equally inflexible political environment that makes adjustments to mitigate grave crises politically untenable.

There are governments that have deficit and debt levels similar to that of Greece but here are three factors that make the Greek situation unique:

- A very weak, small and often parasitic private sector. At least since the early 80s Greece has followed a policy of a steady expansion of the state. Most notable is the huge numbers employed in government, perhaps somewhere north of one million in a workforce of approximately 5 million. Of the 4 million left, five hundred thousand are unemployed and eight hundred thousand are heavily subsidized EU farmers of very low productivity. Without taking into account all of those of the private sector who make all or some of their living indirectly from the state, it falls on around 2.7 million Greeks to support a million public employees, 800 thousand farmers, 500 thousand unemployed and 1.7 million retirees.

Of course it would be impossible for those of the private sector to support such a heavy burden and that’s why Greece is so dependent on continuous and high levels of borrowing no matter how good or bad the times are. Paying via taxes for even a lower than average but reasonable slice of the ongoing government expenditures would bring the economy to a complete halt.

- Demographic trends.  Greece is an aging society with a median age of 41.8 years. Almost a fifth of the population is over 65 and the life expectancy is nearly 80 years. Economies like that in order to survive economically must be very competitive with a dynamic export sector. But Greece’s huge public sector, red tape and corruption have made its demographic trends lethal. Like someone who is struck by two ailments each one exacerbating and precipitating the symptoms of the other, Greece suffers the consequences of a declining private sector at the same time when it would need it the most in order to manage its changing demographics.

An actuarial analysis by the Labor Institute estimated that by 2050 the deficit of the social security system would be 600 billion euros.  The social security system should have already accumulated reserves of 500 billion euros in order to pay its future obligations but up to now it has less than 20 billion set aside. Meantime, Greece already has one of the highest social security taxes in Europe.

- Political Culture. Although the figures related to Greece’s finances are at best mind-boggling and outright scary, its political culture is the most important obstacle it faces. Economic liberalism and conservatism are dirty words in Greece.  Governed by a political class that is timid, incompetent and often clueless, it cannot find a way out of the economic abyss it has entered. Some local commentators call Greece the Detroit of Europe or the last socialist country of Europe. Either way, it’s one country very much committed to its statist ideals, hoping that staying in denial will eventually force reality to surrender to its wishes.

Up to now membership in the European Union has fed Greek illusions. With annual economic assistance averaging 3.3% of GDP and membership to the euro club that earlier this decade made public and private borrowing cheap, Greece was able to finance an unsustainable economic system. Kostas Kallitsis, a financial commentator, describing the years before the crisis wrote that “each year we were generating a 10 billion government deficit, we were increasing public debt by 12 billion and private by 27 billion, saddling the trade deficit with 5 billion, and all that in order to increase the GDP by… 16 billion euros – of that 16 billion, 6 billion were coming directly from the European Union as aid.”

Since the mid-90s, Greece has convinced herself that economic growth and prosperity were compatible with her statist model. Substantial increases in public and private debt fueled a consumption binge that created the deception of a well functioning economy.

Now things have changed though and the Greeks are called to face reality. On December 9^th the Financial Times wrote:

In classical Greek tragedy the protagonists’ attempt to circumvent the will of the gods leads to their downfall. In the farce that is Greek sovereign debt management, Athens has been guilty of more modern hubris: cooking its books to outwit markets and the European Union.

Not only was Greece using the EU to sustain her semi-socialist economy but in the meantime she was cooking the books in order to show a lower public deficit and debt. The Greek governments did so repeatedly. When caught they always promised to mend their ways but never did so. Now in a time of dire need Greece’s partners are extremely skeptical (to put it mildly) and rather unwilling to foot the bill one more time.

The era of cheap and easy borrowing is over and the markets have started to be rather jittery about sovereign debt. Greece being a member of the euro club does not have the easier option of devaluing her currency. The hard options are to cut public spending in a time of recession angering the humongous public sector constituency and/or hitting the chronically anemic private sector with new taxes.

Dr. Desmond Lachman of the American Enterprise Institute, told me that:

Sadly, Greece has got itself into a very difficult situation by its profligate ways of the past that has resulted in a 12.7 percent of GDP budget deficit and a 30 percent loss of international competitiveness. Trying to fix these problems within the constraints of Euro membership will almost certainly mean many years of recession, high unemployment and deflation for Greece.

Yet leaving the Euro is not an option for Greece since that would inevitably lead to debt default for the Greek government with dire consequences for the Greek economy. Greece is lucky in that the ECB [European Central Bank] will not want that scenario to occur since it would have a domino effect throughout Europe with Ireland , Spain and Portugal next in line. So the most probable scenario is that the ECB will try to get Greece to agree to an adjustment program and then hold its nose while it provides Greece with funding.

Namely as the Greeks would say, they stand somewhere between Scylla and Charybdis, the two sea monsters of Greek mythology who occupied the opposite sides of the Strait of Messina. One passing through would have to face one or the other but could not avoid both. Painful choices juxtaposed with other equally painful and hard choices.

As the U.S. contemplates the introduction of a new entitlement program, big increases in debt and new stifling regulations perhaps it should take a look at the small Mediterranean country, which in many things she considers her precursor. Because the similarities between Athens and D.C. might not limit themselves to political theory and architecture and may at some point enter the economic realm as well.

A commonly accepted point of departure in modern Greek history is the election in 1981 of Andreas Papandreou as prime minister. He was the one who initiated a radical expansion of the state, of the entitlements and of public debt. Before he got elected he was known as an ex-academic with limited governing experience but great oratorical skills and lots of charisma. The slogan of that very big and transforming election victory 28 years ago was one word, Αλλαγή, or as it is known in English: Change.

And so it is with Matthew Continetti’s “The Palin Persuasion”, an essay of more than 4,700 words trying to make the case for Sarah Palin in American politics. It’s extraordinary that in this long essay we don’t have any arguments for Sarah Palin emanating from things that Sarah Palin has done. After more than a year in the national political stage, the dynamism of the Palin phenomenon is entirely dependent on the convulsions it generates in the two extremes of the political spectrum.

It is very telling that her record as governor of Alaska gets only scant mention in Continetti’s essay and it’s the usual limited list of accomplishments, the ones we heard about when she was introduced to the nation. Since the defeat of the McCain ticket in 2008, Palin as governor failed to make any serious progress despite the fact that she had gained tremendous prominence and influence on the right and that she was at the helm of a conservative state. At the end she decided to resign, 18 months before the end of her term, admitting that she was no longer able to effectively govern the state. It should have been a “mugged by reality” moment for the Palinistas.  But for them her resignation was proof of the everlasting prosecution. Palin would leave governing, as the Washington Post reported, because it was “in the best interest of the state and will allow her to more effectively advocate for issues of importance to her, including energy independence and national security.” Those who can’t govern perpetually campaign.

Continetti argues that Palin is similar to three other political figures: Andrew Jackson, William Jennings Bryan and Ronald Reagan. Making the association with the first two figures is politically questionable, and in the case of Ronald Reagan, Continetti can only establish one similarity only. It is true that Reagan was despised by the nation’s intellectual and political elites but the similarities between Reagan and Palin start and end there. From then on we have to deal with an increasing array of differences. Unlike Palin, the more the American public knew about Reagan the more they liked him. And if someone wanted to know how much Reagan was engaged with national issues and how well he mastered them, he could take a look at the Reagan and Robert F. Kennedy debate back in 1967, fourteen years before Reagan became president.

It would be interesting for Continetti to explain why Palin is more like Reagan and not more like Nixon. Again in the case of Nixon the similarities between him and Palin are limited. Nixon a very intelligent man (not wise though) with a deep knowledge and command of the national issues, was nevertheless loathed by Washington and he could appeal to his base only in proportion to the perceived animus of his detractors.

Sarah Palin reminds us of a certain someone who we are forever called to judge not for his accomplishments but for his promising potential. In conservative circles it does feel like we are all in a classroom similar to that created by Muriel Spark in The Prime of Mrs. Jean Brodie. We are asked to risk the future of the Republican party so that Mrs. Palin, now in her political prime, has the chance to realize her ill-defined political and perhaps personal goals. “For those who like that sort of thing, that is the sort of thing they like” but for the rest of us who take the future of the conservative movement in America seriously, this is a very scary scenario.

The Obama administration seems to be a rerun of the paleo-liberalism of the 1970s, with huge increases in spending, initiatives for new or expanded entitlements and a worldwide self-flagellating campaign to appease our enemies. It’s a familiar state of affairs for conservatives, but if our opponents fail in governing that by no means guarantees our own success. Imagine the most optimistic scenario: Republicans gain the House in 2010 and the White House and Senate in 2012.  But then what? Of course, stopping many Democratic plans will be an improvement but it won’t be enough.

In the coming years more Americans than before will retire, enlarging the slice of the population that gobbles up government largesse. The Republican candidate in 2012 might offer the panacea of lower taxes and a lighter regulatory regime but those will only postpone the day of reckoning. It is much easier to lower tax rates than to reform Medicare and Social Security.  We may be able to lower tax rates again but any action in this area as time goes by will become harder and it will come with diminishing returns.

There is a convergence of our politics with that of Western Europe. Increasingly their problems become ours. And like our European counterparts we have not yet discovered the political coalitions and means to achieve the necessary reforms to our welfare state. As the problems of entitlements intensify, it is conceivable to see successive Democratic and Republican administrations each entering the White House with high expectations and leaving with an unmistakable sense of failure.

The Obama administration up to now seems to be a replay of the old liberal canon. Conservatives in opposition to this paleo-liberalism might win some battles, but essentially they’ll be winning old battles anew. The problem is that conservatives lost recent elections not because they were unable to defeat the liberalism of yesteryear but because they were incapable of developing solutions to the problems that Americans face today. Whatever victories come from our confrontation with the Obama administration, they may conceal our fundamental weaknesses and leave us offering the public more of yesterday’s solutions.

And I should add – not that it would matter to the Nobel Prize committee but for the rest of you – that I also majored in economics in college. During that period I was present in a couple of classes and many of the professors graded my papers personally.

But there is more. I am a man of the world. I have dual citizenship and I live in New York. Earlier in my life I was a member of the Greek Communist Youth (beat that Obama.) I know this last point must earn me a lot with the committee.

I’ll be accepting my Nobel Prize with a great sense of responsibility, knowing that without my intentions, aspirations and great potential, economics would not be where it is today.

Thank you.

“As Internet Booms, the Postal Service Fights Back”

-New York Times, 08.28.09

The U.S. Postal Service plans to start its own email service. The users of the service will be able to send and receive emails every day except Sunday.

* * *

“Bernanke Victimized by Identity Fraud Ring”

-Newsweek, 08.25.09

The Federal Reserve Chairman, Ben Bernanke, became suspicious when his attempted online purchase of Suze Orman’s The Laws of Money was declined.

* * *

“Colorado wildlife experts get aggressive going after smart bears”

-Denver Post, 8.24.09

Bears found in Mensa meetings will be shot at once.

* * *

“GOP Offers Seniors Health Bill of Rights”

-Associated Press, 8.24.09

Article I. Congress shall make no law reducing the massive intergenerational wealth transfers instituted by our political opponents in the years past.

* * *

“Yahoo renews vow to fight Microsoft”

-Financial Times, 8.25.09

Yahoo’s CEO said “We shall fight them on the closed circuits, we shall fight them on the e-commerce platforms, we shall fight them on the copper and fiber lines, we shall never merge.”

* * *

“Anne Fine deplores ‘gritty realism’ of modern children’s books”

-The Times, 8.24.09

J. K. Rowling’s newest book Notes from the Hogwarts Underground will be out this fall.

* * *

“Iran puts leading reformers on trial over unrest”

-Reuters, 8.25.09

The dissidents are charged with disorderly contact and astroturfing.

* * *

“U.S. limits visas in Honduras, stepping up pressure”

-Reuters, 8.25.09

In an effort to improve its relationship with the Obama administration, Honduras plans to turn decidedly anti-American.

* * *

“Italy to Ask Libya for Help in Controlling Migration”

-Wall Street Journal, 8.28.09

If Libya refuses the offer, Italy plans to cut off the head of Gaddafi’s favorite camel and place it in the dictator’s bed.

* * *

“Robbers pretended to sell President Obama health insurance policies to invade Long Island home”

-New York Daily News, 8.29.09

The victims got wary when they were told that the first insurance premium payment would consist of the plasma TV, the kid’s iPod and the “really cute shepherdess lamp.”

“Lack of Medicare Appointee Puzzles Congress”
-New York Times, 8.17.09

It is now believed that the Obama administration has depleted the ranks of Americans who are willing to have the word “czar” in their job title.

* * *

“Tom DeLay Contestant On ‘Dancing With The Stars’ Season Nine”
-Huffington Post, 8.17.09

If the dance moves prove inadequate, Tom DeLay will filibuster his way to the finals.

* * *

“Are the days of bad hospital food numbered?”
-National Post, 8.19.09

Yes, if you are terminally ill.

* * *

“How did model’s accused killer get on TV show?”
-Los Angeles Times, 8.22.09

He looked really photogenic in the police line up.

* * *

“Germany fumbles with Obama-style election tactics”
-Reuters, 8.20.09

As a consequence of that, German politicians are besieged by a certain Jürgen-the-Plumber asking pesky questions about faucet handle subsidies.

* * *

“Afghans vote as Taliban threats take toll”
-Financial Times, 8.20.09

But the real bloodbath is expected when the Afghans start their own town hall meetings.

* * *

“NASA May Outsource Amid Budget Woes”
-Wall Street Journal, 8.21.09

It will be the first time that spacesuits are made in sweatshops.

* * *

“Iranian leader Ahmadinejad taps man wanted in Jewish center bombing for defense minister post”
-New York Daily News, 8.21.09

State Department officials are concerned that this move will lessen the ambiguity and nuance in Ahmadinejad’s stance, evident in statements like this one: “Israel is a tyrannical regime that one day will be destroyed.”

* * *

“’Six million British adults on benefits’”
-The Daily Telegraph, 08.17.09

Never have so many got so much for doing so little.

* * *

“John Cleese in £12 million divorce settlement”
-The Daily Telegraph, 8.17.09

As the Monty Python star was writing the £12 million check he was heard humming “Always Look at the Bright Side of Life.”

The era of corporate excess and greed is over.

Barack Obama had enough when his Cybersecurity Chief could not stem the tide of emails to the presidential Blackberry promising “male enhancement.”

The Brits were ahead of us in instituting government healthcare and now they are ahead of us in bending the cost curve. Congrats.

He was listening to a Relaxing Sea Sounds CD.

On the plus side, life expectancy in Ethiopia is half that of Canada.

Vladimir Putin, a hands-on Prime Minister, was inspecting the last resting place of dissenting Russian journalists and activists.

Early regroup efforts were unsuccessful since Twitter engineers were unaccustomed to communicating with each other with more than 140 characters.

Surprisingly, all the patrol volunteers are male.

The ultimate sign of decadence when a nearly bankrupt entity is seeking taxes from bankrupt one.

That’s right, we are just a nation of 300 million big bones.