The shake-up at Treasury is only the beginning. For the impending implosion of the entitlement programs threatens the nation's economy even more than the lack of a tax cut stimulus. George W. Bush understands this challenge and intends to confront it, as was confirmed in a recent private briefing by one of his top lieutenants.

Against the advice of every political expert in his party, President Bush has been determined to reform Social Security so it does not hit the rocks of insolvency. He even raised that "third rail" issue - touch retirement and you die politically - in his tight 2000 race and survived. He created a commission that issued a bold, if not revolutionary, set of recommendations. The Democrats tried to exploit the issue again in 2002 but, where the GOP candidate went on offense - as did winners Norm Coleman, Saxby Chambliss, Elizabeth Dole, John Sununu and Jim Talent, the shock was neutralized or even became a positive assistance to their campaigns.

In an election wrap-up, President Bush's top adviser, Karl Rove, not only privately suggested Social Security would be on the table the next two years but, more dramatically, so would a universal health insurance tax credit. He specifically referred to the accidental way in which the present health insurance system was created by the government and the fact that no one starting fresh today would do the same. Following the formula recommended by most conservative think tanks, he hinted that private health insurance could be shifted from the employer to an individual health-care tax credit and even that Medicare and Medicaid might be brought under it too - with refundable credits for the poor.

While it is unlikely a specific bill would be adopted before 2004, these bold steps would create the momentum for reform afterward.

Most of the world has always looked to central government for the solution of social problems. For a long time, the United States was an exception, clinging to its local, republican culture and Constitution well into the 20th century. But scholar President Woodrow Wilson changed this dramatically. Prior to Wilson, 90 percent of government in the United States was state and local government, overwhelmingly in the local community, and most activity was private. Wilson nationalized the centerpiece of capitalism, the banks, in 1913 through the Federal Reserve Act, the sinews of commerce with the Clayton Antitrust and Federal Trade Commission Acts in 1914, and the largest business sector, agriculture, with the new farm loan program in 1916.

Franklin Roosevelt's New Deal and Lyndon Johnson's Great Society were simply the logical conclusions of the professor's dream, not so surprisingly learned by him in the Old World, during his postgraduate studies.

All succeeding American political history was an elaboration upon the same Wilsonian theme until Ronald Reagan. While labeled a revolution, President Reagan's administration was more a repair of the serious damage wreaked by Wilson's welfare state than a renewal. Discretionary spending was absolutely cut by 10 percent during Mr. Reagan's first year, and it has remained a roughly constant share of national wealth since. Under him, overall non-defense spending went down from 17.9 percent to 16.4 percent of gross domestic product. While spending returned to the earlier levels afterward, except for entitlements, it has not increased disproportionately even to this very day.

Likewise, the important fruit of Republican control of the House of Representatives, welfare reform, simply meliorated the worst effects of progressivism's ruinous plan to foster dependency rather than individual responsibility. This "repair conservatism" has staunched the bleeding, but the enormous wound that is the entitlement programs remains - especially the largest, Social Security and Medicare-Medicaid. According to their official trustees, these programs are heading for bankruptcy in the next few years; and they are large enough to take the whole government down with them.

Historically, nations fall from bankruptcy even more than war or revolution. The early effects of this same refusal of democracies to restrain entitlement programs are already apparent in the stagnation of even wealthy states like Germany and Japan.

President Bush apparently will bite the bullet on entitlements. Many conservative activists are anxious to go to Phase Two of the conservative revival, where repair could be transformed into actual renewal - to "return power to states, communities and citizens," as Mr. Reagan put it - and they should continue to prepare the way and try to link it to entitlement reform.

But it makes sense for Mr. Bush to prioritize the final repair of the profligate welfare state damage. For, if he does not solve the problem of entitlement bankruptcy, there might not be a republic to renew.

Donald Devine, former director of the U.S. Office of Personnel Management, is a columnist and a Washington-based policy consultant and a Vice-Chairman of ACU

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Donald Devine, former director Of the U.S. Office of Personnel Management, is a columnist and a Washington-based policy consultant and a Vice Chairman for the American Conservative Union.