It’s lunchtime at frontier Elementary School in Brookston, Ind., and Gov. Mitch Daniels, who’s spent the past two hours leading a charity motorcycle ride through the cornfields of central Indiana, has decided, along with 500 of his burliest friends, to park his Harley and grab some food. In the cafeteria, groups of tattooed men in leather vests, skull bandannas, and sleeveless denim jackets mill about, nibbling on limp turkey sandwiches. But Dennis Tyger, a 42-year-old auto repairman with a thick goatee and an impish grin, is too busy plotting his next move to eat. “So I should do it, right?” he asks his tablemates. They nod. Seconds later, Daniels enters the room.

“Here comes our next United States president!” Tyger shouts. At first, Daniels flinches. Ever since telling The Washington Post in February that he “would stay open to the idea” of challenging Barack Obama in 2012, he has had to insist, often several times a day, that he doesn’t actually intend to run. His ambivalence seems genuine. “You’ve seen my schedule,” he tells me later, in his broad Midwestern drawl. “I’m not going to Iowa; I’m not going to New Hampshire. I’m turning down every offer.” But when the rest of the crowd roars with applause, Daniels can’t help but smile. “Listen to that,” Tyger says, shaking his head. “I can see him in the White House already.”

If you’ve heard anything about Indiana’s very slight, very balding, very unimposing governor—and that’s a big if—it’s probably just the opposite: that he couldn’t possibly win the 2012 Republican presidential nomination, and that even if he did, his chances of defeating Obama in the general election would be close to nil. The reasons, they say, are many. At 5 feet 7 (in boots), Daniels is shorter than Obama’s 12-year-old daughter, Malia. His rather uninspiring demeanor—reticent, stiff, and slightly skittish, with darting eyes and long blanks between words—better suits a former director of the Office of Management and Budget, which he happens to be, than a leader of the free world. And his comb-over is borderline delusional. As conservative journalist Andrew Ferguson recently put it, “I see [Daniels] as he strides toward the middle of the stage to shake hands with Obama before the first debate and comes up to the president’s navel. Election over.”

But while the wags in Washington dismiss him, and while Daniels himself has yet to display any real desire for Obama’s job, something unusual seems to be happening, both in Indiana and elsewhere: the Tygers of the world are getting louder. In February, New York Times columnist Ross Douthat dubbed Daniels “America’s best governor,” and fellow conservatives like Reihan Salam and Yuval Levin—writers who have long insisted that Republicans should avoid the pitfalls of Palin populism as they recalibrate for the 21st century—are equally enthusiastic. “Though it is far too early to know what the world will look like in 2012,” Salam has opined, “I can’t help but think that a common-sense conservative like Daniels would be the perfect match for Obama.”

Part of the reason Daniels is attracting Republican interest is that his record of competence and fiscal restraint represents a refreshing change of pace from George W. Bush’s big-government conservatism. After five years in the statehouse, admirers point out, Daniels has managed to lower property taxes by an average of 30 percent; transform a $200 million budget deficit into a $1.3 billion surplus; and insure 45,000 low-income Hoosiers through a budget-neutral combination of health savings accounts and catastrophic coverage. His approval ratings routinely top 65 percent.

The real force behind the Daniels boomlet, however, is timing. For the past two years, Republicans have defined themselves by opposing both Obama’s progressivism and Bush’s profligacy; the GOP has said no to the stimulus package, no to health-insurance reform, and no to the mounting national debt, without providing much in the way of a positive vision. Such an omission is acceptable, even advantageous, for a party clawing its way back to power in angsty times. But after November, the GOP may control one (or even both) chambers of Congress, and its candidates will begin jockeying for 2012. At that point, Republicans will have to explain how they intend to translate a pleasant-sounding philosophy of spending cuts and lower taxes into a tangible set of policies equal to the country’s current challenges. Fans say that’s precisely what Daniels has done in Indiana.

Over the summer, I traveled to Indianapolis to see for myself who was right: the Beltway naysayers or the wonky boosters. What I found is that neither camp quite has Daniels pegged. The governor’s press office had invited me on a daylong trip that was clearly designed to highlight the most flattering aspects of Daniels’s record. Even through the promotional haze, I saw something valuable in the governor’s approach to politics. His brand of reality-based conservatism might not propel him to the presidency in 2012. But eventually it could provide the GOP with something it desperately needs (and currently lacks): a convincing model of post-Reagan, post-Dubya, post-Obama governance.

Washington Republicans tend to talk about fiscal discipline when they’re out of power, then abandon it when they take over. Daniels never stops pinching pennies. The political advantages of this approach are apparent the moment the governor strides into the Muncie convention center for a breakfast with local business leaders. Outside, it’s pouring rain; inside, the smiles couldn’t be sunnier. While Daniels’s first post-Princeton jobs were overtly political—he spent a dozen years as a top aide to Indiana Sen. Richard Lugar, and another couple as Ronald Reagan’s political director—the rest have revolved around dollars and cents: president and CEO of a conservative think tank (the Hudson Institute), top executive at a pharmaceutical firm (Eli Lilly), and OMB boss under Bush. Daniels cut costs in each role, and relished the incisions; he is the kind of fiscal conservative who once fished quarters out of a toilet to pay for beer and still hunts down every golf ball that swerves into the woods. An associate described him as “viscerally parsimonious” in The Washington Monthly. Bush nicknamed him “The Blade.”

The Blade didn’t always make the sharpest fiscal decisions. In 2001, for example, Daniels was one of the main designers and defenders of Bush’s $1.35 trillion tax cut. At the time, a reporter asked if the tab—five times the leftover Clinton surplus—was too high. His response? Actually, “it might prove to have been too little.” Two years later, the country was in a recession, the surplus was spent, and Daniels was forecasting budget deficits for the rest of the decade.

In The Price of Loyalty, Ron Suskind portrays Daniels as a tightwad who “express[es] what others are thinking but won’t say” about Bush’s fuzzy budget math, but nonetheless doubles back when he gets “an arched brow from Cheney or Rove.” That eagerness to please may have enabled his worst misstep: lowering the administration’s official estimate of the cost of the Iraq War from as much as $200 billion to $50 billion to $60 billion. (Current cost: $746 billion.) When I asked about the disparity, Daniels snapped that he was “only asked to estimate” the expense of a successful “six-month conflict.” Still, carrying water for a disastrous policy is nothing to brag about.

Since leaving Washington in 2003, however, Daniels has returned to his skinflint roots, proving that even the most blemished Bushie can redeem himself for the austere age ahead. Exhibit A: Indiana. Onstage in Muncie, the governor promotes his fiscal stewardship with a PowerPoint presentation called “Fighting the Recession to Win.” His slides tell a compelling story. Since 2005, Daniels has slashed Indiana’s budget by $440 million and more than halved its rate of spending growth, and it’s possible to imagine him promising caucusgoers in Dubuque that he’ll “fix America’s finances” like he “fixed Indiana’s.” Unlike the rest of the Rust Belt, the state is still in the black.

But in his Toyota SUV after the event, the governor freely admits that “most of what we’ve done here”—reusing the paper clips from residents’ tax forms; narrowing the typeface on government documents to save on printing—“wouldn’t make much difference on the national level.” It’s a welcome confession. For decades, Republicans have railed against deficits and debt, but they’ve been too afraid of voter backlash to venture beyond marginal measures (“wasteful spending”). Daniels didn’t get the memo.

Let’s raise the retirement age, he says. Let’s reduce Social Security for the rich. And let’s reconsider our military commitments, too. When I ask about taxes—in 2005 Daniels proposed a hike on the $100,000-plus crowd, which his own party promptly torpedoed—he refuses to revert to Republican talking points. “At some stage there could well be a tax increase,” he says with a sigh. “They say we can’t have grown-up conversations anymore. I think we can.”

As the rain subsides, a state trooper steers the SUV toward a pair of events that (rather conveniently) touch on the Republican Party’s other top priorities: creating jobs and downsizing government. While national leaders continue to push lower taxes as the solution to every problem—never mind that Bush, the last tax cutter in chief, expanded the federal budget by 50 percent and failed to net a single new job during his two terms—Daniels has adopted a more nuanced approach. In 2005 the governor created a partially private economic-development corporation to attract new jobs to the state “at the speed of business, not the speed of government”; the next year, he leased Indiana’s underperforming toll road to a Spanish-Australian consortium for $3.8 billion. Populists balked at the privatization spree—forking over the toll road to foreigners was particularly unpopular—and Daniels’s approval ratings dipped below 40 percent.

But today, it’s clear that both decisions are paying off. Pulling up on the shoulder of the newly paved and widened State Road 14 in Allen County, Daniels grabs a pair of scissors and heads for the nearest ribbon. It’s a familiar drill. Over the last four years, the proceeds from the toll-road deal have unclogged a massive backlog of projects and funded hundreds of new proposals without increasing taxes or adding to the debt. “Michigan is grinding roads back into gravel,” Daniels tells the crowd. “Meanwhile, we’re in a building boom.” The governor is even more gleeful at his next stop, in Huntington, where an auto-body manufacturer named Continental Structural Plastics has recently relocated from Ohio (and promised to create 350 new jobs). “No red tape, plus the right tax incentives,” says CSP vice president Thomas Hilborn. “We looked elsewhere, and Indiana was the best.” So far, Hilborn’s peers seem to agree: the Hoosier State now leads the nation in private-sector job growth and was recently voted the country’s sixth-“friendliest” climate for business.

The governor’s corporate approach isn’t a cure-all. His 2007 decision to outsource the state’s welfare enrollment program to IBM for $1.3 billion and replace in-person facilities with call centers was a painful reminder of the limits of privatization; Hoosiers who missed welfare appointments because they were hospitalized with terminal cancer lost their Medicaid benefits. (To his credit, Daniels admitted his mistake, nixed the deal, and sued IBM.) Local reports allege that as many as 40 percent of the 100,000 new job commitments Daniels claims to have won since 2005 have yet to materialize, and at 10.2 percent, Indiana’s unemployment rate is still higher than the national average. Liberals bemoan the effect of budget cuts and deregulation on education and the environment. And lately the Democratic National Committee has taken to accusing the governor of political opportunism for appearing on Fox News to blast a bill that provides states (and not the private sector) with $26 billion in additional stimulus money—the same sum, incidentally, that Daniels and 46 other governors joined together earlier this year to request.

But Daniels’s decision to “conduct government like a business” has one major virtue: it forces him to rely on results instead of ideology. As we drive to the Miami Correctional Facility, the governor points out that many of his key policy initiatives—instituting a “pay for performance” scheme for state employees, doubling the number of child-welfare caseworkers—defy tidy partisan labels. He even spends 10 minutes telling me how he “never use[s] the word ‘conservative’ ” to describe himself. At first, this sounds like shtik; politicians love to claim they’re above the fray. But his prison remarks—words of encouragement to recent graduates of a faith-based inmate rehab program—actually reinforce his point. Where a typical Republican might gorge on Bible quotes, Daniels praises the prisoners without referencing religion. This isn’t an oversight. In June, Daniels, a devout, pro-life Christian who believes that “atheism leads to brutality,” told The Weekly Standard that the next president will “have to call a truce on the so-called social issues” until the nation’s economic problems are resolved; now he’s walking the walk. Try to imagine Sarah Palin doing the same.

Despite the divisive din of our politics, there are signs that the country is moving in Daniels’s direction. Frugality is back in fashion; culture warriors are aging; the Iraq generation has soured on limitless defense spending. Still, it’s unlikely that senior citizens and social conservatives—the GOP’s key constituencies—are longing for a governing philosophy that sees Medicare reform as a “survival issue” and gay marriage as a sideshow. In fact, even Daniels’s staunchest fans, Hoosiers, might resist a national version of Danielsism at this point.

The last stop of the day is at Highland Park in Kokomo: a campaign event for an aspiring state representative. As Daniels arrives, I spot John Penner, 79, waiting to shake hands with “the next president.” Penner has nothing but praise for the “down-to-earth” Daniels, and nothing but criticism for Washington, where legislators lard bills with “tunnels for turtles.” But when I suggest that to really rein in spending we’ll have to cut Medicare, he balks. “My wife is sick, and I can barely pay the bills,” he says. “So no, I don’t think so. Not a good idea.”

Unfortunately for Daniels, trimming Medicare is his idea, not mine—and like the rest of his philosophy, it will probably remain that way for now. Soon enough, however, Republicans may actually be asked to govern like grown-ups. They could do worse than to look to Indiana for inspiration—if nothing else.