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The Roots of Our Debt & Dysfunction Today

President Franklin Roosevelt:  “Fortunately for the stability of our Nation, is was already apparent that the vastness of the territory presented geographical and climatic differences which gave to the States wide differences in the nature of their industry, their agriculture and their commerce… Thus, it was clear to the framers of our Constitution that the greatest possible liberty of self-government must be given to each State, and that any national administration attempting to make all laws for the whole Nation, such as was wholly practical in Great Britain, would inevitably result at some future time in a dissolution of the Union itself.  The preservation of this “Home Rule” by the States is not a cry of jealous Commonwealths seeking aggrandizement at the expense of sister States.  It is a fundamental necessity if we are to remain a united country.”

After winning a war against the world’s greatest power, our Founders wrote what is today the world’s oldest, and many consider, its best Constitution.  Yet 70% of Americans now say we are on the “wrong track” because Washington has become highly dysfunctional.  The list of federal failures is now painfully familiar:  Wall Street bailouts, failed “Stimulus”, “Fast and Furious”, “Cash for Clunkers”, corruption in the IRS, FBI and Justice Department, perhaps 20 million illegal immigrants, crisis at the border, the impending collapse of Social Security, Medicare and the Affordable Care Act, Congressional gridlock… and $22 trillion in debt!  To Americans, these are clear signals of systemic failure in the federal government.  We owe it to our Nation to examine how we fell off the wise course our Founders charted for us in 1789, and what we might do to improve self-governance.

A clue to our failure is found in our Nation’s name:  The United States of America.  We are a nation of 50 states – not one central government as found in France or Egypt.  The more we’ve centralized taxation, regulation and power in Washington, the more we have witnessed systemic failure.  This is because most problems are best addressed by local and state government – as Jefferson told us.  The ideas of federalism and subsidiarity need to become fashionable again.

Federalism and the decentralization of factions (interest groups) were at the heart of the Founders’ plan (Federalist #10 and #51/Madison).  Governmental duties were best divided between federal (national) and state governments.  The Founders also believed government should be limited, supporting “life, liberty and the pursuit of happiness” without managing its every aspect.  They assumed self-reliant citizens of strong character and durable families would do much of society’s heavy lifting through businesses and voluntary civic organizations serving others.

During the ratification debates of 1787-88, James Madison wrote in Federalist #45 of American federalism: “The powers delegated… to the federal (national) government are few and defined. Those which remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects such as war, peace, negotiation, and foreign commerce… The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State.”

The government in Washington was to look outward at other nations and markets and keep harmony among the states.  The 50 states were to look inward towards internal improvements and citizen services.  Here are the major issues our President and Congress face as their Outward Agenda today:

• National Security:               Russia – North Korea – China – Cyber Attacks… Iran & the Middle East.
• International Trade:           China –  Steel & Aluminum Tariffs – BREXIT – EU Trade…
• North America:                   Trade – A new NAFTA – Border Security & Illegal Immigration.
• US Immigration:                 DACA & 20+ Million Illegal Immigrants – Failing Federal Policy.
• Mexico:                                 Illegal Gun & Drug Running + Sex Trafficking + Cartel Violence.
• Latin America:                     Marxist Regimes in Venezuela, Nicaragua & Cuba. MS-13 Gangs.
• EU:                                         US-EU Trade – Euro Crisis – EU Internal Strife – Future of NATO.
• North Korea:                        Missile Tests & Nuclear Weapons.
• Russia:                                   Possible New Cold War.
• Israel:                                     Failed Palestinian Peace Talks – New US Embassy in Jerusalem.
• Africa/Libya/Sudan:             Failed States – Civil Wars.
• Syria:                                      A Seven-Year Civil War – Islamic State – ISIS.
• Terrorism:                             Across many continents…
• Egypt & Turkey:                    Uncertain Allies.
• Iran:                                        US-Iran Tensions – Threat of a New Nuclear Power.
• Iraq:                                        Another Failed State?
• Pakistan:                                Strained Relationship with India & the US.
• Afghanistan:                          Eighteen Years of War, No End in Sight.
• India:                                      The Promise of Our Improved Relationship.

The Founders (and we) might ask how our current leaders in Washington can effectively and prudently deal with this formidable array of external challenges? But now let’s look at Washington’s Inward Agenda today:

• Social Security:                       Funding begins to fail in 2030.
• Medicare:                                Begins to fail in 2024.
• Dodd-Frank:                            Financial services regulations: 20,000 pages.
• Affordable Care Act:              US health care scheme now failing.  20,000 pages, 18% of GDP.
• Justice & FBI:                           Major charges of corruption.
• IRS:                                            Administers US tax code of 76,000 pages.  2012-4 NGO scandal.
• Farm Bill:                                  Huge farm subsidies. Food stamps for 30+ million Americans.
• Education:                                US Ed Dept. requires all K-12 schools to complete 30+ reports annually.
• College Loans:                         US Gov’t makes all college loans.  Student debt: $1.5T > credit card debt.
• Housing:                                   US Housing & Urban Development Dept. = $40b annual budget.
• Minimum Wage:                     Also dealt with at the state level, closer to regional economic realities.
• Unemployment Insurance:   Partially managed at the state level.
• Transportation:                       Highways, bridges, ports, rail, urban transit… all in need of major repairs.

Our Founders would be astonished at the domestic focus of our $4T federal budget today:

• OUTWARD: 42% of Federal Budget                  INWARD:  58% of Federal Budget
• 20%   –  Defense                                                        22%   –  Social Security
• 15%    –  Federal Agencies                                        23%   –  Medicare + Medicaid
• 7%      –  Interest on a $22T National Debt           13%   –  Grants to the States

The argument here is a “managerial argument” for a return to federalism.  Washington has “too much on its plate” to do any of its work well.  Moreover, Congress does not have the time or staff to effectively oversee this colossus of a government.  Indeed, Congress has only passed one annual federal budget (“regular order”) in 20 years!  The Founders would not see the wisdom in a federal Department of Housing, or of Education that deals with K-12.  Housing and K-12 schools are best left to the states…

Much of the work now done by Washington can be better managed by our 50 states and/or local governments, or not done at all.  Outsourcing of other federal work would allow the injection of competitive bidding, merit pay, and innovation in technology and service delivery.  Today virtually no one can fire a federal employee – even if they fail to show up for work!  Federal jobs have become life-time sinecures, while average tax-paying Americans have less job security than in the past.

Absent a major move away from the federal income tax system such as a national sales tax, a financing formula to return to American federalism might roughly break this way:  The IRS would leave a certain percentage of the federal income taxes it collects within the states where collected.  The percentage would be decided by the kinds of federal services that would be largely transferred to the states.  Those states that have a healthy business climate would see their share of IRS funds grow – rewarding their positive policies for growth and job creation.  Federal funds left in each state would be allocated by the 50 state legislatures, which would move much of this funding to counties and cities for such things as K-12 education, housing, food stamps, intra-state transportation infrastructure, and other “inward looking” human services.  Healthcare engagement would remain for now in federal hands, so deep is it imbedded in our lives via Medicare, Medicaid, CHIPS, the VA, et al. While initial transfers back to the states would be modest, e.g. most all HUD services and programs, mindsets among citizens, the news media and elected officials would gradually shift to more robust “distributed government” – to coin a term we used as the mainframe computer world gave way to the PC and then mobile hand-held devices.  Ironically, while the power of information technology has become more and more decentralized and empowering, Washington DC has centralized more and more of our government.  We want to reverse this trend and reflect what is happening in the Age of Information.

There is also a “societal or political argument” for a return to American federalism.  Before Roe vs. Wade in 1973, states had 50 different abortion laws.  And in turn, before that 1973 decision, the entire career of a Supreme Court nominee was reviewed by the US Senate as to their suitability for this lifetime judicial office.  Since Roe in 1973 our Nation’s politics have become sharply and continuously divided on the question of “life”.  Given this, the central question asked about all new Supreme Court nominees is their view on abortion.  Supreme Court Justice Ginsburg has suggested that our Republic might be better off if this issue had been left to the states, in keeping with 150+ years of American jurisprudence.

Health care is another highly acrimonious “nationalized, politicized issue” at the center of Washington rancor since the Affordable Care Act was enacted.  An alternative to a single federal health care law such as “Medicare for all” would be to allow each state to fashion their own solutions.  If Massachusetts chose to have a single payer system, so be it.  If Utah chooses a free-market health care system, that should be their right.  We’ll then see by way of “the laboratories of state government” what works for people and providers, and what fails.  Real world experiences are always superior to theories and “one size fits all” approaches.  Surely New York will have different health care solutions than Wyoming.  And other public services like K-12 education can best be left to the states and local governments – and parents.

A Renewal of American Federalism can and will return many of these “inward looking” issues to where they belong in the American regime.  Washington can then more effectively deal with Iran, ISIS, North Korea, China, NAFTA, the current crisis at the border… and other enormous “outward looking” challenges.  The Congress would then have more time to oversee federal agencies and pass a real budget.  To enhance oversight even more, perhaps the Congress can enact a two-year federal budget during its first year and dedicate the second year of each Congress to oversight.  Indeed, a new joint Congressional Oversight Committee might be formed which by its rules has but one mission – looking for ways to reduce or phase out parts of the federal government that are no longer useful.  Every American company that is competitive constantly looks at ways to re-direct people and resources.  Congress never seems to focus on what the federal government can do less of…

When federalism fails in a large republic, the success of the government itself comes into question.  The Founders knew the enemies of our republic were factions demanding more and more from government and their fellow citizens.  These include farmers, seniors, all sorts of industries, homeowners, doctors, patients… students.  Once factions are nationalized, their combined negative effects on the economic and political health of a Nation can be harsh and in the case of health care, financially catastrophic.  National elections become bidding wars for the support of various interest groups.  Our $22T national debt is stark evidence of this, as our leaders print money rather than make difficult choices.

In Federalist #10, Madison wrote: “Among the numerous advantages of a well-constructed Union [federalism], none deserves to be more accurately developed than its tendency to break and control the violence [damaging effects] of faction…”  To return to the Founders’ plan, we must renew American Federalism and rethink what Washington is responsible for in an era of debt, flat demographic growth, and intense global competition.  Civic success begins with virtuous citizens rising above the factions of which they may be a part to support what is best for our Nation.  It is time to return to American Federalism.

Michael C. Maibach resides in Alexandria, Virginia.  He is a Board member of the James Wilson Institute, the Washington, Jefferson, Madison Institute, and the Caesar Rodney Institute of Delaware.

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