The Constitution vs. The Free Lunch
This is my first article since the inauguration of Donald Trump as our 47th President. I spoke about this as a serious historical event in November 2024 when he was elected, and it’s worth a read to get a baseline on the things that mattered most to voters and a rough outline of the agenda Trump won a mandate for. Now we get to see that agenda in action. To understand the scope of that mandate, I think it would be instructive to use the analogy of Newton’s Laws of Motion, which states that, a body that is in motion, stays in motion unless it is acted upon by a another force. That body was the direction of the federal government. The opposing force is Donald Trump.
I know I am not alone when I say the scope and speed of the changes we are witnessing in our federal government is historic and breathtaking. Let’s just start with the new administration policy of radical transparency that is diametrically opposed to the previous administration. Now I don’t always agree with what comes out of his mouth, but I never have to wonder what our Donald Trump is thinking. In contrast, Joe Biden barely knew where he was at any given moment, and was only permitted to say what he was allowed to by his wife and the cabal of handlers that actually ran the country for the last four years. If you are a president with such an ambitious agenda as Trump, it makes sense that you should have a communicative and transparent administration. One thing is for sure. On the issues of inflation, illegal immigration, crime, declining national defense, toxic DEI policies, foreign policy and the size and scope of government, the policies of the Trump administration are diametrically opposed to the Obama-Biden administrations.
Regardless of whether you are conservative or liberal or any point in between, the laws of nature always act as a boundary. Folks can palaver all they want about what the role of government is, but if government cannot afford the wish list of the many grabbing hands always at the trough, the system will break. That’s where we are now. The folks who are complaining about the serious waste, fraud and abuse (WFA) cost-cutting mission the Trump administration has embarked on, are usually the ones benefitting directly or indirectly from the flow of that federal money. They complain that norms are being broken as if a “norm” is a law. Norms are what people are used to, and it can be uncomfortable when change comes. Riding horses used to be the norm for transportation, until the automobile came along. A lot of stable owners complained about the change, but in the end, they adapt because that’s the essential feature common to all species on this planet. Adapt or die.
With that said, the change that needs to happen is reducing federal spending so that we have a balanced budget and not continue the deficit spending that will make us all paupers. The last time we had a balance budget was a generation ago in 2001. Since then, our federal debt has increased 512% to the currently unimaginable level of $37 trillion. But the most important measure is the growth of our federal debt as a percentage of our national gross domestic product. That matters because it shows that our economic existence has become more dependent on the federal government. Since 1980 it has gone from 30% to today’s 120%, an increase of 400%.
If the United State has been spending a lot more than it takes in for decades, where has the extra money come from outside of the $5 trillion in taxes and fees Uncle Sam collected in 2024? The answer is that the federal govt prints the money by selling Treasury Bonds that are purchased by other governments, investors and increasingly the Federal Reserve, which is just another part of the federal government. You may ask, what about Modern Monetary Theory that claims that growing debt doesn’t matter if you can make the interest payments? The obvious answer is: That’s absurd. History shows that unbridled government spending causes currency and country collapse, and often war, which is devastating for everyone.
How is all this federal money spent you ask? Take a look at the chart below:
When you combine Social Security and Medicare that is paid to 69 million retired Americans (about 20% of the population), this represents 34% of total spending. Coming in a close second is welfare benefits (26%) given to the nearly 100 million citizens and illegal immigrants (30% of the population) who allegedly cannot take care of themselves. In short, 50% of the population receives subsistence benefits and that represents 60% of its total budget. A reflection of this unsustainable fiscal dynamic is the Labor Participation Rate (LPR). It is calculated by dividing the total number of workers or people looking for work, by the total population. It has declined steadily since 2005 to only 62.6% of the population. This makes sense because our government is clearly creating a disincentive to work with its overly generous benefits. The mother of all moral hazards. The irony is that nowhere in the Constitution does it say the federal government must spend this money. Sure, we should have a social safety net for those that fall through cracks, but that doesn’t mean half the population. And it certainly doesn’t mean that anyone has a Constitutional right to these benefits. Just as these social programs were created by Congress 90 years ago, and they can and should be changed by another Congress.
In my book, Locally Grown: The Art of Sustainable Government, I estimated at least 15-20% of federal dollar spent is lost on waste, fraud and abuse (WFA). It turns out my estimate from 7 years ago isn’t far-fetched given the just released report from the GAO, which shows trillions of improper payments. So I applaud the efforts of Trumps appointee, Elon Musk, to disrupt the Washington DC apple cart by doing a tech-driven deep analysis of government data to identify WFA. In the very short time since January 21, he has identified tens of billions of savings. Musk is also making recommendations to the President for shrinking the 3-million-person civilian federal workforce, much to the chagrin of those workers, most of whom have been working remotely for several years. So, what’s the point of continuing to pay for all those empty federal office buildings?
Social Security is a bit different in that the payroll taxes that are deducted from our paychecks are earmarked for the Social Security Trust Fund. It has been sold by politicians, starting with FDR, as a retirement program that is sacrosanct and in a “lockbox” that cannot be touched. That’s been proven to be total crap. The money goes into the general federal fund and is used for all kinds of things besides retirement benefits. The U.S. Supreme Court ruled in the case of Flemming v. Nestor (1960) that Social Security benefits are not guaranteed contractual rights and can be altered or cut by Congress.
Because we have such a low Labor Participation rate, Social Security is scheduled to go bust by 2034 unless changes are made. Too many elder Americans depend on Social Security for survival, and they rightly deserve the benefits they paid for and were promised. However, that doesn’t mean we have to tolerate the WFA that is rampant in the SSA. According to DOGE data, “20.789 million Americans are collecting social security benefits over the age of 100. Drilling down into the age buckets, benefits are still being paid out to folks over 140! “. Come on folks. This is either total incompetence or it a decades-long fraud conspiracy against American taxpayers.
Then there is Medicaid. As the WSJ reports:
“Keep in mind that Medicaid was established to help the needy—poor children, pregnant women, the elderly and disabled. Democrats have since expanded it by degrees into a far broader entitlement for able-bodied, working-age adults with lower incomes. No surprise, Medicaid spending is outpacing even Social Security and Medicare. Federal Medicaid outlays have increased 207% since 2008 and 51% since 2019. The press claims Republicans want to gut Medicaid. That’s false. They’re not even proposing a cut. Medicaid outlays are on track to increase by $2.4 trillion through 2035 under the Congressional Budget Office baseline projections. So, shaving $880 billion from that baseline would still amount to a $1.5 trillion increase in Medicaid spending. Republicans should long ago have fixed this baseline tyranny that automatically builds in new spending each year, but they’ve lacked the nerve.
To hit the $880 billion target, Republicans would merely need to slow Medicaid spending growth to about 2% annually. Mind you, this follows the Biden blowout when federal Medicaid spending has grown about 9% a year. One reason is Democratic-run states have figured out how to scam Medicaid to finance their other spending priorities. One trick is imposing taxes on hospitals and managed care insurance plans, which states then use to spend more on Medicaid to collect more federal dollars. For every dollar states spend on Medicaid, the feds chip in one to three. The match is nine-to-one for the Obamacare expansion population, which gives states an incentive to spend more on the healthy able-bodied than on the vulnerable.
Democrats and Republicans joined in 1991 to impose limits on such tax schemes so Medicaid wouldn’t become an open-ended subsidy fund sponsored by Washington. Alas, Congress gave New York a carve-out in 1997 (which Bill Clinton tried to scratch with a line-item veto), and the Biden Administration shrugged as Democratic-run states broke the rules. This is one reason Democratic-run states receive disproportionately more federal Medicaid dollars. New York received $3,046 for each state resident in 2023 based on the most recent federal data. Federal Medicaid dollars also subsidize California ($2,167 per resident) and Illinois ($1,715) much more than Florida ($991) and Texas ($1,239).”
Retirement benefits and social welfare are not in the Constitution. However, the Constitution does say that the federal government must provide for the national defense and pay its pay its debts. Defense is 17% of the budget which is significantly underfunded given the adversarial challenges of Russia and China. There are estimates out there from credible sources that we need to significantly increase defense spending to re-establish our deterrence against adversaries. This is something that Trump has vowed to fix. And of course, we must pay interest on our national debt which for the first time exceeds defense spending in 2024 at 18% of the budget. Paying rapidly rising interest on rapidly rising debt to fund the 50% (and growing) percentage of our population that is non-productive, while we shortchange national defense. Brilliant.
For decades our federal government has been providing a free lunch for half its population. Social Security, Medicare, and Welfare are payments to ourselves that we have voted for. They can only be changed by Congress and there hasn’t been bi-partisan support that resulted in meaningful changes to entitlements since the Reagan administration. Add this to mandatory payments on the national debt, and 78% of our federal spending is on autopilot headed for the cliff. I’ve been writing about this for years. Here’s a 2019 post and again in 2022 that deal with this topic. It’s only gotten worse. This just seems like a suicidal national strategy. Incidentally, this has been the strategy for most European countries for years, and it’s the reason they are in such serious trouble. Societies survive and prosper based on the productivity of their citizens. As the productive class that pays most of the taxes shrinks, so do the prospects of that society.
I think of the US Constitution as a guardian angel whose powers only work when you believe in them. Despite the many lawsuits that have emerged against Trump policies, the Constitution is on his side for most of them. Having a permanent Washington bureaucracy that is under the executive branch, but that executive branch has no power over, is clearly unconstitutional. As the WSJ reports,
“The federal government includes dozens of agencies that are nominally independent of the President even though they enforce laws and exercise other executive power. Such agencies took root during the Progressive Era of the early 20th century. Woodrow Wilson in particular disliked the Constitution and wanted government by bureaucratic experts shielded from political control. Thus, evolved today’s government alphabet soup of the SEC, FCC, FTC, FEC, CFTC, CFPB, FERC, FDIC, the Federal Reserve, and more. A century of evidence refutes Wilson’s premise, and Mr. Trump is now challenging it head-on. His argument, echoed by many modern conservative scholars, is that insulation from presidential authority runs counter to Article II’s command that the President “take Care that the Laws be faithfully executed.” If Congress has charged such agencies with enforcing laws, then the President should be able to supervise how they do their job.”
The American free lunch doesn’t just extend to its citizens, it also includes the 15-20 million illegal immigrants that were allowed to cross our borders for years. The previous administration has spent tens of billions on benefits for illegal immigrants, which doesn’t include the free public education their children receive. This has contributed mightily to the decline in our public-school performance. Here’s an excerpt from my book that illustrates my point using data from 2017. The problem has become much worse since then:
“A major driver of underperformance of our public schools is our loose immigration laws. Immigrant families are flooding into many large metropolitan areas, and the language and culture barriers are putting great pressure on the public schools. Here are some sobering statistics from a 2017 study by the Center for Immigration Studies:
• 23 percent of public-school students in the United States came from an immigrant household in 2015, compared to 11 percent in 1990 and seven percent in 1980. About one-third of those public-school students from immigrant households came from illegal immigrant households
• In 2015, 23 percent of American public-school students spoke a language other than English at home. This compares to 14 percent in 1990 and 9 percent in 1980.
• Immigration has added disproportionately to the number of low-income students in public schools. In 2015, 28 percent of public-school students from immigrant households lived in poverty and they accounted for 30 percent of all students living below the poverty line.
• Local schools struggle to deal with teaching in multiple foreign languages, which creates enormous challenges. In 315 Census areas (combined enrollment 6.7 million), 10 or more foreign languages are spoken by public school students.
• There are over 700 Census areas in the country where the public schools contain at least 50% of their students from immigrant households. Examples include:
· 93 percent in Northeast Dade County, North Central Hialeah City, FL
· 91 percent in Jackson Heights and North Corona, New York City
· 85 percent in Westpark Tollway between Loop I-610 & Beltway, Houston, TX
· 83 percent in El Monte and South El Monte Cities, CA
· 78 percent in Annandale & West Falls Church, VA
The children of illegal immigrants attend our public schools, which usually means that those schools need to make provisions for teaching in other languages besides English. Algebra is hard enough to learn without a language barrier. This dynamic also affects kids who are citizens who suffer from resources and curriculum being diluted in order to meet the needs of an increasing non-English speaking immigrant population. With this kind of challenge, we should not be surprised at the diminishing performance of our public schools. We cannot solve the problem of underperforming public schools in the long run without also reforming our immigration laws. I am certain there are a few billion people on the planet who would move to America if they could, especially if they could receive most of the public benefits citizens enjoy. Unfortunately, America would cease to exist if this were to occur. As our Constitution explicitly provides, solving our immigration challenge is solely the duty of the federal government. It is one the few enumerated powers outlined by our Founders.”
The free lunch also extends to Europe. Since the end of WW2, Europe has existed under the US military umbrella while EU countries bloated their social welfare spending at the expense of their own defense. The Ukraine-Russia war of the last 3 years has opened the eyes of EU leaders of the risk of their deteriorating national defense. While I don’t agree with Trump seemingly siding with Russia in the initial negotiations to end the war, it has made the Europeans realize that they must become responsible for their own security, and the security guarantees Ukraine will need to sign a peace deal. The mineral rights deal that Trump just signed with Ukraine will guarantee that America has an important strategic interest in protecting Ukraine from further incursions. A beefy European deterrent with the new powerful NATO members of Sweden, Finland, and Poland, with an American backstop feels like a much better deterrent against future Russian aggression than has existed for many years.
Make no mistake, the ending of the free lunch will mean some painful adjustment for the individual, corporate and non-profit Free Lunchers that have grown too dependent on federal largesse. If Trump is successful in accomplishing anything close to the $2 trillion reduction in annual spending over the next 4 years, I would expect a recession as people and companies adapt. Like a heroin addict going through a painful withdrawal until they reach that brighter future on the other side. The world order that has existed for the last 75 years is now changing in some fundamental and necessary ways that will ensure our survival as a nation and promote a stable and peaceful world. We will all get through it. We should all thank our Founders, and the Constitution they gave us which once again steps into the breach to save us from our worst impulses.