Rediscovering Republicanism: Renewing America with Our Founding Vision and Values 2021027643, 2021027644, 9780761872337, 9780761872344, 0761872337

Table of contents :
Cover
Contents
Acknowledgments
Introduction
Competing Visions
A Realistic Founding Vision
The Progressive Vision
The Big Government Experiment
Observing the Results
Windfall Politics
The Government Surcharge
Complexity Failure
Sovereignty and Solvency
Rehabilitate the States
Renewing Civil Society
Restoring Individual Sovereignty
Afterword: A Path Forward
Bibliography
Index
About the Author

Citation preview

Rediscovering Republicanism

Rediscovering Republicanism Renewing America with Our Founding Vision and Values John Nantz

H A M I LT O N B O O K S AN IMPRINT OF

ROWMAN & LITTLEFIELD

Lanham • Boulder • New York • London

Published by Hamilton Books An imprint of The Rowman & Littlefield Publishing Group, Inc. 4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706 www.rowman.com 86-90 Paul Street, London EC2A 4NE, United Kingdom Copyright © 2022 by The Rowman & Littlefield Publishing Group, Inc. All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review. British Library Cataloguing in Publication Information Available Library of Congress Cataloging-in-Publication Data Available Names: Nantz, John, 1986– author. Title: Rediscovering republicanism: renewing America with our founding vision and values / John Nantz. Description: Lanham: Hamilton Books, an imprint of Rowman & Littlefield, | Includes bibliographical references and index. | Summary: “Rediscovering Republicanism explores and explicates America’s two key political ideologies—founding-era American Republicanism and American Progressivism—and argues that American Republicanism rests on a sounder view of human nature and politics and offers the best path forward for renewing and reforming America's federal government today”—Provided by publisher. Identifiers: LCCN 2021027643 (print) | LCCN 2021027644 (ebook) | ISBN 9780761872337 (paperback) | ISBN 9780761872344 (epub) Subjects: LCSH: Federal government—United States—History. | Republicanism—United States—History. | Progressivism (United States politics)—History. | United States—Politics and government. Classification: LCC JK311.N36 2021 (print) | LCC JK311 (ebook) | DDC 320.473—dc23 LC record available at https://lccn.loc.gov/2021027643 LC ebook record available at https://lccn.loc.gov/2021027644 The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

To America’s Founding Fathers– Washington, Jefferson, Madison, and Lincoln among them. We owe our Republic to you. And to my very American mother, Jane Nantz. Being your son has been an incredible blessing.

Contents

Acknowledgments ix Introduction

1

PART I: COMPETING VISIONS



Chapter 1: A Realistic Founding Vision Chapter 2: The Progressive Vision

9

11



35

Chapter 3: The Big Government Experiment PART II: OBSERVING THE RESULTS Chapter 4: Windfall Politics



83



85

Chapter 5: The Government Surcharge Chapter 6: Complexity Failure



107



129

PART III: SOVEREIGNTY AND SOLVENCY Chapter 7: Rehabilitate the States



Chapter 8: Renewing Civil Society







147 149

Chapter 9: Restoring Individual Sovereignty Afterword: A Path Forward

61

169

191 217

vii

Contents

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Bibliography Index

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257

About the Author



271

Acknowledgments

This book would not exist without the contributions and support of many people. I first want to thank my inimitable research assistants: Gustav Axén, Alex Sanchez-Olvera, Chelsey Bartlett, and May Hlaing. Gustav worked with me in Washington, D.C. for a summer and returned to the United States from Sweden to work together during his December holiday. Sanchez-Olvera provided thoughtful research support, full-and part-time for over a year. Bartlett and Hlaing helped me complete the final draft manuscript during a summer of intensive work together at Stanford. This book would not be nearly as well-researched or insightful without this group’s support—and would not have been nearly as fun to write. Thank you. I also received support and encouragement from some true intellectual and literary giants. Amity Shlaes provided a much-needed boost of encouragement during a hard phase of writing. Dr. George Nash provided consistent, sincere encouragement over several years while guiding me to several books and thinkers that deeply shaped my thinking. Dr. Paul A. Rahe’s thinking and books—most notably his Republics Ancient and Modern (1992)—helped lay the intellectual foundation on which this book stands. A team of professionals helped get this book polished up and ready to share. Bernadette Serton spiritedly edited this book during the summer of 2020, re-architecting the manuscript and making it far more readable and insightful. She was also a pleasure to work with. I also want to thank the publishing team at Rowman & Littlefield’s Hamilton Books, and Brooke Bures in particular, for helping shepherd this book to publication. Family and friends played a critical role in making this book a reality. My friend Pat Casey accompanied me on this long and challenging journey for almost a decade. Your insights and challenges were invaluable. Charlie Page reviewed the manuscript multiple times, making thoughtful recommendations ix

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Acknowledgments

and editorial suggestions each time. And Jane Nantz, my mother, provided critical support throughout the writing of this book. In the beginning, almost everyone I spoke with discouraged me from writing this book, sometimes quite strongly. Mom, this book would not exist without you—thank you. Institutions helped too. I wrote most of the book at Stanford University, benefitting enormously from the resources and environment that Stanford afforded. And the Library of Congress provided an incredible venue to research and to write during my six-month stint in Washington, D.C. Throughout, the people who supported this book not only helped sharpen and challenge the thinking, writing, and ideas, but also made the process far more enjoyable and fun. Many thanks to everyone who helped move this book from idea to a reality. The book’s best parts often came from others; the faults that remain are my own. Many thanks to everyone who helped and supported this project—I cannot thank you enough.

Introduction

When well-designed institutions function properly, people thrive. Few institutions in human history have been more ingeniously designed than the United States federal government via the Constitution of the United States of America in 1787 and its essential appendix, the Bill of Rights, two years later. This auspicious beginning, more than two centuries ago, helps explain why the United States remains a magnet for opportunity seekers, students, entrepreneurs, dissidents, and persecuted believers, and why America’s Constitution—the first written constitution in history and the longest in service today—has served as an inspiration and model for emerging democracies around the world since its creation. Yet for decades now, America’s federal government has been underperforming in ways large and small. Social Security and Medicare—the federal government’s two largest undertakings after national defense—face looming insolvency. The federal government’s “war on poverty,” initiated in 1964, has not only failed to “end poverty,” as promised by President Lyndon B. Johnson, but also arguably made poverty more intransigent. Amtrak, America’s federally funded rail system, has never broken even since the U.S. Congress created it in 1971, and the U.S. Postal Service (USPS) lost more money in 2012—over $15 billion—than the nation spent on the U.S. State Department that same year.1 Recent years have not brought much improvement: the USPS lost $9 billion in 2019. How can an enduring institution, so thoughtfully crafted, now produce such poor results? Politicians, political scientists, and historians articulate answers within their disciplines. But the problem and its solution can be illuminated differently and perhaps more clearly by business strategists and organizational experts who work with organizations—businesses, non-profits, and governments—and study why some underperform and fail while others succeed. These experts certainly have more examples from which to learn. While the world has only 193 national governments, the United States alone has over 5 million businesses with 40,000 having 500 employees or more.2 In his 2009 book, How the Mighty Fall, business management and growth expert Jim Collins lays out five stages of organizational decline3. The first, 1

2

Introduction

“hubris born of success,” often leads to the second, an “undisciplined pursuit of more.” “Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall,” Collins explains summing up decades of research and experience. Overreach then leads to stage three—“denial of risk and peril”—and four—“grasping for salvation” and finally “capitulation to irrelevance or death.”4 While the United States is far from a failed organization “grasping for salvation,” the federal government certainly seems to be in the “undisciplined pursuit of more.” America’s Constitution gives Congress a limited set of powers laid out in eighteen short clauses in article 1, section 8, including the power to “borrow money,” “declare war,” and “regulate Commerce with foreign Nations.”5 For decades, the federal government largely stuck to these powers and remained focused and small. In 1860, federal employees represented less than 0.1% of the nation’s workforce, and the U.S. Attorney General completed the nation’s duties with two clerks and a messenger from 9 a.m. to 3 p.m.6 Today, the federal government has over 1,500 programs, 440 agencies, and fifteen executive cabinets, with responsibilities ranging from mail delivery, train service, and food stamps to federal healthcare programs for the old, poor, and otherwise uninsured.7 To run all of this, the federal government employs almost 5% of the U.S. workforce, excluding both national defense and the USPS.8 Looking at the federal government through the lens of an organizational assessment, one sees an institution that has deviated significantly from its original vision and values, grown tremendously with little regard for its comparative advantages and weaknesses, and largely disregarded the use of alternative institutions able to pursue the same ends more effectively. The federal government has grown so much because it has been tasked with serving a new and different vision, American Progressivism. A gathering force that started in the late 1800s, American Progressives saw a nation deeply in need of reform and improvement. Tainted and dangerous food and drugs, indigent and insecure elderly, and unsafe working conditions all cried out for solutions in an increasingly consolidated economy. In their view, the federal government stood out as uniquely positioned to address these problems and others. They believed that democratically elected, public-minded federal politicians and employees could set aside self-interest and use federal programs to solve the nation’s greatest problems in a way no other American institution could. Progressives had both an inspiring message and a compelling, evergreen argument for federal expansion: as long as things can be better—and they can always be better—the federal government should do more. This Progressive idea motivated and justified the federal government’s massive twentieth-century expansion and necessitated a transformation in public understanding and Constitutional interpretation of a federal government of

Introduction

3

limited, delegated powers to one with a nearly open-ended authority to create any program deemed to serve the “general welfare of the United States” given sufficient political support9. For over a century then, the country has run an experiment in large-scale federal expansion, and the results are clear: in practice, the Progressive idea does not work as promised. The federal government’s inherently bureaucratic approach has failed to “end poverty” as President Johnson promised in 1964. Motivated by short-term political self-interest, federal politicians have consciously mismanaged Social Security and Medicare for decades, driving both toward insolvency. And federal employees, tasked with running the USPS and Amtrak for the public’s benefit, have proven as self-interested as most Americans but far more able to influence federal policymaking to serve their interests. Simply put, the Progressive vision drove the federal government to overreach and to fail. The federal government’s consistently troubling results call for a long overdue shift in vision and a rebalancing of responsibilities. Such a shift does not require rethinking our Constitution and political system. In fact, the best path forward requires the opposite: understanding and re-applying the vision, values, and ideas that gave rise to the 1776 Declaration of Independence and the Constitution—founding-era American Republicanism. In his 1969 book, The Creation of the American Republic, historian Gordon S. Wood succinctly describes the underlying vision of America’s founding: The people were regarded as the supreme and continuing repository of all political power, distributing some of it to their agents in the state governments, some to their agents in the federal government, and reserving the rest. . . . It followed that all governmental power, whatever its nature or function, was something of a delegation by the people.10

The American people then—not the Congress, President, or state governments—held all political sovereignty and, by ratifying the state and national constitutions, chose to delegate certain powers to the federal and state governments’ three branches—legislative, executive, and judicial—based on need and on comparative advantage. All other powers the people reserved for themselves. American Republicanism represented a watershed development in world history and republican government. Unlike the Greek city states, America’s Republic would have elected representatives, not direct democracy, limited government powers, and the rule of law. Americans would not gather in a faux trial and pronounce a Socrates guilty for corrupting the minds of its youth and then sentence him to death. Unlike Rome’s Republic, America’s would have

4

Introduction

a one-person one-vote system and strong, expansive individual rights. And unlike England, America would have a written Constitution—and no King. In designing the country’s Constitution and political regime, the founders took a clear-eyed, critical view of human nature and politics. Largely pursuing self-interest, humans seek personal gain and naturally fall into “self-interest,” “faction,” and even “corruption,” characteristics “sown in the nature of man,” as James Madison argued in “Federalist 10.”11 Elected politicians and public employees should be expected to act accordingly. In an ideal world then, the country would not have a central government. James Wilson, a signer of the Declaration of Independence and future Supreme Court Justice, explained in a 1790 speech to a large gathering of American political leaders including President Washington, “In the just order of things, government is the scaffolding of society: and if society could be built and kept entire without government, the scaffolding might be thrown down, without the least inconvenience or cause of regret.”12 Such thinking justified the country’s lack of a real national government for more than ten years, from 1776 to 1789. But real-world events provoked a rethink. By 1787, worrisome domestic instability and substantial foreign threats convinced the leaders of the founding generation that the country needed a central government, despite such a government’s intrinsic flaws, risks, and dangers. They designed a political system that did not deny but rather made use of individual self-interest to create a more virtuous and stable political system. John Taylor, a founding-era American political theorist, explained the approach: “an avaricious society can form a government able to defend itself against the avarice of its members” by using “the interest of vice . . . on the side of virtue. . . . If virtue, as a basis of government, be understood to mean, not that the principles of government, but that the individuals composing the nation must be virtuous, the republicks [sic] would be founded in . . . the evanescent qualities of individuals” and at risk of failure. The American system, then, was based on a belief that “the principles of a society may be virtuous, though the individuals composing it are vicious.”13 Consequently, the founding generation gave the federal government as few, necessary powers as possible and then limited, divided, and checked those powers, using the diverse and competing interests of the people, the states, and the three branches of the federal government to keep the system functioning properly and well. The founders established this political regime to serve a larger, bold, positive vision for a new country and society that would give primary place to the individual self-governing citizen and each citizen’s “pursuit of Happiness.” This would foster a dynamic, commercial, and diverse society with the people taking on most responsibilities themselves. State governments and civil institutions and associations would take on the vast majority of domestic

Introduction

5

problems—from roads to schools to indigent care—and the federal government would take on a few critical but necessary powers including the defense of the country, regulation of international trade, the management of a federal legal system, and control over the nation’s post offices. This original vision can be re-applied to the country’s current situation and put the country back on track. This book starts by seeking to understand why the Progressive vision— ascendant for nearly a century now—has failed to meet its own expectations. Part I of this book, “Competing Visions,” researches and distills the intellectual and political history behind founding-era American Republicanism and then American Progressivism, and presents firsthand reactions to the implementation of Progressivism—from the White House to the academy. Part II, “Observing the Results,” highlights the results of America’s Progressive experiment in three chapters, organized around terms coined to describe what went wrong. “Windfall Politics” documents how federal politicians, for decades, prioritized their own re-elections over the country’s longterm fiscal sustainability when setting Social Security and Medicare policy. This policymaking pattern, “windfall politics,” has directly and inevitably led to the insolvencies faced today. “Government Surcharge” shows how the self-interest and lobbying power of federal employees—at the USPS and Amtrak—naturally leads to a surcharge in which services provided by the federal government cost more for the same or worse quality of service than would private alternatives. And “Complexity Failure” shows how the federal government’s inherently bureaucratic, top-down approach has failed to effectively ameliorate poverty, because this approach precludes the quick learning, adaptation, and responsiveness required to effectively address complex, dynamic problems, such as poverty. Part III, “Sovereignty and Solvency,” suggests a path forward by re-envisioning American Republicanism and applying it to today. “Rehabilitating the States” argues that America’s fifty state governments have an inherent advantage over the federal government in addressing complex problems. These independent “laboratories of democracy,” are collectively more innovative, closer to the people, and predate the federal government, and should be the default owner for domestic democratic life, starting with the creation, funding, and facilitation of social welfare programs14. “Renewing Civil Society” argues that American philanthropies, non-profits, community groups, and businesses should take the lead on various issues of public concern, from medical research to manned space travel, because they are both more innovative and more efficient. Finally, “Restoring Individual Sovereignty” makes the case that, in line with our founding vision, individual American citizens should be given pride of place and made sovereign over as many parts of their lives as possible. Applying this principle, this chapter

6

Introduction

argues that America’s mismanaged, insolvent social insurance programs— Social Security and Medicare—should be prudently replaced over time with programs based on individual accounts, backstopped by federally guaranteed minimums. The federal government would still retain many critical responsibilities, from national defense and foreign affairs to voting and civil rights protections, as well as old-age income and healthcare minimums. In an era of substantial political fermentation and debate, re-envisioning and re-applying American Republicanism represents the best path forward for the United States. In 1776, the Declaration of Independence declared, “That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it . . . laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”15 Such a time has come. In line with the country’s founding vision and values, the federal government should retain many necessary responsibilities but turn over those where it has failed—for social welfare, federally provided services, and retirement savings among others—to the country’s state governments, civil society, and individual citizens respectively. NOTES 1. Eric Katz, “Postal Service Doubles Annual Losses to $8.8 Billion,” Government Executive, November 14, 2019, https://www.govexec.com/management/2019/11/ postal-service-doubles-annual-losses-88-billion/161317/ (accessed December 15, 2020). 2. North American Industry Classification System (NAICS) Association, “Businesses by Employee Count,” NAICS, June 2016, https://www.naics.com/ business-lists/counts-by-company-size/ (accessed December 15, 2020). 3. Jim Collins, How the Mighty Fall: And Why Some Companies Never Give In (New York: Collins Business Essentials, HarperCollins, 2009). 4. Jim Collins, The Five Stages of Decline, https://www.jimcollins.com/concepts/ five-stages-of-decline.html# (accessed January 15, 2021) 5. U.S. National Archives, The Constitution of the United States: A Transcription (July 4, 1776), https://www.archives.gov/founding-docs/constitution-transcript (accessed December 16, 2020), art. 1, sec. 8. 6. Richard Franklin Bensel, Yankee Leviathan: The Origins of Central State Authority in America, 1859–1877 (Cambridge: Cambridge University Press, 1990), 94–118; see also Lawrence M. Friedman, A History of American Law, 3rd. ed. (New York: Simon & Schuster, 2005). 7. U.S. National Archives. “List of Agencies,” Federal Register (The Daily Journal of the United States Government), (2020), https://www.federalregister.gov/ agencies (accessed July 1, 2020); U.S. Government Accountability Office (GAO),

Introduction

7

“Government Efficiency and Effectiveness: Inconsistent Definitions and Information Limit the Usefulness of Federal Program Inventories,” Report to Congressional Committees, GAO-15–83, October 2014, https://www.gao.gov/assets/670/666735. pdf (accessed December 15, 2020). 8. Paul C. Light, “The True Size of Government: Tracking Washington’s Blended Workforce, 1984–2015,” Issue Paper, Volcker Alliance (NYU), October 2017, 2–4, https://cdn.govexec.com/media/gbc/docs/pdfs_edit/100517cc1.pdf (accessed December 15, 2020). 9. U.S. National Archives, The Constitution of the United States: A Transcription (July 4, 1776), https://www.archives.gov/founding-docs/constitution-transcript (accessed December 16, 2020), art. 1, sec. 8. 10. Gordon S. Wood, The Creation of the American Republic, 1776–1787 (Chapel Hill: University of North Carolina Press, 1969), 546. 11. James Madison, “Federalist No. 10,” “The Same Subject Continued: The Union as a Safeguard Against Domestic Faction and Insurrection,” November 23, 1787, New York Packet, https://guides.loc.gov/federalist-papers/text-1-10 (accessed December 16, 2020). See also Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, MA: Harvard University Press, Belknap Press, 1992). 12. James Wilson, The Works of the Honourable James Wilson, L.L.D., Late One of the Associate Judges of the Supreme Court of the United States, and Professor of Law in the College of Philadelphia, published under the direction of Bird Wilson, Esquire (Philadelphia: Lorenzo Press, printed for Bronson and Chauncey, 1804), vol. 1, 35. Available online at http://deila.dickinson.edu/theirownwords/title/0006.htm (accessed January 11, 2021). 13. John Taylor, An Inquiry into the Principles and Policy of the Government of the United States, new ed. (New Haven, CT: Yale University Press, 1950), 460–61; first published Fredericksburg, VA: Green and Cady, 1814. 14. New State Ice Co. v. Liebmann, 285 U.S. 262 (1932). 15. U.S. National Archives, The Declaration of Independence: A Transcription (July 4, 1776), https://www.archives.gov/founding-docs/declaration-transcript (accessed January 11, 2021).

PART I

Competing Visions

9

Chapter 1

A Realistic Founding Vision

“We must take human nature as we find it. Perfection falls not to the share of mortals.”—George Washington to John Jay, 17861

In the summer of 1787, the thirteen American states found themselves besieged by crises. Revolting from English rule in 1776, the American states had rebelled, fought a long war, and finally won independence in 1783. But their revolution’s success had not brought an easy peace. Threats from hostile foreign powers, international disputes, significant fiscal pressures from wartime debt, state-on-state tariffs and conflicts, and a nearly year-long open rebellion in western Massachusetts, all combined to put the country into crisis.2 As historian Paul A. Rahe sums up in his Republics Ancient and Modern, “for the makers of the American Revolution, those eleven years [1776–1787] had been a sobering experience.”3 In May and June 1787, fifty-five men headed to Philadelphia to “take into consideration the situation of the United States”4 and “to render the constitution of the Federal Government adequate to the exigencies of the Union” in the words of the 1786 Proceedings of the Commissioners in Annapolis.5 The Proceedings, written in September 1786 by representatives from five states, highlighted the “numerous” challenges the new country faced both “foreign and domestic.” The situation was “of a nature so serious, as . . . to render the situation of the United States delicate and critical.” The English refused to vacate forts located on American territory, as promised in the 1783 Treaty of Paris.6 Spain had closed the Mississippi River and port of New Orleans to American commerce.7 And, Barbary pirates in North Africa had begun seizing American ships in the Mediterranean.8 The country’s Confederation Congress and thirteen former colonies, now states, seemed unable to effectively respond. The Confederation Congress— the country’s national government—directly controlled only a small force of approximately 625 men and could only request, but not require, funds from the several states.9 These funding requests often went unfulfilled, either 11

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Chapter 1

entirely or partially. Therefore, even the few men under the Confederation Congress’ command often went unpaid, precipitating some to leave and others to threaten mutiny.10 State governments controlled most of the country’s military force as each state maintained and controlled its own militia and army.11 In 1785, the Continental Congress auctioned off its last ship—the U.S.S. Alliance—leaving the national government without a single naval vessel. Instead, several states had built their own small navies.12 Domestic affairs offered other substantial challenges. Each state set its own trade policies, both with foreign powers and with the other twelve American states. When several New England states closed their ports to English shipping during a dispute, Connecticut kept its ports open to benefit.13 States with ocean ports, such as New York and Virginia, imposed state tariffs on imported goods.14 While these tariffs raised revenues for these states, it increased prices for residents of other states that lacked large ocean ports, such as New Jersey and North Carolina.15 Such states were a “cask tapped at both ends,” “a patient bleeding at both stumps,” one contemporary commentator complained.16 Even wholly domestic American trade found itself subject to inter-state taxes. Rhode Island imposed a tax on all traffic passing through its heavily used postal road.17 Contemporary observers linked many of these problems to the Confederation Congress’ limited powers. The Confederation Congress could only request financial “assessments” from the states, but did not have the power to impose taxes.18 No state paid all its assessments; Georgia paid none.19 This led to a haphazard supply of both funds and soldiers.20 During the Revolutionary War (1775–1783), men in the Continental army nearly starved during several winters due to a lack of funds and of provisions and, in 1785, the Confederation Congress defaulted on its interest payments to France.21 Almost all traditional government powers, from taxes to trade policy, remained with the states.22 The Continental Congress could neither create laws nor establish a judiciary to enforce them.23 The Congress even lacked the ability to directly employ staff.24 In practice, the “United States” were really a loose confederation of independent sovereign states, not a common country with a unified national government. In the summer of 1786, matters came to a head. An outright domestic insurrection, Shays’ rebellion, broke out in western Massachusetts on August 29, 1786, led by farmers and former Revolutionary soldier Daniel Shays.25 Many of the area’s Continental Army veterans refused to pay new state taxes and onerous debt burdens. Lacking soldiers, the national government could not muster a response; therefore, Massachusetts leaders acted independently, raising a privately funded army of 3,000 men using funds from over one hundred local merchants.26 The rebellion continued in force until February 1787.

A Realistic Founding Vision

13

The rebellion symbolized the national government’s deficiencies and sharpened support for substantial political reform. As early as 1783, George Washington had expressed serious misgivings about the new nation’s political system and national government, worrying the United States would “become the sport of European politics” without a stronger central government.27 In response to Shays’ Rebellion, Washington wrote a candid letter to his close friend, Henry Lee, “You talk, my good sir, of employing influence to appease the present tumults in Massachusetts. I know not where that influence is to be found. . . . Let us have a government by which our lives, liberties, and properties will be secured, or let us know the worst at once.”28 Lee wrote back, arguing the country’s instability was “not confined to one state or to one part of a state” but affected “the whole.”29 Washington, Lee, and many others had come to believe that the country needed to substantially reform, if not to entirely remake its central government. A MORE PERFECT ORGANIZATION The United States had in place a world-changing vision, The Declaration of Independence, but was having serious trouble implementing it. “Life, Liberty and the pursuit of Happiness. . . . That to secure these rights, Governments are instituted among Men. . . . whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government.”30 The country’s government seemed to be unable to “secure” its citizens’ rights so the people had the “Right” to “alter” it and “institute new Government.” The goal would be to deliver on and the fulfill of the Declaration’s vision, not to undermine it. The assembled men would need to establish a national government that reflected the Declaration of Independence’s values, while also able to address the real-world exigencies that threatened the country’s existence. The task would not be easy. The gathered men would have to bridge profound differences in the states’ concrete interests, particularly with the relationship between political representation and population and with the institution of slavery.31 The debates proved fractious but resolvable. Populous states favored representation based on population; less populous states wanted equal state representation regardless of population.32 The proposed Constitution of the United States of America struck a compromise. The national legislature would consist of two chambers—a House and a Senate. Representation in the House would be based on population. Representation in the Senate would give each state equal representation.33 Both chambers would have to pass a bill before it could become a law. Both more and less populous states could claim a victory.

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Chapter 1

The debate over slavery proved equally tense. Slave state representatives generally wanted protections for, and some political advantage from, slavery. Representatives from states with fewer slaves and stronger antislavery sentiment largely opposed such measures. As Luther Martin of Maryland argued, the slave trade “was inconsistent with the principles of the revolution and dishonorable to the American character to have such a feature in the Constitution.”34 But some compromise would be necessary if the delegates wanted states that were supportive of slavery to ratify the U.S. Constitution. As Charles Pinckney from South Carolina argued, “South Carolina can never receive the plan if it prohibits the slave trade.”35 Consequently, the delegates struck a compromise. Slavery would not be abolished, and slave imports could not be banned until 1808.36 States would get House representation proportional to “free Persons” plus “three-fifths of all other Persons” (that is, slaves). And a fugitive-slave clause guaranteed the return of escaped slaves, even from states that had banned slavery.37 But the Constitution still reflected a deep-seated skepticism, even implicit opposition, to slavery. The Constitution never used the term “slave,” instead using various circumlocutions, such as “other Persons,” to get around including the word.38 Moreover, most delegates expected Congress to use its power to ban slave imports in 1808, and it did. While the Constitution did not guarantee the institution of slavery, it nonetheless allowed it—a morally fraught but politically necessary compromise. DESIGNING A DIFFERENT KIND OF REPUBLIC The delegates had to address more than just profoundly conflicting concrete interests such as slavery. They also had to master a profound conceptual challenge: creating a central government with the powers needed to govern effectively, while still protecting and elevating individual natural rights and voluntary pursuits over political interests and power. Americans’ deep-seated wariness about political power, particularly centralized political power, made this difficult work, even with the many crises of the last few years. Reflecting the country’s Revolutionary ideals, the founders envisioned a society that gave primary place to the individual self-governing, citizen’s domestic family life, work, beliefs, and commercial, scientific and technical pursuits—not politics. As Rahe explains in his Inventions of Prudence: Constituting the American Regime, “the pursuit of happiness” was an instructive guide to America’s new citizens and the men gathered in Philadelphia, not a rhetorical flourish.39 The American founders wanted to “establish a polity that would give first place to man’s capacity as a tool-making animal”—not a “political animal”—with an emphasis on “labor, commerce,

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and technology.”40 As the Declaration of Independence stated, government could—at best—provide the conditions in which citizens could pursue a well-lived “life,” exercising their “liberty” in the “pursuit of happiness.” The individual, self-governing citizen represented America’s primary political unit and its raison d’être (reason for being). This theory of government represented a world historical event, a break with previous political history. Heretofore, citizens existed to serve their governments; in the United States, government existed to serve its citizens. Self-governing citizens would direct their lives in the “pursuit of happiness,” and these citizens and families would voluntarily come together—in churches, aid societies, businesses, etc.—to take on greater challenges and opportunities than they could alone. State governments—closer to the people and their preferences—could handle almost all domestic political issues, as they had for decades and centuries before 1787. Moreover, many Americans viewed political power—and central governments such as England’s, in particular—with deep-seated concern and even outright distaste. The American colonists had justified their Revolution from English rule as a legitimate response to what they viewed as a corrupt, predatory, self-serving, and distant central government that had become dismissive and abusive of their liberties.41 “The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States,” the Declaration of Independence declared before offering a long list of such “injuries and usurpations”: He has refused his Assent to Laws . . . forbidden his Governors to pass Laws . . . dissolved Representative Houses repeatedly . . . obstructed the Administration of Justice . . . made Judges dependent on his Will alone . . . kept among us, in times of peace, Standing Armies . . . plundered our seas, ravaged our Coasts, burnt our towns, and destroyed the lives of our people.42

“A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people,” the Declaration concluded before making the case that, “These United Colonies are, and of Right ought to be Free and Independent States.” The American colonists viewed this tendency toward corruption and tyranny as endemic to politics, not unique to the American colonies in the late 1700s. Subsequent political history has offered to this view substantial support. Even in the last decade, Venezuela—a once-prosperous Constitutional democracy—has descended into an authoritarian state with state-sanctioned political violence and sham elections, and Thailand’s constitutional monarchy has fallen to a military coup d’état. To America’s founders, tyranny

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represented an ever-present, political risk and threat, even if a latent one. Unsurprisingly then, America’s colonists looked at politics with substantial skepticism. From pre-Revolutionary pamphlets to the Constitutional Convention debates and beyond, founding-era Americans viewed politics as inherently dominated by “faction,” “private interest,” “corruption,” and even tyranny.43 Well-read Americans pointed not only to their recent experience with King George and the British parliament, but also to antiquity. Popular history books in the American colonies highlighted the widespread corruption, self-seeking, and illiberality of the ancient Greek city-states, Roman Republic, and then the Roman Empire, and as societies that gave primary place to political life, leaders, and decisions and a subordinate role to the individual private citizen.44 At best, the republics of antiquity offered political liberty—the ability to participate in politics directly (democracy) or via elected representatives (republics)—but not much in the way of private liberty. Many Americans were thus wary of combining self-interested humans and political power. As Thomas Paine argued in the opening lines of Common Sense in 1776, “Society is produced by our wants and government by our wickedness. . . . Society in every state is a blessing; but Government, even in its best state, is but a necessary evil.”45 Such concerns strongly hazarded against creating a powerful central government, one that could overshadow the country’s self-governing citizens, and thereby could potentially undermine, and even overthrow, the conditions needed for them to thrive in the “pursuit of happiness.” But this positive vision and deep-seated concern about political power had to be squared with the insecurity, disorder, and instability that besieged the young country in the absence of an empowered central government. Foreign threats, piracy, trade embargoes, inter-state tariffs, and a domestic rebellion had all combined to create a widespread sense of impending national crisis by the summer of 1787.46 The new country, or some portion of it, could fall to foreign antagonists, inter-state squabbling, domestic insurrection, or even a domestic civil war. To the men in Philadelphia, these were not theoretical concerns. Recent European republics, including Venice, Sweden, and Denmark, had all succumbed to hostile foreign powers or to internal tensions.47 As Bernard Bailyn points out in his Pulitzer Prize winning book, The Ideological Origins of the American Revolution, many delegates believed that “Republics had always been known to be delicate polities, peculiarly susceptible to inner convulsions and outer pressures.”48 The challenges all pointed to the need for a more powerful central government, but importantly, one that would respected the country’s founding vision of individual life, liberty, and the pursuit of happiness, and the commonly held concerns about political power.

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LIMIT, DIVIDE, AND CHECK In an attempt to balance all these considerations, the founders forged a foundational political idea that would underpin the Constitution and the subsequent Bill of Rights: the federal government should take on as few necessary powers as possible and then limit, divide, and check those powers as much as possible.49 The idea reflected a pragmatic balance and deep-seated realism. As either Alexander Hamilton or James Madison summed up in the February 8, 1788 writing, now known as “Federalist No. 51,” written a few months after the Constitutional convention: If men were angels, no government would be necessary. . . . In framing a government . . . the great difficulty lies in this: you must first enable the government to control the governed; and in the next place, oblige it to control itself. 50

The proposed federal government’s few necessary powers reflected the country’s need to protect and preserve itself amid the many existential threats. The limits, divides, and checks would attempt to minimize the risks to the country’s citizens, and to the nation as a whole, of creating and empowering such a federal government in the first place. The proposed system assumed that some, even many, people elected or appointed to office might be self-serving, corrupt, and potentially even tyrannical and not virtuous. “The Federalists hoped to create an entirely new and original sort of republican government—a republic which did not require a virtuous people for its sustenance,” explains historian Gordon S. Wood in The Creation of the American Republic, 1776–1787.51 The gathered delegates worked out this idea in the Constitution’s structure and details. The Constitution granted the federal government the power to protect the country from foreign and domestic military threats, establish a federal judiciary to address international, inter-state, and bankruptcy cases; regulate foreign and inter-state commerce; coin money; guarantee contracts; charter a national postal system; and establish patent and copyright law “to . . . promote the Progress of Science and useful Arts.”52 Often overlooked, the inclusion of patent and copyright law represents a point of “profound importance,” Rahe argues, as a concrete manifestation of the Founders’ positive vision for an American society focused on commerce, technology, science, and labor.53 Such a dynamic, commercial, and scientific society could help justify the new political regime and prove salutary to its survival. These social characteristics would help the nation accrue wealth and the technological know-how to aid in its defense, soften the latent causes of faction by directing people’s energy to self-improvement, discovery, and commerce, and thus reduce the energy and turbulence of politics. “They

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clearly had incentives in mind when they put clause 8 into Article I, Section 8, of the Constitution: ‘To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries,’” observes economist John B. Taylor in his 2012 book, First Principles.54 In addition to this enumerated list of powers, the Constitution guaranteed a few core individual rights and political constraints applicable to the federal and, in some instances, the state governments as well. The guarantees included the Constitution’s ban on “ex post facto” laws or any “bill of attainder”—legislative acts that declare an individual or group guilty without trial—both for the federal government (article 1, section 9) and state governments (article 1, section 10). The clauses implied that Americans deserved due process and fair trials. The Constitution further banned religious tests for federal office and staff (“no religious test shall ever be required”), guaranteed the inviolability of contracts (“No State shall . . . pass any . . . Law impairing the Obligation of Contracts”) and gave Congress control over the country’s bankruptcy laws (“uniform Laws on the subject of Bankruptcies throughout the United States”). The last two—contract inviolability and federal control over bankruptcy law—reflected common concerns about recently passed, economically illiberal state laws that tampered with private contracts and bankruptcy rules. Such actions threatened the foundations of the self-governing, commercial, tool-making society that the men wanted to foster and build so the Constitution banned them. Some attendees—most notably Madison—were so concerned with illiberal state legislation that they argued that the federal government should have veto power over all state laws.55 The proposal failed. But this basic and critical political pattern—of the Constitution guaranteeing individual rights from and placing limits on the federal and state governments—would be built on and expanded—not created—by the subsequent Bill of Rights and then the Civil War amendments that abolished slavery and then guaranteed citizenship and the right to vote for ex-slaves. The fifty-five men in Philadelphia had serious concerns about both federal and state government overreach and took concrete steps in the Constitution to address those concerns. While creating and empowering the proposed federal government, the delegates also had to find a way to control it. The gathered men—in common with many of their contemporary Americans—believed human nature’s tendency towards “faction,” “self-interest” and even “tyranny” required effective and sturdy restraint. “Take mankind as they are, and what are they governed by? Their passions . . . ambition and interest,” Alexander Hamilton argued, summarizing the view of his contemporaries.56 John Adams, the future President, wrote from London as America’s ambassador during that

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period, “Religion, superstition, oaths, education, laws, all give way before passions, interest, and power, which can be resisted only by passions, interest and power.”57 As historian Bailyn notes, the founding generation believed that “what turned power into a malignant force, was not its own nature so much as the nature of man—his susceptibility to corruption and his lust for self-aggrandizement . . . on this there was absolute agreement.”58 To protect the country and its citizens from the proposed federal government, the assembled delegates created a three-pronged strategy: limit, divide, and check federal powers. First, the federal government’s political powers would be limited to the enumerated lists laid out in articles 1, 2, and 3 of the Constitution. The federal judiciary could invalidate laws or executive actions that went beyond the enumerated powers. The implication was clear: the federal government had certain powers; the states and the people had right to all others. The federal government’s limited powers were then divided between the three federal branches: legislative, executive, and judicial. Congress could pass laws to “lay and collect taxes” and “declare war.” The President had power to sign a bill or “return it (a bill), with his Objections to that House in which it shall have originated.” The Supreme Court had the power to decide “all Cases, in Law and Equity, arising under this Constitution.” And finally, each branch could check the others. Congress could write bills, but the President could veto them. The President commanded the armed forces, but only Congress could fund them and declare war. Congress could make laws, but the Supreme Court could potentially invalidate them. As either Hamilton or Madison would later explain in “Federalist No. 51,” the Constitution “by so contriving the interior structure of the government . . . that its constituent parts may, by their mutual relations, be the means of keeping each other in their proper places.”59 Passion and interest would be pitted against passion and interest, an arrangement “essential to the preservation of liberty” Madison (or Hamilton) argued. The Constitution would not rely on virtuous men. The Constitution would rely on a system that assumed men to be self-interested but then use that self-interest to protect and to preserve the system as a whole. Elected legislators, jealous of their powers, could use their power to fund the military and declare war as a check on a President over-eager for military conflict. Federal judges, keen to preserve a just and fair legal system and judicial powers in general, could act as a check on legislators eager to pass popular political laws that went beyond the powers that were granted Congress in the Constitution. As historian Rahe concludes, the Constitution acted as “an instrument for the implementation of their [the Founders’] Declaration of Independence,” which designed a political system to protect and give primary political place to the individual citizen, not the government.60

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By summer’s end, the delegates had finished. The men had compromised, developed a profound political idea, and written a Constitution. The final product represented the men’s best attempt to balance the country’s positive vision, wariness of political power, and need for a central government able to effectively address the country’s many challenges. “The American Constitution is the final and climactic expression of the ideology of the American Revolution,” historian Bailyn summed up.61 The Constitution then went to the states and the people for ratification. RISK AND REWARD Ratification proved difficult. Nine states were needed to ratify and “We the People” were not unduly impressed. Opposition proved widespread, deep, and often fierce.62 Opponents, dubbed “Anti-Federalists,” argued that the costs and risks of the proposed federal government outweighed those of the status quo. The anti-Federalists mustered numerous arguments to support this claim.63 The Constitution granted too many federal powers. The federal government would become corrupt, abusive, and perhaps even tyrannical.64 The federal government’s limits, divides, and checks would be insufficient and ineffective.65 Humans, even duly elected American ones, could not be trusted with this amount of centralized political power.66 The arguments were largely not new. The Americans had used many of the same ones to argue for independence from the British only a decade before. The arguments were rooted in a fundamentally skeptical view of human nature and politics, applicable to all governments at all times, including the one now proposed. But the Constitution had numerous, influential supporters too, who were equipped with a powerful argument. As historian Bailyn describes, “They (Federalist supporters) had . . . to convince doubters that the existing situation was disastrous, verging on chaos, and that only a radical strengthening of the powers of the central government would solve the nation’s problems,” with an argument rooted in “hardheaded realism.”67 And while men could not be trusted to be virtuous, “there is a portion of virtue and honor among mankind,” Hamilton and Madison would argue, and enough to support the proposed Constitution given its thoughtful design and many safeguards.68 In the end, the country’s dire situation proved most persuasive. The status-quo simply seemed unsustainable. The ratification contest began favorably. Delaware, Pennsylvania, New Jersey, Georgia, and Connecticut all ratified the Constitution in December 1787 and January 1788.69 New Jersey and Georgia’s delegates did so unanimously.70 The contest then turned to less favorable states. In critical

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Massachusetts, delegates opposing the ratification started that state’s convention with a majority.71 Two leading anti-Federalists—John Hancock and Samuel Adams—then negotiated a compromise.72 A small group of anti-Federalists would support ratification with the understanding that a “bill of rights” be added to the Constitution.73 The compromise proved critical: Massachusetts ratified with 187 votes to 168, a 9-vote margin.74 The Massachusetts win gave momentum to and a model for subsequent state conventions: approval with the request or stipulation of adding a “Bill of Rights.” On June 21, 1788, New Hampshire formally ratified the Constitution by becoming the ninth state to ratify. In time, all thirteen states would ratify the Constitution and join the new American Union. During the First Congress in 1789, Madison—given the promises made in some state conventions and the preferences of his own local constituents—led the Congressional effort to draft and win approval for a “Bill of Rights.”75 Whereas the original Constitution limited federal powers by only granting certain powers, implying the federal government had no others, the Bill of Rights included explicit, formal limits and prohibitions stating what the federal government could not do. “Congress shall pass no law,” the First Amendment begins, before listing areas in which Congress lacked the power to legislate: “respecting an establishment of religion,” “abridging the freedom of speech, or of the press,” “the right of the people peaceably to assemble,” and so on. The following amendments operated similarly, listing things the federal government could not do (“unreasonable searches and seizures”) or must provide or respect (“the right of trial by jury”). The Ninth and Tenth amendments concluded by noting that the enumeration “of certain rights” did not “deny or disparage others retained by the people,” and that “powers not delegated” to the federal government “are reserved to the States respectively, or to the people.” The states ratified the Bill of Rights on December 15, 1791, when Virginia became the eleventh state to ratify. The Bill of Rights thus had to pass a higher threshold to be ratified than the original Constitution: eleven states were needed to ratify versus nine. THE AMERICAN POLITICAL REGIME The political regime established by the U.S. Constitution and the Bill of Rights thus focused the federal government on national defense, foreign affairs, a federal judiciary, and—inherited from the British government and viewed as a military necessity during the Revolution—the postal system. And the federal government focused almost exclusively on these areas in its first seven decades.

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During those decades, the state governments had responsibility for almost all domestic policy. As historian John Joseph Wallis points out, “From 1790 to the 1840s, state governments were the most active level of American government” and “invested widely in banks, canals, and other transportation improvements.”76 In 1825, the state of New York finished the Erie Canal, a project completed with no federal assistance.77 Some state governments earned so much “asset income” from some projects—primarily tolls on canals—that many were able to eliminate state property taxes, until an economic crash in the late 1830s that had put many under severe financial strain. By the late 1830s, state governments had more than eight times the debt of the federal government.78 Even then, from 1840 to 1860, state and local government revenues exceeded that of the federal government.79 Amid this state-driven effort, proposed federal investments in domestic infrastructure largely failed. In many areas of national life, state governments had a wider remit than the federal government because the constraints of the Bill of Rights did not apply against them.80 As previously noted, the Bill of Rights begins by stating that “Congress shall pass no law.” The prohibitions that followed applied only to the federal Congress, not to the state governments. In the country’s early decades, state governments regulated public speech, limited freedom of the press, and funded religious establishments before changes in state laws and state Constitutions ended these practices.81 But, another conflict loomed over the country and its political regime that was rooted in the institution of slavery. The Constitution’s uneasy compromise on slavery proved increasingly fraught and unstable. Missouri’s entry as a slave state in 1820 precipitated a heated Congressional conflict between slavery’s supporters and critics. “If you persist,” Representative Thomas Cobb of Georgia told opponents on the House floor in 1820, “the Union will be dissolved. You have kindled a fire which all the waters of the ocean cannot put out, which seas of blood can only extinguish,” the Congressman presciently predicted.82 The debate was a “fire bell in the night . . . the knell of the Union,” Thomas Jefferson declared in 1820, a rush of hot words and opening salvo in a conflict that would prove as traumatic and transformative to the young country as the revolution that established it only a few decades before.83 THE EARLY REPUBLIC Modern citizens of the United States would not recognize the antebellum federal government in the years before the Civil War.84 From 1789 to 1860, most Americans had no direct relationship with the federal government and

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its few officials and employees.85 Americans paid no federal income taxes or fees, and the federal government had no internal revenue service.86 The national government raised almost all its revenue from land sales and tariffs on foreign goods, with tariffs accounting for 80% to 90% of federal revenues with the vast majority assessed in the nation’s few large ports.87 Many U.S. counties lacked a single, full-time federal employee, including large sections of Texas, Louisiana, Alabama, and Georgia with the duties of the local post clerk handled part-time by store owners, law offices, inns, and saloons.88 The federal government did not pass a single economic regulation before 1860.89 The states did. In practice, the federal government resembled a unified defensive treaty organization and customs union among the several states, similar to a modern-day North Atlantic Treaty Organization (NATO) combined with a free trade zone and postal system. Consequently, the federal government employed few people. Federal employees represented less than 0.1% of the nation’s workforce in those years, with federal employees consisting of customs officials stationed in coastal cities including New York and Charleston, a smattering of officials in Washington, DC, and a small army of a little over 16,000 men who were mainly posted on the nation’s frontier.90 Visiting the United States in 1834 as part of a learning tour commissioned by the French government, Michel Chevalier reported that, “there is no government here in the true sense of the word; that is, no directing power. Each one is his own master; it is self-government in all its purity.”91 The young nation’s approach represented something entirely different, standing in clear and striking contrast with the nations of continental Europe.92 Most Congressman and many Senators treated their elected office as a part-time, often secondary, job. “Most kept their jobs as lawyers, doctors, editors, or planters while serving in Congress,” Rachel A. Shelden reports in Washington Brotherhood.93 Notoriously low pay did not help, and Congress often struggled to get the quorum needed to debate and to pass laws. To incent daily attendance, Congress began to pay each representative a per diem for attending sessions at the Capitol.94 Many elected federal officials voluntarily stepped down after a few terms, preferring private to political life.95 Washington, DC, was not a place that many ambitious men aspired to spend their lives. During his 1842 visit to the United States, novelist Charles Dickens remarked that Washington, DC, struck him as “a capital without a country.”96 If one had doubts about the federal government’s role, federal spending patterns made it clear. The government spent little—and targeted that spending precisely. Federal revenues constituted less than 2% of the nation’s economy in 1840 (1.7%) and 1850 (1.9%). In 1860, the federal government just exceeded 2% of the economy.97

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That limited spending was directed almost entirely to the few responsibilities Americans expected the federal government to fulfill: national defense, foreign affairs and the running of the nation’s government. Between 1790 and 1860, the majority of federal spending went to national defense (52%) and interest payments (12%) to pay debt incurred during the nation’s wars98. Most of the rest (33%) went to running the federal government’s executive, legislative and judicial branches and the nation’s postal system. Only 3% of federal spending during the period went to transportation and internal improvements. Other areas of spending constituted such small amounts that many accounts of federal spending at the time included no other major category. SLAVERY AND SCHISM Yet a deep, fraying tear ran across the country’s political and moral fabric: slavery. Slavery’s opponents increasingly viewed the institution as a moral abomination that should be abolished nation-wide. To many, slavery stood as a direct refutation of the nation’s founding vision as stated in the Declaration of Independence, “all men are created equal.” This view had crystallized during the revolution years, as Americans clarified their political ideas and—for many of them—found these ideas to directly and totally overthrow any justification for slavery. As historian Bailyn notes, “by 1776 it [slavery] had come under severe attack by writers following out the logic of Revolutionary thought.”99 Richard Wells, a Philadelphia citizen, argued in 1774 that American citizens could not “reconcile the exercise of slavery with our professions of freedom.”100 The “barbarous inhuman practice” should be abolished. Opposition to slavery grew in the decades after the Revolution. By 1804, all the Northern states had voted to abolish slavery within their borders.101 The federal government acted as well. Supported by Jefferson in his 1806 State of the Union, Congress passed The Act Prohibiting Importation of Slaves in March 1807, banning all slave imports nationwide starting on January 1, 1808—the earliest date allowed by the Constitution. In the country’s first few decades, many of America’s Southern political leaders—including Washington, Jefferson and Madison—owned slaves but viewed slavery as morally regrettable, if not repugnant, and hoped for its demise. “There is not a man living who wishes more sincerely than I do, to see a plan adopted for the abolition of it [slavery],” Washington wrote to Robert Morris in April 1786.102 At his death in 1799, Washington freed all of his slaves as instructed in his will, but he would be the only founding father to do so.103 But Southern sentiments changed, and slavery’s supporters began to strongly defend, and even promote, the “peculiar institution.” Technological

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and economic developments played a large role. Eli Whitney’s invention of the cotton gin in 1793 significantly increased the output of slave labor used to harvest cotton, while spinning and weaving improvements in England significantly increased cotton demand.104 The combination led to significantly more cotton demand, higher cotton prices, and increased slave prices. Southern defense of the institution increased, particularly in the states of the Deep South, which benefited the most from the cotton boom. By 1860, Southern property owners had almost half the region’s capital invested in slaves.105 As the South’s economic and social base became increasingly dependent on slavery, the region’s political leaders increasingly argued that slavery was morally acceptable, even good and just. As Governor James Hammond of South Carolina argued in the 1830s, slavery represented “the cornerstone of our republican edifice.”106 The increasingly bitter and deep-rooted disagreement became a national schism with the election of anti-slavery Republican Abraham Lincoln in November 1860. Lincoln’s opposition to slavery was clear. In a speech on September 17, 1859 in Cincinnati, Ohio, Lincoln stated his views: “I think Slavery is wrong, morally, and politically. I desire that it should be no further spread in these United States, and I should not object if it should gradually terminate in the whole Union.”107 Many in the South saw Lincoln’s election as an existential threat, and eleven Southern states voted to leave the Union in the months after his election.108 Civil War broke out in April 1861 when local Confederate troops opened fire on the Union’s Fort Sumter in Charleston, South Carolina.109 Many Confederate leaders viewed secession as heralding a new political regime in the South, one that explicitly rejected the American Republic’s founding value that “all men are created equal” and directly supported slavery. The Confederate States of America’s (C.S.A.’s) Vice President, Alexander H. Stephens, made this rejection explicit in his “Cornerstone” speech in Savannah, Georgia on March 21, 1861: The new constitution [the Confederacy’s] has put at rest, forever, all the agitating questions relating to our peculiar institution, African slavery. . . . This was the immediate cause of the late rupture and present revolution. . . . The old constitution . . . rested upon the assumption of the equality of the races. . . . Our new government is founded upon exactly the opposite idea; its foundations are laid, its cornerstone rests, upon the great truth that the negro is not equal to the white man; that slavery . . . is his natural and normal condition. 110

As Stephens further argued, “Thomas Jefferson and most of the leading statesman at the time [the founding period]” viewed slavery as “wrong in principle, socially, morally and politically” and that “the institution would

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be evanescent and pass away.” But these men were “wrong” on all those counts.111 The nascent Confederacy thus represented a conscious rejection of the country’s founding promise—incomplete but real—and an explicit break with the Union, abolition, and implicit promise of racial equality in America. THE UNION’S TRANSFORMATION America’s Civil War created not one but two new American governments: the new Southern Confederacy and a transformed federal government.112 The Union’s antebellum political arrangements and limited federal government barely survived the first few days of the war’s outbreak. As historian Richard Bensel argues, the war “produced an explosive expansion of central state authority” to prosecute and win the war. The conflict led to an “American state . . . transformed by the Civil War.”113 From 1861 to 1865, the federal government instituted the first federal income tax, imposed nation-wide, federal occupation fees and duties, nationalized regulation of the nation’s banking system, printed paper currency for the first time, built new federal agencies including the Bureau of Internal Revenue (BIR), and significantly expanded Presidential and Congressional powers.114 George Boutwell, the BIR’s first commissioner, described his new agency as “the largest Government department ever organized.”115 The department was created to raise funds to fight and win the war. Before 1862, the federal government imposed and collected no taxes from the typical American citizen. In fact, after 1817, the federal government collected no internal taxes at all.116 The nation’s revenues came from duties assessed on imported foreign goods and proceeds from government land sales. Yet enforcement of import duties were lax. Foreign boats would often dock and unload, unnoticed and untaxed in smaller ports along the Eastern coast.117 In South Carolina, one observer claimed that, “Nine-tenths of the merchandise . . . introduced into the port of Charleston arrive[d] free of duty.” Yet even these leaky sources of revenue proved more than sufficient to meet federal fiscal needs. In the 1830s and 1840s, the nation’s federal government enjoyed the rare historical circumstance of persistent fiscal surpluses, requiring some form of distribution.118 “The government managed to balance its budget, meet its deficits and fund its debts for some seventy-three years before being forced to adopt that desperate expedient [the income tax]” the New York Times would later observe.119 War and war’s necessities quickly changed this. The Union’s loss at the Battle of Bull Run in July 1861—and the ensuing panic about a potential Southern takeover of Washington, DC—minimized opposition to new federal revenue sources, including a potential federal income tax that existed in the

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early days of the war. As Northern politicians realized, the war would cost far more than initially expected and, as battlefield results suggested, could be lost. In August 1861, Congress passed the first income tax in U.S. history: a 3% tax on all incomes over $800.120 As with many federal measures during the war, the initial act only represented a starting point. Congress passed a far more extensive revenue act on July 1, 1862.121 The new law raised the tax rate from 3% to 5% and created the nation’s first inheritance tax. The federal government also began imposing a wide-ranging number of license fees. “As the cost of government increased, naturally the federal Government had to look for additional revenue.”122 The fees were broad and expensive, with license fees ranging from $10 for apothecaries and confectioners to $100 for wholesale liquor dealers. The new taxes and fees created a need for enforcement, so Congress created the Bureau of Internal Revenue, the predecessor to today’s Internal Revenue Service.123 The agency grew rapidly, employing over 3,000 agents working out of 185 collection districts across the country. Taxes were due in May. Tax avoidance or error could lead to an extra penalty of 50% or more. The taxes and fees grew and expanded as the war went on. By 1863, representatives in Congress viewed almost anything not taxed as an anomaly to be resolved. On March 2, 1863, the Senate took up debate on a proposal to impose a 2% tax “on all ships, barks, brigs, schooners, sloops, sail boats, steamboats, not including the engine, canal boats, and all other vessels or water craft hereafter built, made, or constructed.”124 Senator Collamer of New York argued in defense of the bill that, “This great business of ship-building is entirely an untaxed employment, while every other employment in the country that can possibly be mentioned or imagined has a tax upon it . . . I know of no reason why it should escape when everything else is taxed.” The bill passed. As one visiting European writer noted, “The citizen of the Union paid a tax every hour of the day . . . for each act of his life; for his movable and immovable property; for his income as well as his expenditure; for his business as well as his pleasure.”125 The substantial federal revenues helped the North increasingly outman, out-supply, and out-arm the Confederacy. In 1865, the Union’s objective advantages combined with the federal government’s prodigious wartime effort to win the war. The Union had 21 million citizens versus the Confederacy’s 5.5 million citizens and 3.5 million slaves. The Union thus had four men available to fight for every one in the Confederacy, plus a Southern slave population that was indifferent, at best, to a Confederate war effort being fought to keep them enslaved. Moreover, in the years before the war, while the South had invested in slaves, the North had invested in manufacturing, mining, railroads, and industrial production. In 1860, the Union had almost 90% of the country’s industrial base and produced 97% of its firearms, 96% of its locomotives, and 93% of its ply iron

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among other various crucial items.126 As the war went on, the Union increasingly outmanned and outproduced the Confederacy. In May 1865, the Union won the war.127 The Civil War had transformed the federal government, and the war’s end would not initiate a return to its previous form. NOTES 1. George Washington, Letter to “To John Jay,” August 15, 1786, Founders Online, https://founders.archives.gov/documents/Washington/04-04-02-0199 (accessed December 16, 2020). 2. Paul A. Rahe, Republics Ancient and Modern (Chapel Hill: University of North Carolina Press, 1992), 576–81; Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, MA: Harvard University Press, Belknap Press, 1992), 324–25. 3. Rahe, Republics, 576–77. 4. Alexander Hamilton, The Papers of Alexander Hamilton: Volume 3, 1782–1786, ed. Harold C. Syrett (New York: Columbia University Press, 1962), 686–90. 5. Annapolis, State of Maryland, Proceedings of the Commissioners to Remedy Defects of the Federal Government, Commissioners, from the States of New York, New Jersey, Pennsylvania, Delaware and Virginia, September 11, 1786, https:// avalon.law.yale.edu/18th_century/annapoli.asp#1 (accessed December 16, 2020). 6. U.S. Department of State, Office of the Historian, “John Jay’s Treaty, 1794– 95,” https://history.state.gov/milestones/1784-1800/jay-treaty (accessed December 16, 2020). 7. Arthur Preston Whitaker, The Spanish-American Frontier, 1783–1795: The Westward Movement and the Spanish Retreat in the Mississippi Valley, intro Samuel Eliot Morison (Lincoln: University of Nebraska Press, 1970). 8. U.S. Department of State, Office of the Historian, “Barbary Wars, 1801– 1805 and 1815–1816,” https://history.state.gov/milestones/1801-1829/barbary-wars (accessed December 16, 2020). 9. Richard P. McCormick, “Ambiguous Authority: The Ordinances of the Confederation Congress, 1781–1789,” American Journal of Legal History 41, no. 4 (1997): 411–39. https://www.jstor.org/stable/846083; Pauline Maier, Ratification: The People Debate the Constitution, 1787–1788 (New York: Simon & Schuster, 2010), 13. 10. Maier, Ratification, 13. 11. Stephen I. Vladeck, “Emergency Power and the Militia Acts.” Yale Law Journal 114, no. 1 (2004): 159–62, https://doi.org/10.2307/4135718. 12. Nathan Miller, The U.S. Navy: A History, 3rd ed. (Annapolis, MD: Naval Institute Press, 2014), 33. 13. John Ferling, John Adams: A Life (Oxford: Oxford University Press, 2010), 257–58.

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14. William Hill, “Protective Purpose of the Tariff Act of 1789.” Journal of Political Economy 2, no. 1 (1893): 54–76. https://www.jstor.org/stable/1819831. 15. Hill, “Protective Purpose of the Tariff Act of 1789.” 16. Cheesman Abiah Herrick, History of Commerce and Industry (New York: Macmillan, 1917), 314. 17. David E. Harris, Anne-Lise Halvorsen, and Paul F. Dain, Reasoning With Democratic Values 2.0, Volume 1, Ethical Issues in American History, 1607–1865, 2nd ed. (New York: Teacher’s College Press, 2018), chap. 7, 66. 18. Maier, Ratification. 19. Maier, Ratification, 11. 20. Maier, Ratification, 11. 21. John W. Wright, “Some Notes on the Continental Army,” William and Mary Quarterly 11, no. 3 (1931): 185–209, https://www.jstor.org/stable/1921024; U.S. Department of State, Office of the Historian, “U.S. Debt and Foreign Loans, 1775–1795,” https://history.state.gov/milestones/1784-1800/loans (accessed December 5, 2018). 22. Donald S. Lutz, “The Articles of Confederation as the Background to the Federal Republic,” Publius 20, no. 1 (1990): 55–70, https://www.jstor.org/stable/3330362. 23. Lutz, “The Articles of Confederation.” 24. U.S. Department of State, “U.S. Debt and Foreign Loans, 1775–1795.” 25. Rachel R. Parker, “Shays’ Rebellion: An Episode in American StateMaking,” Sociological Perspectives 34, no. 1 (1991): 95–113, https://www.jstor.org/ stable/1389145. 26. David P. Szatmary, Shay’s Rebellion: The Making of an Agrarian Insurrection (Amherst: University of Massachusetts Press, 1984), 84–100. 27. Rahe, Republic, 577. 28. George Washington to Henry Lee, quoted in Robert A. Feer, “Shays’s Rebellion and the Constitution: A Study in Causation,” New England Quarterly 42, no. 3 (1969): 396. https://www.jstor.org/stable/363616. 29. Lee, quoted in Feer, “Shays’s Rebellion,” 396. 30. U.S. National Archives, The Declaration of Independence: A Transcription, July 4, 1776, https://www.archives.gov/founding-docs/declaration-transcript (accessed January 11, 2021). 31. John R. Vile, “The Constitutional Convention of 1787 and Its Origins,” in Conventional Wisdom: The Alternate Article V Mechanism for Proposing Amendments to the U.S. Constitution (Athens: University of Georgia Press, 2016), 1–23. https://www.jstor.org/stable/j.ctt18fs8qq.4. 32. Vile, “Constitutional Convention of 1787.” 33. Vile, “Constitutional Convention of 1787.” 34. Luther Martin, “Constitutional Debates on Slavery, 1787,” August 21, 1787, in The Papers of James Madison, Volume IV, 1787, The Journal of the Constitutional Convention II, ed. Gaillard Hunt (New York: G. P. Putnam, 1903), 264. 35. Charles Pinckney, quoted in Rahe, Republic, 633. 36. Paul Finkelman, “The Abolition of The Slave Trade,” New York Public Library, Schomburg Center for Research in Black Culture, 2007, https://wayback.

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archive-it.org/13235/20200727201752/http://abolition.nypl.org/home/ (accessed January 13, 2021). 37. H. Robert Baker, “The Fugitive Slave Clause and the Antebellum Constitution,” Law and History Review 30, no. 4 (2012): 1133–1174, https://www.jstor.org/ stable/23489468. 38. Rahe, Republic, 630. 39. Rahe, Paul A. Inventions of Prudence: Constituting the American Regime, in Republics Ancient and Modern (Chapel Hill: University of North Carolina Press, 1992). 40. Rahe, Republic, 571. 41. Thomas Paine, Common Sense, January 10, 1776 (Philadelphia: R. Bell, 1776); Bailyn, Ideological Origins, 94–160. 42. U.S. National Archives, The Declaration of Independence. 43. See James Madison, “Federalist No. 10,” “The Same Subject Continued: The Union as a Safeguard Against Domestic Faction and Insurrection,” November 23, 1787, New York Packet, https://guides.loc.gov/federalist-papers/text-1-10 (accessed December 16, 2020); Alexander Hamilton or James Madison, “Federalist No. 51,” “The Structure of the Government Must Furnish the Proper Checks and Balances Between the Different Departments,” February 8, 1788, New York Packet, https:// guides.loc.gov/federalist-papers/text-51-60 (accessed January 13, 2021); and 44. Bailyn, Ideological Origins. 45. Thomas Paine, Common Sense, January 10, 1776, in The Writings of Thomas Paine, Volume 1, 1774–1779, coll. and ed. Moncure Daniel Conway (New York: G. P. Putnam, 1894), 69. 46. U.S. Department of State, Office of the Historian, “Constitutional Convention and Ratification, 1787–1789,” https://history.state.gov/milestones/1784-1800/ convention-and-ratification (accessed January 13, 2021); Bailyn, Ideological Origins. 47. Bailyn, Ideological Origins, 64–65. 48. Bailyn, Ideological Origins, 281. 49. Christopher Collier and James Lincoln Collier, Decision in Philadelphia: The Constitutional Convention of 1787 (New York: Ballantine Books, 2007). 50. Hamilton or Madison. “Federalist No. 51.” 51. Gordon S. Wood, The Creation of the American Republic, 1776–1787 (Chapel Hill: University of North Carolina Press, 1969), 475. 52. U.S. National Archives, The Constitution of the United States: A Transcription, September 17, 1787, https://www.archives.gov/founding-docs/constitution-transcript (accessed December 16, 2020). 53. Rahe, Republic, 641. 54. John B. Taylor, First Principles: Five Keys to Restoring America’s Prosperity (New York: W. W. Norton, 2012), 21. 55. Rahe, Republic, 597. 56. Rahe, Republic, 651. 57. John Adams, Defence of the Constitutions of Government of the United States, Volume 1 (London: Printed for C. Dilly . . . , 1787; repr. new ed., 1788), 347. 58. Bailyn, Ideological Origins, 59–60.

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59. Hamilton or Madison. “Federalist No. 51.” 60. Rahe, Republic, 603; emphasis mine. 61. Bailyn, Ideological Origins, 321. 62. Maier, Ratification; Bailyn, Ideological Origins, 321. 63. Bailyn, Ideological Origins, 330. 64. Bailyn, Ideological Origins, 330. 65. Maier, Ratification. 66. Maier, Ratification. 67. Bailyn, Ideological Origins, 351, 358. 68. Hamilton, Alexander. “Federalist No. 76,” “The Appointing Power of the Executive,” April 1, 1788, New York Packet, https://guides.loc.gov/federalist-papers/ text-71-80 (accessed January 13, 2021). 69. Maier, Ratification. 70. Maier, Ratification. 71. Maier, Ratification. 72. Maier, Ratification. 73. Maier, Ratification. 74. Maier, Ratification. 75. U.S. Library of Congress, The Bill of Rights. September 25, 1789. Ratified December 15, 1791. Primary Documents in American History, https://guides.loc.gov/ bill-of-rights (accessed January 13, 2021). 76. Wallis, “American Government Finance,” 66. 77. Roy Finch, “The Story of New York State Canals (1925).”Canal Corporation. New York State. http://www.canals.ny.gov/history/history.html (accessed January 13, 2021). 78. Wallis, “American Government Finance,” 62. 79. Wallis, “American Government Finance,” 65. 80. Barron v. Baltimore, 32 U.S. 243, 7 Pet. 243; 8 L. Ed. 672 (1833). https:// casetext.com/case/barron-v-the-mayor-and-city-council-of-baltimore (accessed January 13, 2021). 81. Akhil Reed Amar, The Bill of Rights: Creation and Reconstruction (New Haven, CT: Yale University Press, 2000). 82. Thomas Cobb, quoted in Henry W. Brand, Andrew Jackson: His Life and Times (New York: Anchor Books, 2005), 354. 83. Jon Meacham, Thomas Jefferson: The Art of Power (New York: Random House, 2012), 475. 84. Richard Franklin Bensel, Yankee Leviathan: The Origins of Central State Authority, 1859–1877 (Cambridge: Cambridge University Press, 1990), ix, 1. 85. Bensel, Yankee Leviathan, 168–169. 86. “Brief History of IRS.” Internal Revenue Service, 6 Aug. 2017, www.irs.gov/ about-irs/brief-history-of-irs. 87. Bensel, Yankee Leviathan, 1–19; Wallis, “American Government Finance,” 68; Thomas L. Hungerford, U.S. Federal Government Revenues: 1790 to the Present, Congressional Research Service Report for Congress, September 25, 2006 (Washington, DC: LOC, 2006), 3–7, http://congressionalresearch.com/RL33665/

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document.php?study=U.S.+Federal+Government+Revenues+1790+to+the+Present (accessed January 13, 2021). 88. James M. McPherson, “Out of War, a New Nation,” Prologue Magazine 42, no. 1 (2010): 6–13, https://www.archives.gov/publications/prologue/2010/spring/ newnation.html (accessed January 13, 2021); Bensel, Yankee Leviathan, 105. 89. Bensel, Yankee Leviathan, 74. 90. Bensel, Yankee Leviathan, 94–118. 91. Michel Chevalier, Society, Manners and Politics in the United States. Being a Series of Letters on North America, trans. Thomas G. Bradford (Boston: Weeks, Jordan, 1839), Letter 5. 92. Peter J. Parish, The North and the Nation in the Era of the Civil War, ed. Adam I. P. Smith and Susan-Mary Grant (New York: Fordham University Press, 2003). 93. Rachel A. Shelden, Washington Brotherhood: Politics, Social Life, and the Coming of the Civil War (Chapel Hill: University of North Carolina Press, 2013). 94. “Bad Congressional Twins; Pairing and Absenteeism Traced to Their Origin,” New York Times, December 1, 1891, 10. https://www.nytimes.com/1891/12/01/ archives/bad-congressional-twins-pairing-and-absenteeism-traced-to-their.html (accessed January 13, 2021). 95. Mark R. Levin, The Liberty Amendments: Restoring the American Republic (New York: Simon & Shuster, Threshold Editions, 2014). 96. Charles Dickens, quoted in Shelden, Washington Brotherhood, 9. 97. Wallis, “American Government Finance,” 61–82 98. John Joseph Wallis, “American Government and the Promotion of Economic Development In the National Era, 1790 to 1860,” Conference Paper, The Role of Government in U.S. Economic History, in honor of Robert Higgs, Tucson, January, 2004, 1–76. http://econweb.umd.edu/~wallis/ (accessed January 13, 2021). 99. Bailyn, Ideological Origins, 232; insertion mine. 100. Richard Wells, quoted in Bailyn, Ideological Origins, 239. 101. Nell Irvin Painter, Creating Black Americans: African-American History and Its Meanings, 1619 to the Present (Oxford: Oxford University Press, 2006), 70–72. 102. George Washington, The Papers of George Washington, Volume 4, 2 April 1786 – 31 January 1787, ed. W. W. Abbot and Dorothy Twohig (Charlottesville: University Press of Virginia, 1995), 15–17. 103. Morgan, Philip D. “‘To Get Quit of Negroes’: George Washington and Slavery.” Journal of American Studies 39, no. 3 (2005): 404, 424, 427–28. https:// www.jstor.org/stable/27557691. 104. Rahe, Republic, 648–49; Gavin Wright, Slavery and American Economic Development (Baton Rouge: Louisiana State University Press, 2006). 105. G. Wright estimates slaves constituted $3.1 billion of the region’s $6.3 billion in invested capital at that time (G. Wright, Slavery, 60). 106. James Hammond, quoted in Rahe, Republic, 765. 107. Abraham Lincoln, “Lincoln on Slavery,” Lincoln speech, Cincinnati, Ohio. September 17, 1859. National Park Service. https://www.nps.gov/liho/learn/ historyculture/slavery.htm (accessed August 16, 1986).

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108. E. Merton Coulter, The Confederate States of America 1861–1865 (Baton Rouge: Louisiana State University Press, 1950). 109. David Detzer, Allegiance: Fort Sumter, Charleston, and the Beginning of the Civil War (New York: Harcourt, 2001). 110. Alexander H. Stephens, quoted in Rahe, Republic, 766–67. 111. Stephens, quoted in Rahe, Republic, 767. 112. Bensel, Yankee Leviathan, 1. 113. Bensel, Yankee Leviathan, 1–2 114. Bensel, Yankee Leviathan. 115. George Boutwell, quoted in W. Elliot Brownlee, Funding the Modern American State, 1941–1995: The Rise and Fall of the Era of Easy Finance (Washington, DC: Woodrow Wilson Center Press; New York: Cambridge University Press, 2002), 44. 116. Schmeckebier, Laurence Frederick, and Francis Xavier Aloysius Eble. The Bureau of Internal Revenue: Its History, Activities and Organization, 5. 117. Anonymous, Observer, “Affairs at Washington The Feeling at the South,” Correspondence, New York Times, November 5, 1860, 5, https://www.nytimes. com/1860/11/05/archives/affairs-at-washington-the-feeling-at-the-south.html (accessed January 13, 2021). 118. Parish, North and the Nation. 119. Richard B. Morris, “100 Years of Income Outgo,” New York Times, August 5, 1962, 186. https://timesmachine.nytimes.com/timesmachine/1962/08/05/83502546. html (accessed January 13, 2021). 120. Joseph A. Hill, “The Civil War Income Tax.” Quarterly Journal of Economics 8, no. 4 (1894): 416–452. https://doi.org/10.2307/1885003. 121. Bensel, Yankee Leviathan, 169–170. 122. Fioello La Guardia, “Text of Mayor La Guardia’s Address on the Change in Tax Methods,” New York Times, January 11, 1940, 15. https://timesmachine.nytimes. com/timesmachine/1940/01/11/94765396.html (accessed January 13, 2021). 123. Laurence Frederick Schmeckebier and Francis Xavier Aloysius Eble, The Bureau of Internal Revenue: Its History, Activities, and Organization (New York: AMS Press, 1974), 6–22. 124. Senator Collamer, quoted in U.S. Congress, Congressional Globe. Official Proceedings of Congress, 37th cong., 3rd sess., March 2, 1863, 1455. https:// memory.loc.gov/cgi-bin/ampage?collId=llcg&fileName=063/llcg063.db&recNum=2 (accessed January 13, 2021). 125. Carl Von Hock, an Austrian, quoted in Frederic Clemson Howe, Taxation and Taxes in the United States Under the Internal Revenue System, 1791–1895 (New York: Thomas Y. Crowell, 1896), 65. Quoted by Bensel, Yankee Leviathan, 169. 126. USHistory. “A House Divided: 33.b. Strengths and Weaknesses: North vs. South.” USHistory.org (n.d.). https://www.ushistory.org/US/33b.asp (accessed October 15, 2018). 127. Trevor K. Plante, “The Last Surrenders of the Civil War,” Prologue Magazine 47, no. 1 (2015): 46–52, https://www.archives.gov/publications/prologue/2015/ spring/images/cw-surrenders.html (accessed January 13, 2021).

Chapter 2

The Progressive Vision

“The state is the march of God in the world.”—Hegel, Philosophy of Right1

The Civil War’s transformation of the federal government endured. As American historian Richard Franklin Bensel notes, “the American [national] state emerged from the wreckage of the Civil War” leaving behind “the Constitution as it was.” 2 “The modern state’s inheritance from the antebellum period was nil” such that the origins of the modern federal government “begin with the Civil War.” War-time federal investments in internal transportation, mostly rail and roads, continued.3 When the federal government rescinded the federal income tax in 1872, the Bureau of Internal Revenue (BIR) remained in place to collect fees and duties.4 After the war, the federal government continued to print paper currency, not just mint coins as it had before the war, despite having no Constitutional power to do so. The U.S. Constitution granted Congress the right “to coin money” but not print money.5 This distinction—a crucial one before the Civil War, when only state governments and banks printed the nation’s currency—had been overridden and would not return. The new federal banking system, now managed by the U.S. Congress, remained in place, displacing the state governments who had heretofore controlled banking regulation. And, the federal judiciary expanded drastically, with new appellate and circuit courts put in place, to handle the large number of new federal cases stemming from the Civil War amendments and the significantly widened scope of federal laws. As legal historians Charles Alan Wright and Charles T. McCormick put it, “The federal courts as we know them today . . . are, like so much else a direct outgrowth of the Civil War.”6 Yet while this great federal expansion moved away from the founders’ vision, the Civil War led to a substantial step forward in living up to the founding promise “all men are created equal,” most notably with the Civil War’s Thirteenth, Fourteenth, and Fifteenth Amendments. These amendments built on and expanded the guarantees included in the original Constitution and subsequent Bill of Rights.7 The original Constitution prohibited both 35

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federal and state governments from passing “Ex post facto” laws, any “bill of attainder,” and laws “impairing the Obligation of Contracts.” Unlike the Bill of Rights, which only applied against the federal government, these restrictions applied against both the federal and state governments. The existence of these three restrictions, applied against the federal and state governments, leads to a critical insight into the thinking of the founders. Some individual rights are so important that no American government—federal or state—should be able to violate them. This principle, embedded in the original Constitution of 1787, would be extended greatly by the Civil War amendments from 1865 through 1870, and even more in the decades to come. The Civil War amendments took this principle of inviolable rights, immune from federal or state interference, and applied it to new concerns: ending slavery with the Thirteenth Amendment, and guaranteeing citizenship, basic liberties, due process rights, and the right to vote of America’s newly freed (male) slaves in the Fourteenth Amendment. As the Fourteenth Amendment reads, “No state” can make “any law” to “abridge the privileges or immunities of citizens,” “deprive any person of life, liberty, or property” or “deny . . . the equal protection of the laws.” The federal government had power to enforce these guarantees: “The Congress shall have power to enforce this article by appropriate legislation,” the Fifteenth Amendment read. The Amendments thus expanded individual sovereignty and rights significantly, grew federal power to protect these rights, and shrank state government powers commensurately. While the Civil War led to a significant expansion in the federal government’s scope, the post-Civil War federal government does not resemble today’s. In 1870, the federal government had no established regulatory body (such as the U.S. Food and Drug Administration [FDA]), few nationwide regulations, and none that applied to intrastate trade or commerce. The first federal regulatory body—the Interstate Commerce Commission (ICC)— would not be established until 1887.8 The federal government did not fund nor run general social welfare or social insurance programs. Federal powers had expanded but not without limit. Constitutional restraints had been weakened and loosened but not eliminated. This did not reflect missing federal capabilities so much as the lack of a political idea and movement to justify and fight for more federal expansion. The provision of veteran insurance benefits after the Civil War—and the omission of a similar program for other citizens, such as Social Security— offers a particularly telling example. After the Civil War, the federal government established a federally funded insurance programs for Union veterans.9 The effort started with benefits for disabilities caused by wartime service and then expanded to include all disabilities, old-age pensions, and then survivors’ benefits (payments to wives and dependents of formerly eligible veterans).

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As Larry DeWitt, a public historian for the Social Security Administration (SSA), would later note: By the end of the nineteenth century, the Civil War pension system had become a de facto social insurance program—paying retirement, disability, and survivors’ benefits.10

Debates over the program came to dominate federal politics. Union veterans and their allies, mostly Republicans, fought to expand eligibility and increase benefits. Opponents, mostly Democrats, opposed both. Over time, expansion won. By the mid-1890s, veteran insurance benefits had become the largest federal expense, equaling almost 45% of federal receipts, easily exceeding the country’s defense spending.11 Yet creating similar programs for non-veteran citizens did not receive the serious consideration it would decades later. The country lacked an idea to envision, let alone justify such a program, or a political movement to fight for and to win passage. The veteran insurance benefits were viewed as privileges earned through military service. The everyday citizen had not fought a war. The idea that the federal government could and should provide everyday citizens with similar benefits would require novel political ideas and a new political movement. Over the following decades, both came about, starting with new political ideas, suited for such a purpose, imported from Europe. EUROPEAN IDEAS During the first few decades of the nineteenth century, European thinkers began to develop new political ideas that would later be exported to the United States, and, in the twentieth century, help justify a large expansion in federal power. The work began with a German philosopher, Georg Wilhelm Friedrich Hegel. At the age of forty-six, Hegel seemed headed towards historical obscurity. Then, in 1816, the former newspaper editor turned high school headmaster got the career break of a lifetime: a long-awaited professorship at the University of Heidelberg, and two years later was followed by a promotion to Professor of Philosophy at the University of Berlin, Germany’s most prestigious University.12 Hegel’s good fortune reflected both real intellectual talent and political usefulness. In those years, in the shadow of the Napoleonic Wars, Frederick William III, the Prussian king, wanted to reassert monarchial prerogative and state power over the demands of Prussia’s liberal reformers, who wanted a constitution.13 In this mission, Hegel and his ideas and views seemed quite helpful. Karl Popper, philosopher of science and intellectual historian,

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explains the situation in The Open Society and Its Enemies, “When in 1815 the reactionary party began to resume its power in Prussia, it found itself in dire need of an ideology. Hegel was appointed to meet this demand,” and took his position at Heidelberg in 1816.14 Hegel did not disappoint, writing “the State is the Divine Idea as it exists on earths . . . We must therefore worship the State as the manifestation of the Divine on earth . . . the State is the march of God through the world.” While America’s founding generation viewed the state as serving the citizen—“That to secure these rights, Governments are instituted among Men”—Hegel inverted the relationship: the citizens existed to serve the state, “the march of God through the world,” he declared.15 Yet while Hegel justified expansive state power in theory, he offered little direction on how such an expansive state could function in practice in the modern age. Johann Kaspar Bluntschli (1808–1881), one of Hegel’s students and a renowned Swiss-German legal scholar, took up this more practical task. He offered a simple answer: states can exert power through law and bureaucracy. In his 1876 Theory of the Modern State, Bluntschli used numerous examples—from ancient Athens and Rome to contemporary Germany and Switzerland—to show how states could use these tools to pursue state aims.16 States could focus on “the development of national power” including “economic necessities” such as roads, canals, railways, postal systems, telegraphs, and “intellectual interests” such as universities.17 While Hegel argued that the state is politically preeminent and good, Bluntschli explained how modern, expansive governments could operate. Yet neither Hegel nor Bluntschli articulated political ideas well suited to the increasingly democratic Western world. A king might want to grow “national power” and establish a bureaucracy to build and maintain roads and military power, but why should a common citizen? The Englishman Thomas Hill Green, a philosophy professor at Oxford University from 1876 to 1882, understood the problem well and had an idea.18 Green considered himself a lifelong political “liberal” but found the label increasingly uncomfortable. In 1870s England, “liberalism” meant limiting and restraining government power and empowering the individual citizen: low taxes, free trade, restrained foreign policy, and an individual’s right to vote, own property, and manage one’s life. This classically liberal view strongly resembled that of the America’s founders. The creed, however, made poor intellectual ground for justifying state expansion, with its emphasis on individual rights and limited state powers. But Green had come to see state power and expansion as critical. In a government role, Green inspected local English schools—largely run and managed by local bodies and governments—and found many to be poorly

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run. The experience made him see value in Parliament setting standards and regulations both for local schools and other areas of English life. As Green saw it, Parliament’s regulation of English factories had helped reduce work hours, improve safety, and reduce child labor in recent decades. Parliament might be able to do the same in other areas. Moreover, Green saw potential value in state laws limiting or banning alcohol sales, laws that could help control his brother’s destructive alcoholism. Green took it upon himself to justify a more expansive state while maintaining the liberal tradition’s historical emphasis on the individual.19 The novel effort produced a watershed political idea. In a speech in Leicester, England in 1881 titled “Liberal Legislation and Freedom of Contract,” Green shared his new idea that: “liberalism” needed redefinition.20 In the speech, Green pointed out that Parliament had long passed laws violating the principles of state restraint and limited coercion.21 The English Parliament had passed the first Factory Act regulating factory employment in 1802.22 Numerous factory acts followed, commanding factory owners to adopt practices to protect workers’ safety, health, and time off from work.23 The laws had proven popular and, to many, quite sensible. Yet the laws violated the principle of individual liberty: both the liberty of the owners (to run their factories as they chose) and that of the workers (who could not voluntarily work more than a certain number of hours as mandated by the state). These laws should not change, Green argued, to fit the “liberal” creed; the “liberal” creed should change to accommodate these laws.24 In the speech, Green offered a new definition of liberalism: We shall probably all agree that freedom, rightly understood, is the greatest of blessings. . . . But when we thus speak of freedom, we should consider carefully what we mean by it. We do not mean merely freedom from restraint or compulsion . . . we mean a positive power or capacity of doing or enjoying something worth doing or enjoying . . . in short, by the greater power on the part of the citizens as a body to make the most and best of themselves.25

Consequently, in Green’s view, the state should not do as little as possible, as classical liberals and America’s founders argued. Instead, the state should take actions to encourage good conditions for “labour” and support for “education, and health.”26 These policies expanded state powers and coerced individuals—through taxes, regulations, requirements, etc.—but deserved support anyway, because they increased the “positive power or capacity of doing or enjoying something” on the part of many citizens.27 Green’s new political idea and argument for state expansion to help “citizens as a body” proved immensely persuasive. In time, the general public’s

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understanding and use of the term “liberal,” in both England and the United States, would come to reflect Green’s new definition, with the old one largely forgotten. “Liberal” came to refer to someone who was supportive of more government activity focused on, and justified by, improving citizens’ lives and their “positive power of capacity or doing or enjoying something.” And unlike Hegel’s and Bluntschli’s political ideas, Green’s had real democratic potential. Common citizens could understand, support, and benefit from such a vision. In time, this vision would be put into practice both in Green’s native England and then the United States. AN AMERICAN MIGRATION During the mid-to late 1800s, these European political ideas migrated to the United States and helped to form the basis for a new political movement: American progressivism. The ideas arrived via European-trained, American scholars and books. Before 1861, the United States had no doctoral-awarding university.28 All American doctoral candidates had to study in Europe. Even in the late 1800s, almost half of America’s PhDs studied in Europe29. Europe’s ideas—political and otherwise—came home with these scholars, both via their education and the books imported to stock America’s new and growing universities and colleges. The European influence often proved quite substantial. This certainly proved true for Woodrow Wilson, the future President. In 1883, the former lawyer turned eager academic enrolled in Johns Hopkins University’s (JMU) political science doctoral program.30 JMU had been founded only seven years before. Two professors, Richard T. Ely and Henry Baxter Adams, directed the program.31 Both Ely and Adams had studied under Bluntschli in Germany during the 1870s and convinced JMU, with the support of some local German American citizens, to buy Bluntschli’s life’s work—his books, writings, etc.—when he died.32 By 1883, this large library of books filled the walls of JMU’s political science seminar room. Students, including Woodrow Wilson, were literally surrounded by Bluntschli’s thinking and ideas. “The study of communal life in America, to which you are now devoting yourselves, will certainly prove fruitful. The community is a preparatory school for the state,” Bluntschli had written to Ely and Adams before he died.33 The letter proved improbably prescient. Woodrow Wilson, and the Progressive movement that he had helped lead, would draw on these European thinkers and their ideas for the rest of his career. In July 1887, Wilson published his first major scholarly article, “The Study of Administration.” The article referenced only two men by name:

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Georg Hegel and Johann Bluntschli. Wilson authoritatively cited Bluntschli’s definition of politics as “state activity ‘in things great and universal’” and noted the contrast to Bluntschli’s view of administration, “the activity of the state in individual and small things.” Wilson concluded that, “Politics . . . is thus the special province of the statesman, administration of the technical official,” before noting the distinction was “of high authority” given its basis in the work of “eminent German writers.”34 Consequently, in Wilson’s view, more latitude should be given to unelected American bureaucrats and technical officials to direct “the activity of the state in individual and small things.” Wilson’s reliance on European ideas as a starting point for much of his thinking reflected the intellectual roots of American progressivism in general. As leading Progressive historian Dewey Grantham would later argue, “the [American] progressive movement was more a culmination than a beginning” drawing from “a numerous and diversified band,” including “English liberals and German social scientists” such as Green, Hegel, and Bluntschli.35 The influence lasted. On the 1912 campaign trail, then presidential candidate Wilson would quote almost verbatim from Green: “The program of a government of freedom must in these days be positive, not negative merely,” Wilson argued before explaining his support for more federal powers and expanded activity. 36 As Wilson had argued earlier in his The State (1889), government no longer represented a threat but an essential aid to individual development.37 As Stanford historian and Pulitzer prize winner David M. Kennedy sums up, American Progressives created a “redefinition of liberalism from a defense against state power to a justification for it” rooted in the thinking of Green.38 AMERICAN POPULISM But progressivism had American roots too, most notably American populism. Centered in the rural Midwest, West, and South from the late 1860s to the early 1900s, American Populists—mostly farmers—wanted to aid and protect themselves from what they perceived as unfair, even abusive, economic practices perpetrated by powerful economic interests. “These farmers felt their economic and political interests were being shortchanged by a gang of greedy railroads, creditors, and industrialists,” Populist historian James I. Stewart sums up. “Government regulation was the farmers’ solution.”39 These American Populists had evidence to support their case. Farming frontier interest rates were often two to three percentage points higher than rates in the Northeast, although mostly due to higher risk. Railroad rates from 1865 to 1900 showed little decrease relative to farm prices, despite large productivity increases. But perhaps most importantly, farmers in those years

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faced significant, unmitigable risks. From 1860 to 1900, American farmers cultivated new areas in the Midwest and West that were subject to frequent and extreme droughts. At the same time, grain markets globalized. During droughts, American farmers could no longer count on higher domestic grain prices to offset lower yields because of foreign grain imports. American farmers turned to cooperative action and then politics to address these concerns and risks.40 Populists focused first on cooperative action and then on state and federal action.41 The movement’s political efforts began in the late 1860s with The National Grange, a farmer’s group that lobbied for state laws to regulate railroad and elevator prices. The movement saw political success in several Midwestern states including Minnesota, Iowa, Wisconsin, and Illinois.42 By the early 1880s, Populists supported and won passage of state laws regulating intra-and then inter-state railroad rates. But in Wabash, St. Louis, and Pacific Railway v. Illinois in 1886, the U.S. Supreme Court ruled that only Congress could regulate such inter-state railroad traffic. Railroad traffic that crossed state lines, “is national in its character, and its regulation is confided to Congress exclusively,” the ruling stated.43 Populists then demanded federal action and quickly won passage of the Interstate Commerce Act of 1887. The Act created a federal commission to monitor long distance rail shipping for monopolistic practices and unfairly high prices.44 The Act was the first federal law to regulate private industry in U.S. history.45 Over time, Populist demands for federal action expanded substantially. By 1900, Populists developed and supported proposals for a federal income tax, additional railroad regulation, the direct election of Senators, and the adoption of silver as legal tender in addition to gold.46 But Populists struggled to win politically at the federal level. During the Populist heyday from 1880 to 1900, none of these key policy proposals passed and their preferred Presidential candidate never won. But the Populists had developed a new, homegrown vision for America’s federal government with an emphasis on “the positive state” and “politics as a means of dealing with economic and social problems,” historian Grantham notes.47 A SYNTHESIS OF VISIONS This Populist vision and platform combined with imported, statist European ideas to form a new American political movement: American progressivism. In the late 1890s, as populism began to peter out, American progressivism began to gain momentum.48 Progressivism represented a “rich and varied” movement of various groups and individuals supporting diverse, even contradictory, economic and social policies.49 As Progressive historian Arthur S.

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Link sums up, “the progressive movement never really existed as a recognizable organization with common goals and a political machinery geared to achieve them . . . there were many ‘progressive’ movements.”50 Progressives supported a progressive federal income tax, trust-busting, corporate regulation, a national banking system, women’s suffrage, prohibition, and substantial immigration restrictions.51 The movement found strong support among urban professionals, industrial laborers, immigrants, and farmers, who had previously formed the Populists’ base of support.52 But on social issues, Progressive groups often disagreed strongly: while many farmers supported immigration restrictions and prohibition, most urban workers and immigrants strongly opposed both.53 Yet on some key issues, Progressives agreed. The movement advocated for political action—particularly federal action—as a necessary, critical response to the nation’s changing economic and social conditions. From 1880 to 1910, the U.S. labor force more than doubled, from 17 million to 37 million workers, while the average income per worker increased almost 50% as the U.S. economy transformed from being predominantly rural and agricultural to increasingly urban and industrial.54 Over those three decades, farmers decreased from 51% to 31% of the country’s labor force.55 During those same years, the country’s industrial sectors grew tremendously: manufacturing doubled to more than 8 million workers and railroad workers quadrupled to almost 2 million in 1910.56 Meanwhile, the country’s industrial base became increasingly consolidated. As historian Allen C. Guelzo points out: Before the Civil War, only about 7% of American manufacturing was organized in corporations; by 1900, corporations accounted for 69% of all American manufacturing. Between 1897 and 1905 alone, 5,300 small-scale firms were consolidated and reorganized into just 318 corporations, and 26 super-corporations (or “trusts”) controlled 80% of major American industrial output.57

On April 1, 1901, US Steel became the first American company to attain over $1 billion in market value.58 “By the end of the 1890s, the dominant institution in the American economy was the large industrial corporation,” Stanford historian Kennedy notes, enabled by the “integrating influence of the railroad” and the “growth of a vast national market.”59 Amid all this change, Progressives saw a need for significantly increased federal action. Herbert Croly, a leading Progressive intellectual and a Theodore Roosevelt confidante, articulately summed up this view in his 1909 The Promise of American Life, “American democracy does demand an increasing amount of centralized action . . . the natural consequence of the increasing concentration of American industrial, political and social life.”60

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State governments, Croly argued, were “not competent to deal effectively . . . with the grave problems” of the day.61 Progressives believed the federal government needed to do more and pointed to many of the same malevolent forces as the Populists: corporate trusts, railroads, and large banks. As one historian concludes, Progressives had come to believe that “they could combat the new concentrations of private power only through a concentration of public power.”62 Only the federal government could master the country’s new, centralized economic forces. Progressives saw great promise in potential federal action. The Sherman Antitrust Act of 1890 could be used to break-up big companies and reduce monopolistic practices and price gouging.63 Federal labor standards could improve worker safety, federal rules could reduce and ameliorate labor-management conflicts, and federal regulations could improve consumer safety. And federal programs could provide direct support to groups in need, most notably farmers. In Croly’s words, federal powers should “assuredly” expand and include the “regulation of commerce, the organization of labor, and the increasing control over property in the public interest.”64 As historian Kennedy puts it, Progressives rejected “laissez-faire determinism” and shared “a common commitment to the positive state.”65 Or as William Allen White, a Progressive leader, shared in a 1932 retrospective interview, “to use the government as an agency of human welfare. That was the real heart of the movement.”66 PRECONDITION: OVERCOMING SELF-INTEREST To support these claims and underlying worldview, Progressives relied on a decidedly different view of human nature than the founding generation. “The latent causes of faction are thus sown in the nature of man,” James Madison argued in Federalist 10. While the founders viewed self-interest as intrinsic, unchanging and always worrisome, Progressives believed self-interest could be overcome in the political realm for the common good. As William White, a Progressive Kansas newspaper editor, wrote in a 1910 article “The Old Order Changeth.” human nature, which is essentially kind and also essentially selfish, shall remain the same. But we may hope at least that the essential selfishness of men may be tempered by the coming change into some form of selfishness wherein kindness may extend the selfishness of the man . . . so that he may be greedy for the common good.67

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Similar to many Progressives, William White offered a cautious optimism, a human nature that “shall remain the same” but perhaps one that could also be “greedy for the common good.”68 This more optimistic view of human nature dovetailed with a view of politics in which a discerning, voting public could elect public-spirited politicians to support, pass, and implement policies for the “public good.” As former President Theodore Roosevelt argued in an August 1910 speech: We need to make our political representatives . . . sensitively responsive to the people . . . to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests.69

Not all politicians could be trusted. But some could, and a discerning public could elect them. These Progressive beliefs led to a very different view of the federal government’s potential. While Thomas Jefferson worried the post office would become “a bottomless abyss of public money,”70 Ely—teacher of Woodrow Wilson and a leading Progressive intellectual—argued the postal system was “a more efficient service by far than any private service in the country.”71 As one historian sums up, federal administrators—Progressives argued—could be trusted to act as “a disinterested person who would divest himself of narrow class or parochial loyalties” and focus on the public interest and implementation of the “individual and small things,” as Woodrow Wilson put it, for the public good.72 REASSESSING THE FOUNDERS Over time, keen Progressive intellectuals came to realize that the founding generation’s political values and system impeded and blocked the more expansive federal government they envisioned and consequently might very well be contributing to America’s many social ills. Croly, in his The Promise of American Life, succinctly and accurately defined “the traditional American system” as: the freedom permitted to the individual, . . . the restriction placed on the central authority, and . . . its assumption of a substantial identity between the individual and the public interest.73

Croly argued this “traditional American system” had led to a “chaotic individualism” and a “morally and socially undesirable distribution of wealth” that needed to be addressed.74 Undoubtedly, the Constitution placed limits on

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potential federal actions. In 1900, the federal government could not collect an income tax, impose regulations on intrastate commerce or manufacturing, or set a national minimum wage among other things. Consequently, many leading Progressives came to view the founding generation’s political value, vision, and system as obstacles that needed to be overcome. The United States needed to break out of its “fundamental political orthodoxy,”75 Croly argued: [This] insidious tradition of conformity—the tradition that a patriotic American must not in his political thinking go beyond the formula consecrated in the sacred American writings . . . [this] stupefying rule that the good Fathers of the Republic relieved their children from the necessity of vigorous, independent, or consistent thinking in political matters.76 “Reform must necessarily mean an intellectual as well as a moral challenge . . . the laws . . . are partly at fault, and still more at fault is the group of ideas and traditional practices behind the law,” Croly concluded.77

Woodrow Wilson made similarly strong arguments in a July 4th public speech in 1907: We are not bound to adhere to the doctrines held by the signers of the Declaration of Independence; we are as free as they were to make and unmake governments. We are not here to worship men or a document . . . [it is time to start] . . . determining afresh what principles, what forms of power we think most likely to affect our safety and happiness. That and that alone is the obligation the Declaration lays upon us.78

Even previously sacrosanct values, such as individual rights, came under attack. As Woodrow Wilson argued in his Constitutional Government: No doubt a great deal of nonsense has been talked about the inalienable rights of the individual, and a great deal that was mere vague sentiment and pleasing speculation has been put forward as a fundamental principle.79

In Wilson’s view, the founders’ “doctrines” and Constitution—with its limited federal powers, separation of powers, and checks and balances—stood as obstacles to the country’s progress by limiting the powers and scope of the federal government. “It is . . . manifestly a radical defect in our federal system that it parcels out power and confuses responsibility,” Wilson argued. “The only fruit” of this approach had been to make the exercise of power “irresponsible.”80

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America’s traditional political values—limited federal powers and individual economic rights, in particular—needed replacement. As Croly argued in 1909: The Promise of American Life is to be fulfilled—not merely by a maximum amount of economic freedom, but by a certain measure of discipline; not merely by the abundant satisfaction of individual desires, but by a large measure of individual subordination and self-denial . . . to the fulfillment of a national purpose.81

A “national purpose” and federal powers should be given priority. As Woodrow Wilson argued, echoing his European influences, the state is “the eternal, natural embodiment and expression of a higher form of life than the individual, namely, that common life which gives leave to individual life, and opportunity for completeness.”82 Progressivism thus offered, in historian Ronald J. Pestritto’s description, a “rationale for moving beyond the political thinking of the American founding.”83 PERFECTING “PUBLIC WELFARE” Progressives constructed and offered a new political vision for the country. The federal government, previously limited, would take on an open-ended role, unbound by the Constitution’s limits on federal power. The democratic process, not the Constitution, should dictate the federal government’s limits: most laws that could get passed by Congress, and signed by the President, should become law. Thus empowered, public-spirited politicians could channel the public’s will into laws to benefit the public welfare, and selfless, technocratic administrators would run the programs established by law to deliver for the common good. The federal government could then replace the individual citizen, private organizations, and state governments as the nation’s default problem solver, tackling problems from consumer safety and worker rights to minimum wage laws and economic security. In this, the Progressives offered a new vision for America’s citizens and society centered on politics. While the founders put primary emphasis on citizens as self-governing individuals given wide remit and responsibility to direct their own lives, Progressives emphasized citizens as political participants and voters directing the country’s course through electoral politics, not individual or voluntary collective action. The founders envisioned a society that gave primary place to the self-governing citizen, individual pursuits, domestic family life, religious community, work, and commercial, scientific, and technical improvement—not to politics.84 In contrast, Progressives saw

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politics as of primary importance—similar to the ancient political regimes of the Greek city states and Roman Republic—and critical to reforming an American society besieged by problems from corruption to unsafe working conditions to inequality. As Progressive historian Grantham observed, “Some of the more advanced progressives were keenly aware of their role in pointing the way toward a radically new America.”85 In making the case for change, Progressives found themselves in possession of a powerful rhetorical argument. “Progress” represented a long-standing, deep-seated American pursuit since early colonial times and the roaring success of John Bunyan’s theological fiction, The Pilgrim’s Progress in the late seventeenth century.86 Now, Progressives argued, the federal government had become an indispensable tool in driving national progress. The federal government could—in theory—improve food safety, address corporate consolidation, aid the needy, and so on. Consequently, the federal government needed to do more. In this, Progressives had unintentionally found a compelling, evergreen argument: the federal government must do more so things can be better. As Progressives implicitly discovered, social conditions can always improve: incomes can increase, safety can improve, critical national challenges can be addressed, inequality can be reduced, opportunities can expand, and more. Intellectuals so inclined can construct abstract ideas about how the federal government—with its ability to raise and spend money and to regulate or control behavior—can take action and make things better. In theory, before putting these ideas into practice, these efforts will always work out. For example, a federal program could provide indigent people with cash support and food stamps to alleviate poverty, or the federal government could create a social insurance program to provide income to the nation’s elderly and reduce poverty. Progressives thus took a truism (things can be better), implied a claim (the federal government can make things better), and endlessly reiterated their key political conclusion: the federal government should and must do more so things can be better. In theory, this would all work out perfectly. But even some Progressives in the early days had doubts. For one, human nature might not prove as amenable as hoped or required. In his The Promise of American Life, while strongly arguing for significantly more federal action, Croly expressed serious concerns about human self-interest: Almost every member of the American political body has been at one time or another or in one way or another perverted to the service of special interests . . . the central government itself has been a grave sinner.87

Croly pointed to federal “military pensions” for Civil War veterans and their dependents and “tariff schedules” that “benefit . . . special interests against

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the national interest.” “The Federal no less than the state governments has been the victim of special interests,” Croly concluded before moving on without exploring the implications this issue might pose.88 Moreover, defining a “public interest” to guide political action and administration—a key part of the Progressive worldview—proved harder than expected. In reality, no objective definition for the “public interest” existed. Federal laws directing agencies, commissions, and departments to serve the “public interest” proved “hopelessly inadequate” and “ambiguous” historian Grant McConnell observes.89 Administrators had to create their own concrete, operational definitions and this, ironically, left these agencies and departments particularly susceptible to special interests, who could lobby administrators for definitions favorable to them. As Kennedy notes, while “[regulatory] commissions were allegedly established to assert the public interest, it is well-known that they frequently . . . failed to do so, and . . . instead served the private interests they were intended to control” because it was so hard to serve “an ill-defined public welfare.”90 THE PROGRESSIVE ROLLOUT These concerns did not stop the Progressive movement from gaining momentum and then political power in the early twentieth century. President from 1901 to 1909, Theodore Roosevelt increasingly advocated and implemented policies supported by Progressive intellectuals and groups.91 Roosevelt used the Sherman Act, originally passed in 1890 but then rarely used, to bring forty anti-trust suits against large American companies.92 The effort broke up numerous corporations, including Standard Oil, the country’s largest.93 In 1906, Roosevelt established the FDA to set standards and regulate food and drugs that crossed states lines.94 Notably, products produced and sold within one state fell outside the FDA’s purview. President William Taft, elected in 1908 and more conservative than Roosevelt, passed little new Progressive legislation. But President Taft continued the Roosevelt administration’s anti-trust push, pursuing seventy anti-trust suits, and supported passage of the Sixteenth Amendment, which allowed a federal income tax.95 The 1912 election represented a Progressive high point. Both leading candidates—Democrat Woodrow Wilson and Progressive Theodore Roosevelt— campaigned as Progressives with the two largely debating whose policies could best achieve Progressive goals.96 For example, both men agreed that large corporations continued to pose a problem and that the federal government needed to do more.97 But the two candidates disagreed on how. Wilson, believing these companies’ “mere bigness” represented a problem, argued that they should be broken up.98 Influenced by Croly’s thinking, Roosevelt

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had come to believe that corporate consolidation reflected the new industrial economy and thus that large companies should be regulated, not broken up, to serve “the public interest.”99 Wilson won and, once in office, quickly achieved a number of Progressive accomplishments. The Sixteenth Amendment passed in February 1913. Wilson and the Congress quickly passed a federal income tax in the Revenue Act of 1913.100 Later that same year, Wilson signed the Federal Reserve Act and re-established a U.S. central bank (the Federal Reserve) for the first time since 1836.101 And the federal government strengthened its regulatory powers. In 1914, the federal government established the Federal Trade Commission (FTC) to replace federal courts in enforcing anti-trust laws and further strengthened anti-trust law with the Clayton Antitrust Act of 1914.102 Two years later, the federal government entered the direct subsidy business with the Federal Farm Loan Act of 1916, which provided federal loan subsidies to American farmers.103 But America’s Progressive revolution quickly ground to a halt. “World War I brought an end to the progressive movement,” historian Grantham concluded, summing up historians’ consensus view.104 The war’s outbreak in July 1914 and America’s entry in April 1917 shifted attention from domestic to international affairs. By war’s end, the United States had drafted almost 2.7 million men.105 The war also undermined foundational Progressive views on human nature and politics. “The war made it difficult to hold fast to the belief in man’s capacity for rational behavior, in his instinct for co-operation and love, and the inevitability of progress,” historian Grantham observed.106 After the United States’ entry into the war, Progressive legislation still passed, including the Transportation Act of 1920 which regulated railroads, a child labor statute, and additional conservation legislation.107 But the bills were not ambitious and largely built on previous legislation. The Progressive momentum had stalled. THE POST-WILSON RESET After the World War I, the stall turned into a rout. Republican Presidential candidate Warren G. Harding—running on a promise to “Return to Normalcy” and end Progressive reforming—won the 1920 Presidential election in a landslide, 60% to 34%.108 Harding won by the largest Presidential margin in one hundred years.109 Harding’s basic message—normalcy—resonated.110 The new administration would be pursuing a post-Progressive vision, as President Harding laid out in his inaugural address:

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I speak for administrative efficiency, for lightened tax burdens . . . for the omission of unnecessary interference of Government with business, for an end to Government’s experiment in business, and for more efficient business in Government.111

Under Republican Presidents Harding (1921–1923) and then Calvin Coolidge (1923–1929), the federal government began to return to its traditional, more limited role backed by popular support. Trust busting slowed. Farm subsidy bills stalled in Congress or were vetoed. Federal spending went from over 7% of the gross domestic product (GDP) in 1920 to 3% by the end of the 1920s.112 Tax rates fell significantly. By 1927, only 2% of American taxpayers paid a federal income tax.113 These changes found support among the country’s growing urban and town middle classes. “Their temper was dynamic, expansive, and supremely confident . . . building a new America,” one historian sums up, and rested on a belief that progress was driven by American entrepreneurship, business and innovation—not political legislation. These beliefs seemed validated during the 1920s when the economy boomed, defined by “mass production and consumption, short hours . . . high wages [and] full employment.”114 People could not help but notice: as the federal government did less, the country grew more. With Republican Herbert Hoover’s election in November 1928, it seemed as if the Progressive movement had left no lasting revolution in its wake. Yet the potential for a substantial federal expansion had been put in place. Since its founding, the United States had seen profound shifts in the federal government’s powers (the Civil War), ideological underpinnings (European ideas), and political forces (American populism and progressivism). Washington, DC was no longer “a capital without a country” as Charles Dickens had reported in 1842.115 Credible political thinkers and leaders argued federal politicians and public employees could transcend self-interest and pursue the public good. Progressivism had two supportive Presidents, one from each party. And, as historian Link notes, many farmers—“the politically most powerful class in the country”—had come to believe that the federal “taxing power” should be used to benefit them directly via federal subsidies and support. With only a small extension in logic, Link observes, one could take this belief, common among farmers, and argue that “it was government’s duty to protect the economic security of all classes and particularly depressed ones.” As Kennedy notes, the Progressive movement had laid a precedent “for the assertion of public rights over private [rights]” but did so as a prelude, not the main event.116 In the summer of 1929, the United States entered a recession.117 Perhaps, over time, the Progressive era would have become increasingly distant and foreign as the nation moved back to its traditional political arrangements and

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limited federal role as envisioned by the country’s founders. But that was not to be. The Great Depression had begun.

NOTES 1. Georg Wilhelm Friedrich Hegel, Philosophy of Right, trans. S. W. Dyde (London: G. Bell, 1896), 247. quoted in Karl R. Popper, The Open Society and Its Enemies: New One–Volume Edition (Princeton, NJ: Princeton University Press, 1994), 246. 2. Richard Franklin Bensel, Yankee Leviathan: The Origins of Central State Authority in America, 1859–1877 (Cambridge: Cambridge University Press, 1990), ix, 1. 3. David M. Ellis, “The Forfeiture of Railroad Land Grants, 1867–1894,” Mississippi Valley Historical Review 33, no. 1 (1946): 27–60, https://www.jstor.org/ stable/1896734. 4. Joseph J. Thorndike, “Reforming The Internal Revenue Service: A Comparative History,” Administrative Law Review 53, no. 2 (2001): 734. https://www.jstor.org/ stable/40712056. 5. “National Bank Act of 1863,” in Gale Encyclopedia of U.S. Economic History, 2nd ed., ed. Thomas Riggs (Farmington Hills, MI: Gale, 2015), vol. 2, 851–53; Bensel, Yankee Leviathan, 238–303. 6. Charles Alan Wright and Charles T. McCormick, “The Federal Courts—A Century After Appomattox,” American Bar Association Journal 52, no. 8 (1966): 742, https://www.jstor.org/stable/25723714. 7. U.S. National Archives, The Constitution: Amendments 11–27, March 4, 1794–May 7, 1992, https://www.archives.gov/founding-docs/amendments-11-27 (accessed January 15, 2021). See also U.S. National Archives, The Constitution of the United States: A Transcription, September 17, 1787, https://www.archives. gov/founding-docs/constitution-transcript (accessed December 16, 2020); and U.S. Library of Congress, The Bill of Rights. September 25, 1789. Ratified December 15, 1791. Primary Documents in American History, https://guides.loc.gov/bill-of-rights (accessed January 13, 2021). 8. Interstate Commerce Act of 1877, Public Law 49–41, 45th Cong., 2nd sess. (February 4, 1887), Enrolled Acts and Resolutions of Congress, 1789–; General Records of the United States Government, 1778–1992; Record Group 11; National Archives, https://www.ourdocuments.gov/doc.php?doc=49 (accessed January 14, 2021). 9. Theda Skocpol, “America’s First Social Security System: The Expansion of Benefits for Civil War Veterans,” Political Science Quarterly 108, no. 1 (1993): 85–116, https://www.jstor.org/stable/2152487. 10. Larry DeWitt, “The Development of Social Security in America,” Social Security Bulletin 70, no. 3 (2010): 3, https://www.ssa.gov/policy/docs/ssb/v70n3/ v70n3p1.html (accessed January 14, 2021).

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11. Jill Quadagno, The Transformation of Old Age Security: Class and Politics in the American Welfare State (Chicago: University of Chicago Press, 1988), 45; Skocpol, “America’s First Social Security System,” 101. 12. Paul Redding, “Georg Wilhelm Friedrich Hegel,” in The Stanford Encyclopedia of Philosophy Archive (Spring 2014 ed.), ed. Edward N. Zalta, online at http://plato. stanford.edu/archives/spr2014/entries/hegel/ (accessed January 14, 2021). 13. Hagen Schulze, “The Prussian Reformers and Their Impact on German History,” in Reform in Great Britain and Germany, 1750–1850, ed. T. C. W. Blanning and Peter Wende (Oxford: Oxford University Press, 1999), 61–77; Martyn Lyons, Post-Revolutionary Europe, 1815–1856 (Basingstoke: Palgrave Macmillan, 2006), 41. 14. Karl R. Popper, The Open Society and Its Enemies: New One-Volume Edition (Princeton, NJ: Princeton University Press, 1994), 245. 15. Popper, Open Society, 246; quotation represents a compilation of Hegel’s quotes from different works. 16. Johann Kaspar Bluntschli, Theory of the State (1878), authorized English translation from 6th German ed. (Kitchener, ON: Batoche Books, 2000). 17. Bluntschli, Theory of the State, 69, 316. 18. Richard Lewis Nettleship and Charlotte B. Green, Memoir of Thomas Hill Green (London and New York: Longmans, Green, 1906); T. H. [Thomas Hill] Green, Lectures on the Principles of Political Obligation and Other Writings, ed. Paul Harris and John Morrow (Cambridge: Cambridge University Press, 1986), 1–13. 19. T. H. [Thomas Hill] Green, Liberal Legislation and Freedom of Contract: A Lecture (Oxford: Slatter and Rose; London: Simpkin, Marshall, 1881); Green, Lectures, 194–213. 20. Nettleship and Green, Memoir of Thomas Hill Green. 21. Stephen Chilton, Green’s Argument, University of Minnesota Duluth, May 28, 2005, Lecture, previously published at http://www.d.umn.edu/~schilton/1610/ Readings/1610.B+DReader.Green.html; Colin Tyler, “Thomas Hill Green,” in The Stanford Encyclopedia of Philosophy Archive (Summer 2011 ed.), ed. Edward N. Zalta, online at https://plato.stanford.edu/archives/sum2011/entries/green/ (accessed January 14, 2021). 22. United Kingdom, “Early Factory Legislation,” UK Parliament, n.d., https://www. parliament.uk/about/living-heritage/transformingsociety/livinglearning/19thcentury/ overview/earlyfactorylegislation/ (accessed January 14, 2021). 23. United Kingdom, “Early Factory Legislation”; Clark Nardinelli, “Child Labor and the Factory Acts,” Journal of Economic History 40, no. 4 (1980): 739–55, https:// www.jstor.org/stable/2119999. 24. Chilton, Green’s Argument. 25. T. H. Green, Lectures, 194–213. 26. T. H. Green, Lectures, 194–213. 27. T. H. Green, Lectures, 194–213. 28. Ralph P. Rosenberg, “The First American Doctor of Philosophy Degree: A Centennial Salute to Yale, 1861–1961,” Journal of Higher Education 32, no. 7 (1961): 387–94, https://www.jstor.org/stable/1978076.

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29. Douglas Archbald, “The Emergence of the Nontraditional Doctorate: A Historical Overview,” New Directions for Adult and Continuing Education 2011, no. 129 (2011): 7–19, https://doi.org/10.1002/ace.396. 30. Jim Stimpert, “Woodrow Wilson, JHU Alum & U.S. President,” Sheridan Libraries & University Museums Blog, Johns Hopkins University, February 18, 2013, http://blogs.library.jhu.edu/2013/02/woodrow-wilson-jhu-alum-u-s-president/ (accessed January 14, 2021). 31. Larry Walker, “Woodrow Wilson, Progressive Reform, and Public Administration,” Political Science Quarterly 104, no. 3 (1989): 509–25, https://www. jstor.org/stable/2151276. 32. Ronald J. Pestritto, Woodrow Wilson and the Roots of Modern Liberalism (Lanham, MD: Rowman & Littlefield, 2005); and see Johns Hopkins University Libraries Archives, Johann Casper Bluntschli Collection. MS-0140, https:// archivesspace.library.jhu.edu/repositories/3/resources/151. 33. Herbert B. Adams, ed. The Johns Hopkins University Studies in Historical and Political Science (Baltimore: Johns Hopkins University Press, 1902), 40. 34. Woodrow Wilson, “The Study of Administration,” Political Science Quarterly 2, no. 2 (1887): 197–222, https://www.jstor.org/stable/10.2307/2139277. 35. Dewey Grantham, “The Progressive Era and the Reform Tradition,” in The American Scene: Varieties of American History, ed. Robert D. Marcus and David Burner (New York: Meredith, Ardent Media, 1971), vol. 2, 204. 36. Woodrow Wilson, The New Freedom (New York: Doubleday, 1913), 20, 284. 37. Ronald J. Pestritto, ed., Woodrow Wilson: The Essential Political Writings (Lanham, MD: Lexington Books, 2005), 13. 38. David M. Kennedy, ed., Progressivism: The Critical Issues (Boston: Little, Brown, 1971), 147. 39. James I. Stewart, “The Economics of American Farm Unrest, 1865–1900,” ed. Robert Whaples, EH.Net Encyclopedia, February 10, 2008, https://eh.net/ encyclopedia/the-economics-of-american-farm-unrest-1865-1900/ (accessed April 23, 2018). 40. Stewart, “Economics of American Farm Unrest.” 41. Stewart, “Economics of American Farm Unrest.” 42. Stewart, “Economics of American Farm Unrest.” 43. Wabash, St. Louis, and Pacific Railway v. Illinois. 118 U.S. 557; 7 S.Ct. 4; 30 L. Ed. 244 (1886), https://www.loc.gov/item/usrep118557/. 44. Stewart, “Economics of American Farm Unrest.” 45. Interstate Commerce Act of 1877, Public Law 49–41. 46. John D. Hicks, The Populist Revolt: A History of the Farmers’ Alliance and the People’s Party (Lincoln: University of Nebraska Press, 1961). 47. Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 205. 48. Margaret Canovan, Populism (New York: Harcourt Brace Jovanovich, 1981); John D. Buenker, John C. Burnham, and Robert M. Crunden, Progressivism (Rochester, NY: Schenkman Books, 1986), 3–21. 49. Kennedy, Progressivism, xiii.

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50. Link, Arthur S. “What Happened to the Progressive Movement in the 1920’s?” The American Historical Review, No. 4, Vol. LXIV (July 1959): 836. 51. Kennedy, Progressivism, xiii. 52. Kennedy, Progressivism, ix; speaks to the central location of each movement’s political base; and Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 195–210; the article speaks to the role played by industrial laborers and immigrants in Progressivism but not Populism. 53. Kennedy, Progressivism, xiii. 54. Stanley Lebergott, “Labor Force and Employment, 1800–1960,” in Output, Employment, and Productivity in the United States after 1800, ed. Dorothy S. Brady (Washington, DC: National Bureau of Economic Research, 1966), 117–204. http://www.nber.org/chapters/c1567.pdf (accessed January 15, 2021); Kennedy, Progressivism, 147. 55. Lebergott, “Labor Force and Employment.” 56. Lebergott, “Labor Force and Employment.” 57. Allen C. Guelzo, “The Left Side of History,” review of Progressivism: The Strange History of a Radical Idea, by Bradley C. S. Watson (Notre Dame, IN: University of Notre Dame Press, 2020), in Claremont Review of Books 20, no. 2 (2020): 58. https://claremontreviewofbooks.com/the-left-side-of-history/ (accessed January 15, 2021). 58. Kennedy, Progressivism, viii. 59. Kennedy, Progressivism, 1. 60. Herbert Croly, The Promise of American Life (New York: Macmillan, 1909), 272–76. 61. Croly, Promise of American Life, 272–76. 62. Kennedy, Progressivism, x 63. Sherman Antitrust Act of 1890, 26 Stat. 209, 15 U.S.C. 1–7, 51st Cong., 1st sess. (July 2, 1890). Enrolled Acts and Resolutions of Congress, 1789–1992; General Records of the United States Government; Record Group 11; National Archives. https://www.ourdocuments.gov/doc.php?flash=false&doc=51 (accessed January 15, 2021). 64. Croly, Promise of American Life, 275. 65. Kennedy, Progressivism, xiii. 66. William Allen White, 1932 interview quoted in Kennedy, Progressivism, vii. 67. William Allen White, a Progressive Kansas newspaper editor, wrote in a series of articles in 1909, “The Old Order Changeth,” American Magazine 67 (January 1909): 219–25; (February 1909): 406–14; (March 1909): 506–13; (April 1909): 603–10; American Magazine 68 (May 1909): 63–70, (August 1909): 376–83; repr. in book form The Old Order Changeth; A View of American Democracy (New York, The Macmillan Company, 1910). 68. White, “Old Order Changeth.” 69. President Theodore Roosevelt, “New Nationalism Speech,” Osawatomie, Kansas, August 31, 1910. https://obamawhitehouse.archives.gov/blog/2011/12/06/ archives-president-teddy-roosevelts-new-nationalism-speech (accessed January 15, 2021).

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70. Thomas Jefferson, The Works of Thomas Jefferson, coll. and ed. Paul Leicester Ford, Federal ed., in 12 vols. (New York and London: G. P. Putnam, 1904–1905), vol. 3, art. 1, sec. 8, clause 7, doc. 4. 71. Lawrence H. White, The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years (Cambridge: Cambridge University Press, 2012), 115; Richard T. Ely, Outlines of Economics (Meadville, PA: Flood and Vincent; Chatauqua-Century Press; New York: Hunt & Eaton, 1893), 302. 72. Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 195–210. 73. Croly, Promise of American Life, 149. 74. Croly, Promise of American Life, 22–23. 75. Croly, Promise of American Life, 150. 76. Croly, Promise of American Life, 150. 77. Croly, Promise of American Life, 150. 78. Woodrow Wilson, “Authors and Signers of the Declaration,” in The Papers of Woodrow Wilson, ed. Arthur S. Link et al., in 69 vols. (Princeton, NJ: Princeton University Press, 1966–1994), vol. 17, 251, (hereafter cited PWW, by volume and page). 79. Woodrow Wilson, Constitutional Government in the United States (New York: Columbia University Press, 1911). 80. Woodrow Wilson, Congressional Government: A Study in American Politics (Boston: Houghton, Mifflin, 1885; repr. 1908), 187. 81. Croly, Promise of American Life, 22–23. 82. Woodrow Wilson, “Notes for Lectures,” in PWW, vol. 7, 124; and as Croly articulated it in The Promise of American Life, the federal government needed to use Hamiltonian means (an enlarged federal government) to achieve Jeffersonian ends (support of the individual citizen); Croly continues, “the Jeffersonian policy of drift must be abandoned . . . vigorous national action . . . implies the rejection of a large part of the Jeffersonian creed, and a renewed attempt to establish in its place the popularity of its Hamiltonian rival” (chap. 4, sec. 2). 83. Ronald J. Pestritto and William J. Atto, eds., American Progressivism: A Reader (Lanham, MD: Lexington Books, 2008), 2. 84. Paul A. Rahe, Inventions of Prudence: Constituting the American Regime, in Republics Ancient and Modern (Chapel Hill: University of North Carolina Press, 1992; 1994). 85. Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 195–210. 86. John Bunyan, The Pilgrim’s Progress (London: Printed for Nathan Ponder, 1678), noted in James Baldwin, John Bunyan’s Dream Story (New York: American Book, 1913), 6. 87. Croly, Promise of American Life, 273–74. 88. Croly, Promise of American Life, 273–74. 89. Grant McConnell, “Private Power and American Democracy (1966),” in Progressivism: The Critical Issues, ed. David M. Kennedy (Boston: Little, Brown, 1971), 122–29. 90. McConnell, “Private Power,” in Kennedy, Progressivism, 122; Kennedy, Progressivism, 44.

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91. George E. Mowry, The Era of Theodore Roosevelt and the Birth of Modern America, 1900–1912 (New York: Harper & Row, 1958). 92. Sherman Antitrust Act of 1890; Gerard Helferich, An Unlikely Trust: Theodore Roosevelt, J. P. Morgan, and the Improbable Partnership That Remade American Business (Blue Ridge Summit, PA: Lyons Press, 2018), 98. 93. Bruce Bringhurst, Antitrust and the Oil Monopoly: The Standard Oil Cases, 1890–1911 (Westport, CT: Greenwood Press, 1979). 94. Anthony Gaughan and Peter Barton Hutt, “Harvey Wiley, Theodore Roosevelt, and the Federal Regulation of Food and Drugs. Harvard Law,” (2004 Third Year Paper), https://dash.harvard.edu/handle/1/8852144 (accessed January 15, 2021). 95. U.S. National Archives, The Constitution: Amendments 11–27; Frank Freidel and Hugh Sidey, “William Howard Taft,” WhiteHouse.gov, White House Historical Association, https://www.whitehouse.gov/about-the-white-house/presidents/williamhoward-taft/ (accessed January 15, 2021); Peri E. Arnold, “William Taft: Domestic Affairs,” Miller Center, University of Virginia, July 25, 2017, https://millercenter.org/ president/taft/domestic-affairs (accessed January 15, 2021). 96. Brett Flehinger, The 1912 Election and the Power of Progressivism: A Brief History with Documents (Boston: Bedford/St. Martin’s, 2003). 97. Flehinger, 1912 Election. 98. Flehinger, 1912 Election. 99. Kennedy, Progressivism, 51. 100. Revenue Act of 1913, chap. 16, 38 Stat. 114, Public Law 16, 63rd Cong., 1st sess. (October 3, 1913). http://www.tax-freedom.com/originaltariff.pdf (accessed January 16, 2021); Ellen Terrell, ed., “History of the US Income Tax,” Library of Congress, February 2004, last updated 2012, https://www.loc.gov/rr/business/ hottopic/irs_history.html (accessed February 27, 2018); W. Elliot Brownlee, “Wilson and Financing the Modern State: The Revenue Act of 1916,” Proceedings of the American Philosophical Society 129, no. 2 (1985): 173–210. https://www.jstor.org/ stable/986988. 101. Federal Reserve Act of 1913, chap. 6, 38 Stat. 251, Public Law 63–43, 63rd Cong., 2nd sess. (December 23, 1913), https://fraser.stlouisfed.org/title/federalreserve-act-975 (accessed January 15, 2021); Thomas Carson and Mary Bonk, eds., “Federal Reserve Act of 1913,” Gale Encyclopedia of U.S. Economic History (Gale, 1999), vol. 1, 311–12 Gale Virtual Reference Library, http://link.galegroup.com. ezproxy.lib.utexas.edu/apps/doc/CX3406400311/GVRL?u=txshracd2598&sid=GVR L&xid=0a98946e (accessed July 3, 2018); Larry Allen, “Second Bank of The United States,” The Encyclopedia of Money, 2nd ed. (ABC-CLIO, 2009), 356–58, Gale Virtual Reference Library, http://link.galegroup.com/apps/doc/CX2443700255/GVR L?u=txshracd2598&sid=GVRL&xid=cea0fe90 (accessed July 3, 2018). 102. Clayton Antitrust Act of 1914, 38 Stat. 730, Public Law 63–212, 63rd Cong., 2nd sess. (October 15, 1914), https://govtrackus.s3.amazonaws.com/legislink/pdf/ stat/38/STATUTE-38-Pg730.pdf (accessed January 16, 2021); Virgil L. Burton III, ed., “Federal Trade Commission (FTC).” Encyclopedia of Small Business, 5th ed. (Gale, 2017), vol. 1, 486–88. Gale Virtual Reference Library, http://link.galegroup. com/apps/doc/CX6062700261/GVRL?u=txshracd2598&sid=GVRL&xid=8e9a78f7

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(accessed July 3, 2018); Theresa Storey Hefner-Babb, “Clayton Antitrust Act.” Encyclopedia of White-Collar and Corporate Crime, ed. Lawrence M. Salinger, 2nd ed. (SAGE Reference, 2013), vol. 1, 173–74, Gale Virtual Reference Library, http:// link.galegroup.com/apps/doc/CX3720000101/GVRL?u=txshracd2598&sid=GVRL &xid=75945e5e (accessed July 3, 2018). 103. Federal Farm Loan Act of 1916, 39 Stat. 360, Public Law 64–158, 64th Cong., 1st sess. (July 17, 1916), https://fraser.stlouisfed.org/title/federal-farm-loan-act-1102 (accessed January 16, 2021); Richard L. Wilson, ed., “Farm Credit Administration.” Historical Encyclopedia of American Business (Salem Press, 2009), vol. 1, 280–81, Gale Virtual Reference Library, http://link.galegroup.com/apps/doc/CX2274300155/ GVRL?u=txshracd2598&sid=GVRL&xid=e313d1f4 (accessed July 3, 2018). 104. Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 195–210. See also Kennedy, Progressivism, 147; Link, What Happened, argues “progressivism was certainly on the downgrade if not in decay after 1918. This is an obvious fact that needs explanation and understanding rather than proof.” He later highlights four factors as driving this: “the lack of a suitable political vehicle (party), the severity of the tensions that kept progressives apart, the failures of the progressives to agree upon a common program, and the absence of a national leadership.” 105. U.S. Selective Service System, “Induction Statistics,” https://sss.gov/About/ History-And-Records/Induction-Statistics (accessed October 22, 2018); Mitchell Yockelson, “They Answered the Call: Military Service in the United States Army During World War I, 1917–1919,” Prologue Magazine 30, no. 3 (1998), https://www. archives.gov/publications/prologue/1998/fall/military-service-in-world-war-one.html (accessed January 15, 2021). 106. Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 195–210. 107. Transportation Act of 1920, 41 Stat. 456, Public Law 66–152, 66th Cong., 2nd sess. (February 28, 1920), https://govtrackus.s3.amazonaws.com/legislink/pdf/stat/41/ STATUTE-41-Pg456.pdf (accessed January 16, 2021); Grantham, “Progressive Era and the Reform Tradition,” vol. 2, 195–210. 108. Rusk, Jerrold G. “The Familiarity of Presidential Elections.” A Statistical History of the American Electorate (CQ Press, 2001), 118–97, Gale Virtual Reference Library, http://link.galegroup.com/apps/doc/CX2147800012/GVRL?u=txshracd2598 &sid=GVRL&xid=9288def9 (accessed July 3, 2018). 109. Rusk, “Familiarity of Presidential Elections.” 110. Link, What Happened; Warren Harding won key support among various key constituencies including electorally critical Western farmers who were skeptical of additional progressive policies and suffering from a large fall in farm prices in the summer of 1920. 111. Warren G. Harding, “Inaugural Address of Warren G. Harding,” March 4, 1921, https://avalon.law.yale.edu/20th_century/harding.asp (accessed January 16, 2021). 112. Michael Schuyler, “A Short History of Government Taxing and Spending in the United States,” Tax Foundation, February 19, 2014, https://taxfoundation. org/short-history-government-taxing-and-spending-united-states/ (accessed January 15, 2021).

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113. Robert H. Ferrell, The Presidency of Calvin Coolidge (Lawrence: University Press of Kansas, 1998), 170. 114. Link, Arthur S. “What Happened to the Progressive Movement in the 1920’s?” The American Historical Review, No. 4, Vol. LXIV (July, 1959): 843 . 115. Charles Dickens, quoted in Shelden, Washington Brotherhood, 9. 116. David M. Kennedy, ed., Progressivism: The Critical Issues (Boston: Little, Brown, 1971), xiv. 117. Rick Szostak, “Great Depression,” Dictionary of American History, ed. Stanley I. Kutler, 3rd ed. (Charles Scribner, 2003), vol. 4, 44–49, Gale Virtual Reference Library, http://link.galegroup.com/apps/doc/CX3401801776/GVRL?u=tx shracd2598&sid=GVRL&xid=c702f795 (accessed July 3, 2018).

Chapter 3

The Big Government Experiment

“I have two years to move the country into the twentieth century.”— Lyndon Baines Johnson, 19641

The New Deal programs (1933–1938), and the Great Depression (1929– 1939) that precipitated it, led to a real and lasting revolution in America’s political affairs: the federal government came to predominate in America’s political system. The federal Social Security program (1935) provided benefits to eligible elderly, the unemployed, and single mothers. Previously, social insurance and welfare programs similar to Social Security had been left to state governments to create and manage. The Federal Deposit Insurance Corporation (1933) and Securities and Exchange Commission (1934) guaranteed bank deposits and enforced securities laws, respectively. The National Labor Relations Act, also known as the Wagner Act, of 1935 prescribed national rules for employer-union relations and union organizing. The Fair Labor Standards Act of 1938 set national maximum work hours and the first federal minimum wage.2 And a December 1942 Supreme Court ruling—Wickard v. Filburn— overturned previous U.S. Constitutional restrictions and ruled that the U.S. Congress could regulate any economic activity that “exerts a substantial economic effect on interstate commerce” including untraded, unsold crops grown and consumed on a single farm.3 Given that standard, Congress could regulate almost any economic activity. The era’s transformation of America’s political arrangements proved lasting: all these programs remain in place today. The federal government’s substantial growth during the Great Depression reflects one of American history’s great ironies: the federal government grew in response to an economic crisis that the federal government itself largely caused, exacerbated, and lengthened. The traditional and still prevalent interpretation provides a different story. In this telling, the Great Depression began in October 1929 with a Wall Street stock market crash. As The American Journey, a recent, popular American 61

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history textbook, recounts, “The bubble of American prosperity burst when the New York stock market collapsed in October 1929. . . . Many Americans suddenly found themselves out of work.”4 In other words, the stock market crash precipitated an unprecedented economic collapse. By 1933, nearly 25% of working-age Americans were unemployed.5 The private economy had failed. President Herbert Hoover, during his term from 1929 to 1933, believed in a laissez-faire, hands-off economic approach, and he did little. So, recession turned into Depression. In November 1932, the American people rejected Hoover and elected Franklin Delano Roosevelt (FDR) as President. Roosevelt rejected his predecessor’s feckless restraint and exercised massive federal action to employ millions and to create economic stability and growth. Roosevelt’s efforts ended the crisis and brought the nation back to prosperity. This still-common storyline suffers from one major issue—it is almost certainly wrong. After decades of research and investigation, economists and historians now broadly reject this explanation.6 First, the recession did not begin with the October 1929 stock market crash. The 1929 recession began months before, in the actual economy. Data from the National Bureau of Economic Research shows that the recession began in August 1929, and that the economy had been significantly slowing for months before.7 The stock market crash in November started four months after the recession began. In response to the growing crisis, President Hoover and Congress took substantial actions including passing the Revenue Act of 1932—which raised the top income tax from 25% to 63%—and the 1930 Smoot–Hawley tariffs, one of the largest duty increases on foreign goods in American history.8 As William E. Leuchtenburg of the University of North Carolina at Chapel Hill notes, “Almost every historian now recognizes that the image of Hoover as a ‘do-nothing’ president is inaccurate.”9 And while great debate persists over the New Deal’s net effect on the American economy, no debate exists on whether the New Deal ended the country’s unemployment crisis: it did not. In late 1937, five years after being elected, President Roosevelt presided over the lowest unemployment rates of his first two terms: 12% for private unemployment (which excludes short-term federal job programs) and 9% when including temporary federal jobs.10 But in November 1937, the country entered a new, severe recession in response to a poorly conceived federal tax increase, strident anti-business rhetoric from the Roosevelt administration, and contractionary Federal Reserve policy.11 Media outlets from Time magazine to the New York Times dubbed the new crisis “the Roosevelt recession.”12 Private unemployment spiked to 19% in 1938, and would not fall below 10% for the rest of Roosevelt’s second term (1937–1941).13 In his first two terms (1933–1941), President Roosevelt had the highest average unemployment of any President in U.S. history. Given how formative the Great

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Depression and the New Deal proved to be in shaping American history, and the federal government in particular, an accurate understanding of the period is crucial. An updated and more sound understanding of the Great Depression starts with Federal Reserve policy in 1928. Re-chartered by President Woodrow Wilson and Congress in 1913, the Federal Reserve System exercised control over the nation’s money supply (the amount of money in circulation), the interest rates via “open market operations” (the buying and selling of government bonds), and the “discount rate” (the interest rate the Federal Reserve charges to lend banks money). Starting in January 1928, the Federal Reserve began to significantly reduce the nation’s money supply and increase interest rates in an effort to keep the United States on the gold standard.14 During 1928, the Federal Reserve sold almost 75% of the U.S. government bond holdings, exchanging bonds for cash to significantly reduce the amount of cash in circulation.15 The Federal Reserve also increased its discount rate from 3.5% in January 1929 to 6% in August 1929, the month the recession began.16 Higher U.S. interest rates and a lower money supply helped maintain and attract gold reserves to the United States, which succeeded in protecting the country’s gold reserves. But these Federal Reserve actions put the country on course for a significant recession or worse.17 The Federal Reserve’s bond selling and discount rate increases made it far more expensive for banks to borrow and to lend to consumers and businesses. These Federal Reserve actions pushed the real interest rate—the inflation-adjusted interest rate paid by businesses to invest and by consumers to borrow—to an astronomical 10% versus the historical average of 2% to 3%.18 As one Federal Reserve economist later concluded, in retrospect, “It would have been difficult to design a more contractionary [economic] policy.”19 The astronomically high real interest rate choked off business investment, smothered consumption, and induced an economic contraction, recession, and then the Depression. As Ben S. Bernanke, former chairman of the Federal Reserve, explained in a speech in 2004: “the market crash, rather than being the cause of the Depression, as popular legend has it, was in fact largely the result of an economic slowdown and the inappropriate monetary policies that preceded it.”20 HOOVER V. FDR: A SIMPLISTIC DICHOTOMY Moreover, the traditional interpretation’s simplistic dichotomy between Hoover (the ineffectual, laissez-faire dogmatist) and Roosevelt (the effective activist) does not stand up to scrutiny either. While Hoover may have been

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ineffective, he was not laissez-faire. Under the Hoover administration, federal tax rates increased and debt grew faster than they would under Roosevelt. While Hoover doubled federal debt as a percent of gross domestic product (GDP), from 16% to 33% during his four years, Roosevelt only increased the federal debt by an average 3% per year, from 39% in 1933 to 49% in 1940.21 Far from doing nothing, the Hoover administration and Congress took numerous significant actions. The problem was that these actions mostly made a bad situation worse and completely overlooked the root cause of the crisis—the Federal Reserve’s highly deflationary policies. As previously noted, the 1930 Smoot-Hawley tariff bill imposed some of the largest duty increases on imported foreign goods in U.S. history.22 The law precipitated a global trade war that saw U.S. exports fall by 60%, almost twice the reduction in overall U.S. economic activity, thus placing a significant, negative drag on U.S. exporters.23 Tax increases, culminating in the Revenue Act with its massive rate increases, stifled economic recovery and growth even further.24 Money supply contraction, punitive tariffs, and significant tax increases sparked a recession and then deepened and lengthened a severe recession into the Great Depression.25 The Hoover administration’s ineffectiveness stemmed from profound misunderstanding and poor policymaking, not from inaction. Amid the economic collapse, the 1932 presidential election seemed preordained: Hoover would lose. Contemporary commentators joked that even “a vaguely talented dog-catcher” could beat Hoover.26 A man from Illinois even mailed Hoover a letter advising him to “vote for Roosevelt and make it unanimous.” By 1933, one out of every four working Americans was out of a job and the economy had contracted almost 30%.27 In the 1932 election, Roosevelt and the Democrats won in a landslide, with the Democrats taking 313 of the 435 seats in the U.S. House as well as 59 of 96 seats in the U.S. Senate.28 Roosevelt and the Democrats promised “a New Deal.” Stuart Chase, a Roosevelt confidant, coined the “New Deal” term first as the title for a book he wrote on planned economies, an idea he noted was based on a trip he took to Soviet Russia.29 While candidate Roosevelt lambasted Hoover for doing and spending too much—“this is the greatest spending administration in peacetime,” Roosevelt argued on the campaign trail, his basic message suggested otherwise: the nation’s private economy had failed, and the federal government needed to do much more. In a speech to the Commonwealth Club of San Francisco, California, in September 1932, then-Governor Roosevelt called for a “re-appraisal of values. A mere builder of more industrial plants, a creator of more railroad systems . . . is as likely to be a danger as a help. . . . Our task now . . . distributing wealth and products more equitably, of adapting

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existing economic organizations to the service of the people. The day of enlightened administration has come.”30 The “New Deal” promised a change in arrangement between the American people and their federal government. Roosevelt used the phrase on the campaign trail and when accepting his nomination, but rarely did he offer much detail. Once in office, Roosevelt’s intent became clearer. Unlike earlier administrations, President Roosevelt intended the federal government to act, not as a protector, facilitator, or even regulator of American life, but rather as a problem solver and manager in its own right. The federal government would no longer wait for private citizens and private institutions to resolve the economic crisis. The federal government would act itself, including in direct competition, or even in outright opposition, to the nation’s private institutions and local governments.31 In doing so, Roosevelt would take Hoover’s active approach to a new level. If Hoover respected some Constitutional limits and traditional restraints, Roosevelt saw few, if any, that deserved respect or deference. After all, “Our Constitution is so simple and practical that it is possible always to meet extraordinary needs by changes in emphasis and arrangement without loss of essential form,” he noted in his inaugural address.32 If the federal government needed to do something, the Constitution should change, not the federal government. Crisis required no less. The Roosevelt administration subscribed whole-heartedly to a seemingly new but actually Progressive idea: a selfless politician (Roosevelt) and his staff would take control and right the nation, saving the country from the selfish, unproductive machinations of others in society, particularly business leaders. The Roosevelt Administration’s effort would be based “on honesty, on honor, on the sacredness of obligations, on faithful protection, on unselfish performance,” he explained at his first inauguration.33 Putting people back to work would be the first—perhaps biggest—challenge. President Roosevelt and the Democratic Congress wasted little time in passing “New Deal” legislation. The federal government also began to employ—directly and indirectly—millions of Americans through federal construction programs including the Public Works Administration (1933), Tennessee Valley Authority (1933), and Works Progress Administration (1935). In 1935, the Works Progress Administration alone spent a sum equal to almost 7% of the nation’s economy.34 And as many as three million Americans received paychecks from the federal government, equating to almost 6% of the country’s workforce. In 1935, the federal government began to offer old-age, unemployment, and disability insurance with Social Security. And the federal government passed and implemented a new and expansive regulatory regime. This included detailed, industry-specific rules and regulations (the National

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Recovery Administration 1933), federal rules on employer-union relations and unionization (National Labor Relations Act [Wagner Act] of 1935), and national labor standards, including a federal minimum wage (the Fair Labor Standards Act of 1938). FDR’S RECESSION The traditional interpretation of the New Deal assumes this prodigious effort worked, particularly in getting Americans back to work. But the New Deal did not solve the country’s massive unemployment problem. The New Deal years coincided with persistently high unemployment, largely due to stubbornly low, private sector job growth. While new federal programs employed millions in mostly low-paying, temporary jobs, private companies kept hiring at a minimum. Private unemployment—unemployment that excludes temporary federal jobs—stood at almost 24% in 1932 when Roosevelt won election.35 From 1933 to 1935, private unemployment grew to 25% before falling to 22% and then to 20%. Rexford Tugwell, a member of Roosevelt’s “Brain Trust,” later recalled thinking during those years that, “The Depression was refusing to disappear.”36 Private sector job growth finally took off in late 1935, and private unemployment fell to 17% in 1936 before hitting a low of 12% in the early Spring of 1937.37 But a new, severe recession began in May 1937, precipitated by a number of causes.38 The federal government’s Revenue Act of 1936 increased the top income tax rate from 59% to 75% and imposed a new, “undistributed profits” tax of up to 27% on businesses.39 The undistributed profits tax caused particularly significant damage.40 From 1934 through 1939, 98% of nonfinancial company’s investment funds—for new workers, equipment, plants, supplies, etc.—came from internally saved funds, which the new law now taxed up to 27%.41 President Roosevelt had also become increasingly hostile to business leaders, as many opposed his re-election. In his July 1936 acceptance speech, Roosevelt angrily denounced the country’s “economic royalists” who “thirsting for power, reached out for control over Government itself.”42 Later in October, Roosevelt argued, “They are unanimous in their hate for me . . . and I welcome their hatred. . . . I should like to have it said of my second Administration that in it these forces met their master.”43 And the Federal Reserve increased bank reserve requirements, leading to increased interest rates and a dampening of investment.44 All this led private investment to fall from 13% of the country’s economy in 1937 to 7% in 1938, after years of sub-par investment.45

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As the recession took hold, President Roosevelt got much of the blame. Media outlets from the New York Times to Time magazine dubbed the economic debacle “the Roosevelt Recession.” As Time reported in April 1938, amid the worsening situation, “Economists wondered whether this was the basement of the Roosevelt Recession or only a landing on the escalator to ruin.”46 In the November 1938 election, Democrats lost seventy-two U.S. House seats. Private sector hiring remained subdued for years, with private unemployment standing at 14% in 1940, eight years into Roosevelt’s presidency.47 In the spring of 1939, a nonpartisan, representative public poll asked, “Do you think the attitude of the Roosevelt administration toward business is delaying business recovery?”48 Fifty-four percent of respondents said “yes”; only 26% responded “no.” Consequently, by the late 1930s, many Americans had begun to tire of Roosevelt and the New Deal. Many political observers expected Roosevelt to retire.49 No previous President, from George Washington onward, had served more than two terms, and the popular mood had soured. But Roosevelt told confidants he would run again if the increasingly bleak international situation worsened.50 This happened with Nazi Germany’s invasion of Poland in September 1939. With war in Asia and now Europe too, American voters wanted political stability at home. Roosevelt ran again and won. As George Gallup noted in an analysis of the 1940 election, President Roosevelt could “thank the Blitzkrieg” for his win.51 When asked which candidate they preferred “if there were no war in Europe, a majority of 53 per cent said they would prefer Willkie (the Republican candidate).” A LASTING REVOLUTION Regardless, the New Deal created a lasting revolution in America’s political arrangements. In 1936, federal spending exceeded the combined spending of state and of local governments for the first time in peacetime American history.52 The exception then became the rule: after 1936, federal spending consistently exceeded state and local spending combined. New Supreme Court rulings ended long-standing Constitutional restraints on federal power. And while many New Deal programs, including the National Recovery Administration and Works Progress Administration, expired or were overturned, many remain in place today, including Social Security, the Securities and Exchange Commission, the Tennessee Valley Authority and the National Labor Relations Board, among others. The federal government came to dominate domestic American politics as the Progressives had hoped. Yet to many of its ardent supporters, the New Deal left much undone. Social Security offered income benefits to the elderly but not healthcare

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benefits for the elderly or for anyone else. The federal welfare program, established in 1935 as part of the Social Security bill, was strict, limited, and often racially discriminatory due to the latitude given state governments in managing it. And many parts of the country remained segregated, often with the explicit support of state and local governments. Many believed that the federal government needed to do more. But ambitions for further large-scale federal expansions were stymied for almost three decades, starting in the late 1930s. In 1937, a “conservative coalition” of Southern Democrats and Republicans came together to block Roosevelt’s 1937 “court packing” plan, which proposed increasing the number of Supreme Court Justices from nine to fifteen.53 The proposal failed. The informal, bipartisan group then turned its attention to the New Deal itself, which had failed to deliver a full recovery after six years of effort. “Stand up for the American system of enterprise. . . . Give enterprise a chance, and I will give you the guarantees of a happy and a prosperous America!” Senator Josiah Bailey (D-NC) argued from the U.S. Senate floor on December 20, 1937.54 For the next three decades, large-scale, new federal expansions— including the Truman Administration’s proposed national health insurance program—failed, with federal growth largely limited to expanding existing programs such as Social Security and Social Security disability.55 New federal expansions had been put on pause. AFTER JFK: THE FLOODGATES OPEN That pause came to an end, starting on November 22, 1963 with President Kennedy’s assassination and the swearing in of Lyndon Baines Johnson as President. Johnson combined natural legislative and political genius, moral authority from President Kennedy’s assassination, and a deep desire to get big things done.56 Johnson did not lack for opportunities. The public seemed increasingly supportive of additional federal action to address state-sanctioned discrimination against African Americans, health insurance for the elderly, and support for the economically vulnerable. With support from Republicans and northern Democrats in Congress, President Johnson signed the Civil Rights Act in July 1964.57 But other proposals, including a federal health insurance program for the elderly, faced stiff opposition in Congress and failed. The November 1964 election significantly changed the situation. President Johnson won 61.8% of the vote, and large, liberal Democratic majorities won control of the House and Senate.58 Following the election, President Johnson summed up his view of the situation:

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Nothing has moved in this country since the New Deal ground to a halt in ‘38. The Fair Deal [supported by Truman] was small potatoes. Ike [Eisenhower] sat on his hands for eight years. Jack [Kennedy] couldn’t get the Congress to pass the time of day. I have two years to move the country into the twentieth century.59

In the following summer of 1965, the legislative floodgates opened. Congress passed the Voting Rights Act and Johnson’s “Great Society” legislation: Medicare (federal health insurance for the elderly), Medicaid (federally subsidized insurance for the poor), and a federal “War on Poverty” that included food stamps, welfare expansion, and a federal jobs and training program.60 Despite large Democratic majorities, the bills did not come easily. Southern Democrats held up the Voting Rights Act for months in the Senate. Medicare and Medicaid faced stiff opposition given the proposed programs’ high and open-ended costs. President Johnson and other supporters had to overcome substantial physician opposition, to co-opt long-standing Congressional opponents, and to obscure and withhold projected Medicare cost forecasts in order to pass the bills.61 To win passage of the bills, President Johnson also obscured and even sidestepped the scale of America’s military escalation in Vietnam during the summer of 1965, all while the number of U.S. military personnel surged from 23,000 to 183,000 from December 1964 to 1965.62 The troop build-up was not shared with the American public or the media, as Johnson feared an honest accounting might lead to an alliance of Southern Democrats and fiscally conservative Republicans to block his key domestic priorities in the Senate. When asked by a reported whether his administration had changed its policy in Vietnam during the summer of 1965, Johnson declared bluntly but inaccurately, “No change in policy.” The all-out effort worked.63 Medicare and Medicaid, the “Great Society” social welfare bills, and the Voting Rights Act all passed in July and August 1965. As Francis Bator, a Johnson advisor and official, later argued, Johnson believed this all-out effort to secure legislative success justified the withholding and the misdirection, given that the legislation “completed the social transformation of the United States begun thirty-three years earlier with Franklin Roosevelt’s New Deal.”64 In his six years in office, President Johnson would sign more than 200 landmark laws.65 And then the legislative floodgates closed again. President Johnson had argued for quick action given what he viewed as tenuous public support. In Johnson’s words, his election win over Barry Goldwater in 1964 had been based on “fear” not “love.”66 His intuition proved accurate. Republicans gained forty-six seats in the House and three in the Senate in the 1966 election. During the 1968 Democratic primary, Johnson chose to vacate the Presidency instead of run for re-election amid a worsening situation in Vietnam, his poor

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personal health, and an increasingly competitive Democratic primary.67 But, Johnson’s major domestic bills had passed and—with few exceptions and some modifications—remain in place today. The Great Society (1964–1966) and New Deal (1933–1938) period that preceded it represented the twentieth century’s two defining periods of federal expansion. While federal spending grew considerably after 1965, the programs driving this growth were almost all established during the New Deal and Great Society periods. The early twenty-first century’s most expensive, non-defense federal programs—Social Security, Medicare, Medicaid, and federal welfare programs—all passed during the New Deal or Great Society.68 In 2016, more than 70% of federal spending, excluding national defense and interest payments, went to pay for programs established during those two periods.69 It was during those two periods that the federal government took on the large domestic role that Americans are familiar with today. Many Americans, and American academics in particular, saw great promise in this significant expansion in America’s federal government. But a few did not. THE WHISTLEBLOWERS In the 1950s and 1960s, most American academics who studied politics supported the federal government’s continued expansion. The Progressive view of politics had become dominant in the American academy: while private citizens and companies often act out of self-interest, politicians and public servants largely act for “the public interest.” Academic political theories and studies often treated these claims as assumptions. However, in the 1950s, a small group of economists and political scientists at the University of Virginia began to develop a different view. In the words of James M. Buchanan, a founder of the group and future Nobel Laureate, the group wanted to study “politics without romance.”70 For example, public officials, elected or not, might be self-interested—perhaps just as self-interested as private citizens—and make decisions accordingly. As Buchanan later explained, the group rejected “the presumption” made by many American academics and intellectuals that people “become economic eunuchs as they shift from market to political participation.”71 The group came to be known as “public choice” scholars, because they studied how real-world public officials make choices given their own self-interest—and what consequences those choices tend to have.72 This new, but old, emphasis on self-interest in politics found early and extensive support at the Thomas Jefferson Center for visiting scholars at the University of Virginia. Soon after its founding in 1957, the Center won a

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five-year grant from the William Volker Fund to attract several world-class political economy scholars.73 These visiting experts would conduct lectures, seminars, and discussions with the staff and included leading contemporary intellectual figures such as Frank Knight, Michael Polanyi, and Bruno Leoni. In the spring of 1961, Austrian economist Friedrich von Hayek became a visiting scholar. The well-respected future Nobel laureate delivered a series of four evening lectures at the school’s Newcomb Hall.74 In his second, titled “The Economic Calculus,” he shared his vision for the field: The criterion of a good economist . . . [is] not any knowledge of fact, or even of particular laws which economic phenomena obey, but rather a capacity of discovering and refuting certain kinds of fallacies of reasoning. I don’t think there can be any doubt that this is one of the most common and not least important tasks of the economist—to correct not errors of fact but errors of reasoning.75

Hayek’s vision was well-received by the assembled faculty members, who noted many such “errors of reasoning” among fellow economists. Chief among these were building theories and prediction on idealistic theories and assumptions, not realistic individual behavior. The Virginian economists believed that economic, social, and political phenomena should be explained in terms of individual action, an approach referred to as methodological individualism.76 Gordon Tullock, a foreign service officer turned academic, stood out for his early, comprehensive embrace of this standard. In his 1965 book, The Politics of Bureaucracy, he (along with James Buchanan) strictly applied this approach to government bureaucracy and argued that bureaucrats acted to maximize their own self-interest—not that of their boss, department, or the public.77 Though James Buchanan had initially been unwilling to apply this approach so broadly, his interactions with Tullock and his experience studying abroad in Italy changed his mind.78 “Americans of my generation . . . still had a romantic view of politics. Italians . . . introduc[ed] a lot of skepticism, a lot more questions. Had I not spent that year in Italy, I might not have ever really been able to come to the critical realistic view of politics as I did,” Buchanan would later recount.79 If politicians and bureaucrats focus on self-interest, to what extent and degree do they—and can they—contribute to the “public good”? Over time, the Virginia scholars also came to believe that political policy questions needed to be analyzed on the institutional level, not just at the individual policy level. Many economists and policy makers (then and now) scrutinized individual policies but without any regard for the institutions tasked with developing and implementing them. To the Virginian public choice scholars, one could not make a good policy recommendation without

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considering both the individuals asked to pass and implement the measure, and the institution tasked with carrying out it. By the early 1960s, the Virginian economists had laid out their argument. Most economists in those days believed government should do many things because of market failures, such as addressing pollution and social considerations for indigent or under-resourced populations. The Virginians did not dispute the failures—in many cases, they certainly existed. But they disputed the government’s ability to effectively correct them without causing more harm than good. Economists supportive of more federal action were making a comparison between a real-world market and an idealized government. An ideal government could and should do many things.80 But such a government did not exist. It never had. The right comparison was between a real-world market and a real-world government. While governments may indeed solve many problems, government actions can also exacerbate current problems and even create new ones. Deciding what a government should and should not do required thoughtful judgment, one that considered the empirical results of both approaches without rose-tinted glasses. As Buchanan later argued: Any institutional comparison that is worthy of serious consideration must compare relevant alternatives; if market organization is to be replaced by politicised order, or vice versa, the two institutional structures must be evaluated on the basis of predictions as to how they will actually work. Political failure, as well as market failure, must become central to the comprehensive analysis that precedes normative judgment.81

The public choice scholars’ findings suggested that the federal expansion of the 1930s and 1960s might not play out as well as had been hoped. Self-interested politicians might make decisions to maximize their chances of getting re-elected, as opposed to serving “the public interest.” For example, politicians might trade a vote on an important bill for dedicated funding for a project in their district (an “earmark”); or, they might focus more on electorally valuable supporters such as donors and organized political groups, than on the general public. More worryingly, self-interested politicians might prefer debt-fueled, unsustainable spending and tax-relief over sound, long-term fiscal management. Such policies benefit current voters and push the costs to future voters. More concretely, politicians might make poor stewards of social insurance programs such as Social Security and Medicare, given the temptation to overspend on current beneficiaries (and voters) and to ignore long-term sustainability concerns. Similar concerns exist for government employees. Government employees might prioritize their own personal interests—higher wages, richer benefits,

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fewer hours, less accountability, limited change—over an ill-defined public interest. And government employees and unions might be quite effective at getting what they want via the political process. In his 1965 book The Logic of Collective Action, Mancur Olson—a scholar who affiliated with the Virginia scholars—argued convincingly that small, easily organized groups with much to gain or lose from political policymaking tend to have disproportionate influence over politicians and the political process.82 Government employees and unions met all three key criteria: relatively small, easily organized, much to gain or to lose. The book represented a modern exploration of the same concern that animated the Founders: man’s self-interest. “Take mankind as they are, and what are they governed by? Their passions . . . ambition and self-interest,” Alexander Hamilton had declared.83 In sum, the public choice scholars pointed out that, if the founders’ concerns were sound, the federal government’s twentieth-century expansion might not work out as hoped or as planned. The small group of public choice thinkers found little support from their peers in academia. Their approach, insights, and conclusions conflicted with the academy’s widely accepted view on the nature and possibility of government action. During the early 1960s, most academics subscribed to public interest orthodoxy, viewing the work of the university’s economics department and the Thomas Jefferson Center as heretical and threatening to their worldview. Success probably did not help ease tensions either. In 1966, the American Council on Education singled out the school’s economics department as one of only four departments (out of twenty-nine) meriting distinction among the nation’s leading graduate programs.84 By the early 1960s, both external institutions and academic peers at the University itself became hostile to the group. Despite the fierce efforts and then pleas of the economics department, the University of Virginia refused to make a serious counteroffer when university of Chicago lured public choice economist Ronald Coase in 1964. Coase left for Chicago later that year and would win the Nobel Prize in Economics three decades later. In 1966, Purdue University extended an offer to Andrew B. Whinston, one of the department’s rising stars. The university refused to make a counteroffer. Whinston left for Purdue shortly thereafter.85 Before the group could be completely thinned out, they managed a final accomplishment: naming their approach and starting a dedicated journal. The public choice economists had still not named their sub-discipline by 1966, when Tullock, who had become an associate professor at Virginia in 1962, led the creation of a journal dedicated to the approach, topics, and ideas of faculty and students exploring the political system with a focus on individual incentives and behavior.86 The journal’s inaugural December 1966 issue began with

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an inauspicious name, Papers on Non-Market Decision Making, but made a big improvement for its third issue when the journal—and the economic discipline it reflected—changed its name to Public Choice.87 The new intellectual approach had found a name that would stick. EVIDENCE TO CONSIDER Unlike many academic debates, the one raised by public choice scholars had great practical significance. The federal government’s growth during the twentieth century had been underpinned by a Progressive vision of politics and human nature. In this Progressive vision, politicians and public employees could set aside self-interest, make decisions for “the public interest,” and use an effective federal bureaucracy to address the nation’s many challenges and problems. If true, the case for federal expansion was easy to make. The federal government could ably manage old-age retirement programs, efficiently deliver public services, and ameliorate social ills such as poverty.88 But if the public choice scholars—and the founders before them—held a more accurate view of human nature, politics, and bureaucracy, such federal efforts might fail and even make the underlying issue worse. In 1974, David R. Mayhew of Yale University published Congress: The Electoral Connection.89 The book presented a simple argument: the behaviors and decisions of Congressmen and Senators could largely be explained by a desire for re-election. As Mayhew argued, politicians could be understood as “single-minded seekers of reelection.”90 For many politicians, the pursuit was ever-present and relentless, and drove much of the political process. Mayhew’s argument gained support because it so easily explained so many of the commonplace Congressional behaviors that other theories simply could not explain, particularly theories that assumed politicians acted to serve “the public interest.” Public-interest theories of politics could not explain why politicians spent so much time on elaborate show votes for bills both supporters and detractors knew would not pass, or why politicians so often championed pet causes extremely important to small groups but of little national significance, or why politicians spent so much energy and air time credit-claiming (“This bridge reflects years of work in Washington”) and position-taking (“I support X because it’s the right thing to do”) with no link to actual policymaking.91 None of these behaviors did anything to advance the “public interest” but were common, time consuming activities common among elected officials. But Mayhew could explain all of these curious behaviors simply and elegantly: politicians act this way because these behaviors help get them

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re-elected. Substantive public debate, high-minded discussion, and service to the “public interest” were priorities for academics studying politics, not politicians practicing politics. Americans now have decades of evidence to consider. With few exceptions, federally controlled programs including Social Security, Medicare, Medicaid, and welfare have not lived up to the promises and aspirations that accompanied their passage. Both Social Security and Medicare are expected to run down their trust funds within two decades. Taxes will need to rise significantly, benefits fall, or both. The U.S. poverty rate hit its all-time low of 11.1% in 1973, almost five decades ago, right before the first recession that followed the creation of the Great Society welfare programs. Consumer services operated by the federal government, such as the United States Postal Service (USPS) and Amtrak, consistently underperform and overspend compared to their private sector service peers. In 2012, the USPS lost more money than the country appropriated to the State Department.92 Neither the Founders nor the Progressives offer a complete understanding of politics that can explain everything that has happened. But, by and large, the Founding generation and twentieth-century public choice scholars offer the more convincing explanation for the empirical results Americans now have. Politicians, often focused on re-election, prioritized overly generous but unsustainable near-term benefits and low payroll tax rates over sound, long-term management of Social Security and Medicare. Now, both programs face insolvency. The federal government’s top-down, bureaucratic approach struggled to effectively address the complex problem of poverty. And over time, public employees and their unions—neither entirely selfish nor selfless—often put their own interests—rich benefits, inefficient practices, etc.— ahead of the public’s. Notably, the evidence suggests that the Progressive worldview did and does explain some people’s behaviors and decisions, just not enough to sustain its core claims and promises. For example, many politicians can be selfless and high-minded and act for the public interest as they see it. But majorities make decisions in representative bodies, not selfless outliers. The median representative casts the deciding vote, and the median representative often casts votes based on self-interest. This played out frequently with Social Security policy: a few politicians from both parties consistently called out the unsustainable policymaking pattern in Congress, but they mostly failed to win the votes. Many public employees sacrifice personal interests for the public good, working long hours for relatively low pay, because they believe in the work and in serving the public. But, over time, public employees collectively, and their unions specifically, prioritize the self-interest of their members over the general public and the people they serve.

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And while the federal government’s anti-poverty effort worked well in some individual cases, the effort did not work well overall. The federal government’s top-down approach struggled to tailor support to individual cases and created a number of perverse incentives that incented people to stay out of work and enrolled in federal programs that discouraged work, income growth, and marriage. Consequently, America’s poverty rate, after falling for decade, is higher today than it was in 1973. The histories of these efforts reflect a common pattern: a few well-intentioned people are unable to direct or use a flawed system to attain the results promised to the public during each program’s passage. NOTES 1. Francis M. Bator, No Good Choices: LBJ and the Vietnam/Great Society Connection (Cambridge, MA: American Academy of Arts & Sciences, 2007), 14. 2. National Labor Relations Act (Wagner Act) of 1935, 49 Stat. 449, Public Law 74–198, 74th Cong., 1st sess. (July 6, 1935), https://govtrackus.s3.amazonaws.com/ legislink/pdf/stat/49/STATUTE-49-Pg449.pdf (accessed January 18, 2021); Fair Labor Standards Act of 1938, 29 U.S.C. §203, https://www.law.cornell.edu/uscode/ text/29/203 (accessed January 18, 2021). 3. Wickard v. Filburn, 317 U.S. 111; 63 S.Ct. 82; 87 L. Ed. 122 (November 9, 1942). https://www.loc.gov/item/usrep317111/. 4. Joyce Appleby, Alan Brinkley, and James M. McPherson, “The Depression and FDR,” in The American Journey: Student Edition, 5th ed. (New York: Glencoe/McGraw-Hill, 2006), 724. 5. Robert A. Margo, “Employment and Unemployment in the 1930s,” Journal of Economic Perspectives 7, no. 2 (1993): 41–59, https://doi.org/10.1257/jep.7.2.41. 6. Ben S. Bernanke, “Money, Gold, and the Great Depression,” Remarks by Governor Ben S. Bernanke, H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, VA, March 2, 2004, https://www.federalreserve.gov/ boarddocs/speeches/2004/200403022/default.htm (accessed January 16, 2021). 7. Bernanke, “Money, Gold, and the Great Depression.” 8. Revenue Act of 1932, Chap. 209, 47 Stat. 169. Public Law 152. 72nd Cong., 1st sess. (June 6, 1932). https://www.loc.gov/law/help/statutes-at-large/72nd-congress/ session-1/c72s1ch209.pdf (accessed October 19, 2018); Douglas A. Irwin, and Randall S. Kroszner, “Log-Rolling and Economic Interests in the Passage of the Smoot-Hawley Tariff,” Carnegie-Rochester Conference Series on Public Policy 45, no. 1 (1966): 173–200, https://ideas.repec.org/a/eee/crcspp/v45y1996ip173-200.html (accessed January 16, 2021); Paul Krugman, “Nineteenth Century Trade Policy,” presentation, February 17, 2010, 1–20, at 4, https://www.princeton.edu/~pkrugman/ Nineteenth_century_policy.pdf (accessed October 18, 2018). 9. William E. Leuchtenburg, Franklin D. Roosevelt and the New Deal, 1932–1940 (New York: Harper & Row, 1963).

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10. Margo, “Employment.” 11. Francois R. Velde, “The Recession of 1937: A Cautionary Tale,” Economic Perspectives 33, no. 4 (2009): 16–37, https://ssrn.com/abstract=1523267. 12. “Business & Finance: Up or Down,” Time, April 25, 1938, https://content.time. com/time/magazine/article/0,9171,931047,00.html (accessed November 9, 2014). 13. Margo, “Employment.” 14. Timothy Cogley, “Monetary Policy and the Great Crash of 1929: A Bursting Bubble or Collapsing Fundamentals?” Federal Reserve Bank of San Francisco: Economic Letter, March 26, 1999, https://www.frbsf.org/economic-research/ publications/economic-letter/1999/march/monetary-policy-and-the-great-crash-of1929-a-bursting-bubble-or-collapsing-fundamentals/ (accessed January 16, 2021). 15. Cogley, “Monetary Policy.” 16. Cogley, “Monetary Policy.” 17. Cogley, “Monetary Policy.” 18. Bernanke, “Money, Gold, and the Great Depression.” 19. James D. Hamilton, “Monetary Factors in the Great Depression,” Journal of Monetary Economics 19, no. 2 (1987): 145–69, https://doi. org/10.1016/0304-3932(87)90045-6. 20. Bernanke, “Money, Gold, and the Great Depression.” 21. See table at: Christopher Chantrill, “Gross Public Debt-fed percent GDP, 1900 to 2020,” USgovernmentspending.com, https://www.usgovernmentspending. com/spending_chart_1900_2020USp_XXs2li011tcn_G0f_Federal_Deficit_in_20th_ Century (accessed January 17, 2021). 22. Irwin and Kroszner, “Log-Rolling”; Krugman, “Nineteenth Century Trade Policy,” 4. 23. Gene Smiley, “Great Depression.” The Concise Encyclopedia of Economics (accessed August 23, 2014). https://www.econlib.org/library/Enc/GreatDepression. html (accessed January 17, 2021). 24. Steven Horwitz, “Hoover’s Economic Policies,” The Concise Encyclopedia of Economics (accessed April 10, 2014). 25. Bernanke, “Money, Gold, and the Great Depression.” 26. Joseph Gies, Franklin D. Roosevelt: Portrait of a President (New York: Doubleday, 1970), 139–40. 27. Margo, “Employment”; U.S. Bureau of Economic Analysis, “GDP and Other Major NIPA Series, 1929–2012:II,” (August 2012), https://apps.bea.gov/scb/ pdf/2012/08%20August/0812%20gdp-other%20nipa_series.pdf (accessed October 22, 2018). 28. U.S. Senate, Select Committee on Presidential Campaign Activities, “Party Division,” January 19, 2017, https://www.senate.gov/history/partydiv.htm (accessed January 18, 2021). 29. Stuart Chase, one of the “misfits” that went to Russia with Tugwell and Baldwin, coined the term “New Deal” during the Depression when he was writing a new book every year. A New Deal (New York: Macmillan, 1932), was the title of one of his books about a planned economy. See also Ronald Sullivan, “Stuart Chase, 97; Coined Phrase ‘A New Deal,’” New York Times, November 17, 1985, sec. 1, 44,

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http://www.nytimes.com/1985/11/17/nyregion/stuart-chase-97-coined-phrase-a-newdea.html (accessed January 18, 2021). 30. Franklin D. Roosevelt, “New Conditions Impose New Requirements upon Government and Those Who Conduct Government,” Campaign Address on Progressive Government at the Commonwealth Club, San Francisco, CA, September 23, 1932, in Public Papers and Addresses of Franklin D. Roosevelt, Volume 1, The Genesis of the New Deal, 1928–1932, ed. Samuel I. Rosenman (New York: Random House, 1938), vol. 1, 742–56, https://quod.lib.umich.edu/p/ppotpus/4925052.1928.0 01/794?rgn=works;view=image;rgn1=author;q1=roosevelt%2C+franklin (accessed January 18, 2021). 31. Franklin D. Roosevelt, “First Inaugural Address 1933: FDR Tells American the Only Thing They Have to Fear is Fear Itself,” March 4, 1933. PBS: American Experience, http://www.pbs.org/wgbh/americanexperience/features/primaryresources/fdr-first-inaugural/ (accessed September 4, 2015). 32. F. D. Roosevelt, “First Inaugural Address 1933.” 33. F. D. Roosevelt, “First Inaugural Address 1933.” 34. Gene Smiley, “Recent Unemployment Rate Estimates for the 1920s and 1930s,” Journal of Economic History 43, no. 2 (1983): 487–93, https://doi.org/10.1017/ S002205070002979X. 35. Margo, “Employment.” 36. Amity Shlaes, The Forgotten Man: A New History of the Great Depression. New York: HarperCollins, 2007), 202. 37. Margo, “Employment.” 38. Velde, “Recession of 1937,” 16. 39. Roy G. Blakey and Gladys C. Blakey, “The Revenue Act of 1936,” American Economic Review 28, no. 3 (1938): 447–58, https://www.jstor.org/stable/1803725; Charles W. Calomiris and R. Glenn Hubbard, “Internal Finance and Investment: Evidence from the Undistributed Profits Tax of 1936–37,” Journal of Business 68, no. 4 (1995): 443–82, https://www.jstor.org/stable/2353142. 40. Calomiris and Hubbard, “Internal Finance and Investment.” 41. Calomiris and Hubbard, “Internal Finance and Investment.” 42. Franklin D. Roosevelt, “Franklin Roosevelt’s Re-Nomination Acceptance Speech.” Philadelphia, PA, July 27, 1936, https://www.americanyawp.com/reader/23the-great-depression/franklin-roosevelts-re-nomination-acceptance-speech-1936/ (accessed January 18, 2021). 43. Franklin D. Roosevelt, “Franklin Roosevelt’s Address Announcing the Second New Deal,” October 31, 1936, http://docs.fdrlibrary.marist.edu/od2ndst.html (accessed October 25, 2018). 44. Velde, “Recession of 1937.” 45. Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War,” Independent Review 1, no. 4 (1997): 566. https://www.jstor.org/stable/24560785. 46. “Business & Finance,” Time, April 25, 1938. 47. “Business & Finance,” Time, April 25, 1938. 48. Higgs, “Regime Uncertainty,” 566.

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49. William E. Leuchtenburg, “Franklin D. Roosevelt: Campaigns and Elections,” University of Virginia, Miller Center (n.d.), https://www.millercenter.org/president/ fdroosevelt/campaigns-and-elections (accessed Oct. 24, 2018). 50. Leuchtenburg, “Franklin D. Roosevelt: Campaigns and Elections.” 51. George Gallup, “Was I Right about Roosevelt?” Coronet, January 1941, 12, http://www.oldmagazinearticles.com/FDR_1940_presidential_gallup_poll_ information-pdf (accessed January 18, 2021). 52. Shlaes, Forgotten Man, 202. 53. Jeffery A. Jenkins and Nathan W. Monroe, “Negative Agenda Control and the Conservative Coalition in the U.S. House,” Journal of Politics 76, no. 4 (2014): 1116–27. 54. Susan Dunn, Roosevelt’s Purge: How FDR Fought to Change the Democratic Party (Cambridge, MA: Harvard University Press, 2012), 90–91. 55. Jenkins and Monroe, “Negative Agenda Control.” 56. Robert A. Caro, The Years of Lyndon Johnson: The Passage of Power (New York: Alfred A. Knopf, 2012; Vintage Books, 2013). 57. Civil Rights Act of 1964, 78 Stat. 247, Public Law 88–352, 88th Cong., 1st sess. (July 2, 1964), https://www.govinfo.gov/link/statute/78/241?link-type=pdf (accessed January 18, 2021). 58. U.S. Election Atlas, “1964 Presidential General Election Results,” http:// uselectionatlas.org/RESULTS/national.php?year=1964 (accessed September 14, 2014). 59. Bator, No Good Choices, 14. 60. Voting Rights Act of 1965, 79 Stat. 437, Public Law 89–110, 89th Cong., 1st sess. (August 6, 1965), https://www.govinfo.gov/link/statute/79/437?link-type=pdf (accessed January 18, 2021). 61. David Blumenthal and James A. Morone, The Heart of Power: Health and Politics in the Oval Office, 2nd ed. (Berkeley: University of California Press, 2010), 163–206. 62. Bator, No Good Choices; Global Security, “Vietnam—Escalation of the War,” GlobalSecurity.org, https://www.globalsecurity.org/military/ops/vietnam2-escalation. htm (accessed October 31, 2018). 63. Global Security, “Vietnam.” 64. Global Security, “Vietnam.” 65. LBJ Presidential Library, “Landmark Laws of the Lyndon B. Johnson Administration,” https://www.lbjlibrary.org/lyndon-baines-johnson/lbj-biography/ landmark (accessed March 18, 2019). 66. Bator, No Good Choices, 8. 67. Jeff Shesol, Mutual Contempt: Lyndon Johnson, Robert Kennedy, and the Feud that Defined a Decade (New York: W. W. Norton, 1998), 545–47; Robert Dallek, Flawed Giant: Lyndon Johnson and His Times, 1961–1973 (Oxford: Oxford University Press, 1998), 518–25. 68. Drew Desilver, “What Does the Federal Government Spend Your Tax Dollars On? Social Insurance Programs, Mostly.” Pew Research Center. April 4, 2017. https://www.pewresearch.org/fact-tank/2017/04/04/

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what-does-the-federal-government-spend-your-tax-dollars-on-social-insuranceprograms-mostly/ (accessed January 18, 2021). 69. U.S. Congressional Budget Office. “The Federal Budget in 2016.” February 2017. https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/graphic/52408budgetoverall.pdf (accessed October 31, 2018); U.S. Congressional Budget Office. Letter from Keith Hall to Tom Price, “Spending for Means-Tested Programs in CBO’s Baseline, 2016–2026.” February 16, 2016, https://www.cbo.gov/sites/default/ files/114th-congress-2015-2016/reports/51250-Price_Letter.pdf (accessed October 31, 2018). 70. James M. Buchanan, “Politics without Romance: A Sketch of Positive Public Choice Theory and Its Normative Implications,” in The Collected Works of James M. Buchanan, Volume 1, The Logical Foundations of Constitutional Liberty (Indianapolis, IN: Liberty Fund, 1999). 71. Buchanan, “Politics without Romance,” 45–46. 72. Charles J. Goetz, Uncommon Common-sense vs-Conventional Wisdom: The Virginia School of Economics, Seventh Annual Lecture in the Virginia Political Economy Lecture Series, March 19, 1991 (Fairfax, VA: Center for Study of Pubic Choice, 1991), https://www.econbiz.de/Record/uncommon-common-sense-vsconventional-wisdom-the-virginia-school-of-economics-goetz-charles/10000894442 (accessed January 18, 2021). 73. James M. Buchanan, “The Virginia Renaissance in Political Economy: The 1960s Revisited,” in Money and Markets: Essays in Honor of Leland B. Yeager, ed. Robert Koppl (New York: Routledge, 2006), 37. 74. Friedrich von Hayek: Lecture I: On Economic Theory and Epistemology (February 20, 1961), Lecture II: The Economic Calculus (March 16, 1961), Lecture III: Economics and Technology (April 6, 1961), and Lecture IV: The Communication Function of the Market (April 27, 1961). The originals may be found in the Friedrich von Hayek Collection, box 138, folders 16–19, Hoover Institution Archives, Stanford University, Stanford, CA. 75. Friedrich A. Hayek, unpublished 1961 lecture, “The Economic Calculus,” at the University of Virginia, printed in The Market and Other Orders, ed. Bruce Caldwell (Chicago: University of Chicago Press 2014), 387–88; see also Friedrich A. Hayek, The Market and Other Orders, ed. Bruce Caldwell (Chicago: University of Chicago Press 2014), 375, footnote. 76. Joseph Heath, “Methodological Individualism,” Stanford Encyclopedia of Philosophy Archive (Spring 2015 ed.), ed. Edward N. Zalta, February 3, 2005; rev. January 21, 2015, http://plato.stanford.edu/archives/spr2015/entries/methodologicalindividualism/ (accessed January 18, 2021). 77. Gordon Tullock, The Politics of Bureaucracy (Washington, DC: Public Affairs Press, 1965). 78. James M. Buchanan, Economics from the Outside In: “Better than Plowing” and Beyond (College Station: Texas A&M University Press. 2007), 9. 79. James M. Buchanan, “Interview with James Buchanan, by Region.” Federal Reserve Bank of Minneapolis, September 1, 1995, https://www.minneapolisfed.org/ publications_papers/pub_display.cfm?id=3682& (accessed December 22, 2014).

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80. Buchanan, “Politics without Romance,” 57. “In retrospect, it seems naive in the extreme to advance institutional comparisons between the workings of an observed and an idealized alternative . . . economists continued to assume, implicitly, that politics would work ideally in the corrective adjustments to market failures that analysis enabled them to identify. The lasting contribution of public choice theory has been to correct this obvious imbalance in analysis” (57). 81. Buchanan, Economics from the Outside In, 99. 82. Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965; 1971). 83. Alexander Hamilton, quote in Paul Rahe, Republics Ancient and Modern (Chapel Hill: University of North Carolina Press, 1992), 651. 84. William Breit, “Creating the ‘Virginia School’: Charlottesville as an Academic Environment in the 1960s,” Second Virginia Political Economy Lecture at the Center for Study of Public Choice (April 16, 1986); repr. Economic Inquiry 25, no. 4 (1987): 645–57. https://doi.org/10.1111/j.1465-7295.1987.tb00766.x. 85. Breit, “Creating the ‘Virginia School.’” 86. Gordon Tullock, CV, July 2003, http://mason.gmu.edu/~gtulloc1/tullockvita. pdf (accessed January 18, 2021). 87. Breit, “Creating the ‘Virginia School.’” 88. Tullock, Politics of Bureaucracy. 89. David R. Mayhew, Congress: The Electoral Connection (New Haven, CT: Yale University Press, 1974). 90. Mayhew, Congress. 91. Mayhew, Congress. 92. U.S. Postal Service (USPS), “Financial History Summary,” 2012 Annual Report to Congress and Comprehensive Statement, https://about.usps.com/publications/ annual-reports/2012/financials.html (accessed January 18, 2021); U.S. Postal Service (USPS), “Progress and Performance: Annual Report to Congress 2012.” November 2012. https://www.state.gov/documents/organization/00506.pdf (accessed January 18, 2021).

PART II

Observing the Results

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Windfall Politics

“Everything will be all right for 20 years. Why should we worry about it? Sufficient to the day is the evil thereof.”—Representative Thomas Jenkins (R-OH), stating his support for delaying a Social Security payroll tax increase in a 1944 Congressional hearing.1

Before Franklin D. Roosevelt’s presidency, few elderly Americans had a reliable source of financial support other than work. In the late 1920s, fewer than 10% of American workers had private pensions, and the elderly had even lower rates.2 To fill the gap, many states began to offer old-age support programs. By 1935, thirty had established old-age support programs, but the benefits were modest and limited. While the average American monthly wage in the mid-1930s was around $100, the average state pension benefit provided $19.50 per month. Only 3% of elderly Americans received these state pensions.3 In Europe by the early 1930s, several countries had already created old-age social insurance programs to provide the elderly with a secure source of income. The trend started in Germany in 1889 when the German government began to provide benefits to those age 70 years and older.4 As German Emperor William I had declared in 1881 during a debate over the program, “those who are disabled from work by age and invalidity have a well-grounded claim to care from the state.”5 By 1934, the practice had spread to other European countries, including France and Great Britain.6 The United States had its own experience with a similar type of program: benefits and pensions for Union veterans. These benefits started with monthly payments to soldiers who were wounded and maimed during the Civil War, and eventually expanding to cover Union veterans disabled for any reason. By 1893, Civil War pension costs hit an all-time high, consuming 42% of the federal budget. That year, for the first time since the Civil War, the federal government ran a deficit of $61 million. But after 1893, the population of veterans, and thus the cost of their pensions, fell dramatically.7 85

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Inspired by European social insurance systems and the Union veterans’ pension system, many American academics and intellectuals supported the idea of a national social insurance system. But the issue lacked sufficient public support to gain momentum in the U.S. Congress and went nowhere for decades. The Great Depression (1929–1939) changed that. As President Franklin D. Roosevelt’s U.S. Secretary of Labor Frances Perkins would later recall, “The real roots of the Social Security Act were in the Great Depression of 1929. Nothing else would have bumped the American people into a social security system except something so shocking, so terrifying, as that depression.”8 And, thanks in large part to President Roosevelt’s commitment to a sound fiscal program and interventions with his staff and Congress in 1934, the original Social Security program that was passed in 1935 had a sound plan. The original 1935 Social Security program was expected to have an estimated reserve of $47 billion in 1980, based on credible actuarial estimates created.9 Yet in practice, by late 1982, the Social Security Trustees reported that the Social Security Trust Fund was on track to run out of money in July 1983, with the program’s spending having significantly exceeded its revenues for years.10 The situation would culminate in the 1983 social security reform bill, which reduced benefits and increased taxes to put the program on a sounder footing. The twentieth-century experiment in large-scale federal government expansion, in spending terms, is embodied by the country’s two old-age social insurance programs: Social Security and Medicare. The Social Security Act of 1935 provides income to eligible Americans age sixty-two and over.11 The Social Security Act Amendments (Medicare and Medicaid Act) of 1965 provides federally subsidized health insurance to eligible Americans age sixty-five and over.12 The two programs now cover tens of millions of elderly Americans and constitute the first and the third most expensive items in the federal budget respectively. The 2021 federal budget requested $4.8 trillion in federal spending.13 Social Security represented 24% of the total ($1.1 trillion), national defense at 15% ($0.7 trillion), and Medicare just under 15% ($0.7 trillion). In other words, Social Security and Medicare consume more than two times as much of the budget (39%) as national defense (15%). In 2002, Peter Fisher, a U.S. Treasury official at the time, aptly joked that that the federal government now resembled “a gigantic insurance company . . . with a sideline business in national defense and homeland security.”14 The two programs’ huge size makes their looming insolvency particularly worrisome. Both programs expect to run down their “trust funds”—funds saved to pay current contributors and future beneficiaries—in the next two decades with the U.S. Social Security Administration predicting Medicare’s Hospital Insurance Trust Fund will exhaust its trust fund in 2026, followed by

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Social Security in 2034.15 If this happens, the programs will have no savings, and their annual benefits (spending) will significantly exceed their payroll tax revenue. Taxes will need to rise significantly, benefits will need to fall significantly, or a combination of both. These looming financial crises resulted from “windfall politics”: a sustained policymaking pattern of politicians distributing unsustainable, unearned economic windfalls to current voters through unsustainably high benefits, low taxes, or both. Government spending in general and social insurance programs, such as Social Security and Medicare in particular, are susceptible to “windfall politics.” Government spending can be passed on to future generations through government debt. This allows politicians to artificially increase spending and lower taxes by using debt to pass the burden to future voters and citizens. Since 1970, the U.S. federal government has run a deficit almost all fifty years save four, 1998 through 2001.16 Social insurance programs are even more susceptible to windfall politics because the unsustainable spending is easier to hide and harder to understand. While government deficits and debt can be calculated each year and easily understood, social insurance programs require actuarial analyses and lack any similar, simple number to sum up their fiscal condition. As public choice scholar James M. Buchanan noted, “Elected politicians enjoy spending public money. . . . They do not enjoy imposing taxes on those same constituents.”17 The long-term outcome of windfall politics is substantial generational inequity, with early generations getting unearned windfall benefits and future generations bearing the cost. As decades of Social Security and then Medicare policy making now demonstrate, unsustainable finances and generational inequity seem to be the inevitable outcome of turning a social insurance program over to the political class. This result calls into question a core tenet of the Progressive view of politics—that politicians can be expected and assumed to pursue a high-minded “public good”—but fits easily and directly into the worldview articulated by the Founders, in which politicians should be assumed to be “self-interested” and at risk of “corruption.” A SOUND BEGINNING In June 1934, President Roosevelt (FDR) appointed a special panel—the Committee on Economic Security (CES), led by Frances Perkins, FDR’s Secretary of Labor—to design a social insurance system “suited to American purposes.”18 “I am looking for a sound means which I can recommend to provide at once security against several of the great disturbing factors in

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life—especially those which relate to unemployment and old age,” President Roosevelt told Congress.19 Many members of Congress simply wanted to build on the existing, state-run old-age assistance programs. Thirty states already had programs, and federal support could help expand these programs to more states, cover more elderly, and offer higher benefits. Old-age assistance programs could also provide financial support quickly using general federal revenues whereas most social insurance programs required taxes for at least a few years before offering benefits. Consequently, as Martha Derthick notes in her highly regarded history, Policymaking for Social Security: “Congress was not at all enthusiastic about old age insurance in 1935. . . . Congress clearly preferred to start paying benefits to the aged right away.”20 Many members of Congress wanted to omit a social insurance program entirely and just focus on expanding the old-age assistance programs. But FDR and his staff wanted a social insurance program too. Later in 1934, when Frances Perkins presented FDR with the CES team’s social security proposal, he told her the plan was “almost dishonest.” The plan initially ran a surplus (with taxes exceeding benefits) but then had increasingly large deficits by 1980. “We can’t do that,” FDR told his labor secretary. “We can’t sell the United States short in 1980 any more than in 1935.”21 Roosevelt wanted Social Security, and he wanted the program to be financially sound over the long term. In the final 1935 bill, while Roosevelt made some concessions, he prevailed with almost all the major debates. Congressional support for old-age assistance (OAA) programs was so strong that Title I of the Social Security Act of 1935 focused on “Grants to States for Old-Age Assistance.” Title II covered Social Security, the social insurance program pushed by FDR and his team. As Derthick would later note, “That it (Congress) approved old age insurance was due to the executive’s (FDR’s) influence.” 22 And the original 1935 bill balanced Social Security’s costs and revenues for decades.23 “WINDFALL POLITICS” BEGINS But this long-term fiscal soundness came with a notable caveat: the program would start with an artificially low tax rate. The Social Security Act of 1935 included a payroll tax of 2% (split evenly between employees and employers), and starting in 1937 that tax would gradually rise to 6% by 1949.24 In other words, instead of instituting an immediate payroll tax of around 5%, the program started with a 2% tax that would then rise to 6% twelve years later.25 If this initial postponement became a long-term pattern, the ability of the

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program to sustain itself over time—and to maintain FDR’s vision of relative intergenerational equity—would become increasingly unlikely.26 This is exactly what happened, as the initial emphasis on long-term fiscal soundness championed by FDR increasingly gave way to the short-term thinking of Congress. As Social Security’s trust fund began to grow with the introduction of payroll taxes in January 1937, Congressmen and Senators began to see political opportunity in passing less fiscally sound policies. Democrats largely championed higher benefits and expanded eligibility while Republicans championed delays in payroll tax increases.27 As Congress began to consider these changes, the power of windfall politics quickly became clear. Most obviously, the actuarial tables used by Congress in 1939 to analyze possible changes to the Social Security program switched from the decades-long time frame, used during passage of the original 1935 bill, to extend to 1955, or only by fifteen years.28 This reflected an unspoken but common desire by members of Congress to obscure the long-term fiscal impacts and unsustainability of their proposed changes. As Larry DeWitt, a public historian for the Social Security Administration, notes about that period of Social Security policymaking: Had there been detailed actuarial estimates showing the program to be insolvent over the long run . . . this would have constituted a major obstacle. . . . The absence of such long-range estimates thus was a key enabler in the passage of the amendments. Perhaps this explains why no political actor in 1939 made an issue of the absence of these estimates.29

Even the truncated forecasts came under criticism. House Ways and Means Committee member Representative Allen T. Treadway (R-MA) complained during House hearings on the proposed changes: “Aren’t we borrowing trouble for future generations perhaps when we, by actuarial tables, look ahead for 16 years and use 1955? That is 16 years away . . . why not tend to the problem of today rather than 16 years hence? We have got a big enough job here looking after the present system, it seems to me.”30 The resulting Social Security Amendment Act of 1939 offered upside elements to both Democrats and Republicans: expanded eligibility, earlier benefits, and postponed payroll tax increases.31 The amendment thus simultaneously increased benefits (costs) and lowered taxes (revenues), rewarding current voters (both beneficiaries and taxpayers) to the detriment of the program’s long-term sustainability and costs to future generations.32 The Social Security Amendment Act of 1939 also tipped Social Security’s long-term financial trajectory toward deficit with negative cash flows, conveniently beginning shortly after 1955.33 By the mid-1940s, FDR had become increasingly concerned about the solvency of Social Security. Congress seemed to pass a Social Security reform

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bill every year that, in some combination, expanded eligibility, increased benefits, and postponed payroll tax increases.34 In FDR’s view, Congress had passed the Social Security program and now refused to collect the taxes required to fund it. In February 1944, Roosevelt decided to act after Congress sent him yet another Social Security bill that pushed back the planned payroll tax increase scheduled to rise from 2% to 4% that year. Roosevelt vetoed the bill and sent a veto note to Congress: I regret that I find it necessary in the midst of this great war to be compelled to do this . . . the elimination of automatic increases provided in the Social Security Law comes at a time when industry and labor are best able to adjust themselves to such increases. These automatic increases are required to meet the claims that are being built up against the social security fund. Such a postponement does not seem wise.35

The vetoed bill returned to the House and Senate, where both chambers opened debate to potentially override the President’s veto. By this time, the political benefits of windfall politics had become widely known: members of Congress could benefit current voters by expanding eligibility, increasing benefits, and postponing taxes, while turning a blind eye to the long-term implications. These long-term implications were not a secret. On February 24, 1944, during debate to override Roosevelt’s veto, Congressman John Dingell Sr. (D-MI) argued for sustaining the President’s veto on the House floor: The time has come when we must put a stop to the ill-advised and repeated undermining of the social security plan . . . stop this freezing method which endangers the future solvency of the entire structure . . . it is dangerous and unwarranted . . . [to] approve the repeated strangulation and raiding of what is a trust fund for present and future citizens . . . I am bound in conscience to defend and protect the Social Security Act . . . I urge you . . . to do the same.36

But most representatives in the Congress and Senate saw the situation differently. Windfall politics proved far more enticing and powerful than sound fiscal management. Within three days of FDR’s veto, Congress over-rode his veto 299 to 95 in the House and 72 to 14 in the Senate.37 The override represented an unusual rebuke. During his twelves years as president, FDR vetoed 635 bills; Congress overrode only nine of them.38 This would be one of them. Windfall politics had proven more powerful than even a politically canny, wartime President. Derthick sums up the powerful dynamic at play: The program [Social Security] had a powerful appeal to self-interest—the self-interest of the taxpayer-voter, who got back far more in benefits than he paid in taxes, and the self-interest of the politician, who could, all at once,

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provide the current tax-payer voter with these excess benefits, defer high tax rates to a future generation, and proclaim with a straight face the “fiscal soundness” of the program.39

The long-term implications were not a secret. Arthur J. Altmeyer, Chair of the Social Security Board, in testimony before Congress in November 1944, bluntly explained what Congress was doing to future Americans by postponing the payroll tax rate increase: It is a mathematical certainty that the longer the present pay-roll tax remains in effect, the higher the future pay-roll tax must be . . . to a point where future beneficiaries will be obliged to pay more for their benefits than if they obtained this insurance from a private insurance company. I say it is inequitable . . . and I think that Congress would be confronted with that embarrassing situation.40

Based on Altmeyer’s estimates, Social Security had already built up a long-term deficit of almost $17 billion in 1944 as estimated program revenues could not pay the promised benefits.41 Almeyer’s remonstrations had little effect. Congress continued to postpone the first payroll tax increase, originally scheduled for 1940, until 1950 when the rate finally rose from 2% to 3%.42 “NEUTRAL” ADMINISTRATORS In the Progressive-turned-New Deal vision of the federal government, Social Security would work in a simple, straightforward way. Enlightened, publicly minded politicians (like FDR) would create a critical program to provide much needed benefits to elderly Americans, and then sustainably manage the program over time. These politicians would be supported by a group of neutral, capable, publicly minded administrators bound to serve the public will. These administrators would inform important decisions with analyses and insights and then execute on Congress’ decisions. Democratically elected members of Congress would decide what to debate and to consider, and then move to final decision-making. As past President Woodrow Wilson claimed, administrators would take care of “individual and small things,” divested of “narrow class or parochial loyalties.” 43 In practice, Social Security administrators and staff behaved quite differently. In 1934, most members of Congress opposed the idea of a social insurance program and preferred expanding the existing old-age assistance program. CES staff, selected by FDR, developed and advocated a different

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position. To them, Social Security should exist—and take precedence over the existing, state-run old-age assistance programs. Moreover, the CES staff made several core recommendations that were not supported by most Congressional representatives or by President Roosevelt: (1) Social Security should be funded by both general tax revenues and payroll taxes, (2) the program should run long-term deficits, and (3) beneficiaries should receive a minimum benefit regardless of contribution history. Both FDR and Congressional majorities opposed all three recommendations, and none passed in the original bill. But deficits and minimum benefits would pass within a few years with the CES and then the Social Security Administration (SSA) staff building the case and lobbying for these policies in papers, briefings, and informal interactions with elected officials. The unelected administrators of the CES and SSA took anything but a neutral, disinterested view in Congress’ political decisions. With Social Security Act passed in 1935, SSA administrators took actions to directly influence and shape public opinion, both to defend the new program and the President who championed it. The program itself needed defending. As SSA studies would find, “Upwards of 70 percent of the American population felt that some action was necessary,” but the research could “neither affirm nor deny public support for the principle of social insurance.”44 Many Americans saw more merit in the means-tested OAA programs than in Social Security. The OAA programs targeted the most needy and got funding from general tax revenues. This did stop SSA advocacy for the program. As Derthick reports in Policymaking for Social Security, the SSA staff used taxpayer funds to provide campaign literature and materials supporting the program to political allies of Social Security, including the American Federation of Labor (AFL). The materials promised workers they would get more from Social Security than they paid.45 With Social Security secured by FDR’s resounding 1936 re-election, the SSA began to develop a long-term vision for the program: Social Security should expand to include more people, provide higher benefits, and cover more issues including old-age, disability, and dependents. SSA’s officials had a vision and thoughtfully and effectively worked to advanced it. After an extensive investigation of SSA’s inner workings, Derthick found that SSA leaders were far from “neutral parties”: The role of technical assistant merged indistinguishably with the role of political ally. The delicacy and subtlety of the distinction . . . made it hard for political appointees to pass judgment on the behavior of program executives. . . . The SSA’s technical assistance was of greatest value to those political figures—liberal Democrats in Congress, the staff of the AFL-CIO—who wanted to do what

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the SSA’s own executives wanted to do—to meet perceived social needs by expanding the compulsory program of social insurance.46

In practice, elected politicians did not guide the program so much as shape and constrain its growth, guided by the vision of the SSA’s leaders. By the late 1950s, as Derthick found that the SSA staff were directly engaging with the political process to seek their preferred outcomes, helping to draft bills and meet with political partisans to provide support and develop strategy: Regarding the program executives’ collaboration with organized labor. . . . The distinction between the SSA as a technical assistant to others and as a political actor pursuing its own ends becomes very hard to draw. For example, was it technical assistance when the assistant chief of the coverage and disability planning branch, a member of the HEW [Department of Health, Education, and Welfare] general counsel’s office assigned to SSA, and a secretary employed by the SSA prepared the McNamara bill in an office on Capitol Hill in 1959—the bill behind which backers of health insurance united behind in 1959–60? Was it technical assistance when the same assistant branch chief delivered a draft bill one night in 1960 to a Capitol Hill hotel room where . . . members of organized labor were holding a strategy and drafting session?47

Robert J. Myers, chief actuary for Social Security from 1947 to 1970, would later explain in his book, Expansionism in Social Insurance, why SSA’s leaders consistently worked to expand Social Security: Over the years, most of the American staff engaged in programme planning and policy development have had the philosophy—carried out with almost a religious zeal—that what counts above all else is the expansion of the programme. To some of them, to believe otherwise would amount virtually to being opposed to the programme. Thus, such persons have not necessarily tended to be partisan . . . rather they have favoured and helped those who want to expand the programme the most . . . . It is only natural for people to advocate and work strongly for the growth of the activity in which they are engaged.48

SELLING “INSURANCE” When debated in 1935, politicians and CES staff referred to Social Security as a “social insurance” program, not “insurance.” This was a fine but critical distinction. By law, private insurance companies must create and sell policies that are “actuarially sound”—premium revenues must equal or exceed the expected costs of promised benefits. Government “social insurance”

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programs do not have to be actuarially sound and can thus violate two basic rules of insurance: (1) running long-term fiscally sustainable programs, and (2) being able to credibly pay beneficiaries promised benefits. Social Security did not owe contributors and beneficiaries anything. As former Labor Secretary Perkins would later explain about CES’s original 1935 Social Security proposal, “From an insurance company’s point of view this [unsustainable approach] was impossible; but underlying the whole government system was the credit of the United States.”49 Social Security would not be self-sustaining but could raise revenues with future taxes, “perhaps in 1980.”50 As the Social Security Act of 1935 stated, Congress had “the right to alter, amend, or repeal any provision of this Act” including both payroll tax contributions and benefits.51 The U.S. Supreme Court affirmed this view in two rulings in 1937. In a five to four decision in Helvering v. Davis, the Supreme Court affirmed Social Security’s constitutionality because the program was not an insurance program.52 “The proceeds of both taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way,” the Supreme Court noted. Beneficiaries had no legal right to benefits. Nonetheless, following the Supreme Court’s ruling, SSA staff worked to rebrand Social Security to the American public as an insurance program. The SSA referred to payroll taxes as “premiums” or “contributions,” and referenced “old age insurance accounts,” using insurance terms despite Social Security definitively not being an insurance program.53 Workers were “paying for their own protection, building up insurance for their old age,” SSA literature claimed in its comprehensive effort to build-up trust and a positive perception of the program with the American public.54 This led to one of the program’s great ironies. Despite definitively not being an insurance program, the SSA insisted on referring to Social Security as nothing else. IGNORING THE LONG GAME “Windfall politics” quickly set the policymaking pattern. From 1940 to 1949, Congress amended Social Security an additional seven times, postponing the program’s scheduled payroll tax increase each time.55 The original bill included a gradually increasing payroll tax rate culminating in a 6% rate in 1949.56 In practice, the rate did not increase at all from 1940 to 1949.57 By that time, experts estimated that Social Security required an immediate, long-term payroll tax rate of almost 8% to remain solvent in the long term.58 Finally, in 1950, Congress and President Harry S. Truman considered raising the payroll tax rate to 3% but with a massive sweetener: Social Security benefits would increase 77% and 10 million additional people would be

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covered.59 By this time, windfall politics had become deeply ingrained with the political payoff of unsustainable policies that were well-known and popular. But a few Congressional representatives continued to oppose the policymaking on principle. John W. Byrnes, a three-term Republican Congressman from Wisconsin, went to great lengths to criticized the “so-called insurance” program.60 Byrnes took to the floor of the House to criticize the proposal: Would we vote for this bill today if it carried with it [a] 6½ percent pay-roll tax, which is necessary to pay for the benefits . . . if we are not willing to impose that tax . . . how can we vote to place it on the next generation? Yet that is just what we will be doing in voting for this bill. It would be the easiest thing in the world to vote for this bill, because you are giving the beneficiaries who are now on the rolls and who will go on the rolls within the next 20 or 25 years something for nothing; but you are not giving something for nothing to future generations. Those future generations will pay for what you are giving away today for nothing. I just do not believe it is honest or sound to burden my children or your children. . . . Remember we give them no voice whatever in what we are committing them to.61

Instead, Representative Byrnes argued that the OAA program should be increased and expanded, with payments made out of general federal revenues. Both the benefits and costs would fall on the current generation, and future Americans could change the program if they wanted. As Derthick notes about Byrnes’ criticism and proposal, “In logic and morality, it was a powerful argument, but it lost.”62 The proposal passed with large majorities in both the House and Senate, with only fourteen Republicans voting against the proposal in the House.63 On August 28, 1950, President Truman signed the Social Security Amendments of 1950 into law with an increase in the payroll tax rate to 3% and a gradual increase to 6.5% in 1970.64 As Social Security historian DeWitt notes about Congressional deliberations during those years, “These policy decisions were made in a climate in which the major policy players all declined to make an issue of the long-range impact of their policies.”65 The federal government had become the nation’s largest de facto insurer and jettisoned the one key condition for a sustainable insurance program: sound finances. All the windfall politics meant early beneficiaries received unprecedented and unsustainable payouts from Social Security. Ida May Fuller, the first monthly Social Security beneficiary, paid less than $1 per month in Social Security payroll taxes over three years for a total of $24.75.66 On January 31, 1940, she received the nation’s first monthly Social Security check for $22.54—an amount almost equal to her entire contribution. Before she died at the age of 100, Fuller would collect $22,889, almost 100,000% of what she contributed.

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Fuller was emblematic of Social Security’s early beneficiaries. In 1963, the Commissioner of Social Security reported to Congress that current beneficiaries had contributed only $1 for every $10 they would receive in benefits.67 The other $9 (90% of the total) would be pushed out as liabilities onto current and future workers. The pattern of unsustainable Social Security amendments put the program on an inevitable path to financial crisis. Over time, as Congress increased benefits and postposed tax increases, the program’s fiscal cushion shrank, all the while its annual obligations grew. In the program’s first forty-five years, no Republican president ever vetoed a Social Security increase. The 1968 Republican platform offered no plan to roll-back or even slow Social Security benefits.68 Instead, it proposed automatic increases indexed to the cost of living, increased widows’ benefits and reduced penalties for people earning money in addition to Social Security. Democratic platforms offered far more generous and expansive benefits. It was only a matter of time until a crisis hit. So, of course, one did. After a final political splurge of across-the-board, unsustainable benefit increases in the early 1970s, the economy stalled.69 In 1975, Social Security’s costs began to exceed its combined revenues and interest income.70 The trust fund began to shrink, and the program headed towards insolvency. Tellingly, Congress did little despite the dire and concrete forecasts. From 1970 to 1975, Social Security spending grew from $32 billion to $67 billion. Taxes for the program would soon approach 4.5% of the nation’s gross national product. The program’s planned rate increases, scheduled to increase yet again, still could not pay for the program’s promised benefits. After decades of marketing, many citizens probably assumed that Social Security had to be fiscally sound and sustainable. It did not. Faced with an imminent crisis in 1982, long-term decision-making finally offered short-term political reward. If incumbent politicians presided over insolvency, the political costs would be significant. Many politicians might lose office. Long-term thinking now offered short-term political reward, and the country’s elected politicians acted accordingly. President Ronald Reagan appointed a bipartisan, expert commission to develop a solution. Congress had previously opposed the idea, but now it relented. The commission developed a proposal and, after some debates and delays, Congress passed a Social Security Amendments of 1983, on April 20, 1983.71 Payroll tax rate increases were accelerated, benefit increases were delayed, and Social Security benefits above a certain threshold were made taxable.72 The changes put the program on a sounder financial footing with solvency projected to last for decades. The country had gone through its first full cycle of windfall politics: short-term political self-interest motivating unsustainable fiscal policies culminating in fiscal crisis, finally providing the necessary,

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short-term political incentive to pass reforms to make the program sustainable again. EXCEEDINGLY UNSOUND In contrast to Social Security, Social Security Act Amendments (Medicare and Medicaid Act) of 1965—seemed destined for fiscal crisis from the beginning. The program was to be financed by an additional payroll tax on workers’ wages. From the 1940s onward, U.S. healthcare costs had grown faster than wages.73 Yet Medicare supporters proposed financing the program with an additional fixed increase in the payroll tax.74 If healthcare costs continued to grow faster than wages, Medicare’s costs would inevitably exceed its revenues. Concerns about this issue had stymied federal health insurance proposals for years before Medicare and Medicaid Act’s passage in 1965.75 Medicare took windfall politics to a new extreme. On July 1, 1966, newly eligible beneficiaries could begin to sign-up for Medicare benefits starting in 1967. Unlike Social Security, whose early beneficiaries made nominal contributions, the first group of Medicare beneficiaries (most U.S. citizens older than 65 years) received Medicare without paying any Medicare payroll taxes at all. They contributed nothing and then gained a massive healthcare benefit—a true windfall. The windfall was substantial. The Urban Institute (UI), a think tank founded by President Lyndon B. Johnson’s administration in 1968, would later estimate that a couple who retired in 1965 would receive $68,000 in Medicare benefits (in 2013 dollars) without having paid any Medicare taxes.76 The rest would be paid for by current payroll taxes and general government revenues. Medicare’s costs almost immediately exceeded even the highest cost estimates. During legislative debate about the program, Medicare cost projections estimated a 10% increase in hospital admissions the following year. In fact, hospital admissions rose 25%, surgical procedures 40%, and hospital days 50% for newly eligible Medicare beneficiaries.77 The growth reflected the fact that Medicare paid for most medical expenses, leaving beneficiaries responsible for premiums equal to 25% of expected hospital costs, a small deductible, and limited co-pays. Facing such significantly reduced costs, seniors increased their consumption of medical services substantially. The pattern would continue in the years that followed, putting the program’s trust fund increasingly under strain.

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LBJ’S “TRAIN WRECK” To the program’s key supporters, these long-term cost and fiscal concerns did not come as a surprise. Recorded telephone conversations between President Johnson and newly elected Massachusetts Senator Ted Kennedy on January 9, 1965 reveal that Johnson was intent on burying Medicare’s likely substantial long-term costs to help ensure its legislative passage: My health program yesterday runs $300 million, but the fools had to go projecting it [Medicare] down the road five or six years, and when you project it the first year it runs $900 million. Now I don’t know whether I would approve $900 million the second year or not. I might approve $450 or $500, but the first thing Senator Dick Russell [D-GA] comes running in [and] says, “My God, you’ve got a one billion dollar [projection] for next year on health. Therefore I’m against any of it now” . . . we do not want to stir up any more hornets than we have to.78

In other words, “the fools” should never have projected Medicare’s costs. Now that they had, the costs should not be shared with members of Congress that might oppose the program if they knew the program’s expected costs. The moment was revealing and illustrative of President Johnson’s basic strategy to get Medicare passed: avoid cost estimates, withhold cost estimates where possible, and overlook them when able. This reflected Johnson’s deep belief that America’s elderly should get more federal support for health insurance and costs. When Vice President Hubert Humphrey began to discuss the program’s potential costs, the president told him to stop talking to him about the costs: Don’t ever argue with me. I’ll go a hundred million or a billion on health or education. I don’t argue about that any more than I argue about Lady Bird [Mrs. Johnson] buying flour. You got to have flour and coffee in your house and education and health. I’ll spend the goddamn money. I may cut back some tanks. But not on health.79

Arkansas Democrat and House Ways and Means Committee Chairman Wilbur D. Mills expressed concerns about the program’s costs as he and President Johnson worked on compromise legislation to get the program passed. During one conversation, Mills expressed concerns about the costs of adding Medicare Part B (physician services for the elderly) and Medicaid (medical care of the poor) to the administration’s Medicare package. President Johnson assured him the program’s costs could be handled:

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I’ll take care of [the money]. I’ll do that. . . . We had an old judge in Texas one time . . . we called him Al Caldy . . . old Al Caldy Roberts, and he said, when they talked to him one time that he might’ve abused the Constitution and he said, “what’s the Constitution between friends?” And I say . . ., that 400 million’s not going to separate us friends when it’s for health.80

Even Wilbur Cohen, Johnson’s Health, Education, and Welfare undersecretary and Medicare champion, was concerned about the proposed program’s costs. He was a true believer who wanted a federal healthcare bill, but the proposed program planned to cover both hospital care and physician services for the elderly and healthcare subsidies for the poor.81 Previous efforts had often only considered one of those three issues. The final bill proposed covering all three. The costs would be substantial. Cohen warned the president that the bill would cost $500 million more in its first year than the initial plan, and even that plan had been ambitious.82 Johnson responded to Cohen’s concerns with a story: Well, I guess I’ll run and get my brother. . . . I remember one time they were giving a test to a fellow who was going to be a switchman on the railroad, giving him an intelligence test, and they said, “What would you do if a train was coming east going sixty miles per hour, and you looked over your shoulder and another one was coming from the west going sixty miles an hours?” And the fellow replied, “I’d go get my brother.” And they said, “Why would you get your brother?” And he said, “Because he hasn’t ever seen a train wreck.”83

Thus, President Johnson instructed Undersecretary Cohen to accept Chairman Mills’ proposal to combine all three bills—damn the costs. With the help of a supportive Congress, Johnson signed Social Security Act Amendments (Medicare and Medicaid Act) into law on July 30, 1965. AN UNSUSTAINABLE VISION President Johnson had a single-minded focus on making Medicare a universal program without regard for need. His proposed medical bill would be an entitlement—anyone over the eligible age of 65, in most cases, would receive highly-subsidized government insurance regardless of financial need. People with no assets or income and the nation’s elderly millionaires would be eligible for the program. Bill Moyers, a domestic policy specialist to President Johnson, minced no words about the potential political gains of advocating for such a program in the 1964 election: “this is a great opportunity for us to beat [Barry Goldwater,

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the Republican candidate] to death among these older people if we just play it right.”84 A universal program had real appeal, but the costs proved massive and ever-growing. By 1973, Medicare’s hospital insurance coverage costs had already doubled the initial cost estimate: $7.3 million actual versus $3.7 million estimated. The gap would continue to grow with time.85 In 2015, the Government Accountability Office (GAO) listed Medicare as a “high-risk” program in need of reform due to its vulnerability to fraud and concerning long-term financial prospects.86 And in 2020, the Medicare Trustees Report projected that Medicare’s Hospital Insurance Trust fund would become insolvent in 2026.87 Ironically, if a private insurance company had run and sold policies similar to Social Security and Medicare, the firm and its leadership would almost certainly be shut down—due to laws that prohibit financial mismanagement and actuarial insolvency—and potentially liable to civil and potentially criminal charges due to mismanagement and public misrepresentation. State and federal regulations require insurance companies to meet specific capitalization requirements, maintain sufficient reserves, and regularly file accurate, audited financial reports subject to examination by state insurance departments. States have established processes to manage insolvent insurers and maintain solvency guarantee funds to provide additional assets if an insurer becomes insolvent.88 If Social Security and Medicare were private endeavors, both would have been sanctioned and taken over by state regulators decades ago. COMPOUNDING DEBT In addition to explaining Social Security and Medicare policymaking, windfall politics helps explain another important, looming crisis in American politics: the growing national debt. As of May 2020, the U.S. national debt hit $25 trillion—over 100% of the U.S. gross domestic products (GDP) that year—with no end in sight. The political dynamic behind the growing national debt is similar to Social Security and Medicare. To self-interested politicians seeking re-election, future constituents are not high priority because they are not voters. Today’s taxpayers and beneficiaries are high priority. Federal politicians can fund current spending with future costs, shifting benefits to the present and costs to the future. Without a rule or an amendment requiring otherwise, members of Congress will predictably pursue windfall politics—voting against taxes but

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for spending. Beneficiaries get more, workers pay less, and politicians get credit. Debt is issued to pay the difference with the burden handed to future constituents.89 “The most elementary prediction from public choice theory is that in the absence of moral or constitutional constraints democracies will finance . . . current public consumption from debt issue rather than from taxation and that, in consequence, spending rates will be higher than would accrue under budget balance,” public choice economist James M. Buchanan observed.90 Windfall politics helps explain why both Social Security and Medicare are headed toward insolvency, as is the federal government as a whole. NOTES 1. Thomas Jenkins, quoted in Conservatism and American Political Development, ed. Brian J. Glenn and Steven M. Teles (Oxford: Oxford University Press, 2009), 75. 2. Larry DeWitt, “The Development of Social Security in America,” Social Security Bulletin 70, no. 3 (2010): 4, https://www.ssa.gov/policy/docs/ssb/v70n3/ v70n3p1.html (accessed January 14, 2021). 3. DeWitt, “Development of Social Security,” 4. 4. U.S. Social Security Administration, “Age 65 Retirement,” https://www.ssa.gov/ history/age65.html (accessed August 21, 2020). 5. Patricia P. Martin and David A. Weaver, “Social Security: A Program and Policy History,” Social Security Bulletin 66, no. 1 (2005): 2, https://papers.ssrn.com/sol3/ papers.cfm?abstract_id=2121776 (accessed January 19, 2021). 6. Lillian Liu, “Special Study #8: Foreign Social Security Developments Prior to the Social Security Act,” December 2001, Report prepared for the U.S. Social Security Administration Historian’s Office, https://www.ssa.gov/history/pre1935. html (accessed August 21, 2020). 7. DeWitt, “Development of Social Security,” 3. 8. Martin and Weaver, “Social Security,” 3. 9. DeWitt, “Development of Social Security,” 6. 10. Congressional Reserve Service, Report, “Social Security: What Would Happen if the Trust Funds Ran Out?” June 11, 2018, 6, https://fas.org/sgp/crs/misc/ RL33514.pdf (accessed November 21, 2018); U.S. Social Security Administration, “Appendix C of the 1983 Greenspan Commission on Social Security Reform.” Social Security History, https://www.ssa.gov/history/reports/gspan7.html (accessed January 19, 2021). 11. Social Security Act of 1935, H.R. 7260, P.A. 271, 74th Cong., 1st sess. (August 14, 1935), sec. 1104, https://www.ssa.gov/history/35act.html (accessed January 19, 2021). 12. Social Security Act Amendments (Medicare and Medicaid Act) of 1965, 79 Stat. 286, Public Law 89–97, 89th Cong., 1st sess. (July 30, 1965), https://www.govinfo. gov/content/pkg/STATUTE-79/pdf/STATUTE-79-Pg286.pdf (accessed January 19,

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2021); and see DeWitt, “Development of Social Security”; U.S. Centers for Medicare and Medicaid Services. “About Medicare.” https://www.cms.gov/Medicare/MedicareGeneral-Information/MedicareGenInfo (accessed January 19, 2021). 13. U.S. Office of Management and Budget (OMB), “A Budget for American’s Future. Budget of the U.S. Government, Fiscal Year 2021,” 2020, Table S-3, 111, https://www.whitehouse.gov/wp-content/uploads/2020/02/budget_fy21.pdf (accessed August 22, 2020). 14. Peter Fisher, quoted in Paul Krugman, “A Fiscal Train Wreck,” New York Times, March 11, 2003, sec. A, 25, https://www.nytimes.com/2003/03/11/opinion/afiscal-train-wreck.html (accessed January 19, 2021). 15. U.S. Social Security Administration, “A Summary of the 2018 Annual Reports: Social Security and Medicare Boards of Trustees,” https://www.ssa.gov/oact/trsum/ (accessed July 15, 2020). 16. U.S. Office of Management and Budget, Historic Tables, “Table 1.1—Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789–2025,” February 3, 2020, https://www.whitehouse.gov/omb/historical-tables/ (accessed August 21, 2020). 17. Jerry H. Templeman, “James M. Buchanan on Public-Debt Finance,” Independent Review 11, no. 3 (2007): 435–49, https://www.independent.org/pdf/tir/ tir_11_03_06_templeman.pdf (accessed January 19, 2021). 18. DeWitt, “Development of Social Security,” 5. 19. U.S. Social Security Administration, “The Committee on Economic Security (CES),” Reports and Studies, http://www.ssa.gov/history/reports/ces/cesbasic.html (accessed March 20, 2015). 20. Martha Derthick, Policymaking for Social Security (Washington, DC: Brookings Institution Press, 1979). 21. Kennedy, David M. The American People in the Great Depression: Freedom from Fear (Oxford: Oxford University Press, 2003), 98. 22. Derthick, Policymaking for Social Security. 23. Larry DeWitt, “Financing Social Security, 1939–1949: A Reexamination of the Financing Policies of This Period,” Social Security Bulletin 67, no. 4 (2007): 59–69, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1153993 (accessed May 9, 2014). 24. DeWitt, “Financing Social Security.” 25. Derthick, Policymaking for Social Security, 229. 26. Frances Perkins, The Roosevelt I Knew (New York: Penguin, 2011). 27. DeWitt, “Financing Social Security.” 28. DeWitt, “Financing Social Security.” 29. DeWitt, “Financing Social Security.” 30. DeWitt, “Financing Social Security.” 31. Martin and Weaver, “Social Security.” 32. Martin and Weaver, “Social Security.” 33. DeWitt, “Financing Social Security.” 34. DeWitt, “Financing Social Security.”

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35. Gerhard Peters and John T. Woolley, “Franklin D. Roosevelt. Veto of a Revenue Bill,” February 22, 1944, American Presidency Project, https://www.presidency.ucsb. edu/node/210639 (accessed January 19, 2020). 36. U.S. Congress, House, “Debate Over the Revenue Act of 1943.” 90 Cong. Rec., Vol. 90, Part 2, 78th Cong., 2nd sess. (February 24, 1944, p. 2015). https:// www.govinfo.gov/content/pkg/GPO-CRECB-1944-pt2/pdf/GPO-CRECB-1944-pt2. pdf (accessed January 19, 2020). 37. U.S. Social Security Administration, “Major Decisions in the House and Senate on Social Security: 1935–2000,” Legislative History, RL30920, March 26, 2001. https://www.ssa.gov/history/reports/crsleghist3.html (accessed January 19, 2021); U.S. Social Security Administration, “Major Decisions”; U.S. Congress, House, “Debate Over the Revenue Act of 1943.” 90 Cong. Rec., Vol. 90, Part 2, 78th Cong., 2nd sess. (February 25, 1944, p. 2050). https://www.govinfo.gov/content/pkg/GPOCRECB-1944-pt2/pdf/GPO-CRECB-1944-pt2.pdf (accessed January 19, 2020). 38. U.S. Congress. Senate, “Veto Unchallenged: President Roosevelt,” Senate.gov, 1136 H.R. 3344, p. 247-, 73rd Cong., 1st sess. (https://www.senate.gov/reference/ Legislation/Vetoes/Presidents/RooseveltF.pdf (accessed November 17, 2018). 39. Derthick, Policymaking for Social Security, 8. 40. U.S. Social Security Administration, “A. J. Altmeyer, A Statement on the Automatic Increase in the Tax Rate Under the Federal Old-Age and Survivors Insurance System,” Chairman, Social Security Board, Before the House Ways and Means Committee, November 27, 1944, http://www.ssa.gov/history/aja1144a.html (accessed April 8, 2015). 41. Derthick, Policymaking for Social Security, 237–38. 42. DeWitt, “Financing Social Security,” 62. 43. See Dewey Grantham, “The Progressive Era and the Reform Tradition,” in The American Scene: Varieties of American History, ed. Robert D. Marcus and David Burner (New York: Meredith, Ardent Media, 1971), vol. 2, 195–210. Article speaks to the role played by industrial laborers and immigrants in Progressivism but not Populism. 44. Michael E. Schiltz, Public Attitudes toward Social Security 1935–1965, U.S. Department of Health, Education, and Welfare, Social Security Administration, Office of Research and Statistics, Research Report 33 (Washington, DC: Government Printing Office, 1970), 147. 45. Derthick, Policymaking for Social Security, 114. 46. Derthick, Policymaking for Social Security, 75, 74. 47. Derthick, Policymaking for Social Security, 74. 48. Robert J. Myers, Expansionism in Social Insurance (London: Institute of Economic Affairs, 1970), 29. 49. Perkins, Roosevelt I Knew. 50. Perkins, Roosevelt I Knew. 51. Social Security Act of 1935, H.R. 7260, P.A. 271. 52. Helvering v. Davis, 301 U.S. 619 (1937), https://supreme.justia.com/cases/ federal/us/301/619/.

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53. Bruce Bartlett, “The Clark Amendment: What Social Security Might Have Been,” National Center for Policy Analysis (NCPA), August 22, 2001, last available 2019, http://www.ncpa.orbeg/sub/dpd/index.php?Article_ID=7883; Derthick, Policymaking for Social Security, 199. 54. Derthick, Policymaking for Social Security, 183, 199. 55. DeWitt, “Financing Social Security.” 56. DeWitt, “Financing Social Security.” 57. DeWitt, “Financing Social Security.” 58. DeWitt, “Financing Social Security.” 59. DeWitt, “Development of Social Security,” 16. 60. Derthick, Policymaking for Social Security, 222. 61. U.S. Congress, House, “John W. Byrnes (R-WI) to Congress, on Social Security Tax,” 95 Cong. Rec, Vol. 95, Part 11. 81st Cong., 1st sess. (October 5, 1949, p. 13940), https://www.govinfo.gov/content/pkg/GPO-CRECB-1949-pt11/pdf/GPOCRECB-1949-pt11.pdf (accessed January 19, 2021). 62. Derthick, Policymaking for Social Security, 44–45. 63. Derthick, Policymaking for Social Security, 44–45. 64. Social Security Amendments of 1950. H.R. 6000, Public Law 734. 81st Cong., 2nd sess. (August 28, 1950). https://www.ssa.gov/history/1950amend.html (accessed January 20, 2021); Derthick, Policymaking for Social Security, 240. 65. DeWitt, “Financing Social Security.” 66. Larry DeWitt, “Research Note #3: Details of Ida May Fuller’s Payroll Tax Contributions,” Report prepared for the U.S. Social Security Administration Historian’s Office, July 1996, http://www.ssa.gov/history/idapayroll.html (accessed May 9, 2014). 67. U.S. Congress, House, “Departments of Labor and Health, Education, and Welfare Appropriations tor 1968, Part 5, National Institutes of Health [and] National Institute of Mental Health: Hearings before a Subcommittee of the House Committee on Appropriations,” 90th Cong., 1 sess. (April 6, 1967), p. 869, https://www.govinfo. gov/content/pkg/CHRG-90hhrg78317p5/pdf/CHRG-90hhrg78317p5.pdf (accessed January 19, 2021). 68. Derthick, Policymaking for Social Security, 346. 69. Martin and Weaver, “Social Security,” 10. 70. U.S. Social Security Administration, “Old-Age, Survivors, and Disability Insurance Trust Funds, 1957–2017,” https://www.ssa.gov/oact/STATS/table4a3.html (accessed November 21, 2018). 71. Social Security Amendments of 1983, H.R. 1900, Public Law 98–21, 98th Cong., 1st sess. (April 20, 1983), https://www.ssa.gov/history/1983amend.html (accessed January 20, 2021); DeWitt, “Development of Social Security,” 23. 72. Martha A. McSteen, “Fifty Years of Social Security,” (n.d.), https://www.ssa. gov/history/50mm2.html (accessed November 21, 2018). 73. Social Security Act Amendments (Medicare and Medicaid Act) of 1965, 79 Stat. 286, Public Law 89–97; David M. Cutler, Mark McClellan, and Joseph P. Newhouse, “What Has Increased Medical-Care Spending Bought?” American Economic Review 88, no. 2 (1998): 132–36, https://www.jstor.org/stable/116907.

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74. U.S. Internal Revenue Service, “Topic No. 751 Social Security and Medicare Withholding Rates,” January 4, 2018; Last reviewed January 6, 2021, https://www. irs.gov/taxtopics/tc751 (accessed January 19, 2021). 75. David Blumenthal and James A. Morone, The Heart of Power: Health and Politics in the Oval Office, 2nd ed. (Berkeley: University of California Press, 2010), 163–206. 76. Urban Institute, Social Security and Medicare Taxes and Benefits Over a Lifetime: 2013 Update, report by C. Eugene Steuerle and Caleb Quakenbush (Washington, DC: Urban Institute, 2013), 6, https://www.urban.org/sites/default/files/ alfresco/publication-pdfs/412945-Social-Security-and-Medicare-Taxes-and-Benefitsover-a-Lifetime.PDF (accessed January 20, 2021). 77. Steven Hayward and Erik Peterson, “The Medicare Monster: A Cautionary Tale,” Reason, January 1, 1993, https://reason.com/archives/1993/01/01/themedicare-monster (accessed March 15, 2014). 78. David Blumenthal and James A. Morone, The Heart of Power: Health and Politics in the Oval Office, 2nd ed. (Berkeley: University of California Press, 2010), 8. 79. President Johnson conversation with Vice President Humphrey. LBJ Tape Recordings, White House Series, 1965, Tape number WH6503.02, C 7024. Accessed October 16, 2014 at www.ssa.gov/history/LBJ/lbj.html 80. President Johnson conversation with John McCormack, Wilbur Mills, Wilbur Cohen and Carl Albert. LBJ Tape Recordings, White House Series, 1965, Tape number WH6503.11, C 7141. Accessed October 16, 2014 at www.ssa.gov/history/ LBJ/lbj.html 81. Derthick, Policymaking for Social Security. 82. Blumenthal and Morone, Heart of Power. 83. Blumenthal and Morone, Heart of Power, 13. 84. Blumenthal and Morone, Heart of Power. 85. Congressional Reserve Service. Report. “Health Care Fact Sheet: Original Medicare Cost Estimates,” by Jennifer O’Sullivan and Bud Graves, September 22, 1993, 2, http://s3.documentcloud.org/documents/799899/medicare-cost-estimates. pdf (accessed October 16, 2014), cited: (1965 estimates) House Ways and Means Comm. Prt. 51–291, Actuarial Cost Estimates and Summary of Provisions of the OldAge, Survivors, and Disability Insurance System as Modified by the Social Security Amendments of 1965 and Actuarial Cost Estimates and Summary of Provisions of the Hospital Insurance and Supplementary Medical Insurance Systems as Established by Such Act, 89th Cong., 1st Sess.), p. 33. (Actual expenditures) House Doc 102–89, 1991 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund. Pg. 27. 86. U.S. Government Accountability Office (GAO), “Medicare: More Effective Screening and Stronger Enrollment Standards Needed for Medical Equipment Suppliers,” GAO-05–656, September 22, 2005, https://www.gao.gov/ products/GAO-05-656 (accessed July 31, 2015). 87. U.S. Centers for Medicare and Medicaid Services. “2020 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds: Communication,” April 22, 2020, https://www.

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cms.gov/files/document/2020-medicare-trustees-report.pdf (accessed September 25, 2020). 88. Timothy Stoltzfus Jost, “The Regulation of Private Health Insurance,” Encyclopedia of Public Health (2008): 1157; online working paper, National Academy of Social Insurance (January 2009): 1–37, https://www.nasi.org/sites/ default/files/research/The_Regulation_of_Private_Health_Insurance.pdf (accessed January 19, 2021). 89. James M. Buchanan and Richard E. Wagner, The Collected Words of James M. Buchanan. Volume 8. Democracy in Deficit: The Political Legacy of Lord Keynes (Indianapolis, IN: Liberty Fund, 1977), 93–94. 90. James M. Buchanan, quoted in Jerry H. Templeman, “James M. Buchanan on Public-Debt Finance,” Independent Review 11, no. 3 (2007): 435, https://www. independent.org/pdf/tir/tir_11_03_06_templeman.pdf (accessed January 19, 2021).

Chapter 5

The Government Surcharge

“I view it as a source of boundless patronage to the executive, jobbing to members of Congress & their friends, and a bottomless abyss of public money.”—Thomas Jefferson. Letter on a 1786 proposal for a federal post office.1

Throughout American history, the federal government has left the provision, ownership, and management of almost all consumer services—from education and banking to telephony and air travel—to private organizations and local governments with two notable exceptions: Amtrak, a federally-funded train system which began operations in 1971 by consolidating the country’s failing passenger rail companies2; and the modern United States Postal Service (USPS), whose employee union labor contract was negotiated by collective bargaining that same year as “a federal government first.”3 Since its founding in 1971, Amtrak has run an operating loss every year, with the federal government providing operating subsidies often exceeding $1 billion per year plus billions more in federal funding for Amtrak’s capital expenditures.4 Amtrak’s financial performance has been so poor that Anthony Haswell, often referred to as the “father” of Amtrak, later stated that, “I feel personally embarrassed over what I helped to create.”5 The USPS has not fared better. In 2012 alone, the USPS ran an operating loss of $16 billion, an amount exceeding the funding appropriated to the U.S. State Department that year.6 The USPS’s finances have not improved much in the intervening years. In 2019, the USPS had a net loss of $9 billion.7 Financial projections now show that the USPS could incur even higher losses in future years while the organization’s unfunded retiree liabilities approach $100 billion and beyond.8 Compared to Social Security and Medicare in terms of spending, the USPS and Amtrak do not warrant special consideration. Combined, the two organizations amount to less than 1% of annual federal spending. In 2020, Amtrak received $2 billion and the USPS posted a $9 billion loss in a federal budget 107

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that exceeded $4.75 trillion.9 These organizations’ operations and results provide a significant amount of evidence and insight into how government organizations function in practice and thus merit investigation and understanding. In the vision of politics offered by the founders and by the public choice economists that followed, federal employees represent an interest group similar to others. Employment by the federal government does not eliminate individual and group self-interest and replace this self-interest with a high-minded service to the “public good,” as Progressive theorists often assumed. For some people, there are times that high-minded public service may very well serve as the primary motivator for one’s actions and behavior. But for the typical government employee, most of the time, self-interest plays a critical role in explaining action and behavior, as it does for most people. The pursuit of the “public good” makes for good rhetoric but is a poor starting point for explaining how government employees and unions operate in practice. While federal employees are similar to private workers in their self-interest, they differ in their power as a special interest group as they obtain what they want in the political process. Most notably, unlike private sector workers, public sector workers are able to help select their bosses, by voting, donating, and campaigning. Once elected, in most cases, politicians favored by public sector workers go on to represent and to fight for these public sector workers’ interests with overly generous salaries and benefits, accommodating work rules, lucrative retirement programs, limited changes to the work environment, and less accountability for performance. Most workers want all of these things, and public sector workers are no different. The difference is the level of influence public sector workers have over their bosses. Over time, this dynamic almost inevitably results in a government surcharge: higher costs for the same and often worse service relative to what private companies deliver in open, competitive markets for the same services. In his 2015 book, Government Against Itself, City University of New York professor Daniel DiSalvo explains, “Government is a unique employer not easily comparable to organizations in the business world. In government it is harder to mention efficiency and productivity for agencies and workers because they often lack clearly defined goals and missions—to say nothing of the objective measure of success used in the private sector, namely profit.”10 But Amtrak and USPS represent exceptions because they can be compared to private businesses that offer consumer products—personal transportation and mail delivery—that the private sector can and does replicate in other countries and in the United States. This fact makes Amtrak and USPS prime case studies for this “government surcharge” phenomenon. The real potential for federal employee political influence combines with the unionization of these workers to create a particularly potent mix. As

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DiSalvo notes, “When employee unionization is added into the mix, more complications arise.”11 Both Amtrak and USPS are unionized and lobby the U.S. Congress against cost-saving measures and changes that are taken by private sector peers to reduce costs and provide better service. DiSalvo observes: “Unfortunately . . . too often the pursuit of their interests compromises the public’s interest in low-cost but highly productive government that sensibly allocates resources. It is for these reasons that Franklin Roosevelt and [the AFL-CIO’s first president] George Meany, both great champions of organized labor, opposed collective bargaining with unionized government workers.”12 “LESS UNBUSINESSLIKE” In the early twentieth century, Progressives fused traditional American ideals of civic duty with European practices of supporting expansive government administrations to advocate for more state-run services. Government staff could be objective and focus on the good of the whole people, in contrast to the self-seeking common in private life. Progressives would often refer to examples of public employees and public agencies as acting in a way that corroborated their view of government staff as pure agents of the “public good.” As in many areas, Woodrow Wilson’s thoughts did much to help shape Progressive’s views on the unique role of public servants in the nation’s life. This idea represented a focus of one of his early essays, “The Study of Administration” in which Wilson argued: Administration is everywhere putting its hands to new undertakings. The utility, cheapness, and success of the government’s postal service, for instance, point towards the early establishment of governmental control of the telegraph system. Or, even if our government is not to follow the lead of the governments of Europe in buying or building both telegraph and railroad lines, no one can doubt that in some way it must make itself master of masterful corporations. The creation of national commissioners of railroads, in addition to the older state commissions, involves a very important and delicate extension of administration functions.13

Wilson thus laid out his expansive vision of the federal government to regulate corporations and deliver services directly to the public. Yet Wilson’s own experience with government employees and administrators suggested something might be amiss with Wilson’s own optimistic vision. As he notes in the same essay: “Not much impartial scientific method is to be discerned in our administrative practices. The poisonous atmosphere

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of city government, the crooked secrets of state administration, the confusion, sinecurism, and corruption ever and again discovered in the bureau at Washington forbid us to believe that any clear conceptions of what constitutes good administration are as yet very widely current in the United States.”14 In this critical assessment, based on experience not on theory, Wilson echoed the view of many Progressives who worked or engaged with city, state, and federal governments. If government employees were uniquely able to deliver on the public good in theory, experience often suggested otherwise. Wilson and other Progressive intellectuals often pointed to two things that could solve this problem. First, government—led by publicly-minded politicians elected by a discerning public—could supersede all “special interests” and pursue the “general interest.” As Wilson would explain in his writings: “Government . . . is nothing more or less than organizing the general interest so efficiently that no special interest can dominate it. And we have no doubt that in America we have let our government become so disordered in respect to their organization, that special interest could break in and we not be aware of it.”15 The American people and their elected politicians could rise above the “special interest” that had made government so “disordered.” Wilson rarely explained how one could define this “general interest” and how one could distinguish the “general interest” from a “special interest.” Perhaps one man’s “general interest” would be another man’s “special interest,” a useful rhetorical term to place one’s own favored “special interests” over someone else’s. Wilson also had another idea: “impartial scientific method,” or the scientific management of the government apparatus. In this view, government’s inefficiencies and dysfunctions can be overcome if one simply uses a more scientific, objective approach. Poor management, not insoluble problems built into the human condition, explain government’s inefficiencies. Wilson explains: “a science of administration . . . shall seek to straighten the paths of government, to make its business less unbusinesslike, to strengthen and purify its organization, and to crown its duties with dutifulness. This is one reason why there is such a science.”16 SELF-INTERESTED PUBLIC SERVANTS Economist James M. Buchanan—unlike President Wilson—had the benefit of decades of real-world data and evidence to inform his view of the “science of administration.” As Buchanan noted in the mid-1960s, “Much of administrative theory, ancient or modern, is based on the . . . view that man becomes as a machine when he is placed within a hierarchy, a machine that faithfully

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carries out the orders of its superiors who act for the whole organization in reaching policy decisions.”17 Given this assumption, many American political theorists had come to believe—as President Wilson had argued—that government bureaucracies could accomplish almost any task given to them.18 By the 1960s, the idea had become so widespread that few scholars even debated or examined it.19 Selfless public servants combined with the uniquely effective abilities of government bureaucracies to create a vision of government as a uniquely able problem solver of various and diverse social ills and issues. Public choice economists Buchanan and Gordon Tullock disagreed, viewing this vision of the “selfless public servant” as naïve. Government employees are humans, too, and consequently, they do not lose or suppress their self-interests when serving in government. According to the most reasonable assumption, public employees were just as generous and idealistic as most other citizens, which is to say: not very. In his 1965 book The Politics of Bureaucracy, Tullock argued that bureaucrats were guided by self-interest and that they were not “selflessly devoted to the good of all humanity.”20 In his systematic exploration, which drew on his nine years of work at the State Department, Tullock broke new and fertile ground. “Bureaucrats are not markedly different from other people. Most citizens of the United States are to some extent interested in helping their fellow men and in doing things in the public interest. Most citizens of the United States, on the other hand, tend to devote most of their time and attention to their own personal interest. The same is true of bureaucrats.”21 Buchanan shared his own observations in the book’s foreword. The nation seemed on a “drift . . . towards bigness” with federal programs and bureaucracies given ever more responsibilities and tasks based on a vision assumed by experts of the selfless public employee.22 But this was “a dream world that never was.”23 As Buchanan noted, “Producer interests tend to dominate consumer interests, and the producer interests of government employees are no different from those of any other group in society . . . the bureaucrat tends to maximize his own utility. . . . He can hardly be expected to further some vaguely defined ‘public interest’ unless this is consistent with his own, as he defines the latter.”24 Consequently, government employees (like most people) could be expected to lobby for and support many decisions that would come at the general public’s expense: higher wages, richer benefits, fewer working hours, looser standards, limited accountability, and little to no change in their job and work environment. Most people want these things, and public employees are no different. Tullock noted the incentives of government employees in his The Politics of Bureaucracy:

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The individual member of a hierarchy is likely to feel, although possibly only subconsciously, that one of its major functions is that of supporting him personally. The attitude is, surprisingly, not confined to member of the bureaucracy itself. In every congressional debate discussing governmental economies, some remarks will be introduced about the “threat” to the livelihood of the bureaucrats employed in the hierarchies threatened with extinction.25

In such debates, Public Choice economists expected public employees to be quite effective in getting what they want. As Richard B. McKenzie and Tullock would later note, “Bureaucrats now make up such a large share of the total voting public that it is almost possible to say that the politicians are the employees of the bureaucrats. This is particularly so since bureaucrats are more likely to vote than the citizens who are not. . . . Clearly, this is the kind of voting bloc no politician can afford to ignore.”26 In 1967, Tullock began to refer to this behavior as “rent seeking,” defined as the spending of resources (for example, money or time) on political lobbying to secure privileges or monopoly status as opposed to productive economic contribution.27 These privileges increase one’s income or wealth at the public’s expense. Any individual or group can engage in such common rent-seeking activities as: tariff protection, advantageous regulatory policy, or lucrative government contracts. Public employees are not unique in pursuing government-granted advantages; they just represent a notable example and a generally successful one. In 1971, the country would see the creation of the federal government’s two biggest examples of federal rent seekers: the establishment of Amtrak and the creation of the modern, unionized USPS. USPS: A PATH DEPENDENT CREATION Thomas Jefferson did not believe that the federal government should deliver the mail, but he did not have a chance to share his concerns at the U.S. Constitutional Convention—he was abroad serving as the U.S. ambassador to France. Buried in a list of enumerated powers in article 1, section 8 of the U.S. Constitution, the Constitution gave to Congress the power, “To establish Post Offices and post Roads.”28 The U.S. post office’s establishment was largely path-dependent: the Second Continental Congress took over the country’s postal system from the British government in July 1775, a year before the Declaration of Independence was signed, and viewed the country’s mail system, at the time, as a military necessity.29 Consequently, the post office had been a government-run affair for a decade by the time the Constitutional Convention was held in 1787.

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But in the nation’s first century, the postal system had two major roles, both non-military: delivering the mail and serving as a source of political patronage. The winner of the Presidential election—and his party—had the prerogative to hire, fire, and demote numerous postal positions, a power the winning party would use to reward critical supporters and interest groups. The prerogative played an important role in the nation’s early political life as more people worked in the post office than in any other federal department, except during the Civil War. Widespread patronage came with real costs. Important postal positions were often filled by people due to their political affiliation and personal connections, not by their merit or capability. In the early 1880s, the issue became a heated political debate resulting in the Pendleton Civil Service Reform Act of 1883. Per that act, federal jobs would now be awarded on the basis of merit, not patronage.30 This included the post office, which until 1971 existed as a Department within the nation’s Executive branch and was controlled by the President and acts of Congress. Congress would set postal service prices and generally provide subsidies to maintain lower prices. Legislation in 1971 turned the postal service into a semiautonomous government corporation. The USPS could now mostly set its own prices, manage its employees, and bargain with their unions—and would receive no federal subsidies from the federal government.31 The new USPS made use of its independence from Congress. James Q. Wilson, a former Professor of Political Science at Harvard and then UCLA, noted the effect in his 2000 book, Bureaucracy: What Government Agencies Do and Why They Do It: The Postal Service was able to do things that in the past it could do only with great difficulty. . . . When it was still a regular government department, a small local post office could only be closed after a bitter fight with the member of Congress from the affected district. As a result, few were closed. After the reorganization, the number closed increased: Between 1976 and 1979, the USPS closed about twenty-four a year; between 1983 and 1986, it closed over two hundred a year.32

In addition, the post office implemented the use of clustered post office boxes, despite Congressional opposition, and implemented some automation of mail-sorting using funds procured from a bond sale.33 As Wilson notes: “More broadly, the whole tone of postal management changed. It began to adopt corporate-style management practices, complete with elaborate “mission statements,” glossy annual reports, a tightened organizational structure, and an effort to decentralize some decisions to local managers.”34

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But the USPS was not a fully private, independent corporation. Congress could—and did—pass binding legislation stopping certain changes and imposing others. Congress stopped consideration of five-day mail service and stalled the use of the nine-digit code due to political pressure from postal employees and related business interests. The USPS also received certain privileges as a government-controlled corporation, including exemptions from vehicle licensing requirements, sales taxes, and property taxes.35 The organization did not have to pay parking tickets, and it pays any income taxes owed to itself. In 2006, Congress passed the Postal Accountability and Enhancement Act requiring the postal service to prefund retiree benefits seventy-five years in advance to preclude the need for a federal bailout. While the USPS might be a semiautonomous corporation, it was still very much a part of the federal government.36 A BROKEN BUSINESS MODEL Among other changes, the Postal Accountability and Enhancement Act of 2006 required the USPS to create and then fund an account for future retiree healthcare costs. In previous years, the USPS had granted generous healthcare packages for future retirees during negotiations with postal worker unions. Under these packages, retired postal workers would receive both Medicare benefits and supplemental USPS-paid healthcare benefits. By 2006, actuaries at the Government Accountability Office (GAO) estimated that these promises would cost tens of billions of dollars, but the USPS had saved no funds to meet this obligation. Instead, the USPS planned to pay retiree health-care costs on a pay-as-you-go basis. If the USPS ever lacked funds, the liability would likely be passed on to the federal government and thus the American taxpayer. So the 2006 Act required the USPS to pre-fund the retirement obligations it had negotiated. In 2008 and 2009, as the country entered a deep recession, USPS operating losses continued to rise. The USPS went to the Postal Regulatory Commission to increase postal rates above caps set by Congress in order to increase postal revenues and close the loss. The Commission turned down the request—the rate request reflected “an attempt to address long-term structural problems not caused by the recent recession.”37 The GAO conducted its own assessment of the situation and agreed. It also offered advice: “A key area for potential cost savings is managing personnel-related costs, which account for about 78 percent of its [USPS] expenses.”38 The USPS met its retirement funding requirements until 2009. But on March 2, 2011, General Postmaster Patrick Donahoe warned Congress,

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“At the end of the year, we are out of cash.” The USPS would default on its required $5.5 billion funding requirement.39 Congress worked with the USPS to reduce the immediate burden, but the accommodation stopped in 2012. That year, the USPS ran into “an issue,” as Postmaster General Patrick Donahoe reported.40 The issue was that there was a $16 billion net loss for the year. The USPS had been incurring losses for years. From 2009 to 2012, the USPS lost $4 billion, $8 billion, $5 billion, and $16 billion respectively, for a total of $33 billion in four years. By that time, the agency’s $63 billion in liabilities exceeded its assets by $40 billion. On July 19, 2012, the New York Times reported “Postal Service Set to Default on Billions in Health Fund Payments”: The Postal Service, faced with continuing financial losses because of a drop in mail volume, expects to default for the first time on its annual payment for future retiree health benefits. . . . The $5.5 billion payment, which was deferred from the 2011 fiscal year, is due Aug. 1. The Postal Service is also scheduled to make a $5.6 billion payment for 2012 in September. A spokesman for the agency said that barring intervention from Congress, it would default on both payments. “We are simply not capable of making either of these payments to the U.S. Treasury, in part or in full, while continuing to meet our other legal obligations . . . ” said the spokesman, Dave Partenheimer.41

By the end of 2013, the USPS had defaulted on almost $17 billion in payments.42 RICH BENEFITS Critics of the USPS requirement to fund its future retiree health benefits often argued that neither corporations nor the federal government in general had to meet this type of prefunding requirement. But the criticism overlooked the fact that retiree health coverage has become increasingly rare in the private sector, largely due to its open-ended, long-term nature. In 2018, only 18% of private sector workers offered any type of health benefits to Medicare-eligible retirees, down from an estimated 28% in 1997.43 Even these private sectors workers would not receive the type of benefits given postal worker retirees. As Peter H. Shuck, a Yale Law Professor, notes, “postal service employees’ health and retirement benefits . . . are extraordinarily generous compared with those of private-sector counterparts.”44 As postal expert Michael Schuyler reports, based on a review of postal compensation studies: “The law says that postal employees should receive wages and benefits comparable to what they could earn in the private sector . . .

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the majority of economic studies examining the issue have concluded that a postal pay premium of 20%–25% exists if just wages are counted and about 35% if the Service’s very generous benefits are also included.”45 Schuyler’s study is not alone in finding above-market pay for government postal workers. The USPS Office of Inspector General (IOG) conducted a study titled “Workforce Flexibility—Would it Work for the Postal Service?”46 The study found that the average postal employee received $79,000 in total compensation compared to $61,000 earned by the average private sector worker. Much of the difference in cost came from the USPS’s much richer benefits, even when compared to other federal workers. The U.S. Postal Service Inspector General found that the post office covers 79% of employee health benefits compared to an average 72% for federal employees.47 The GAO came to a similar conclusion.48 Postal workers get unusually rich health care and life insurance benefits. This helps explain why 48% of USPS labor costs come from benefits.49 To again quote James Q. Wilson from his 2000 book Bureaucracy, he said in reference to problems with the USPS “that one cannot explain the behavior of government bureaucracies simply by reference to the fact that they are bureaucracies; the central fact is that they are government bureaucracies.” And the politicians that ultimately control these bureaucracies are “sensitive to constituency demands.”50 The postal workers and their unions represent the most powerful constituency engaged in debates about the USPS because they have by far the most at stake. They use that power—often effectively—to get what they want. Government employees help elect the same politicians that they then bargain with over wages and benefits. This represents the crux of the problem. Politicians cannot be expected to easily hold the line on reasonable, competitive wages and benefit levels when facing the political threat and challenge of an organization with nearly a million members, strong unions, and significant electoral resources. None of this is lost on postal union bosses. In 2010, American Postal Workers Union President William Burrus laid out the postal union’s position in that year’s negotiations. To Burrus, a pay raise for postal workers was an “entitlement” owed to postal workers. Burrus said the idea that postal workers should settle for less, given the postal service’s financial challenges, was “antidemocratic” and needed to be rejected outright. As Burrus summed up, the union’s position was simple: “more control over activities at work, more money, better benefits—we want more.”51

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PROFITABLE POSTS Unsurprisingly then, the USPS has significantly higher labor costs than its domestic U.S. peers, the United Parcel Service (UPS) and FedEx. In 2019, labor costs at UPS and FedEx equaled 59% and 40% of those company’s total costs respectively.52 By contrast, labor equaled 77% of USPS’s total costs, reflecting a combination of low productivity and above-market compensation.53 In addition, both UPS and FedEx make extensive use of part-time workers to reduce costs and improve flexibility. In 2019, 47% of the UPS workforce and 26% of FedEx’s workforce were part-time compared to only 22% for the USPS.54 UPS and FedEx demonstrate how private organizations can offer good mail service without government subsidies, and Germany’s national postal system, which was privatized in 2000, adds to the evidence. Deutsche Post (DHL) Group has earned over €1 billion in profit every year from its privatization in 2000 through 2019.55 By 2012, DHL had sold off all but twenty-four of its 29,000 post office buildings with almost all mail activity handled by the company’s “partners,” including banks, convenience stores, small shops, and private homes.56 The change allowed DHL to reduce its workforce by 100,000 positions—almost 20% of its total—through attrition over time. In contrast, the USPS still used full-time USPS staff in dedicated USPS offices to conduct basic mail transactions, including selling stamps and accepting packages.57 In 2010, public USPS reports estimated that many of its largest costs could be reduced by 50% or more by adopting similar practices.58 But USPS workers, postal unions, and federal politicians, seeking credit claiming opportunities, have successfully blocked most major USPS reforms for years. Automated machines would benefit mail consumers and lower costs and prices but would displace workers. Outsourcing mail services to banks, gas stations, and retail outlets, similar to DHL, would increase access and lower costs but also displace local postal workers. Consolidating offices in lightly populated areas would do the same. Such ideas have faced largely successful opposition from postal unions who view such reforms as threats to postal workers and federal politicians who want to protect local postal jobs.59 From 2008 to 2020, USPS financial losses consistently ran into the billions of dollars, while federal reforms remained largely cosmetic. PERFECT LOSING STREAK Amtrak’s best operating performance in history was 2019, when it reported an operating loss of $30 million for the fiscal year. The previous year’s loss was

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more than $170 million and, only a few years before, losses had exceeded $500 million per year. As Amtrak Board Chairman Anthony Coscia shared in the fall of 2019, “Our expectation is that in 2020, we will actually make money, we will have positive earnings for the first time in the company’s history. This is an unbelievable accomplishment that a short period ago no one would have thought it was possible.”60 In other words, since being created by Congress in 1971, Amtrak has never broken even. From the beginning, many members of Congress seemed almost exclusively focused on having Amtrak serve their own political interests, not the interests of the country as a whole. Amtrak’s initial routes included numerous money-losing routes in low-population, low-traffic areas that were added to benefit key politicians and thus to build political support for the program.61 When Amtrak mapped out its first routes in 1971, Montana’s two Senators ensured a route was added to Montana despite the area’s sparse population and lack of any reasonable economic rationale for such a line. Indiana’s Senators ensured three routes for Indianapolis but none for Cleveland—the Ohio Senators had less clout on the issue. Even West Virginia got an extra route thanks to the pull of its Senators in the negotiations. In the late 1970s, with the hopes of breaking even now long gone, then U.S. Secretary of Transportation Brock Adams conducted an intensive investigation of Amtrak’s operations and economics.62 The investigation showed that many of Amtrak’s routes lost substantial sums and lacked economic justification. He proposed cutting Amtrak’s mileage by 43% to improve financial performance, but Congress opposed much of the plan and agreed to reduce mileage only 16%. The failure to make any large-scale changes exacerbated Amtrak’s already concerning financial situation. In 1981, Amtrak received an all-time high $1.25 billion in operating subsidies and taxpayer-funded capital investments.63 President Ronald Reagan proposed “zeroing out” Amtrak in all eight of his annual budget proposals, with Amtrak being cut loose from federal funds and the political restraints those funds brought.64 But the program had support in Congress, and Amtrak supporters continued getting Amtrak appropriations, though they were almost cut in half by 1986 when federal support hit $601 million.65 Tellingly, almost none went for capital appropriations and almost the entire amount was dedicated to operating expenses. Amtrak needed support just to operate not just to invest. This trend of providing operation subsidies but not capital investment continued into the 1990s. Amtrak began to borrow funds to meet its operational expenses, hoping for either increased federal support or better performance. But better performance did not materialize, and Amtrak continued to lose hundreds of millions of dollars per year. By 1995, the organization had reached a crisis and lacked the funds to service its debt.66

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The crisis, and the $20 billion in federal support spent up to that point, built support for a new approach in Congress. The Amtrak Reform and Accountability Act of 1997 called on Amtrak to become operationally self-sufficient within five years. Amtrak submitted to a simple Congressional ultimatum: Amtrak would reach self-sufficiency by 2003 or be liquidated.67 To reach this goal, Congress gave Amtrak the power to add new routes and to close others based on economic analysis. The Amtrak Reform Council, established by Congress, would help oversee Amtrak’s transition to a private, non-subsidized enterprise.68 But neither Amtrak nor Congress fulfilled the ultimatum promise. For its part, Amtrak failed to stem its losses. In 2001, Amtrak recorded a $1.1 billion operating loss. The Reform Council summed up the situation simply: “Amtrak is no closer to self-sufficiency today than it was in 1997.”69 But Congress did not follow through on its liquidation threat either. Instead, the Reform Council advised that Amtrak should be turned into a federal agency with oversight power over two separate companies: one in charge of Amtrak’s Northeast Corridor (NEC) and the rest of the system. Congress opposed the Reform Council’s plan and chose not to implement any of its major recommendations. Instead, Congress opted to continue providing open-ended financial support. The multi-billion dollar years of subsidies and capital investment would continue, with new bills passed in 2008 and then 2014 to provide additional federal subsidies to Amtrak. By 2014, Amtrak’s original goal “to become self-sufficient” seemed almost quaint. Amtrak had received federal subsidies every year of its forty-three-year existence with total federal subsidies over the period exceeding $40 billion.70 Over time, Joseph Vranich, a former Amtrak spokesman and rail expert, became disillusioned with the organization. He now publicly criticizes the organization and pins many of its failures on the inevitable but politically necessary costs imposed by Congressional funding and management: “Amtrak is a massive failure because it’s wedded to a failed paradigm. It runs trains that serve political purposes as opposed to being responsive to the marketplace. America needs passenger trains in selected areas, but it doesn’t need Amtrak’s antiquated route system, poor service and unreasonable operating deficits.”71 Ultimately, Amtrak bargains with and reports not to managers and private owners, but to U.S. Representatives and Senators, and that creates a great deal of political decision making and losses. Government management does not help minimize waste and inefficiency either. A 2011 report by Amtrak’s Inspector General found that Amtrak lost nearly $1 billion that year just in providing food and beverages, due to significant waste, low efficiency, and employee theft.72 And for years, no longdistance Amtrak line has even broken even with an unusual euphemism: (“percentage of costs recovered”) used to show what percentage of costs

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could be paid with revenues. In 2013, this “percentage of costs recovered” ranging from 24% on Amtrak’s “Sunset Limited East” line to a high of 69% on the “Auto Train.” A private company could not sustain these results. Things would have to change: long distance routes cut, food services made profitable, employees utilized efficiently. But the organization is run based on political calculations in Congress, not economic considerations in the free market. Amtrak workers and managers negotiate with Congress, not a private executive team and Board. A private organization—for-profit or not—would work to eliminate these problems over time and save costs that add no value. Government management has helped these issues persist for years, even decades. Amtrak does haves its defenders, as the federal government subsidizes aviation and highways as well with billions in federal support. In its receipt of federal subsidies, Amtrak is not unique. But Amtrak consumes nine times more subsidies per passenger mile than air travel and twenty-two times more than highways.73 SUBSIDY DEPENDENT Amtrak’s proponents and apologists point to positive indicators and Amtrak’s NEC, and Acela lines in particular, as evidence that Amtrak can make money. In 2019, Amtrak’s ridership grew 2.5% with total passenger miles growing 2.0%.74 And while Amtrak reported a record low loss of $30 million, Amtrak’s NEC lines reported an operating surplus of $542 million. The surplus was outweighed by the operating losses of Amtrak’s long-distance routes, which lost $475 million, and state-supported routes which lost an additional $58 million. Those losses more than cancelled out NEC’s operating surplus. In Amtrak’s fiscal year 2019, every single long-distance route lost money with total expenses of slightly more than $1 billion, and revenue of only $538 million for the $475 million loss. But even the Acela line’s recent positive earnings performance looks less compelling given the billions in federal capital provided to build-out the system in recent years. In Why Government Fails So Often, Yale Law Professor Peter H. Schuck analyzes Amtrak’s Northeast operations in a broader context: Even in the Northeast Corridor, Amtrak has not reduced travel times. As one analyst notes, it “isn’t any faster than the same train route was forty years and $50 billion in federal subsidies ago.” . . . Amtrak built its high-speed Acela system from Washington to Boston on the premise that it would get riders between major cities faster. Today, the Acela can get from Washington to New York in

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2 hours 45 minutes at its fastest—or 15 minutes slower than the Penn Central Railroad could get a rider there in 1969.75

Viewed as investment projects with significant capital needs, both Acela and the NEC reflect questionable infrastructure investments—at best. Amtrak’s operating losses do not represent something new. Federal operating subsidies and capital investments are now approaching $50 billion with no end in sight to the red ink.76 And while Amtrak has reduced operating subsidies in recent years, many expenses labelled “capital improvements”—such as overhauling older locomotives and replacing train ties—would typically qualify as operating expenses given typical accounting rules.77 This accounting flexibility helps reduce publicly-reported operating expense deficits but does not improve the financial health of the organization. The half century of poor results have turned many against the program, including long-time critics and former supporters. Schuck concludes: “Its political sponsors promised that it would become self-sufficient within a few years, but it has never even come close. Amtrak is a big money loser.”78 Current critics even include former supporters who played critical roles in creating the organization in the first place. In 1967, Anthony Haswell founded the National Association of Railroad Passengers (NARP). Haswell and NARP later played a crucial role in lobbying the federal government to create Amtrak as private companies left the private passenger train market in 1971. For years, people referred to Haswell as the “father” of Amtrak. But as Amtrak’s financial losses and dysfunctions persisted and then worsened over the following years and decades, Haswell lost faith in the organization he helped create. “I feel personally embarrassed over what I helped to create.”79 UNION INFLUENCE Despite Amtrak’s persistent losses, large-scale reforms and reductions in federal subsidies have largely been blocked, in no small part due to the political efforts of Amtrak’s employees and unions.80 Federal subsidies could be reduced by ending money-losing services—such as long-distance routes—or eliminated entirely by selling off commercially viable parts of Amtrak, such as the NEC, to private organizations (profit or non-profit) to be run based on market needs, not political demands. Such proposals have been strongly and successfully opposed by Amtrak’s employees and unions, who understandably do not want to undergo significant change or potentially even lose their jobs.81 Amtrak employees and their unions exert considerable influence over federal rail policy. Few common citizens vote or politick based on federal railroad policy. But Amtrak employees

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and unions do, with their votes, donations, and political activity focused on helping politicians who will continue to provide subsidies and support to Amtrak and withheld from politicians who oppose Amtrak. Many politicians also see an upside to maintaining the status-quo. Federal subsidies and investment create local jobs in specific congressional districts and states, and politicians from those districts can claim credit for those jobs. The Amtrak lines that lose the most money tend to be most popular in Congress, because these lines run through the most states, creating more federally subsidized jobs along the route.82 As former Amtrak spokesman and then critic Joseph Vranich argued in his 2004 book, End of the Line, “congressional requirements that Amtrak spend money on capital improvements to lightly used routes are outrageous.”83 Amtrak’s government surcharge continues because 20,000 dedicated Amtrak employees can exert more political influence than 100 million taxpaying citizens who might prefer not to subsidize Amtrak but do not care strongly enough to vote on the issue or to lobby Congress about it. Unsurprisingly, Amtrak employee costs exceed what comparable private sectors workers earn for similar work. In 2007, James Gillula, a managing director at the economic analysis firm Global Insight, conducted a study for Amtrak to compare the compensation of Amtrak workers and comparable private sector workers. Gillula found that Amtrak employees received 19% higher compensation than comparable private sector workers, but with a notable twist. Amtrak’s employee salaries stood 4% lower than comparable workers, but Amtrak workers received 19% more paid leave, 181% more generous health coverage benefits, and 51% richer retirement benefits.84 Similar to other government workers, Amtrak employees beat out private sector peers, not through wages but with benefits.85 The rich pay package helps explain Amtrak’s remarkably low quit rates. While comparable private sector firms see annual quit rates at around 26 to 27% per year, Amtrak averages 2% to 3% per year. Yet despite Amtrak’s losses and highly competitive compensation packages, recent years have seen further lobbying for more worker raises. In February 2018, Amtrak agreed to another deal with its employee unions to provide a 19% wage increase from April 2018 through 2021, plus additional healthcare services including telemedicine.86 These increases reflect the power and influence that Amtrak’s employees and unions have exerted on the federal government and on politicians. In 2019, Amtrak had 18,600 employees with most represented by thirteen different unions.87 This represents a profoundly small group of people in a country with over 330 million citizens and a little less than 120 million federal income taxpayers. In February 2020, Amtrak submitted its 2021 federal appropriation request of $2.3 billion.88 On average, this represents just a little more than

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$19 per year for each of America’s 120 million federal taxpayers. In contrast, the average Amtrak employee makes a little over $60,000 per year, with their jobs, wages, and benefits completely dependent on federal subsidies. Many taxpayers might prefer to not pay a $19 yearly subsidy for a service most do not use. But for Amtrak employees, federal support represents an absolute necessity and it is why those 20,000 employees seem to have more influence over federal policymaking than do 120 million American taxpayers. NOTES 1. Letter from Thomas Jefferson to James Madison, March 6, 1796, on a 1786 proposal for a federal post office. See Thomas Jefferson, The Works of Thomas Jefferson. Collected and ed. Paul Leicester Ford, Federal ed. (New York and London: G. P. Putnam, 1904–1905), vol. 8, 223–26, at 226. 2. Joseph Vranich, Derailed: What Went Wrong and What to Do About America’s Passenger Trains (New York: St. Martin’s Press, 1997), 37; Amtrak, “Historic Timeline,” Amtrak A History Of America’s Railroad (1999), https://history.amtrak. com/amtraks-history/historic-timeline (accessed January 20, 2021). 3. U.S. Postal Service (USPS), “About: Significant Dates,” (n.d.), https:// about.usps.com/who-we-are/postal-history/significant-dates.htm (accessed January 20, 2021). 4. U.S. Department of Transportation, Federal Railroad Administration, “Federal Grants to Amtrak,” December 7, 2016; last updated May 12, 2020, https://www.fra. dot.gov/Page/P0249 (accessed January 20, 2021). 5. Anthony Haswell, quoted in Joseph Vranich, End of the Line: The Failure of Amtrak Reform and the Future of America’s Passenger Trains (Washington, DC: AEI Press, 2004), 9–10. 6. U.S. Postal Service (USPS), “Progress and Performance: Annual Report to Congress 2012,” November 2012, https://www.state.gov/documents/organization/00506.pdf (accessed January 18, 2021); U.S. Department of State. “Fiscal Year 2012 Agency Financial Report: Delivering Results for the American People,” November 2012, https://2009-2017.state.gov/documents/organization/200506.pdf (accessed January 20, 2021). 7. U.S. Postal Service (USPS), “U.S. Postal Service Reports Fiscal Year 2019 Results,” November 14, 2019, https://about.usps.com/newsroom/nationalreleases/2019/1114-usps-reports-fiscal-year-2019-results.htm (accessed August 30, 2020). 8. U.S. Government Accountability Office (GAO), “U.S. Postal Service: Action Needed to Address Unfunded Benefit Liabilities,” Testimony Before the Subcommittee on Federal Workforce, U.S. Postal Service and the Census, Committee on Oversight and Government Reform, House of Representatives, Statement of Frank Todisco, Chief Actuary Applied Research and Methods, GAO-14–398T, March 13, 2014, http://www.gao.gov/assets/670/661637.pdf (accessed March 5, 2015).

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9. USPS, “U.S. Postal Service Reports Fiscal Year 2019 Results”; U.S. Congress, House, “Understanding the Cost Drivers of Passenger Rail,” Hearing Before the Subcommittee on Railroads, Pipelines, and Hazardous Materials of the Committee on Transportation and Infrastructure, 113–17, 113th Cong.,1st sess. (May 21, 2013) (Washington, DC: Government Printing Office, 2013), http://www.gpo.gov/fdsys/ pkg/CHRG-113hhrg81149/pdf/CHRG-113hhrg81149.pdf (accessed January 5, 2015); Rails Passengers Association, “Senate Passes Increased Funding for Amtrak Passenger Rail,” September 20, 2019, https://www.railpassengers.org/happening-now/news/ blog/senate-passes-increased-funding-for-amtrak-passenger-rail-programs/ (accessed August 30, 2020). 10. Daniel DiSalvo, Government Against Itself: Public Union Power and Its Consequences (New York: Oxford University Press, 2015), 27. 11. DiSalvo, Government Against Itself, 27. 12. DiSalvo, Government Against Itself, 4. 13. Woodrow Wilson, “The Study of Administration,” Political Science Quarterly 2, no. 2 (1887): 201, https://www.jstor.org/stable/10.2307/2139277. 14. Wilson, “Study of Administration,” 201. 15. Woodrow Wilson, The Papers of Woodrow Wilson (PPW), ed. Arthur S. Link, (Princeton, NJ: Princeton University Press, 1967), vol. 24, 175. 16. Wilson, “Study of Administration,” 201. 17. James M. Buchanan, quoted in is foreword to Gordon Tullock, The Politics of Bureaucracy (Washington, DC: Public Affairs Press, 1965), 2. 18. Tullock, Politics of Bureaucracy, 123. 19. Tullock, Politics of Bureaucracy, 123. 20. Tullock, Politics of Bureaucracy, 126; See also William Breit, “Creating the ‘Virginia School’: Charlottesville as an Academic Environment in the 1960s,” Second Virginia Political Economy Lecture at the Center for Study of Public Choice, April 16, 1986; repr. Economic Inquiry 25, no. 4 (1987): 650, https://doi. org/10.1111/j.1465-7295.1987.tb00766.x. 21. Tullock, Politics of Bureaucracy, 126 22. Buchanan, foreword to Tullock, Politics of Bureaucracy, 2. 23. Buchanan, foreword to Tullock, Politics of Bureaucracy, 2. 24. Buchanan, quoted in David Reisman, The Political Economy of James Buchanan (New York: Palgrave MacMillan, 1990), 172. 25. Tullock, Politics of Bureaucracy, 126. 26. Richard B. McKenzie and Gordon Tullock, The New World of Economics: Explorations Into the Human Experience (Homewood, IL: Richard D Irwin, 1975; repr. 1978, 1981, 1985), 171. 27. Frontier Centre for Public Policy. “Conversations from the Frontier: With Gordon Tullock, Co-Founder, Public Choice School of Economics.” Conversations from the Frontier 35 (2003): 1–2. http://www.fcpp.org/pdf/035%20Gordon%20 Tullock%20ConversationsfromFrontierformatted.pdf (accessed January 23, 2015). 28. U.S. National Archives. The Constitution of the United States: A Transcription. September 17, 1787., article 1, sec. 8, clause 7, https://www.archives.gov/foundingdocs/constitution-transcript (accessed December 16, 2020).

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29. United States Postal Service. The Postal Service Begins. Accessed May 11, 2017 at about.usps.com/publications/pub100/pub100_003.htm. 30. Pendleton Civil Service Reform Act of 1883, S. 133, Public Law 16, 47th Cong., 2nd sess. (January 16, 1883), https://www.archives.gov/historical-docs/ todays-doc/?dod-date=116 (accessed January 21, 2021). 31. James Q. Wilson in Bureaucracy: What Government Agencies Do and Why They Do It (New York: Basic Books, 2000), notes this on the price-setting process: “It [the USPS] derives its revenues entirely from the prices it charges and the money it borrows rather than from congressional appropriations (though subsidies still were paid to the USPS during a transition period). The postal rates are set not by Congress but by the USPS itself, guided by a legislative standard (the USPS must break even and each class of mail it handles must bear its proportionate share of the service’s costs) and an independent advisory body (the Postal Rate Commission, which makes recommendations as to what the rates should be)” (123–24). 32. J. Q. Wilson, Bureaucracy, 123–24. 33. J. Q. Wilson, Bureaucracy, 123–24, and he sums up the change as follows: “In short, acquiring greater autonomy increased the ability of the Postal Service to acquire, allocation, and control the factors of production” (124). 34. J. Q. Wilson, Bureaucracy, 124. 35. Tad DeHaven, “Privatizing the U.S. Postal Service,” Cato Institute, November 2010, 1–7. https://www.downsizinggovernment.org/sites/downsizinggovernment.org/ files/usps.pdf (accessed February 25, 2015). 36. Postal Accountability and Enhancement Act of 2006, H.R. 6407, Public Law 109–435, 109th Cong., 2nd sess. (December 20, 2006), https://www.congress. gov/109/plaws/publ435/PLAW-109publ435.pdf (accessed January 21, 2021). 37. DeHaven, “Privatizing the U.S. Postal Service,” 2. 38. U.S. Government Accountability Office (GAO), “U.S. Postal Service: Status of Workforce Reductions and Related Planning Efforts,” Report to the Chairman, Committee on Oversight and Government Reform, House of Representatives, GAO15–43, November 2014, 1, https://www.gao.gov/assets/670/666884.pdf (accessed March 1, 2015). 39. Devin Leonard, “The U.S. Postal Service Nears Collapse,” Bloomberg Businessweek, May 26, 2011, https://www.bloomberg.com/news/articles/2011-05-26/ the-u-dot-s-dot-postal-service-nears-collapse (accessed January 21, 2021). 40. Leonard, “U.S. Postal Service Nears Collapse.” 41. Ron Nixon, “Postal Service Set to Default on Billions in Health Fund Payments,” New York Times, July 18, 2012, sec. A, 17. https://www.nytimes.com/2012/07/19/us/ politics/postal-service-set-to-default-on-billions-in-health-payments.html (accessed February 26, 2015). 42. GAO, “U.S. Postal Service: Action Needed to Address Unfunded Benefit Liabilities”; As stated in the GAO, “U.S. Postal Service: Action Needed to Address Unfunded Benefit Liabilities,” “Originally due at the end of fiscal year 2011, USPS’s $5.5 billion retiree health benefits payment was delayed until August 1, 2012. Pub. L. No. 112–74, § 632 (Dec. 23, 2011). USPS missed that payment, as well as the

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$5.6 billion that was due by September 30, 2012 and the $5.6 billion that was due by September 30, 2013” (3). 43. Kaiser Family Foundation, “2018 Employer Health Benefits Survey,” October 3, 2018, https://www.kff.org/report-section/2018-employer-health-benefits-surveysection-11-retiree-health-benefits (accessed August 30, 2020). 44. Peter H. Schuck, Why Government Fails So Often: And How It Can Do Better (Princeton, NJ: Princeton University Press, 2014), 175. 45. Michael Schuyler, “Union Demands Hurt Postal Service Reforms,” Institute for Research on the Economics of Taxation Advisory 210, October 11, 2006, 6. 46. U.S. Postal Service, Office of Inspector General, “Workforce Flexibility— Would it Work for the Postal Service?” https://www.uspsoig.gov/blog/workforceflexibility-%E2%80%93-would-it-work-postal-service (accessed August 29, 2020). 47. Leonard, “U.S. Postal Service Nears Collapse.” 48. DeHaven, “Privatizing the U.S. Postal Service,” 3. 49. U.S. Postal Service (USPS). “Five-Year Business Plan.” Presentation. April 2013, 6, https://about.usps.com/strategic-planning/five-year-business-plan-2012-2017.pdf (accessed March 5, 2015). 50. J. Q. Wilson, Bureaucracy, 124–25. 51. DeHaven, “Privatizing the U.S. Postal Service,” 4; and William Burrus, quoted in Emily Long, “Postal Service Looks for Ways to Reduce Labor Costs,” GovExec. com, September 1, 2010, https://www.govexec.com/oversight/2010/09/postal-servicelooks-for-ways-to-reduce-labor-costs/32271/ (accessed January 21, 2021). 52. Leonard, “U.S. Postal Service Nears Collapse.” 53. FedEx, “FedEx: 2019 Annual Report,” https://s1.q4cdn.com/714383399/files/ doc_financials/annual/2019/FedEx-Corporation-2019-Annual-Report.pdf (accessed August 29, 2020); U.S. Postal Regulatory Commission, “Form 10-K, 2019, United States Postal Service Annual Report 2019,” https://about.usps.com/what/ financials/10k-reports/fy2019.pdf (accessed August 29, 2020); and United Parcel Service (UPS), “UPS: 2019 Annual Report,” http://www.investors.ups.com/staticfiles/e4d06ff9-8dcd-45a7-a8f5-b400c944455e (accessed August 29, 2020). 54. UPS, “UPS: 2019 Annual Report”; FedEx, “FedEx: 2019 Annual Report”; USPS, OIG, “Workforce Flexibility.” 55. Deutsche Post (DHL) Group, “Deutsche Post DHL Markedly Boosts Profits in the Second Quarter of 2011 - Full-Year Earnings Guidance Improved,” Press Release, August 2, 2011, https://www.dhl.com/en/press/releases/releases_2011/group/080211. html (accessed August 29, 2020). 56. Elisabeth Rosenthal, “Reinventing Post Offices in a Digital World,” New York Times, October 30, 2011, https://www.nytimes.com/2011/10/31/world/europe/ deutsche-post-reinvents-services-in-a-digital-world.html (accessed January 21, 2021). 57. U.S. Postal Service, “FY2017 Annual Report to Congress.” https://about.usps. com/what/financials/annual-reports/fy2017.pdf (accessed January 21, 2020). 58. U.S. Postal Regulatory Commission, “Ensuring a Viable Postal Service for America: An Action Plan for the Future,” Annual Compliance Report 2009, Filing ID: 67051, March 5, 2010, 8, https://www.prc.gov/docs/67/67051/Notice.FY09.43. pdf (accessed January 21, 2021).

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59. J. Q. Wilson, Bureaucracy. 60. Luz Lazo, “Amtrak Touts Record Ridership, Revenue for Fiscal 2019,” Washington Post, November 8, 2019. https://www.washingtonpost.com/ transportation/2019/11/08/amtrak-touts-record-ridership-revenue-fiscal/ (accessed September 2, 2020). 61. George W. Hilton, Amtrak: The National Railroad Passenger Corporation (Washington, DC: AEI Press, 1980), 19–20. 62. Hilton, Amtrak, 31. 63. Vranich, Derailed, 37. 64. Robert Puentes, Adie Tomer, and Joseph Kane, “A New Alignment: Strengthening America’s Commitment to Passenger Rail,” Brookings, March 2013, 2. http://www. brookings.edu/~/media/Research/Files/Reports/2013/03/01-passenger-rail-puentestomer/passenger-rail-puentes-tomer.pdf?la=en (accessed January 21, 2021). 65. Amtrak, “Annual Report Fiscal Year 1995,” 1. 66. Amtrak, “Annual Report Fiscal Year 1999,” 41. 67. Amtrak Reform and Accountability Act of 1997, S.738, 111 Stat. 2570, Public Law 105–134, 105th Cong., 1st sess. (December 2, 1997); in 104th Cong. S. Rept. 105–85 (September 24, 1997). https://www.congress.gov/105/plaws/publ134/PLAW105publ134.pdf (accessed January 21, 2021). 68. Puentes, Tomer, and Kane, “New Alignment,” 3. 69. Puentes, Tomer, and Kane, “New Alignment,” 3. 70. U.S. Congress, House, “Understanding the Cost Drivers of Passenger Rail.” 71. Vranich, End of the Line, 21. 72. U.S. Congress, House, “Reviewing Alternatives to Amtrak’s Annual Losses in Food and Beverage Service,” Hearing Before the Subcommittee on Government Operations of the Committee on Oversight and Government Reform, Serial No. 113–76, 113th Cong., 1st sess. (November 14, 2013), http://www.gpo.gov/fdsys/pkg/ CHRG-113hhrg86721/html/CHRG-113hhrg86721.htm (accessed January 5, 2015). 73. Randal O’Toole, “Stopping the Runaway Train: The Case for Privatizing Amtrak,” Cato Institute Policy Analysis 712 (November 13, 2012): 5. http://object. cato.org/sites/cato.org/files/pubs/pdf/PA712.pdf (accessed January 21, 2021). 74. Amtrak, “Monthly Performance Report: FY2019,” November 18, 2019, 7–8. https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/ corporate/monthlyperformancereports/2019/Amtrak-Monthly-Performance-ReportSeptember-2019.pdf (accessed September 30, 2020). 75. Schuck, Why Government Fails So Often. 76. Josh Mitchell, “Amtrak Chugs Deeper into the Red,” Wall Street Journal, May 18, 2011, https://www.wsj.com/articles/SB1000142405274870428150457632964136 0701866 (accessed January 21, 2021). 77. O’Toole, “Stopping the Runaway Train, 6. 78. Schuck, Why Government Fails So Often. 79. Vranich, End of the Line, 9–10. 80. See audits: U.S. Office of Inspector General, “Amtrak, Consolidated Financial Statements . . . Fiscal Year Ended 2020,” by Ernst & Young LLP, OIG_A_2021–006 (December 23, 2020), 43, https://www.amtrak.com/content/

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dam/projects/dotcom/english/public/documents/corporate/financial/Amtrak-Reporton-Internal-Control-Over-Financial-Reporting-FY20.pdf (accessed January 21, 2021). See also Stephen Smith, “Republicans Can Privatize Amtrak If They Want To,” Bloomberg View (Opinion), September 26, 2012, https://www.bloomberg. com/opinion/articles/2012-09-26/republicans-can-privatize-amtrak-if-they-want-to (accessed January 21, 2021); U.S. Government Accountability Office (GAO), “Amtrak Management: Systemic Problems Require Actions to Improve Efficiency, Effectiveness, and Accountability,” Report to the Chairman, Committee on Transportation and Infrastructure, House of Representatives, GAO-06–145, October 2005. https://www.gao.gov/assets/160/157607.pdf (accessed January 21, 2021). 81. Vranich, End of the Line. 82. Puentes, Tomer, and Kane, “New Alignment,” 6. 83. Vranich, End of the Line, 5. 84. James Gillula, Wage And Benefit Comparability Analysis Of Amtrak’s PEB Union Employees (Washington DC: Global Insights Inc., 2007). 85. Andrew G. Biggs, “Why Amtrak Loses Money,” American Enterprise Institute (blog), October 16, 2012, https://www.aei.org/publication/why-amtrak-loses-money/ (accessed December 28, 2014). 86. Sheet Metal Air Rail Transportation (SMART), “Archive for the ‘Amtrak Negotiations’ Category,” SMART, April 13, 2019, https://smart-union.org/news/ category/amtrak-negotiations (accessed January 21, 2021). 87. Amtrak, “FY 2019 Company Profile. For the Period October 1, 2018–September 30, 2019,” https://www.amtrak.com/content/dam/projects/dotcom/english/public/ documents/corporate/nationalfactsheets/Amtrak-Corporate-Profile-FY2019-033120. pdf (accessed September 30, 2020). 88. Jeff Davis, “Amtrak Requests $2.34 Billion in FY21 Appropriations,” February 26, 2020, https://www.enotrans.org/article/amtrak-requests-2-34-billion-in-fy21appropriations/ (accessed September 3, 2020).

Chapter 6

Complexity Failure

“Everyone comes in thinking they singlehandedly are going to make welfare work. It doesn’t happen.”—An Illinois welfare caseworker interviewed in the Chicago Tribune, 1976.1

In 1964, when President Lyndon B. Johnson (LBJ) declared a federal “War on Poverty,” 15% of Americans lived below the federal poverty line. A decade later, in 1973, the American poverty rate was 11%.2 But as federal welfare spending surged in the 1970s, as a result of the federal government’s War on Poverty, America’s poverty rate did something odd and unprecedented in U.S. history: it went up and then never came back down. From 1900 to 1973, the U.S. poverty rate fell almost 80% and followed a steady pattern: consistent reductions over time, with temporary increases during recessions. Scholars estimate that the U.S. poverty rate exceeded 60% in 1900 with many rural and urban Americans living in squalid conditions.3 Economic growth, increased productivity, and higher incomes—punctuated by recessions—drove the poverty rate down substantially, to an estimated 43% in 1940 and then to 21% in 1960. After every recession, when the poverty rate often went up, it would resume its long-term fall.4 In 1973, America’s poverty rate hit its all-time low of 11.1% and the U.S. entered its first major recession since 1961.5 This would be the nation’s first recession with the federal government’s “war on poverty” programs in place.6 As the recession ramped up, so did the new federal welfare programs, as designed. Enrollment surged into the millions and spending grew accordingly. The poverty rate went up during the recession, per the usual pattern. But unlike in the past, this time the poverty rate never came back down. In 1983 and 1993, the U.S. poverty rate stood at just under 15%.7 As of 2020, the United States has not attained a poverty rate lower than the 11.1% seen in 1973. How did the poverty rate go up and then get stuck? The federal government’s failure, despite many good intentions, can be explained by what one might call a “complexity failure”: the federal 129

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government’s inability to effectively address complex problems—such as poverty—given its intrinsically top-down, bureaucratic, rules-based approach.8 NO EXPERIENCE REQUIRED Many federal programs—and the social welfare ones in particular—received critical political support from a core group of activists and supporters who were products of the 1960s cultural revolution.9 Supporters of federal welfare programs increasingly believed in a “structural” view of poverty: poverty reflected “structural forces” outside an individual’s control such as racial discrimination, limited employment options, and a broken education system. Individuals cannot control or potentially even influence these external conditions, yet these external conditions determined an individual’s economic status. Michael Harrington popularized the view with his 1962 book, The Other America: “In a nation with a technology that could provide every citizen with a decent life, it is an outrage and a scandal that there should be such social misery. . . . I want to tell every well-fed and optimistic American that it is intolerable that so many millions should be maimed in body and in spirit. . . . The means are at hand to fulfill the age-old dream: poverty can now be abolished.”10 When President Johnson argued that “poverty can be eliminated” in 1964, he echoed Harrington. Citing personal behaviors, choices, and incentives as reasons why some people lived in poverty was evidence of “social blindness.” As Harrington would argue: “The most familiar version of social blindness: the poor are that way because they are afraid of work. . . . There are, one must assume, citizens of the other America who choose impoverishment out of fear of work. . . . But the real explanation . . . is that they made the mistake of being born to the wrong parents, in the wrong section of the country.”11 In other words, poverty did not reflect behavior; poverty reflected forces beyond any individual’s control. To suggest otherwise indicated some degree of “social blindness.” Implicitly, Harrington’s call-to-arms included both an explanation of and a solution to poverty. Poverty reflected forces that left some people without enough resources; poverty could be solved by giving the poor more resources. The view quickly gained popularity, particularly among welfare advocates and potential beneficiaries. During the spring of 1966, forty cities saw demonstrations for “welfare rights” with one rally in New York City drawing 1,500 people to City Hall to protest the “indignities” of the current system. That year, Frances Piven and Richard Cloward, two leading poverty activists in New York City, argued in the Nation that a “massive drive to recruit the poor” combined with “bureaucratic disruption in welfare agencies,”

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“demonstration,” and “a climate of militancy” could “impel action on a new federal program to distribute income.”12 This political advocacy work—unlike direct action common previously— required no direct experience working with and trying to help those in poverty, and this lack of experience strongly influenced people’s views. Before the 1960s, and even more so before the New Deal, poverty activists mostly worked on the problem directly. As far back as the early 1600s, local religious and non-profit groups provided training, education, and basic material support to the poor in cities and states across the country. In the late 1800s, the American “settlement house” movement established a number of homes across the country dedicated to providing recent immigrants and American indigents with skill and language training, support, and aid. The movement provided help in numerous cities and put those inclined to help on the frontlines to support those in need. The direct experience required by the approach informed the views of those involved and, in many instances, led them to question the benefits of no-strings-attached benefits. Direct experience informed and shaped people’s views. Politicking required no such experience. Robert Levine, a veteran of LBJ’s Office of Economic Opportunity, argued in his 1970 book, The Poor Ye Need Not Have With You, that the nation’s social welfare programs could eliminate poverty entirely. “Even a quick look can convince us that poverty . . . is a completely solvable problem . . . the required outlay would be less than $10 billion a year,” Levine argued.13 The poor had no control over their economic outcomes, this view assumed, but the federal government could provide support and solve the issue directly. Such “structuralist” views of poverty underpinned the federal approach for the next three decades. In the words of Jason DeParle, an expert in federal welfare policy and writer for the New York Times, the welfare explosion that commenced after the 1973 recession reflected a “conscious design” on the part of “a coterie of activists” to transform the federal government’s welfare programs into a broadly available, limited requirements entitlement for America’s poor.14 Led by a group of social scientists, journalists, and political activists, the movement rested its claims mostly on theory and academic speculation, not on direct practice or engagement. Structuralism did not traffic in much evidence. The movement’s leaders were largely not social workers, state agency administrators, or long-time administrators of anti-poverty organizations with direct experience aiding those in poverty, but rather people taken by the theory of structural poverty and motivated to advance its cause politically.

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“RULES-ORIENTED COGS” The traditional expectation of welfare caseworkers was that they would encourage recipients to find work. This view changed in the 1970s as the federal government came to play a dominant role in the nation’s welfare programs and as structuralist assumptions took hold. In this model, caseworkers became little more than dispensers of benefits, required to follow specific, prescriptive rules laid out by federal law. The role now came with detailed sets of rules and forms for every possible issue. The Chicago Tribune reported on what this looked like after shadowing Susan Dilliogold, a Chicago welfare worker in 1976: More time is spent in the rambling Austin district office on West Madison Street filling out 2077s, 120s, and 93Cs. Mountains of paper forms that put people on welfare, take them off, give them more money, give them less money, replace stolen checks, give food stamps, keep track of their constantly changing addresses, and follow them in and out of hospitals, drug programs, schools, and jobs. . . . The caseworker is the main link between faceless filing cabinets and the welfare recipient. . . . A manual nearly three inches thick tells her how to do it. It tells her how to fill out forms and ask questions. . . . “I signed my name 175 times one day,” Susan reported.15

DeParle summed up the situation: “By the late 1960s, the average caseworker was the equivalent of a postal clerk, a low-paid, rules-oriented cog.” 16 Academics at the time picked up on the attitude change. In 1970, Joel F. Handler, a law professor at the University of Wisconsin, and Ellen Hollingsworth, a researcher at the Institute for Research on Poverty, published a study called “Reforming Welfare: The Constraints of the Bureaucracy and the Clients.”17 The academics reported that welfare workers “seemed to lack the commitment demanded by nonuniform administration.” Many workers viewed their positions as “temporary.” Turnover rates were extremely high: clients in the study typically saw the same caseworker only three times before a replacement was assigned. The study reported that “these attitudes foster a lack of individualized administration and minimize the initiative of many caseworkers.”18 However, the attitudes were largely a symptom, not a cause. The role of a “low-paid, rules-oriented cog,” besieged by forms, directly led to the lack of individualized administration and initiative and conveyed an impersonal manner. In the late 1960s and 1970s, the federal government passed additional welfare laws that helped precipitate and exacerbate the impersonal and detached culture of the country’s welfare agencies. Legislation passed throughout those years gave increasing powers to the federal government, with less flexibility

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and discretion given to the more local state governments. In 1965, the new Medicaid program offered substantial federal funding to the states to offer healthcare benefits for the eligible poor and came with numerous federal rules and stipulations required to take the money.19 Other programs such as welfare had new rules added. Across the board, bureaucracy and complexity increased. Notably, this increased federal control over the nation’s welfare programs also reflected valid concerns about some state governments’ discriminatory management of their welfare programs as well as their inconsistent compliance with federal civil rights legislation. Some Southern state welfare administrators offered blacks welfare benefits seasonally. Benefits would be available in the winter but not spring, summer, and fall when local farmers needed workers. After decades of systematic racial discrimination in state welfare agencies, ensuring fair, equal treatment required greater federal involvement. BUREAUCRATIC LAYERS In the 1970s, the Nixon administration requested and received increasing federal control over the nation’s Food Stamp Program.20 President Richard Nixon advocated this expansion of the Food Stamp Program to address the criticism that he was “indifferent to the plight of the needy.”21 When Agriculture Secretary Clifford Hardin presented the plan to President Nixon in a meeting, he said, “There is great urgency about this. This is the hottest item on the domestic front, and we must take the leadership ourselves.”22 The federal government now had the responsibility to both fund and administer food stamps. The new federal role created a complicated organization stretching from local state offices to large bureaucracies in Washington, DC, with layers of rules, controls, and reports, shifting up and down from bottom to top and back again. Neither the change nor its consequences were lost on welfare caseworkers working in the system. Sharlee Friend had worked in the Texas welfare office for enough years to see the transition from a system with more local discretion and agency to one that was increasingly dominated by complicated rules—many from the federal government—and federal administrators. Ms. Friend commented on the highly impersonal, bureaucratic approach taken by federal administrators: The federal workers that I have met in the past are usually nondescript . . . people who know to sit at the desk between eight to five, with lunch twelve to one, and very seldom are free to use their own abilities . . . it’s a very general

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kind of system. I mean, you are told what to do . . . you write according to directive and according to your job duty. . . . You can’t do more than your job calls for . . . you’re tied in a knot.23

This type of bureaucracy came with consequence. Sharlee Friend shared how the bureaucracy could degenerate into Kafkaesque absurdity: I had a client whose granddaughter called me . . . she said that her grandmother said that Ms. Friend will know what to do if nobody else knows what to do. . . . Okay—the federal agency is supposed to be providing services to the elderly who receive disability support, but the federal agency was not sending out a worker . . . because it’s a referral service, and that’s the job duty only of the referral service. . . . You call SSI [the federal agency] and you say you want to make an application. They tell you to come in. If you can’t come in because you’re too old or crippled . . . you have to wait until their worker calls you back and makes an appointment! . . . They have to make an appointment to mail you an application! This may take six weeks or six months, and that old person may be dead. You know? Okay, that’s the federal government. . . . So I don’t know about the federal government—I really don’t. I think sometimes you can become too institutionalized and then the whole personal thing goes down the drain. And we are dealing with people.24

Layers of middle managers between front-line staff and administrators in Washington, DC were given specific things to do with little to no authority to do anything else. For simpler tasks than eradicating poverty, such as distributing Social Security benefits, such a bureaucratic approach could work well. But poverty was anything but simple and standard, and the system struggled to handle the complicated, diverse problems of individual welfare cases. “It has changed a great deal,” reported Emma Rennolds about her former Texas welfare office. “It’s grown into a big bureau and one part don’t [sic] know what the other is doing. As Susan Dilliogold said, “We talk a lot about what we’d do if we were running this thing. But I don’t know the magic answer. A lot of us try hard, but the system is so darn big.”26 These real-world insights of front-line staff were buried under organizational layer after layer, unable to easily percolate far beyond the local offices in which they worked. The federal administrators and Congressional leaders, who had amassed so much control over the country’s welfare programs, had little insight into what was happening on the ground. Handler and Hollingsworth’s 1970 study picked up on this problem: Based on conversations with state supervisors, county welfare directors, and caseworkers, our impression is that the top bureaucrats have only an imprecise

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grasp of the details of field-level operations. They lack the resources, techniques, and perhaps the will, to become familiar with field activities and are distracted by other administrative concerns such as agency morale and community relations.27

Administrators would often be “unaware” of issues detected by the federally mandated quality-control procedures and statistical reports they were required to review.28 The insights of front-line case workers got lost and overlooked, the implications undiscussed. Public choice scholar Gordon Tullock foresaw this problem in his 1965 book, The Politics of Bureaucracy.29 In the early 1960s, many scholars argued that large bureaucracies—notably, public bureaucracies—could effectively solve almost any task given to them. Tullock disagreed: “The tendency for scholars to ignore the possible limits on tasks that may be performed through bureaucratic structures suggests that such limits, if they exist, are so high as to prevent the problem from having practical real-world application.”30 In Tullock’s view, bureaucracy came with its own unique limits and problems. Based on his nine years working at the U.S. Department of State as a Foreign Service officer, Tullock argued that bureaucracies, with their numerous organizational layers, paperwork, and complicated processes, struggled to accurately convey orders, facts, and insights up and down the chain of command. Front-line staff often do not clearly understand their organization’s goals and directives. Leaders may only get a garbled version of the facts and insights learned by front-line staff. Consequently, bureaucracies might struggle to solve problems in general and struggle, in particular, with complex problems that require nimble, responsive, and dynamic efforts. Mancur Olson, another Public Choice scholar, summed up the school’s observation in his 2000 book, Power and Prosperity: As Gordon Tullock, Oliver Williamson, and others have explained, the information problem in the large bureaucracy resembles the children’s game of telephone where a message is whispered from one child to another and becomes increasingly distorted by each child who repeats [it] to the next person in line. In a large bureaucracy, there is inevitably a significant loss and distortion of information, even with the best efforts of all concerned.31

“Forms, Forms, Forms” The system’s top-down approach tried to take each beneficiary’s often complicated, personal situation and force it to fit elaborate, lengthy, and often nonsensical rules. Paperwork represented the most notable symptom of bureaucratic dysfunction, with forms consuming as much as half a

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caseworker’s time. When asked how much time caseworkers spent “really providing services” to clients, Texas welfare administrator Joseph Villareal reported in 1975: “It’s very interesting. Because of the bureaucracy requirements [and] paperwork, I’d say probably 60 percent of time to direct service to the client. The other time is spent on paperwork and reports, paperwork and reports, and reports on top of reports.”32 The situation was, in Villareal’s words, “ridiculous.” This view was echoed by Emma Rennolds, a former Texas welfare administrator interviewed in 1975: It’s terrible. . . . Forms, forms, forms. That was the thing, too, that I never liked. I don’t like forms. I like personal contact with people and helping them with their problems and that. When it came to just detail work on forms, I didn’t like it. . . . They [private poverty agencies] have forms. They have paperwork. But it is not quite as much as the public aid. Of course, they don’t have the federal government to contend with. . . . They just have boards.33

Rules and guidelines dictated what the caseworker, manager, and district manager could and should do, with each role responsible for filling out extensive forms reporting what they did and why. By the 1970s, front-line welfare staff had manuals that were hundreds of pages long, full of rules, instructions, and forms.34 The system spent its energy focusing on what employees did, not whether beneficiaries could eventually become self-sufficient, and no longer need welfare benefits. Despite all the paperwork, some of the most important information went untracked. One caseworker who DeParle interviewed, Michael, noted that, despite all the forms, the system did not track the most important information for each case: whether someone got a job or was off welfare. All this reflected the consequences of federal control and management of welfare. The Aid to Families with Dependent Children (AFDC) bills Congress passed in the 1960s, amending the Social Security Act of 1935, which was the initial welfare legislation, ran into the hundreds of pages.35 Federal administrators then took the law and crafted regulations, guidelines, forms, and manuals dictating what people in the welfare organization—from the U.S. Secretary of the Health, Education, and Welfare Department, down to the individual case worker—should and could do in a given situation. A law of a few hundred pages turned into hundreds and thousands of pages of rules to be followed and data to be tracked. Amid the complexity, it was easy to lose sight of the goal that LBJ had articulated when the “war” started: ending poverty. While America’s poverty rate rose, the federal government added more programs. This did not help. A 1987 U.S. General Accounting Office (GAO) report noted the “fragmented, uncoordinated, and complex interactions”

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between the nation’s then ninety-five federal anti-poverty programs.36 The system was “administratively inefficient and costly,” with few people inside the different bureaucracies understanding how their own program worked, let alone how it interacted with others. Information and facts got lost and overlooked while the organizations ground away with the rules and guidelines they themselves had created to implement the relevant federal laws. The GAO found that the programs mostly operated in isolation from each other. All the bureaucratic regimentation and dysfunction made in-person welfare office visits often sobering experiences for the academics, administrators, and journalists who studied, administered, and generally supported the federal government’s welfare effort. The system simply seemed unresponsive to people’s actual problems and situations. David Ellwood, a leading Harvard welfare researcher and advocate, found his support for the system deeply shaken by a lengthy tour of the country’s welfare offices.37 For example, Ellwood watched in painful disbelief as a case worker filled out forms for a deaf applicant without showing the least interest in the woman or her life’s unique challenges. “The only reasonable reaction is to be very angry that this is not a system about helping these people,” Ellwood reported after his tour38. The system had become, in Ellwood’s words, a “check-writing machine” oblivious to the challenges, crises and behavior of its beneficiaries. During one of his visits, DeParle watched a welfare worker interact with a sobbing and distraught welfare applicant who attempted to describe her abusive and challenging living situation while the case worker focused on filling out the required forms:   SOBBING WOMAN: I got into it with my sister’s boyfriend . . . CASEWORKER: What are your employment goals? WOMAN: . . . he hit me in the head with a two-by-four . . . CASEWORKER: Foreign languages? Written or verbal? WOMAN: . . . my brother’s retarded . . . CASEWORKER: Distance from the nearest bus line? WOMAN: . . . we’re out of food . . . CASEWORKER: Volunteer work or hobbies? 39   As DeParle summed up, “Welfare dispensed money, not advice.”40 NO SIZE FITS ALL Robert Woodson Sr.—a 1960s civil rights activist and MacArthur genius awardee—has spent four decades helping residents of low-income urban

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neighborhoods and, based on this experience, studied the war on poverty’s failure. Woodson argues that people can group those who live in poverty into four loose categories.41 The first category includes “those who are just plain broke” or suffered an “unexpected setback” such as a job loss. The second consists of people who consciously chose government assistance over work because they have “done the math” and prefer government assistance to work. The third consists of the disabled and mentally ill who “will always be in need of some support.” And the final category consists of those in poverty because “of the choices they make [that is, drug abuse or alcoholism] and the chances they take.” Unsurprisingly, the federal government’s regimented, top-down approach had different effects on the different types of people. Beneficiaries in Woodson’s first category—who lost a job—got support while looking for a new job.42 For many of them, welfare did not change their commitment to finding a job, and the federal benefits helped tide them over during a temporary period of need. Disabled people also received valuable support, though the system’s one-size-fits-all approach often failed to encourage them to find suitable work. But for those in Woodson’s second and fourth categories— people who prefer government assistance over work, and people who have substance addictions, respectively—welfare outright incentivized joblessness or subsidized self-destructive behaviors. For both groups, the federal welfare programs made people increasingly unemployable and dependent on federal programs that had been created to do just the opposite. OVERLOOKED INCENTIVES Some front-line welfare staff, administering the new welfare programs, had a sense for what might be going on. Many beneficiaries used the programs as supporters hoped: temporary support during spells of joblessness. But other beneficiaries behaved differently. In 1975, Sharlee Friend, an AFDC case worker in Houston from 1965 to 1973, shared her perspective in an interview with a local historical society: Welfare becomes a crutch after a while if you’re depending on a monthly check . . . depending on food stamps and not paying as much for food as other people do who have to work. . . . Because most people, when they start figuring out how much they’re going to earn and then how much they’re going to pay back to the government immediately, then how much they have to pay for food—not just food stamps—they don’t want to get off welfare. When they figure that they have to pay their own medical bills or their own dental bills, they don’t want to get off welfare. And I talk to an awful lot of working people who

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would prefer to go on welfare just to get the Medicaid. . . . I think when a human being decides that the government is going to take care of them, that they’re not going to have to work . . . just getting them to overcome their fear of standing on their own two feet becomes the biggest thing.43

The programs changed people’s work behaviors by changing their incentives. Short spells on welfare often turned into long bouts. As Susan Dilligold, an Illinois caseworker, told the Chicago Tribune in 1976: “You have to understand that many of our clients are trapped. They can’t see a way out . . . You learn fast that you’re not going to change anyone’s life. You just try to make their lives more bearable. Everyone comes in thinking they singlehandedly are going to make welfare work. It doesn’t happen.”44 Research during the 1960s and 1970s supported these on-the-ground observations. Experiments found that receiving supplementary income induced recipients to work up to 28% less hours, with wives in two-parent households reducing hours as much as 55%.45 And, the welfare programs included much stronger incentives to work less or not at all.46 As Edward L. Glaeser, a Harvard economist, would later sum up based on his research, “At the heart of every income-based social-welfare program is a trade-off: directing resources to needy Americans is vital, yet doing so also discourages work.”47 By the 1980s, anecdotal stories about welfare dependency—recipients leaving the labor market and staying on welfare for years—began to find robust academic support. Ellwood, the Harvard researcher and federal welfare supporter, found that welfare recipients stayed on the program for an average of eight years, some for far longer.48 When asked, many recipients offered candid explanations: federal programs provided enough for them, and benefits could be lost if they started to work. Moreover, the country began to see a massive increase in its out-of-wedlock birth rate. From 1964 to 1994, the out-of-wedlock birth rate increased six times for whites and three times for African Americans.49 Concerns that the availability of welfare benefits contributed to the increase seemed reasonable, though hotly contested, given that welfare paid less or no benefits for beneficiaries who got married to someone who worked and earned an income. Even one-time welfare advocates had doubts. During a 1986 television documentary, LBJ’s former White House Press Secretary Bill Moyers featured a man with six children born to four women. The man did not support any of the women or children. The man explained his behavior to Moyers matterof-factly, “What I’m not doing, the government does.”50 Incentives mattered, and the federal welfare programs had created bad ones.

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WELFARE REFORM In 1991, then-Governor Bill Clinton (D-AR), a long-shot presidential candidate, decided to make welfare reform central to his campaign. National polls showed welfare had become increasingly unpopular and the program’s problems were hard to dispute.51 Clinton memorably argued that the country needed to “end welfare as we know it.”52 The idea became central to his winning primary and then general election campaign. But welfare reform stalled in the Congress, and Republicans used the issue to win a landslide election in 1994 that gave them their first majority in the U.S. House of Representatives since 1952.53 The public broadly supported reform. Ron Haskins, a welfare policy expert in Congress and then senior fellow at the Brookings Institution, notes that by 1994 the federal welfare system simply “had no serious defenders left.”54 After much debate and compromise, a substantial reform bill finally passed in the summer of 1996. The bill shifted the control of the welfare system from the federal government to the states, with two key federal provisos: work requirements and time limits.55 Able-bodied beneficiaries would need to work, train, or be actively seeking work after receiving welfare benefits for two years. And no beneficiary could receive welfare benefits, using federal funds, after five years. Critics, including leading social welfare academics, federal welfare administrators, and some politicians, predicted a potential disaster. In a deluge of speeches, editorials, and resignation letters, critics predicted everything from widespread urban starvation to impromptu tent cities raised in mass desperation. Then-Senator Daniel Patrick Moynihan (D-NY) attacked the reform proposal as “the most brutal act of social policy since Reconstruction. Those involved will take this disgrace to their graves.”56 Marian Edelman of the Children’s Defense Fund called the bill “an outrage . . . that will hurt and impoverish millions of children.”57 A number of officials in then-President Clinton’s administration resigned, including Wendell Primus, an assistant secretary in U.S. Health and Human Services (HHS), who argued that “to remain would be to disown all the analysis my office has produced regarding the impact of the bill.”58 His department’s studies estimated the law would push a million or more children into poverty. But reform passed anyway. Within a few months of reform, the evidence began coming in and told a very different story than the critics had predicted: welfare reform was succeeding even more than most of its advocates had expected. Welfare caseloads were falling significantly, and work rates were rising.59 The initial trend continued and then intensified. From 1996 to 2000, the country’s welfare

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caseload fell by more than 60%, from over five million cases to just a little over two million.60 Research found that most former recipients left welfare and got jobs. Even one-time critics admitted they had been wrong. DeParle, an initial skeptic, summed up the results of the 1996 welfare reform bill in his book, American Dream, an investigative history of America’s welfare system: “Poverty plunged. Employment surged. Crime, teen pregnancy, crack use, AIDS—all saw substantial declines. By moving women into the workforce, the welfare bill contributed to that progress materially. And it symbolized it powerfully.”61 In addition, marriage rates stabilized, out-of-wedlock birth rates plateaued, and childhood poverty rates fell62. Academic studies would later attribute most of these improvements to welfare reform, supported by the country’s strong economy.63 The federal government’s well-financed, well-intentioned, and decades-long anti-poverty effort not only failed to “eliminate poverty” but seemed to have made it worse. FAILURE PERSISTENCE Many people, who had spent decades advocating, running and studying the federal welfare program, were surprised by the 1996 welfare reform’s results, because most subscribed to an incomplete and inaccurate view of poverty: they assumed incentives and individual behavior played little to no role, and that the federal government’s efforts worked. Direct experience often had a powerful impact on some of these people’s views, as visits to welfare offices led Ellwood to see welfare as a “check-writing machine” and DeParle to conclude that, “Welfare dispensed money, not advice.”64 But federal politicking and administering did not require much direct experience. Consequently, many of the nation’s leading poverty experts predicted widespread urban starvation, tent cities, and spikes in poverty rates as opposed to the 60% reduction in caseloads and income growth that actually resulted. Moreover, the federal programs operated on a national basis, limiting the ability to try and test different approaches. The country ran one national welfare experiment, not fifty different experiments managed by state governments. People could not recognize the program’s limits and failures because no easy way to compare results existed. This combination of insulating people and their beliefs from reality by channeling energy into politicking and administering, not directly acting, and the institution of one federal experiment—not fifty different state experiments—helped stymie reform for three decades. This long delay reflects the federal government’s tendency towards “failure persistence,” the persistence of failing federal programs for longer than

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similar efforts run by private institutions or state governments. “Failure persistence” reflects a mutually reinforcing positive feedback loop that exists between political activists and federal programs—aided by supportive federal politicians—that can prop up federal programs for decades in the face of long-lasting, poor results. In this dynamic, political activists push for creating and then maintaining federal programs. In turn, potential and then actual federal programs shield political activists from directly involving themselves in the real-world causes and areas they champion. Instead of creating and running settlement houses or social sector training programs, activists focus their attention on advocating and lobbying for federal programs. This policy work does not require direct engagement with the issue itself. Someone lobbying for a federal welfare program does not need to actually work with people living in poverty; they need to focus attention on elected officials, their staffs, and influence groups. This allows them to maintain simplistic, even inaccurate beliefs, that help justify their support for the federal programs in the first place, thus helping to sustain and continue their support over time. Political activists and federal programs can thus mutually reinforce each other. Political activists help create and then sustain federal programs; federal programs help insulate political activists from directly working on issues and thus having to develop more nuanced, real-world views. This pattern is only exacerbated by the federal government’s top-down, one-size-fits-all, centralized approach, which kept the ineffective system in place for far too long. The federal government set a standard approach and precluded the creation of alternatives by state governments. States could not set welfare time limits. States could not set work requirements. States could not require work in state-created jobs. The federal government would not allow any of this and so, for thirty years, no state government could experiment with these ideas. There was one system—the federal welfare system— with states in charge of administering the system as instructed, with limited opportunities to test different approaches that could produce better results. If states had been given more flexibility at the outset, later evidence showed that many states would have started to experiment and to help. This would have substantially increased how much could be learned about what works and what does not. In 1993, Wisconsin sought federal approval to make changes to its state’s welfare program with more of an emphasis on work and training. Even before federal welfare reform passed in late 1996, Wisconsin had seen its welfare rolls fall precipitously over the previous six months, unlike any other state. If the federal welfare bill had not passed, the evidence from Wisconsin would have made it increasingly difficult to oppose reform. If states had been able to experiment earlier in the three-decade

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period, it seems unlikely that the federal government’s failed approach would have lasted nearly as long.

NOTES 1. Edith Herman, “A Caseworker: Friendly Face in Welfare Jungle,” Chicago Tribune. March 3, 1976. Last accessed August 10, 2015. 2. U.S. Department of Commerce, Bureau of the Census, “Money Income and Poverty Status in the United States: 1987 (Advance data from the March 1988 Current Population Survey), report by Edward J. Welniak and Mark S. Littman, ED 298 241 (August 1988), https://files.eric.ed.gov/fulltext/ED298241.pdf (accessed January 22, 2021). 3. Stephen Moore and Julian L. Simon, “The Greatest Century That Ever Was: 25 Miraculous Trends of the Past 100 Years,” Cato Institute, no. 364 (December 15, 1999), https://www.cato.org/publications/policy-analysis/greatest-century-ever-was25-miraculous-trends-past-100-years (accessed August 10, 2015). 4. Moore and Simon, “Greatest Century.” 5. U.S. Department of Commerce, Bureau of the Census, “Money Income and Poverty Status in the United States: 1987.” 6. Congressional Reserve Service, Report, “The Current Economic Recession: How Long, How Deep, and How Different from the Past?” by Marc Labonte and Gail Markinen, January 10, 2002, 11, https://digital.library.unt.edu/ark:/67531/ metacrs2578/m1/1/high_res_d/RL31237_2002Jan10.pdf (accessed January 22, 2021). 7. U.S. Department of Commerce, Bureau of the Census, “Income and Poverty in the United States: 2017,” report by Kayla Fontenot, Jessica Semega, and Melissa Kollar, P60-2063, (September 12, 2018), https://www.census.gov/content/dam/ Census/library/publications/2018/demo/p60-263.pdf (accessed January 22, 2021). See “Figure 4: Number in Poverty and Poverty Rate: 1959 to 2017,” 11. 8. In this, the federal government is not unique. Other large organizations—such as Fortune 500 companies—suffer from similar problems for similar reasons. 9. Frances Fox Piven and Richard Cloward, “The Weight of the Poor: A Strategy to End Poverty,” Nation, March 8, 2010, https://www.thenation.com/article/archive/ weight-poor-strategy-end-poverty/ (accessed August 10, 2015); Jason DeParle, American Dream: Three Women, Ten Kids, and a Nation’s Drive to End Welfare (New York: Viking, 2004), 90. 10. Michael Harrington, The Other America: Poverty in the United States (New York: Macmillan, 1962), 17. 11. Harrington, Other America, 14. 12. Piven and Cloward. “Weight of the Poor.” 13. Robert A. Levine, The Poor Ye Need Not Have With You: Lessons from the War on Poverty (Cambridge, MA: MIT Press, 1970), 6. 14. DeParle, American Dream, 88. 15. Herman, “Caseworker.”

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16. DeParle, American Dream, 254. 17. Joel F. Handler and Ellen Jane Hollingsworth, “Reforming Welfare: The Constraints of the Bureaucracy and the Clients,” University of Pennsylvania Law Review 118 (1970): 1167–87, https://scholarship.law.upenn.edu/cgi/viewcontent.cgi ?referer=&httpsredir=1&article=9422&context=penn_law_review (accessed January 22, 2021). 18. Handler and Hollingsworth, “Reforming Welfare,” 1177. 19. Social Security Act Amendments (Medicare and Medicaid Act) of 1965, 79 Stat. 286, Public Law 89–97. 89th Cong., 1st sess. (July 30, 1965). https://www.govinfo. gov/content/pkg/STATUTE-79/pdf/STATUTE-79-Pg286.pdf (accessed January 19, 2021). 20. Jerry D. Marx, “American Social Policy in the 1960’s and 1970’s,” Social Welfare History Project, January 20, 2011, https://socialwelfare.library.vcu.edu/waron-poverty/american-social-policy-in-the-60s-and-70s/ (August 10, 2015). 21. R. Shep Melnick, Between the Lines: Interpreting Welfare Rights (Washington, DC: Brookings Institution, 1994), 199. 22. Clifford Hardin, quoted in Jeffrey M. Berry, Feeding Hungry People: Rulemaking in the Food Stamp Program (New Brunswick, NJ: Rutgers University Press, 1984), 61. 23. “Friend, Sharlee,” interview, Houston Public Library Digital Archives, January 21, 1975, https://cdm17006.contentdm.oclc.org/digital/collection/Interviews/id/300/ rec/1 (accessed August 10, 2015). 24. “Friend, Sharlee.” Interview; emphasis mine. 25. “Rennolds, Emma,” interview, Houston Public Library Digital Archives, January 28, 1975, https://cdm17006.contentdm.oclc.org/digital/collection/Interviews/ id/336 (accessed August 6, 2015). 26. Susan Dilliogold, quoted in Herman, “Caseworker.” 27. Handler and Hollingsworth, “Reforming Welfare,” 1174. 28. Handler and Hollingsworth, “Reforming Welfare,” 1167–87. 29. Gordon Tullock The Politics of Bureaucracy (Washington, DC: Public Affairs Press, 1965). 30. Tullock, Politics of Bureaucracy, 123. 31. Mancur Olson, Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (New York: Basic Books, 2000), 137. 32. “Rennolds, Emma.” Interview. 33. “Rennolds, Emma.” Interview. 34. U.S. General Accounting Office (GAO),“Welfare: Issues to Consider in Assessing Proposals for Reform,” Briefing Report to the Honorable William V. Roth, Jr. United States Senate, ED 283 919 (February 19, 1987), https://files.eric.ed.gov/ fulltext/ED283919.pdf (accessed August 9, 2015). 35. AFDC was originally established by the Social Security Act of 1935, H.R. 7260, P.A. 271, 74th Cong., 1st sess. (August 14, 1935), https://www.ssa.gov/history/35act. html (accessed January 19, 2021). 36. GAO, “Welfare.”

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37. E. J. Dionne, Jr., “The Matsui Generation,” Washington Post, January 4, 2005, https://www.washingtonpost.com/archive/opinions/2005/01/04/the-matsuigeneration/d6d2322c-45a4-4000-a5de-243385bcabee/ (accessed August 5, 2015). 38. DeParle, American Dream, 111. 39. DeParle, American Dream, 237. 40. DeParle, American Dream, 7. 41. Robert L. Woodson, Sr., “The 4 Types of Poverty, and How to Cure Them,” Daily Signal, September 18, 2015, https://www.dailysignal.com/2015/09/20/the-4types-of-poverty-and-how-to-cure-them/ (accessed January 22, 2021). 42. Woodson, “4 Types of Poverty.” 43. “Friend, Sharlee.” Interview. 44. Susan Dilligold, interview quoted in Herman, “Caseworker.” 45. Robert A. Moffitt, “The Negative Income Tax: Would It Discourage Work?” Monthly Labor Review (April 1981): 24, https://www.bls.gov/opub/mlr/1981/04/ art3full.pdf (accessed January 22, 2021). 46. Moffitt, “Negative Income Tax,” 24. 47. Edward L. Glaeser, “Mission: Revive the Rust Belt,” City Journal (Autumn 2018), https://www.city-journal.org/revive-rust-belt (accessed January 22, 2021). 48. David Ellwood, quoted in Jason Deparle, “Mugged by Reality.” New York Times, December 8, 1996. https://www.nytimes.com/1996/12/08/magazine/muggedby-reality.html (accessed August 9, 2015). 49. Robert Rector, “Marriage and Poverty in the U.S,” Heritage Foundation, last accessed August 10, 2015. 50. Bill Moyers, “The Vanishing Family: Crisis in Black America.” CBS. Broadcast January 25, 1986, https://billmoyers.com/content/the-vanishing-family-crisis-inblack-america/ (accessed January 22, 2021). 51. Laurie MacLeod, Darrel Montero, and Alan Speer, “America’s Changing Attitudes Toward Welfare and Welfare Recipients, 1938–1995,” Journal of Sociology & Social Welfare 26, no. 2 (1999): article 10, https://scholarworks.wmich.edu/jssw/ vol26/iss2/10 (accessed January 22, 2021). 52. DeParle, American Dream. 53. Adam Clymer, “G.O.P. Celebrates Its Sweep to Power; Clinton Vows to Find Common Ground,” New York Times, November 9, 1994, https://www.nytimes. com/1994/11/10/us/1994-elections-congress-overview-gop-celebrates-its-sweeppower-clinton-vows.html (accessed August 9, 2015). 54. Ron Haskins, “Interview: Welfare Reform, 10 Years Later,” Brookings, August 24, 2006, https://www.brookings.edu/on-the-record/interview-welfare-reform-10years-later/ (accessed August 10, 2015). 55. Elizabeth Shogren, “House Panel Approves Final Piece of Welfare Overhaul,” Los Angeles Times, March 9, 1995, A8, last accessed August 9, 2015). 56. Daniel Patrick Moynihan, Miles to Go: A Personal History of Social Policy (Cambridge, MA: Harvard University Press, 1996), 58. 57. Marian Edelman, quoted in Joseph M. Bessette and John J. Pitney, American Government and Politics: Deliberation, Democracy, and Citizenship (Boston, MA: Wadsworth, 2011), 487.

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58. Wendell Primus, quoted in Alison Mitchell, “Two Clinton Aides Resign To Protest New Welfare Law.” New York Times, September 12, 1996, sec. A, 1. https:// www.nytimes.com/1996/09/12/us/two-clinton-aides-resign-to-protest-new-welfarelaw.html (accessed January 22, 2021). 59. “Welfare,” s.v. Almanac of Policy Issues, June 1, 2001, http://www. policyalmanac.org/social_welfare/welfare.shtml (last accessed August 10, 2015). 60. “Welfare.” s.v. Almanac of Policy Issues. 61. DeParle, American Dream, 323. 62. DeParle, American Dream, 323. 63. Rebecca M. Blank, “Evaluation Welfare Reform in the United States,” National Bureau of Economic Research (NBER), Working Paper, June 2002, 39–40. https:// doi.org/10.3386/w8983; https://www.nber.org/papers/w8983; White House. Council of Economic Advisers. “Economic Expansion, Welfare Reform, and the Decline in Welfare Caseloads: An Update. Technical Report” (Washington, DC: Executive Office of the President, 1999), https://www.whitehouse.gov/cea/. 64. Dionne, “Matsui Generation”; DeParle, American Dream, 7.

PART III

Sovereignty and Solvency

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Rehabilitate the States

“[A] state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”— U.S. Supreme Court Justice Louis Brandeis, 1931.1

The U.S. federal government—one of the world’s largest and mightiest organizations—has tried but failed to eradicate poverty, ensure future American generations’ retirements, and fund healthcare responsibly. Given what the federal government was originally designed to do, why did its elected leaders take on these responsibilities and lead America to the brink of insolvency? The federal government was never designed to address poverty’s complexities, but the twentieth-century experiment with the Progressive vision encouraged its ineffective expansion nonetheless. Progressives offered an inspiring vision of human nature, politics, and the positive potential of federal action. But the nearly one hundred-year Progressive experiment shows that the results of federal action do not fit the promises used to sell federal action. The founders would largely not be surprised by the results. And their approach to American governance suggests that Americans should look elsewhere for the proper institution to take on these types of challenges: the country’s fifty state governments. America’s fifty states—the country’s “laboratories of democracy,” as U.S. Supreme Court Justice Louise Brandeis memorably said—offer a more innovative and empirical way to tackle complex issues, such as poverty, than the federal government2. In contrast to the federal government’s top-down, one-size-fits-all approach, America’s states can test different ideas, approaches, and innovations. Over time, this can help identify what works and what does not, allow for more learning, adapting, and improving, and allow states and their citizens to better fit local policies to the preferences of their populations. A more state-centered approach to domestic governance would move the country back toward the founding generation’s original vision and understanding of America’s 149

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political regime. As Pulitzer Prize winning historian Bernard Bailyn notes in his The Ideological Origins of the American Revolution, the founding generation thought that “it would be the states that would continue to regulate the affairs of everyday life.”3 THE BIGGEST PROBLEM WITH STATES Since the country’s founding in 1789, the powers and responsibilities of America’s state governments have contracted and weakened considerably— and for good reason. The shift reflects, to a large degree, the consequences of some state governments’ unsuccessful defense, first of slavery before and during the Civil War, and then the racist political regimes many Southern states established and supported for over a hundred years after the Civil War. In both cases, the federal government successfully intervened, ending slavery by winning the Civil War (1861–1865) and then, a century later, putting an end to outright, state-sanctioned racism with the Civil Rights Act of 1964 and then the Voting Rights Act of 1965, which ensured equal access to voting booths, government facilities, and public accommodations nationwide.4 While hotly disputed at the time, both have come to be viewed as singular achievements by the vast majority of the American public. In these cases, one can make a strong, robust case that the federal government acted as a unique agent of moral good in service to the country’s stated ideal that “all men are created equal.” Unsurprisingly, both the Civil War and Civil Rights eras saw the federal government gain power while the state governments lost power—as the federal government took the side of discriminated individuals seeking equal rights and protections against state governments which unsuccessfully opposed both changes. The federal government’s successful Civil War ended slavery in the United States, curtailed state powers, and expanded the federal remit. In particular, the Thirteenth and Fifteenth Amendments all explicitly gave the federal government power to enforce its provisions against “any State” that violated its guarantees of “citizenship,” “privileges or immunities,” “life, liberty, or property, without due process of law” and the “right . . . to vote.”5 But federal enforcement loosened over time, and state governments found work-arounds to impose racist political, civil, social, and economic regimes with statutes including black codes, Jim Crow laws, literacy tests, poll taxes, vagrancy laws, miscegenation laws, and state-mandated or supported segregation in both public and private facilities. State sovereignty thus remained an effective means to perpetuate racism for almost a century after the Civil War’s conclusion in 1865. In 1964, only 7% of African Americans in Mississippi were registered to vote.6 Many

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Southern states had rates almost as low, as a result of literacy tests, poll taxes, and other devices used to stop African Americans from registering and voting. “States’ rights” had become code for state-sanctioned racism. In his 1963 inaugural address as Governor of Alabama, George Wallace declared, “Segregation now, segregation tomorrow, segregation forever.”7 Wallace would later say he wished he had used a modified phrase: “States’ rights now, states’ rights tomorrow, states’ rights forever.”8 The two phrases had come to have a commingled meaning. Consequently, backed by this long history, many Americans think of Jim Crow, black codes, and discrimination when they think about empowered state governments, not the Erie Canal, education innovation, and welfare reform—and understandably so. SEGREGATION SUPPORTS STRUCTURALISM Before the Civil Rights era, the federal government’s social welfare effort boiled down to one program: welfare, or Aid for Dependent Children (AFDC or ADC). In 1960, the percentage of American children receiving benefits from AFDC was only 3.5%.9 The states—who administered the program with substantial autonomy—enrolled few women, and many states tried to exclude certain groups entirely—most notably, African Americans. As Martin Gilens explains in his 2009 book, Why Americans Hate Welfare: In addition to imposing low benefit levels for black families, states excluded many black mothers from ADC by the discretionary application of “suitable home” policies. These policies gave caseworkers wide latitude to deny ADC benefits to families with children born out of wedlock or to mothers thought to be engaged in illicit relationships. Furthermore, despite the fact that ADC was envisioned as a program to assist single mothers so that they could devote their time to raising their children rather than working for a wage, some southern states provided only seasonal benefits to blacks, eliminating assistance when additional labor was needed in the fields during harvest time.10

Much had remained the same for African Americans in the decades that followed the Civil War. In the Southern states and others across the country, African Americans were subject to economic, social, and political discrimination. When people could turn on their televisions and see African Americans blocked from university doors and attacked by police dogs when demanding an equal right to attend schools or vote, one could see strong, indisputable evidence for the view of structural poverty advanced by the welfare rights activists of the time.

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These barriers and obstacles reflected only the color of one’s skin and the political and social power of racism at that time, not the choices individuals made in life. No one chose to be black; one was born black. But the obstacles put up based solely on one’s race were huge. In the balance between choice and circumstance, circumstance seemed to matter quite a bit for African Americans living in the South in the 1960s and before. Racism broke any clean link that might exist between one’s choices and talents, and one’s outcomes in life. Critically, federal expansion proponents could rightly point to the fact that African Americans had also been discriminated against in the nation’s existing welfare program for decades. Southern members of Congress controlled key committees and held key votes needed to pass welfare legislation included in the Social Security Act of 1935 and the legislation that followed.11 These legislators avoided anything that would infringe on their states’ discriminatory laws and cheap field labor. The legislation thus set low payments, provided wide state and local discretion, and explicitly rejected language that might be interpreted as outlawing racial discrimination.12 Notably, the Social Security Act of 1935 denied the federal government supervisory power over most aspects of Social Security. The states would administer and manage the program as they saw fit. These legislative efforts mostly worked as intended. In many Southern states, blacks were barred from the program entirely. Georgia set a quota for blacks.13 Mary S. Larabee, who inspected the program in the South, noted that many southern leaders and administrators believed that “they [blacks] have always gotten along” and did not need the program’s support.14 Larabee would later write that Southern officials “see no reason why the employable Negro mother should not continue her usually sketchy seasonal labor or indefinite domestic service rather than receive a public assistance grant.”15 In the 1960s and later, supporters of expanding the federal welfare program and giving the federal government more power over running it, could point to all this evidence in making the case for more federal control. Expanding federal welfare and increasing federal control thus not only fit the Structuralists’ goal of increasing the number of welfare recipients, but also of dismantling a discriminatory, state-run welfare system that had kept African American women off the welfare rolls for decades. Tying together the argument for welfare expansion and more federal control to reduce if not eliminate state discrimination represented an important achievement for intellectual supporters of these two policies in the 1960s. African Americans had historically been excluded from the nation’s welfare program: this could now change as part of a broader expansion of the program. To many, it would seem odd—even discriminatory—to oppose expanding the programs now that African Americans were eligible for the program.

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The fact that African Americans would now represent a disproportionately large share of the newly eligible for the social welfare programs only helped build the case for expansion in the 1960s and 1970s. Economic need could be reduced and a historically discriminatory program transformed. SUCCESSFUL STATE EXPERIMENTS Yet the clear benefits of shifting some sovereignty back to the country’s state governments was demonstrated by the welfare reform bill, Personal Responsibility and Work Opportunity Reconciliation Act of 1996.16 Championed by President Bill Clinton, the legislation set nation-wide time limits, work requirements, and federal spending limits, but left almost all other aspects of the program up to state governments.17 States experimented widely with job training, targeted interventions, support services, and stricter—and more lenient—time limits and work requirements. The experiments showed what worked and what did not. While the United States saw welfare caseloads decline 60% overall, from 1996 to 2001, some states—including Wisconsin—experimented with stricter work requirements and invested more into welfare-to-work support programs and saw caseloads fall by almost 90%.18 The successful results motivated other states to try similar policies: Texas set welfare time limits as short as a year19; Michigan set none, pledging to entirely fund any benefits that exceeded federal limits with state funds20; and Mississippi stressed the role of churches and religious organizations21; and Rhode Island invested in child-care.22 New York City became a hotbed of diversion experimentation after Wisconsin’s Jason Turner took over as the city’s welfare commissioner in February 1988, with the goal of applying the approach he successfully developed in Wisconsin to New York City, a city with one of the country’s biggest welfare caseloads. Turner tailored the Wisconsin approach to New York City and got even better results. Applicants were required to search for a job for four weeks before being added to the rolls; almost half the applicants dropped out before completing this search.23 Applicants themselves found the change hard to accept. One Harlem manager noted that re-opening what had once been a “welfare center” as a “job center” represented the highlight of her career.24 As the manager explained, “Half the people said, ‘Job center? I didn’t come for no job center!’” The manager was shocked. “I could not believe that those two little words—job center—could clear the area.”25 States and cities that experimented the most and worked the hardest to reduce the welfare rolls saw the best results. Wisconsin, Florida, and

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Mississippi cut their welfare rolls by 75% or more.26 Wisconsin saw a reduction approaching 90% in the years that followed.27 In the five years following welfare reform, 4.6 million cases left the welfare system.28 And welfare reform’s positive changes stuck. By 2006, only 1.9 million families were on the Temporary Assistance for Needy Families (TANF) program, a 60% reduction from the nation’s previous high point in the early 1990s.29 And childhood poverty rates did not rise. While critics argued that a recession would see childhood poverty rates increase precipitously, the poverty rate among children barely rose at all during the 2001 economic recession.30 “This was one of the most successful reforms of a domestic federal government program in the United States over the past several decades, and is an imperfect but practical prototype for how an experimental regime can help to improve policy,” concluded expert Jim Manzi after analyzing every large-scale welfare-to-work randomized experiment in his 2012 book, Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics, and Society.31

BLOCK GRANT TRIALS Though shifting welfare back to the states has been one of the more successful public policies initiated in Washington, DC over the last few decades, politicians at the federal level have been reluctant to shift much else over, including for Medicaid, which provides healthcare funding for the nation’s poor. Enacted in the Social Security Act Amendments (Medicare and Medicaid Act) of 1965 along with Medicare, Medicaid is a federally funded, state-administered program originally intended to provide health care to low-income Americans not covered by private insurance.32 Today, Medicaid operates as a joint venture between the states, which administer the program, and the federal government, which sets eligibility requirements, imposes management regulations, and contributes funding. States have some latitude in how they manage the program. Some states make use of managed care, giving private health insurers set monthly fees to provide Medicaid services to eligible beneficiaries. Others use traditional fee-for-service and pay directly for beneficiaries’ services. In 2019, Medicaid and Children’s Health Insurance Program (CHIP) provided coverage to over 71 million low-income Americans.33 The program’s expenses have grown rapidly over the last half century, far exceeding overall economic growth.34 In recent years, Medicaid has become the first or second most expensive state budget item in all fifty states and the

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third most expensive domestic federal program behind only Social Security and Medicare.35 In 2018, Medicaid consumed almost 9% of the federal budget.36 These costs have forced many states to spend less on other important areas, including most notably K-12 education and infrastructure, such as roads and highways.37 Concerns about the program’s costs and crowding out of other key spending areas have led many to call for the program’s reform.38 In recent decades, elderly and disabled beneficiaries have come to represent most of the program’s spending, and more than 60% in recent years. The rest goes to low-income, non-disabled adults and children.39 The elderly and disabled constitute most spending because they cost far more per person. In 2014, the average elderly beneficiary cost a little over $13,000 and the disabled almost $17,000 versus $3,300 for adults and $2,600 for children.40 Many reformers argue that Medicaid funds should be “block granted” to the states to provide state governments with “significant discretion” in the design and implementation of state Medicaid programs.41 In this model, the federal government would set select high-level rules regarding matters such as eligibility, access, and performance. As a 2015 op-ed by Paul Howard and Russell Sykes in the Wall Street Journal noted, “Block grants would offer states a predictable source of federal funding in return for broad state flexibility in Medicaid administration, benefits and copays.”42 This model would also provide states with strong incentives to help reduce beneficiaries’ need for Medicaid and to provide medical services efficiently, since they would become completely responsible for every dollar spent or saved. Block grants offer benefits to both Congress and the states. As Rob Garver explains in the Fiscal Times: States will argue that rather than trying to adapt to one-size-fits-all federal programs, block grants allow them to adapt systems and procedures that work well for them and save money. At the federal level, the upside is even more obvious. Unlike open-ended entitlement programs, block grants are a fixed sum of money, making it much easier for lawmakers to know what future spending will look like.43

Certainly, substantial room for improvement exists. In 2017, the Government Accountability Office (GAO) estimated that 10% of all Medicaid expenditures were for “improper payments,” including payments for services not actually provided.44 The GAO has thus designated Medicaid as a high-risk program due to its “size, growth and inadequate fiscal oversight.”45 Though states can combat fraud and demand cost effectiveness, they face conflicted incentives to do so. For every dollar saved in Medicaid costs, states can lose up to $2 in federal matching grants.

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THE “LABORATORIES’” RESULTS The question then becomes whether states, given increased flexibility and better incentives, could improve care and reduce costs. Evidence from several states that have run experiments—big and small, liberal and conservative— have produced notably positive results. Take, for example, Indiana’s Healthy Indiana Plan (HIP). Unveiled by then Governor Mitch Daniels in 2007, the plan uses state funds to provide low-income adults with subsidized health savings accounts (HSAs).46 The funds in these accounts can be used to pay down a $1,100 annual deductible and for medical services not covered by the state. This consumer-driven approach incentivizes participants to seek out high-value healthcare and minimize unnecessary costs. While traditional Medicaid rarely requires out-ofpocket contributions, HIP made recipients responsible for the first $1,100 of medical care. Indiana also gave total account ownership to HIP beneficiaries, allowing funds to rollover from year to year. Thirty-six percent of participants stayed within their HSA amounts, and 80% met HIP’s preventive care goals, far exceeding traditional Medicaid patients.47 In 2015, Indiana state officials received approval for an updated HIP 2.0. The program doubled down on Indiana’s consumer-driven approach by means of specialized HSAs called Personal Wellness and Responsibility (or POWER) accounts.48 Participants receive up to $2500 in their POWER accounts per year for healthcare expenses and are required to contribute between $1 and $100 per month, depending on their income, with Indiana contributing the remainder. Beneficiaries own their accounts and use them to pay healthcare costs up to the $2,500 annual deductible. Leftover funds can then be used to pay future premiums or health-care costs. The program has proven both popular and effective. In 2016, the program enrolled 370,000 Indiana Hoosiers. That same year, a large survey of participating members found overall satisfaction at 80%, with 93% saying they would re-enroll in the program.49 The program also attracted more providers. While traditional Medicaid programs have seen medical providers increasingly unwilling to participate, the Indiana HIP program attracted 5,300 new healthcare providers willing to serve HIP’s participants.50 Several other states including Arizona, Rhode Island, New York, and Ohio have shown how state-driven innovations can create significant improvement in the Medicaid program. Arizona became the last state to adopt Medicaid in 1982—that is, seventeen years after the program’s passage. Beforehand, Arizona had taken a highly decentralized approach to providing medical care to low-income people, requiring each county to establish a comprehensive health-care approach for low-income citizens.51 Patients with severe medical

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issues were sent to the Maricopa County Medical hospital for specialized care. The system worked well, but by the early 1980s several interest groups including hospitals and insurance companies urged the state to adopt traditional Medicaid to receive matching federal funds. Arizona thus joined Medicaid in 1982 but requested a waiver to implement a managed care model for Medicaid beneficiaries, which paid private insurers a set amount per year to take care of Medicaid beneficiaries. This approach proved effective at maintaining health outcomes while lowering costs relative to state-run programs. In the years since, all but two states (Alaska and Wyoming) have adopted a Medicaid managed care option. In 2008, Rhode Island received a federal waiver to exercise more control over its Medicaid program.52 Rhode Island used its new flexibility to implement various experiments, including competitive bidding for certain Medicaid services and special programs to help the state’s elderly stay in their homes and thus out of expensive assisted living facilities.53 The innovations worked. While the other forty-nine U.S. states saw Medicaid costs increase for elderly beneficiaries over the following three years, Rhode Island reduced its Medicaid spending by 5% annually while seeing increases in participant satisfaction.54 This outcome—lower costs and higher satisfaction during that period—reflected one state trying one set of experiments. Other states have tried similar experiments. New York experimented with capping Medicaid expenditures. To meet the caps, providers have been given more flexibility to eliminate unnecessary testing and use coordinators to deliver more efficient care for sick patients.55 Similar to Rhode Island, Ohio has diverted many old-age Medicaid beneficiaries away from high-cost nursing homes, saving $30 thousand annually per participant, and produced higher satisfaction. Seventeen states have experimented with “patient centered medical homes,” which coordinate and deploy care to improve outcomes and decrease cost, for some Medicaid patients.56 Block grants do not represent a panacea, nor do they come without tradeoffs. Any block grant proposal would have to consider several legitimate concerns. Critics worry about granting states flexibility with eligibility requirements. By reducing eligibility, states might be able to significantly reduce medical spending and then use the funds on other state expenses. The block grant formula could become overly complicated. And, certain protections for historically discriminated groups could be weakened without the explicit protection of federal law. But these concerns can be managed and must be weighed against the positive record of reform and improvement in states given more control over their Medicaid programs. Decades of evidence shows that the current model does not foster innovation, manage costs, or deliver great care. With costs continuing to rise, reform will become increasing necessary and the status quo

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unacceptable. The nation’s “laboratories of democracy” must be put to work, devising ways of providing both quality and affordable health care to the nation’s economically vulnerable. A block-grant approach could supercharge state-driven reforms, offering both beneficiaries and taxpayers an attractive path forward relative to the traditional Medicaid program. THE CASE FOR A RECONSIDERATION The ideas of federalism and state authority in America’s political system deserve reconsideration. While the past use of “states’ rights” to justify discrimination rightly gives many pause, a rehabilitated federalism—with states given more autonomy and control—could better address many of the social problems that have been ignored or mismanaged by the federal government for the last half century or more. A shift of sovereignty back to the state governments could be explored without the same concerns about discrimination that would have held in the past. Because of the Civil War amendments previously mentioned, the U.S. Supreme Court now applies the Bill of Rights against both the federal and state governments.57 Neither level of government can violate the these Rights. Moreover, the federal government retains significant powers to monitor for discriminatory practices and laws via the Civil Rights Act of 1964, Voting Rights Act of 1965, and other laws subsequently passed. The case for a renewed federalism can be boiled down to three practical reasons. First, states can more effectively address many of America’s social problems by acting as the “laboratories of democracy” which they were intended to be. Second, state policies can more closely match local policies to local circumstances and preferences. And finally, local policymaking can motivate people to be more involved citizens. In his 1957 book, An Economic Theory of Democracy, economist Anthony Downs noted the “extremely small” likelihood that one individual voter would tip the outcome of an election, likening each man’s ballot to “one drop in a vast sea” of hundreds, thousands, or even millions of other ballots. Election results are thus likely to be decided regardless of how (or whether) a given individual votes.58 In this view, the value of one’s vote reduces in proportion to the size of the electorate. The larger the political arena, the less incentive voters have to vote, participate, and inform themselves. Downs arrives at what he terms a “startling conclusion” when applying this thinking to “large democracy”— namely, “that it is irrational for most citizens to acquire political information for purposes of voting. . . . Hence ignorance of politics is not a result of unpatriotic apathy; rather it is a highly rational response to the facts of

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political life in “a large democracy.’’59 Empirical evidence gathered over the last few decades largely supports this conclusion. As one researcher on the topic, Lee Shaker concludes, ‘For decades, scholars have drawn a dark picture of the American public’s understanding of political affairs.’ Americans” knowledge of politics can be broadly described as “not high” with researchers consistently finding that around a third of the American public described as “political know nothings.”60 Downs made a compelling case, and Public Choice scholars James M. Buchanan and Gordon Tullock accepted his claim in their 1962 book, The Calculus of Consent. In their view, Downs offered a “highly realistic” explanation that “fit the real world rather well.”61 Voters’ “relative lack of information” simply needed to be accepted as one of the “negative characteristics of democracy,” particularly in larger states with larger voting populations. The constant calls for voters to “do their duty” and to become informed, reflected typical academic preaching ignorant of the basic incentives at play. The reality was that voters were “behaving sensibly”; no amount of academic hectoring could change that.62 Citizens might still choose to acquire political information, even in political contests involving many people.63 People with notable influence might seek out information to personally affect policy through direct lobbying or influencing. People in hotly contested voting districts with thin margins might see their votes as mattering more than in less competitive areas. Some people even take pride in being well-informed and participating. But these voters often represent exceptions, not the rule. For the rest, ignorance is rational. In his The Logic of Collective Action, Mancur Olson noted that this fundamental dynamic extended far beyond politics and into life in general: the larger the group, the less informed individual participants will be. This holds true whether considering politics or the typical organizational meeting. “The contribution that each participant will make . . . will become smaller as the meeting becomes larger,” he wrote.64 “It is for these reasons, among others, that organizations so often turn to the small group; committees, subcommittees, and small leadership groups are created, and once created they tend to play a crucial role.”65 If any solution exists to the problem of underinformed voters, a wider use of local government offers some promise.66 Within a smaller electorate, voters can have far more influence and potentially greater incentive to gather information. Local areas also tend to have fewer issues to consider, thus giving voters more ability to understand them. In The Politics of Bureaucracy, Tullock notes that, “If the voter must elect officials on the basis of their dealings with 1,000 problems he will exert less influence on the average problem than he would if there were only 100” or ten or five. As Tullock noted, “The great advantage of a federal system of

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government is that it permits the reduction of the number of problems with which the individual voter must be concerned without reducing the total number of problems dealt with by government” while also giving the individual citizen more incentive to get informed—and engaged.67 ENCOURAGING RESULTS, NOT PANACEAS The nation’s fifty states can experiment more effectively and better tailor local policies to local conditions than Washington, DC. The benefits of state control demonstrated by state experiments in Medicaid design and administration apply to most areas of domestic American life including education, social welfare, and infrastructure. As a group, states can perform better in these areas for the same reason that states performed better with welfare and then Medicaid: state governments can innovate, experiment, and learn significantly faster than the federal government. Each state can try a different, tailored approach to similar problems, with elected officials in each state able to examine the results of their state’s efforts and others, and then adjust accordingly. Similar to competitive private markets, state competition and diverse approaches breeds innovation and ultimately can lead to better products and services for the public. In recent years, K-12 education reform demonstrates how states can develop and then implement various innovations and reforms to make progress on a highly complex, challenging issue: improving U.S. education outcomes. Over the last three decades, states have pass laws allowing charter schools (publicly funded schools run independently of the local school district), tax-credit scholarships, vouchers (publicly funded vouchers to attend private schools), and education savings accounts, all with the goal of improving student learning. The reforms started small and then grew exponentially as parent and student interest and demand surged based on positive results. City Academy in St. Paul, Minnesota became the nation’s first charter school in 1992 when a small group of seasoned public school teachers, disillusioned by the local school district, decided to open their own “charter” school.68 In 2018, more than three million U.S. students attended charter schools in over 7,000 schools in twenty-six states.69 Other reforms have seen increasing momentum as well. In 2020, almost 300,000 students received tax-credit scholarships, more than 200,000 received vouchers to pay for private school education, and more than 20,000 had education savings accounts, which can be spent on private schools, school supplies, and online learning programs among other things.70 While results have varied by state, locality, and school, most experts who research the topic agree: state-driven education reforms are improving

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America’s K–12 education system. Research studies have generally found that students who attend charter schools or private schools with public financial support achieve higher test scores, report higher parent and student satisfaction, and enroll, persist, and graduate from college at higher rates.71 In 2019, research from the Urban Institute found that students who participated in Florida’s Tax Credit Scholarship program had a 20% higher probability of graduating with a bachelor’s degree relative to their public-school peers. In Milwaukee, a robust, long-term study found that charter school students had a statistically significant lower chance of later being convicted of both misdemeanor and felony crimes.72 And while alternatives to the traditional public education system have continued to prove effective, they do not offer a panacea. While finding significant positive impact on college enrollment and graduation in Florida and Milwaukee’s charter school programs, the study did not find a statistically significant impact for Washington, DC, charter school students. In his 2020 book, Charter Schools and Their Enemies, economist Thomas Sowell constructed a rigorous apples-to-apples study to compare students in charter and students in public schools in New York City. The 24,000 students included in the research were ethnically and socioeconomically similar and attended school for the same grades in the same building as their public-school peers.73 After eliminating many sources of possible variation in performance, Sowell found substantial and striking differences in results.74 The charter school students achieved proficiency in English at a rate five times better than their public student peers in the same buildings. In math, the advantage increased to seven to one. The last thirty years has seen a large-scale, distributed experiment in education reform driven by state and local governments. Starting with one charter school in St. Paul, Minnesota, the education reform movement has spread to twenty-six states and over three million students learning in schools outside traditional public education. Different states and local governments have experimented with different models. Over time, results came in. And local governments copied or adapted the approaches that worked best and discarded those that did not. The fact that any one of the nation’s fifty states and thousands of local cities, counties, and school districts could run their own unique experiment, significantly accelerated the discovery and use of new, more effective models for public education. Local governments often lead the way in developing new and different approaches to delivering public services. The city government of Sandy Springs, Georgia shows just how far such experiments can go. Citizens in Sandy Springs were tired of “receiving poor services for the taxes they paid,” and so, in 2005, 94% of the community voted to incorporate as an independent city with the ability to develop its city government from scratch.75

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Unencumbered by the traditional approach to city government, local citizens developed the novel approach of running the city as a public-private partnership, outsourcing nearly every public service, from security to trash pick-up to private contractors through the competitive bidding processes. As a result, the city of 100,000 citizens hired just six city employees, all of whom enrolled in defined-contribution 401(k)s, not defined-benefit pension plans typical in local governments. The initial experiments worked. After contracting out almost all city services, the city estimated that it saved $7 million in annual costs. Since its incorporation, Sandy Springs has built-up a $21 million “rainy day” fund and has no liabilities, debts, or pension obligations. Evidence from Sandy Springs has motivated other localities to incorporate as independent cities and undertake a similarly lean, outsourced approach to city government. VOLUNTARY FEDERALISM A shift to more state and local control could be voluntary. States who want more control and responsibility for areas such as education, welfare, Medicaid, food production, and industry regulation could be given that option. Interested states could opt-in. Other states could maintain the status-quo. States opting for more control could receive a pro-rated, fair share of resources from the related federal programs—based on total population, student, tax contribution, or relative need—to help fund their efforts. For example, in 2020, the U.S. Department of Education had a budget of $64 billion. States could be granted the option to take over full control for education within their borders and given a pro-rated share of federal funds. If Texas opted for full state control, the federal government could block grant Texas around $6 billion to spend on education—a percentage in line with its population as a percent of the country’s total—with Texas given autonomy to spend these funds as Texas’s state government best sees fit. This approach, a “voluntary federalism,” would give states and their citizens the option, but not the obligation, to take on more control and responsibilities over domestic policy life in their state. State governments that opted in could then innovate, experiment, and tailor their policies to local circumstances and preferences. The approach and results would be akin to the scientific method’s distributed, iterative approach of testing, learning, and improving over time. This approach would offer real improvements to these areas of national life, but no panacea either to these complicated areas and the underlying dynamics of government. State and local governments—while collectively more innovative and adaptive—are not immune to the same flaws that

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bedevil the federal government including political self-interest and the limits of a rules-based approach. But with fewer citizens involved and closer to the public they serve, state and local governments seem subject to a less virulent form of these flaws and—more importantly—able to compare results with other state and local governments. Such an expansion in state powers would—of course and by necessity— include all the guarantees and protections for individual citizens provided in the U.S. Constitution, the Bill of Rights, subsequent Constitutional amendments, and federal law. History in the United States and elsewhere has shown that smaller governments, while more innovative, can also allow for and harbor more abuse of disfavored minorities and groups, whether in the form of state-sanctioned slavery or segregation. A twenty-first-century federalism would give states more control over domestic policy but none over the rights and privileges of state citizens as specified by the Constitution and federal law. Thus both directed and constrained, such a twenty-first-century federalism offers real potential for better results in numerous areas of domestic American life, while better reflecting the vision and values laid out for the country during the founding. NOTES 1. Justice Louis Brandeis, quoted in George Sutherland and Supreme Court of the United States, U.S. Reports: New State Ice Co. v. Liebmann, 285 U.S. 262 (1932), Periodical, Retrieved from the Library of Congress, KF101, https://www.loc.gov/ item/usrep285262/ (accessed January 23, 2021). 2. New State Ice Co. v. Liebmann, 285 U.S. 262 (1932). 3. Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, MA: Harvard University Press, Belknap Press, 1992), 360. 4. Civil Rights Act of 1964, 78 Stat. 247, Public Law 88–352, 88th Cong., 1st sess. (July 2, 1964), https://www.govinfo.gov/link/statute/78/241?link-type=pdf (accessed January 18, 2021); Voting Rights Act of 1965, 79 Stat. 437, Public Law 89–110, 89th Cong., 1st sess. (August 6, 1965), https://www.govinfo.gov/link/statute/79/437?linktype=pdf (accessed January 18, 2021). 5. U.S. National Archives, The Constitution: Amendments 11–27, March 4, 1794– May 7, 1992, https://www.archives.gov/founding-docs/amendments-11-27 (accessed January 15, 2021). 6. John Lewis and Archie E. Allen, “Black Voter Registration Efforts in the South,” Notre Dame Law Review 48, no. 1 (1972): 105–32, http://scholarship.law.nd.edu/ndlr/ vol48/iss1/6 (accessed January 23, 2021). 7. George Wallace, quoted in Jill Karson, ed., Civil Rights (Great Speeches in History) (Farmington Hills, MI: Greenhaven Press, 2003).

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8. George Wallace, quoted in Dan T. Carter, From George Wallace to Newt Gingrich: Race in the Conservative Counterrevolution, 1963–1994 (Baton Rouge: Louisiana State University Press, 1999), 1. 9. Linda Schmittroth, ed., Statistical Record of Children (Detroit, MI: Gale Research, 1994), 662. 10. Martin Gilens, Why Americans Hate Welfare: Race, Media, and the Politics of Antipoverty Policy (Chicago: University of Chicago Press, 2009), 105–6. 11. Larry DeWitt, “The Decision to Exclude Agricultural and Domestic Workers from the 1935 Social Security Act,” Social Security Bulletin 70, no. 4 (2010): 49– 68, https://www.ssa.gov/policy/docs/ssb/v70n4/v70n4p49.html (accessed August 6, 2015); see also Social Security Act of 1935, H.R. 7260, P.A. 271, 74th Cong., 1st sess. (August 14, 1935), https://www.ssa.gov/history/35act.html (accessed January 19, 2021); Social Security Amendments of 1950, H.R. 6000, Public Law 734, 81st Cong., 2nd sess. (August 28, 1950), https://www.ssa.gov/history/1950amend.html (accessed January 20, 2021); Social Security Act Amendments (Medicare and Medicaid Act) of 1965, 79 Stat. 286, Public Law 89–97, 89th Cong., 1st sess. (July 30, 1965), https:// www.govinfo.gov/content/pkg/STATUTE-79/pdf/STATUTE-79-Pg286.pdf (accessed January 19, 2021). 12. Jason DeParle, American Dream: Three Women, Ten Kids, and a Nation’s Drive to End Welfare (New York: Viking, 2004), 86. 13. Karen Ferguson, Black Politics in New Deal Atlanta (Chapel Hill: University of North Carolina Press, 2002). 14. Mary S. Larabee, “Unmarried Parenthood under the Social Security Act,” in Proceedings of the National Conference of Social Work: Selected Papers, 66th Annual Conference, Buffalo, NY, June 14–24, 1939, 446–49. New York: Columbia University Press, 1939. 15. Larabee, “Unmarried Parenthood under the Social Security Act.” 16. Personal Responsibility and Work Opportunity Reconciliation Act of 1996, 110 Stat. 2105, Public Law 104–193, 104th Cong., 2nd sess. (August 22, 1996), https:// www.congress.gov/104/plaws/publ193/PLAW-104publ193.pdf (accessed January 24, 2021). 17. Ron Haskins. “Testimony of Ron Haskins to the Committee on Ways and Means,” July 19, 2006, https://www.brookings.edu/wp-content/uploads/2016/06/20060719-1. pdf (accessed December 1, 2018). 18. Daniel T. Lichter and Rukamalie Jayakody, “Welfare Reform: How Do We Measure Success?” Annual Review of Sociology 28 (2002): 117–41, https://doi. org/10.1146/annurev.soc.28.110601.140845; Jason. American Dream. 19. Texas Workforce Commission, “Texas Welfare Reform: Legislative Background,” (n.d.), https://www.twc.texas.gov/programs/texas-welfare-reform (accessed August 7, 2015). 20. Dan Bloom, Mary Farrell, and Barbara Fink, “Welfare Time Limits: State Policies, Implementation, and Effects on Families,” Report prepared for Manpower Demonstration Research Corporation and the U.S. Department of Health and Human Services, Contract No. 282–00–0014, Task Order 002, October 13, 2004; last revised

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October 10, 2012, https://aspe.hhs.gov/system/files/pdf/139296/welfare_timelimits. pdf (accessed January 24, 2021). 21. Elizabeth Levitan Spaid, “Mississippi Needy Find Jobs With Help From Pulpit,” Christian Science Monitor, November 21, 1995. https://www.csmonitor. com/1995/1121/21013.html (accessed August 7, 2015). 22. Economic Progress Institute, “Starting Right Child Care,” Poverty Institute at Rhode Island College School of Social Work. Women’s Fund of Rhode Island (March 6, 2006), https://www.economicprogressri.org/index.php/2006/03/06/the-right-startfor-children-families-and-rhode-island/ (accessed January 24, 2021). 23. DeParle, American Dream, 209. 24. DeParle, American Dream, 210. 25. DeParle, American Dream, 210. 26. “Welfare Reform: America’s Great Achievement.” Economist, August 23, 2001. https://www.economist.com/united-states/2001/08/23/americas-great-achievement (accessed August 6, 2015). 27. Lawrence M. Mead, “Welfare Reform in Wisconsin: The Local Role,” Administration & Society 33, no. 5 (2001): 523–54, http://citeseerx.ist.psu.edu/ viewdoc/download?doi=10.1.1.503.6695&rep=rep1&type=pdf (accessed January 24, 2021). 28. Robert Greenstein and Isaac Shapiro, “New Research Findings on the Effects of the Earned Income Tax Credit,” Center on Budget and Policy Priorities, March 11, 1998, https://www.cbpp.org/archives/311eitc.htm (accessed August 6, 2015). 29. U.S. Congress, House, Committee on Ways and Means, 2008 Green Book (19th ed.), 7–27. https://greenbook-waysandmeans.house.gov/archive. 30. Robert Rector, “Despite Recession, Black Child Poverty Plunges to All-Time Historic Low,” Heritage Foundation, September 22, 2002 (Last accessed August 10, 2015). 31. Jim Manzi, Uncontrolled: The Surprising Payoff of Trial-and-Error for Business, Politics, and Society (New York: Basic Books, 2012), 186. 32. Social Security Act Amendments (Medicare and Medicaid Act) of 1965, 79 Stat. 286, Public Law 89–97. 89th Cong., 1st sess. (July 30, 1965). https://www.govinfo. gov/content/pkg/STATUTE-79/pdf/STATUTE-79-Pg286.pdf (accessed January 19, 2021). 33. U.S. Centers for Medicare & Medicaid Services. “Medicaid Facts and Figures.” CMS.gov. January 30, 2020. https://www.cms.gov/newsroom/fact-sheets/medicaidfacts-and-figures (accessed September 6, 2020). 34. U.S. Centers for Medicare & Medicaid Services. “Report to Congress: 2012 Actuarial Report on the Financial Outlook for Medicaid,” by Christopher J. Truffer, CMS.gov, February 27, 2013, https://www.medicaid.gov/medicaid/downloads/ medicaid-actuarial-report-2012.pdf (accessed May 6, 2013). 35. Miller, Edward Alan, Divya Samuel, Susan Allen, Amal Trivedi, and Vincent Mor. “Implications of Rhode Island’s Global Consumer Choice Compact Medicaid Waiver for Block Granting Medicaid and Other Retrenchment.” Gerontology Institute Publications 90 (2013). https://scholarworks.umb.edu/gerontologyinstitute_pubs/90 (accessed May 5, 2015).

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36. Robin Rudowitz, Kendal Orgera, and Elizabeth Hinton, “Medicaid Financing: The Basics,” Kaiser Family Foundation (KFF), March 21, 2019, https://www.kff. org/medicaid/issue-brief/medicaid-financing-the-basics/view/print (accessed January 24, 2021). 37. E. A. Miller et al., “Implications.” 38. Amanda Cassidy, and Health Affairs, “Per Capita Caps in Medicaid,” Robin Wood Johnson Foundation, April 18, 2013, https://www.healthaffairs.org/do/10.1377/ hpb20130418.246392/full/healthpolicybrief_90.pdf (accessed May 6, 2015). 39. Alison Kodjak, “From Birth to Death, Medicaid Affects the Lives of Millions,” National Public Radio (NPR), June 27, 2017, https://www.npr.org/sections/healthshots/2017/06/27/534436521/from-birth-to-death-medicaid-affects-the-lives-ofmillions (accessed December 1, 2018); MaryBeth Musumeci and Katherine Young, “State Variation in Medicaid per Enrollee Spending for Seniors and People with Disabilities,” Kaiser Family Foundation (KFF), May 1, 2007, https://www.kff.org/ medicaid/issue-brief/state-variation-in-medicaid-per-enrollee-spending-for-seniorsand-people-with-disabilities/ (accessed January 24, 2021); U.S. Congressional Budget Office, “Federal Spending for Means-Tested Programs, 2007 to 2027,” February 2017, https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/ reports/52405-means-tested-programs.pdf (accessed January 24, 2021). 40. Kaiser Family Foundation, “Medicaid Spending per Enrollee (Full or Partial Benefit),” June 9, 2017 (published); last modified May 22,2019, https:// www.kff.org/medicaid/state-indicator/medicaid-spending-per-enrollee/ (accessed September 6, 2020). 41. Rob Garver, “Block Grants Can Tame the Budget, But at What Cost?” Fiscal Times, March 17, 2015, https://www.thefiscaltimes.com/2015/03/17/Block-GrantsCan-Tame-Budget-What-Cost (accessed May 21, 2015). 42. Paul Howard and Russell Sykes, “Medicaid Is Broken—Let the States Fix It,” Wall Street Journal, October 10, 2012. https://www.wsj.com/articles/SB1000087239 6390443982904578046161332775362 (accessed May 6, 2015). 43. Garver, “Block Grants.” 44. U.S. Government Accountability Office (GAO), “MEDICAID Actions Needed to Mitigate Billions in Improper Payments and Program Integrity Risks,” Testimony Before the Committee on Homeland Security and Governmental Affairs, U.S. Senate, June 27, 2018, https://www.gao.gov/assets/700/692821.pdf (accessed September 6, 2020). 45. Paul Howard, “How Block Grants Can Make Medicaid Work: Improving Health, Decreasing Cost,” Manhattan Institute, September 23, 2012, https:// www.manhattan-institute.org/html/how-block-grants-can-make-medicaid-workimproving-health-decreasing-costs-5750.html (accessed January 24, 2021). 46. Kimberley A. Strassel, Interview with Mitch Daniels, “We are the Initiators.” Wall Street Journal, September 26, 2009; Avik Roy, “Obama Administration Denies Waiver for Indiana’s Popular Medicaid Program,” Forbes, November 11, 2011, http://www.forbes.com/sites/aroy/2011/11/11/obama-administration-denies-waiverfor-indianas-popular-medicaid-reform/ (accessed May 9, 2013).

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47. Carol Irvin, “Healthy Indiana Plan: The First Two Years,” Mathematica Policy Research, Report, July 15, 2010, https://www.mathematica.org/-/media/publications/ pdfs/health/healthyindiana_irvin.pdf (accessed January 24, 2021). 48. Ashley Shuler, “Update: Healthy Indiana Plan 2.0 Gets Federal Approval,” Indianapolis Business Journal, January 27, 2015, http://www.ibj.com/articles/51491update-healthy-indiana-plan-20-gets-federal-approval (accessed June 2, 2015); Lewin Group, “Healthy Indiana Plan 2.0: POWER Account Contribution Assessment,” Report for Indiana Family and Social Services Administration (FSSA), March 31, 2017, https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/ Waivers/1115/downloads/in/Healthy-Indiana-Plan-2/in-healthy-indiana-plansupport-20-POWER-acct-cont-assesmnt-03312017.pdf (accessed September 6, 2020). 49. Seema Verman and Brian Neale, “Healthy Indiana 2.0 Is Challenging Medicaid Norms,” Health Affairs (blog), August 29, 2016, https://www.healthaffairs.org/ do/10.1377/hblog20160829.056228/full/ (accessed September 6, 2020). 50. Shari Rudavsky, “Indiana Celebrates First Year of HIP 2.0,” IndyStar, January 27, 2016, https://www.indystar.com/story/news/2016/01/27/indiana-celebrates-firstyear-hip-20/79418674/ (accessed September 6, 2020). 51. Jeffrey A. Singer, “Why Medicaid Is No Longer a Voluntary Program,” Reason Foundation, December 30, 2011, https://reason.com/2011/12/30/why-medicaid-isno-longer-a-voluntary-pr/ (accessed May 6, 2015). 52. E. A. Miller et al., “Implications.” 53. Steve Peoples, “New Medicaid Rules Aim to Reduce Nursing Home Admissions,” Providence Journal, July 12, 2009, (last accessed May 5, 2015). 54. Gary D. Alexander, “Rhode Island Global Consumer Choice Compact Medicaid Waiver: A National Model for Medicaid Reform,” Galen Institute, January 1, 2010, https://www.heartland.org/publications-resources/publications/rhode-islandglobal-consumer-choice-compact-medicaid-waiver-a-national-model-for-medicaidreform?source=policybot (accessed May 5, 2015). 55. Howard and Sykes, “Medicaid Is Broken.” 56. Kresge Foundation, “Pilot Project in Ohio Reduces Medicaid Costs by Providing Alternative to Skilled Nursing Homes,” February 13, 2012, http://kresge. org/news/pilot-project-ohio-reduces-medicaid-costs-providing-alternative-skillednursing-homes-0 (last accessed May 7, 2013); Mary Takach, “Reinventing Medicaid: State Innovations To Qualify And Pay For Patient-Centered Medical Homes Show Promising Results,” Health Affairs 30, no. 7 (2011), https://www.healthaffairs.org/ doi/abs/10.1377/hlthaff.2011.0170 (accessed January 24, 2021). A patient-centered medical home assigns an individual to a specific doctor or practice to help ensure efficient and effective care coordination and knowledge sharing between medical providers. 57. U.S. Library of Congress. The Bill of Rights. September 25, 1789. Ratified December 15, 1791. Primary Documents in American History. https://guides.loc.gov/ bill-of-rights (accessed January 13, 2021). 58. Anthony Downs, An Economic Theory of Democracy (New York: HarperCollins, 1957), 244–45.

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59. Anthony Downs, “An Economic Theory of Political Action in a Democracy,” Journal of Political Economy 65, no. 2 (1957): 147. http://dx.doi.org/10.1086/257897. 60. Lee Shaker, “Local Political Knowledge and Assessments of Citizen Competence.” Public Opinion Quarterly 76, no. 3 (2012): 525–37. https://www.jstor. org/stable/41684583. 61. James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations for Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962), 337. 62. Buchanan and Tullock, Calculus of Consent, 337. 63. Downs, Economic Theory of Democracy, 244–45. 64. Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965; 1971), 53. 65. Olson, Logic of Collective Action, 53. 66. Gordon Tullock, The Politics of Bureaucracy (Washington, DC: Public Affairs Press, 1965), 221. 67. Tullock, Politics of Bureaucracy, 221. 68. Claudio Sanchez, “From a Single Charter School, a Movement Grows,” National Public Radio (NPR), August 31, 2012, https://www.npr.org/2012/09/02/160409742/ from-a-single-charter-school-a-movement-grows (accessed September 9, 2020). 69. Rebecca David and Kevin Hesla, “Estimated Public Charter School Enrollment, 2018–2019,” PublicCharters.org, March 2018, https://www.publiccharters.org/sites/ default/files/documents/2018-03/FINAL%20Estimated%20Public%20Charter%20 School%20Enrollment%2C%202017-18.pdf (accessed January 24, 2021). 70. EdChoice, “Fast Facts,” (n.d.), https://www.edchoice.org/engage/fast-facts/ (accessed September 9, 2020). 71. Mike McShane, “Research Roundup: Three New Studies Of The Long Term Effects Of School Choice,” Forbes, July 23, 2019, https://www.forbes.com/ sites/mikemcshane/2019/07/23/research-roundup-three-new-studies-of-the-longterm-effects-of-school-choice (accessed September 9, 2020); Matthew Chingos, Daniel Kuehn, Tomas Monarrez, Patrick J. Wolf, John F. Witte, and Brian Kisida, “The Effects of Means-Tested Private School Choice Programs on College Enrollment and Graduation,” Urban Institute, July 19, 2019, https://www.urban.org/ research/publication/effects-means-tested-private-school-choice-programs-collegeenrollment-and-graduation (accessed September 9, 2020). 72. See McShane, “Research Roundup”; and Chingos et al., “Effects of MeansTested Private School Choice.” 73. Thomas Sowell, Charter Schools and Their Enemies (New York: Basic Books, 2020), vii–15. 74. Robert Pondiscio, “Book Review of Charter Schools and Their Enemies, by Thomas Sowell,” EducationNext 20, no. 4 (2020), https://www.educationnext.org/ charter-schools-and-their-enemies-thomas-sowell-book-review/ (accessed January 24, 2021). 75. “Government Services: Here’s How to Do It,” Economist, July 28, 2012, http:// www.economist.com/mode/21559633.

Chapter 8

Renewing Civil Society

“Nothing, in my opinion, is more deserving of our attention than the intellectual and moral associations of America.”—Alexis de Tocqueville, Democracy in America (1835)1

In 1657, the Scots Charitable Society became America’s first organized charity with a focus on helping indigent and needy Scottish Americans.2 Such charities became a fixture of American life with Boston’s “Quarterly Charity Lecture” (1720), New York City’s St. Andrew’s Society (1756), and Baltimore’s French Benevolent Society (1809) being a few of the hundreds and then thousands of charities established to help America’s poor. In 1731, Benjamin Franklin founded the country’s first public library in Philadelphia. Until after the Civil War, almost all American cities and communities built and supported local fire departments without local government aid or direction.3 And in the late 1700s and 1800s, local communities across the United States raised funds to build an extensive network of toll roads without government taxation or control. As historian Daniel Klein notes in his 1994 essay, “Private Highways in America,” “Only Pennsylvania, Virginia, and Ohio subsidized their turnpike companies.” Community members viewed contributions as a “community improvement rather than a business investment.”4 To Alexis de Tocqueville (1805–1859), a Frenchman who toured America between May 1831 and February 1832, America’s voluntary “associations” stood out as one of the young country’s most distinctive features. In his Democracy in America, published as a two-volume set from 1835 to 1840, Tocqueville observed that Americans seemed endlessly busy creating, running, and reforming private associations to solve the problems of American life. These associations stood outside the country’s political system and relied on voluntary cooperation and engagement from the country’s citizens. And they were profoundly democratic in spirit; Americans rich and poor, educated and not, joined together to voluntarily and cooperatively improve their community and country, as Tocqueville observed in Democracy in America: 169

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Those associations only which are formed in civil life, without reference to political objects, are here adverted to. The political associations which exist in the United States are only a single feature in the midst of the immense assemblage of associations in that country. Americans of all ages, all conditions, and all dispositions, constantly form associations. They have not only commercial and manufacturing companies, in which all take part, but associations of a thousand other kinds—religious, moral, serious, futile, extensive, or restricted, enormous or diminutive. The Americans make associations to give entertainments, to found establishments for education, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; and in this manner they found hospitals, prisons, and schools. . . . In every case, at the head of any new undertaking, where in France you would find the government or in England some territorial magnate, in the United States you are sure to find an association.5

Tocqueville marveled at the ability of these voluntary associations to take on issues big and small: “What political power could ever carry on the vast multitude of lesser undertakings which the American citizens perform every day, with the assistance of the principle of association?” Tocqueville asked.6 Later, scholars would refer to organizations and institutions outside governments as “civil society.” During the Progressive era, some efforts traditionally handled by American civil society, from assessing food quality to supporting the poor and indigent, shifted to local, state, and federal control. With President Franklin D. Roosevelt’s New Deal, from 1933 through 1939, many activities taken on by the state governments—such as aid for the elderly—shifted again to the federal government. Washington, DC, became the default problem solver for the nation’s problems, including those traditionally seen as local in character. Yet in many of these areas, American civil society has a comparative advantage over the federal government. Private businesses and civil institutions—not subject to the “government surcharge”—can provide the same or better public services at lower costs, innovate far more, and tailor their objectives and activities much more closely to local and individual circumstances. And unlike government action, actions taken by civil society relies on consent, choice, and voluntarism—not coercion. THE GREAT DESKILLING In the twentieth century, as Americans experimented with Progressivism, the federal government took on many responsibilities that once had been left to voluntary organizations, from crop insurance and Amtrak train service to research and development and space exploration. The results have largely

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been underwhelming, and the expansion has both increased taxes but—more damagingly—weakened America’s civil society ethic that is so critical to fostering community and voluntary efforts in the first place. Writing in 1835, Tocqueville lavished praise on American civil society: Nothing, in my opinion, is more deserving of our attention than the intellectual and moral associations of America. The political and industrial associations of that country strike us forcibly; but the others elude our observation, or if we discover them, we understand them imperfectly because we have hardly ever seen anything of the kind. . . . They are as necessary to the American people as the former, and perhaps more so.7

But presciently, Tocqueville worried: “The . . . governing power will therefore perpetually increase, and its very efforts will extend it every day. The more it stands in the place of associations, the more will individuals, losing the notion of combining together, require its assistance.” Americans might extend their governments, weaken civil society, and thus “require” government “assistance” even more as Americans start “losing the notion of combining together” voluntarily.8 Tocqueville’s concern lay dormant for decades. In its early days, even the Progressive movement placed an emphasis on social efforts based on voluntarism and cooperation. Jane Addams constructed Hull Houses nationwide in the late 1800s and early 1900s to provide skills and support for the nation’s urban people and immigrants.9 Social worker Mary Richmond, Addams’ contemporary, advocated voluntary “friendly visiting” among the poor by well-intended citizens to provide help directly. The effort focused on voluntarism with government—and the federal government in particular—playing almost no role at all. Progressives in those years focused mostly on regulations and controls. T. H. Green, the British philosopher and intellectual, responsible for re-branding “liberalism” to emphasize positive state efforts over individual liberty, had real concerns about the expansion of centralized political control. During his own life, Green put an emphasis on local governments, whether a town council, school board, or local regulator. In Green’s view, centralization often comes at the cost of “civil vitality” and vigor when compared to political life at the “municipal or communal” level.10 This emphasis on voluntary and local government efforts soon gave way to Progressives who supported a more expansive federal government. As philanthropic scholar Howard A. Husock notes in his 2019 book, Who Killed Civil Society: “By the late 1930s, the Progressive reform movement had carried the day. . . . The role of government would expand. . . . This expansion not only replaced the private, civil society action preferred by Mary Richmond but

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swallowed up large sections of civil society itself, as independent agencies providing social services evolved into government contractors.”11 The expansion in the federal government’s role has coincided in recent decades with a decline in civic engagement in many areas of American life. As Robert D. Putnam pointed out in his 2000 book, Bowling Alone, Americans have significantly reduced their participation in numerous civil and social organizations including religious groups, labor unions, PTAs, veterans’ organizations, Boy Scouts, and the Red Cross among many others.12 While Putnam himself views technologies such as television and the internet as key contributing factors, the federal expansion into areas historically addressed by local civic organizations—such as social welfare and training programs—represents another potential contributing factor. As the federal government has entered more areas of American life, one can understand why many citizens view the federal government as responsible for the economically vulnerable and recently laid off, not their fellow citizens and American institutions. America’s citizens and institutions have been subject to a civil society de-skilling as they have weakened or lost the skills, interests, habits, connections, and mindsets to tackle hard social problems outside of government. But the problem is not hard-wired. COOPERATION IS FOR WINNERS Many mid-twentieth century academics and politicians unintentionally deskilled American civil society because they believed that only the federal government could effectively address many problems, based on the faulty assumption that people’s inherent self-interest led inevitably to widespread “market failures.”13 “Market failures” occur when private markets and voluntary cooperation cannot produce results or outcomes that, if reached, could make one or more people better off without harming anyone else.14 Economists pointed to light houses, infrastructure projects, local bee populations, and research and development (R&D) funding as all examples of services likely to be under-supplied due to a market failure. In theory, government action could help address these failures by subsidizing or providing these “public goods.” Yet social scientists in recent decades have conducted numerous studies documenting a strong strain of both altruism and large-scale cooperation among humans. Individuals will often help others or support public causes even when doing so offers no personal benefit. People will often voluntarily donate to public causes—even in experiments designed to maximize selfish behavior.15

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Robert Axelrod, a political scientist, unexpectedly demonstrated a potential basis for the competitive power of cooperation in two experiments published in the Journal of Conflict Resolution in 1980. Axelrod created a study to test what sort of strategy would work best in an environment that rewarded cooperation while also offering a large pay-off to successful “cheaters.” Axelrod designed a computer simulation to test this. In the game, two “players” would face off with each able to “cooperate” or “defect.” If both players cooperated, each got three points. If one cheated and one cooperated, the cheater got five points and cooperator zero points. If both cheated, both got one point. The game would last 200 rounds. Given this set-up, the game offered shared benefits for cooperation but a large benefit to cheating against a cooperator. Axelrod reached out to experts in economics, sociology, political science, and mathematics to submit strategies with many submitting highly complex, sophisticated ones. Axelrod ran a tournament and, much to his surprise, the winning strategy was the simplest: “tit-for-tat.” The “tit-for-tat” strategy followed only two simple rules: start round one with cooperation and then—in all subsequent rounds—do what the other player did the previous round. So if the other player cheated one turn, tit-for-tat would cheat the next. If the other player cooperated, tit-for-tat cooperated. Surprised by the results, Axelrod ran a larger tournament to challenge the tit-for-tat strategy. Despite receiving dozens of entries, tit-for-tat won again.16 The results sent shockwaves through the group of academics and intellectuals who were interested in how people interact, cooperate, and behave. The conversation about the benefits of a hard-wired bias to cooperate had changed. Cooperative behavior, consistently pursued, paid off and provided a long-term competitive benefit to cooperators. Cooperation was not just for suckers; cooperation was for winners. COOPERATION IN PRACTICE For many, the results were puzzling. Economists had long assumed private individuals and organizations acted solely out of self-interest with the potential for wide-spread cooperation limited. Hence governments should invest in areas of “market failure” to compensate for this lack of private investment and engagement.17 But real-world examples substantiated the cooperative potential suggested by tit-for-tat: humans have an incredible ability to cooperate and to solve public problems. Beekeeping represents a classic example.18 The market failure of beekeeping became a staple of 1950s economic discussion, a quintessential example of the need for public action in the face of inevitable private failure. Bees

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pollinate apple trees and can increase yields as much as 25% to 40%.19 But bees wander freely so no individual apple grower knows which beekeeper has helped pollinate his fields. Economists thus assumed apple growers would not pay for the optimal amount of beekeeping services—as some growers would just free ride on growers who paid—leading to an under provision of bees. Consequently, economists argued for government subsidies for beekeepers to provide the optimal number of bees. Bolstered by such arguments, the federal government created a multi-million dollar program to do just that: subsidize beekeepers with federal grants to increase “pollination benefits.”20 But on the ground research later debunked the classic beekeeping market failure theory of 1950s economists. In 1973, economist Steven N. S. Cheung published “The Fable of the Bees: An Economic Investigation.”21 Based on on-the-ground research, the article investigated how real-world beekeepers and apple growers in Washington state, “one of the largest apple-growing areas in the world,” addressed the challenges of providing fair compensation to beekeepers for their apple pollination services. The research project found that everyday Washington apple growers and beekeepers had not only effectively solved the problem but had been doing so for decades. “In the United States, at least, contractual arrangements between farmers and beekeepers have long been routine,” Cheung noted. In Washington, apple growers compensated beekeepers to put bees in or near their farms and then found ways to equalize costs and benefits among the benefiting farmers. Apple growers had even implicitly agreed on ways to limit free riding: Acknowledging the complication, beekeepers and farmers are quick to point out that a social rule, or custom of the orchards, takes the place of explicit contracting: during the pollination period the owner of an orchard either keeps bees himself or hires as many hives per area as are employed in neighboring orchards of the same type. One failing to comply would be treated as a “bad neighbor,” it is said, and could expect a number of inconveniences imposed on him by other orchard owners.22

The threat of social censure was a potent one. Local farmers could refuse to share equipment, tools, or aid. The threatened punishments largely precluded free riding. A staple of “market failure” theory had been completely debunked. What had once been a paradigmatic case for government intervention turned out to be anything but. Apple growers had cooperatively developed solutions to both pay for bee services and preclude free riding. As Cheung noted, “It appears evident that some economists have been distilling their policy implications from fables” and “sheer imagination.” “In a desire to promote government

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intervention, they have been prone to advance, without the support of careful investigation, the notion of ‘market failure.’”23 The following year, Ronald Coase—a future Nobel Laureate economist— conducted a similar investigation into light houses in England. In the market failure literature, light houses represented another classic market failure requiring government intervention. Yet Coase’s research found no scarcity of English light houses.24 Since the early 1600s, private entrepreneurs and publicly chartered organizations had ensured that England had enough light houses to safely guide ships headed toward England’s numerous ports. Port owners collected fees on entering ships to pay local light houses. The issue had been solved with minimal government involvement. The “market failure” literature’s critical, pessimistic view of the potential of voluntary human cooperation did not stand up to scrutiny. While people were undoubtedly self-interested, research across disciplines increasingly uncovered a deep-seated human desire to cooperate and tackle large collective problems through voluntary action. While economists stressed “free riding” in theory, evidence of actual human behavior presents a more complex picture. Though free riding undoubtedly exists, people will often contribute to community causes, cooperate with others (even to their own disadvantage), and act altruistically. Such pro-social behaviors are particularly pronounced when others can punish non-contributors and bestow positive public status on cooperators, such as naming a hospital or research institute after someone. Emotional desires for positive regard, social status, and rank often take precedence over simple economic self-interest. Both tit-for-tat and common human behavior tends to sustain cooperation, to punish cheaters, and to forgive those who once defected. R&D ON WAR FOOTING One of the most important areas of federal funding and American philanthropy has been scientific advancements. Until the onset of World War II, private individuals and foundations dominated the funding of American science.25 This was typical. As Scientific American noted, “for most of its history, science was in fact privately funded” with scientific research financed and driven by individual experimenters, wealthy individuals, and nascent universities in the United States and Europe for centuries.26 Benjamin Franklin, a private citizen, used his own time and resources to make numerous scientific discoveries during his lifetime, including the discovery of positive and electric charge and how common colds spread among people. As late as the 1920s, the Rockefeller and Guggenheim foundations provided funding to brilliant American physicists including Linus Pauling, Robert Oppenheimer,

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and Isidor Rabi to visit Europe and study with leading European physicists. The men returned to the United States and seeded the development of America’s expertise in physics. World War II precipitated a takeoff in the government funding of scientific research among all the leading combatants. National governments spent massive sums to develop technologies in hopes of changing the balance of power in their favor. The investments brought discoveries and a surge in scientific knowledge. Germany’s national efforts helped develop synthetic oil and advanced rockets, the English code-breaking cryptography, and the United States the four-engine bomber and then the atomic bomb. World War II began an era of government-driven science funding. After the war, the federal government continued its high R&D spending rates. As Ashutosh Jogalekar notes in Scientific American, “The current era of reliance on government grants by the NIH [National Institutes of Health], the NSF [National Science Foundation] and other agencies is essentially a postwar phenomenon.”27 By 1964, federal funds accounted for 67% of all R&D spending in the United States.28 The federal government continued to build on the private-public scientific partnerships that defined the war effort, providing most of the funds while other institutions—industry, universities, colleges, and research institutes—performed most of the work. While the federal government provided 67% of all research funding that year, the federal government performed only 16% of the research, with the rest being performed by other institutions. Advocates for sustained, large-scale federal funding argued that scientific research represented a “public good,” conferring benefits to society at large that often far exceed the gains to the provider. Scientific research advances the technological frontier, laying the foundation for future products and services that grow the economy and improve life. Companies that were focused on short-term profit-making would underinvest in research, and universities and research institutes lacked sufficient resources to drive enough progress. Consequently, the federal government had a critical, long-term role to play in funding research. Evidence from recent decades has increasingly called this into question as American R&D spending has continued to grow while federal funding as a percentage of the total has fallen substantially. Since 1964, businesses, universities, research institutes, and private individuals have come to dominate both the funding and the production of American R&D while U.S. research and development as a percentage of gross domestic product (GDP) has stayed between 2.1% and 2.8%.29 While total U.S. R&D spending has stayed stable, the federal government’s share has fallen significantly. In 2013, R&D represented over 2.7% of the

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country’s GDP, near an all-time high.30 The federal government contributed 27% of funding, U.S. businesses 65%, and universities, foundations, and non-profits the rest. In other words, private U.S. businesses now invest twice as much as the federal government does in R&D. Even for basic research— which has the least direct connection to commercial applications—the federal government only provided 47% of the funding.31 This civil society driven approach to both funding and production has maintained the United States at the top of global R&D spending chart. As both a percent of GDP and in absolute dollars, research funding in the United States has attained recent historical highs and maintained an absolute and relative advantage over competing countries, including China, India, Japan, Germany, England, and France. All these countries spend less money overall and as a percent of their economy on research. In 2013, China—the world’s second largest spender on R&D—spent less than 75% of total U.S. research spend.32 As a group of science foundations urged in 2014, “Today, federal funding of basic research is on the decline. The best hope for near-term change lies with American philanthropy.”33 Or as William J. Broad noted more colorfully in a New York Times piece on the state of science funding in the United States: In Washington, budget cuts have left the nation’s research complex reeling. Labs are closing. Scientists are being laid off. Projects are being put on the shelf, especially in the risky, freewheeling realm of basic research. Yet from Silicon Valley to Wall Street, science philanthropy is hot, as many of the richest Americans seek to reinvent themselves as patrons of social progress through science research. . . . American science, long a source of national power and pride, is increasingly becoming a private enterprise.34

AMERICA’S SUPERRICH DABBLERS The increasingly important role played by private individuals, philanthropies, and research institutes is bringing more benefits than just additional funding. Even former critics are finding that private donors often direct research funding more effectively than the traditional federal grant system. Martin Apple, former head of the Council of Scientific Society Presidents, once criticized rich donors as “superrich dabblers.” But his view changed. As Broad notes in a New York Times article, “Now he [Martin Apple] believes that they are helping accelerate the overall pace of science. What changed his mind, he said, was watching them persevere, year after year, in pursuit of highly ambitious goals and then succeed”: “They target polio and go after it until it’s done—no

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one else can do that. In effect, they have the power to lead where the market and the political will are insufficient.”35 Private funders replace the top-down federal grant system with something akin to commercial entrepreneurialism: In the traditional world of government-sponsored research, at agencies like the National Science Foundation . . . panels of experts pore over grant applications to decide which ones get financed. . . . Groups of distinguished experts weigh in on how to advance whole fields, recommending, for instance, the construction of large instruments and laboratories costing billions of dollars. By contrast, the new science philanthropy is personal, anti-bureaucratic, inspirational.36

This “inspirational” approach can make game-changing progress in scientific and medical discovery. The Ellison Medical Foundation—funded by Larry Ellison, the founder and long-time CEO of Oracle—has supported hundreds of biologists, including three who would later go on to win Nobel Prizes.37 As Broad concludes, private donors “have mounted a private war on disease, with new protocols that break down walls between academia and industry to turn basic discoveries into effective treatments.”38 Private funders are often far more open to long-shot, high-potential ideas than the federal government’s consensus-based, top-down approach. Long-time observers note that federal funders often miss big opportunities that fall far outside the bounds of current scientific thinking. As Samuel Broder, a former director of the National Cancer Instituted argued, “If it was up the NIH [National Institute of Health] to cure polio through a centrally directed program. . . . You’d have the best iron lung in the world but not a polio vaccine.”39 In the early 1980s, Leroy Hood, Professor of Biology at the California Institute of Technology, developed an idea to sequence DNA using an automated technique.40 Hood saw the potential technology as a transformative way to identify and sequence human genes. But his federal grant proposals were repeatedly rejected so Hood sought out private support. Sol Price, a wealthy warehouse-store entrepreneur, saw the potential and decided to fund the research and take the risk. Hood got his financing, and the world got a technological breakthrough which would later serve as the technological backbone for the Human Genome Project. In recent years, private efforts have uncovered entirely new ways to spark scientific advance. In the early 2000s, Anousheh Ansari, a Texas engineer and telecommunications entrepreneur, decided to use her resources to fund a $10 million prize for the first private craft able to send three or more people into space. The prize offered a new way to focus and advance scientific effort. Instead of paying for research input, many donors now set prizes for

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accomplishing desired results thus putting an incentive on scientific productivity, not activity. The federal government adopted the approach and now supports hundreds of prizes due to “the success of philanthropic and private sector prizes” in achieving scientific breakthroughs efficiently.41 SOCIAL ENTREPRENEURS American civil society has taken the lead in numerous areas of American public life, in addition to scientific research. The “social entrepreneurs” who start organizations focused on creating social impact seek to make positive social change as their primary objective—and do so outside of government. In many ways, social entrepreneurs resemble commercial ones. Both groups take action and pursue innovation to make positive change in the world. But while commercial entrepreneurs often view creating economic value as a primary objective, social entrepreneurs focus on positive social change—as they define it—as their primary goal. Commercial entrepreneurs pursue business opportunities; social entrepreneurs pursue social impact including advancing scientific research, providing a path to home ownership, and tackling complex problems such as homelessness and poverty. While the term is relatively new, “social entrepreneurs” have tackled social problems throughout American history. And today, American social entrepreneurs are taking on some of the most vexing challenges in American life—and succeeding in many areas where the federal government has failed. Founded in 1976 by Millard and Linda Fuller, Habitat for Humanity set out to help people earn and own decent, affordable homes using an approach called “partnership housing.”42 The program’s beneficiaries would work side by side with volunteers to build their own homes, putting in “sweat equity.” Beneficiaries would then pay down a reduced, interest-free loan and get full ownership of their home over time. These payments and other financial donations would then help provide the funds to build new homes for others. From its modest beginnings but bold vision, Habitat for Humanity has grown to become one of the most successful charities in American history. With supporters including Presidents Jimmy Carter and George H. W. Bush, journalist Tom Brokaw, singer Jon Bon Jovi, and actress Susan Sarandon, the organization now puts more than 10,000 families a year into homes in the United States, with even more people helped abroad.43 To help its beneficiaries be successful in life and as long-term owners, Habitat focuses on developing key life skills critical to success. In a 2001 interview with Philanthropy magazine, Millard Fuller explained Habitat’s approach to making Habitat homeowners successful in the long run:

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We don’t just build houses and move families in and say to them “good luck.” . . . We want them to succeed as homeowners. And it has been our experience almost without exception that families in need of adequate housing are also in need in other areas. In many cases they have a housing problem because they have other problems. For example, there may be illiteracy, there may be poor work habits, there may be abuse, [or] there may be alcohol or drugs. And if you don’t deal with these underlying problems, even though you have solved their housing problem, they will continue to have other problems. So we have tutoring, budgeting and family nurturing programs designed to help these new homeowners to be successful . . . because this very positive thing is happening in their lives they begin to be open to how they can improve their lives in other ways.44

This approach—and its results—contrast starkly with the federal government’s public housing efforts. Writing for the Brookings Institution, Rod Solomon notes that, “By the mid-1990s, a general consensus had emerged that . . . public housing failed to provide quality, affordable housing to the nation’s neediest families. . . . The conditions of these developments had so corroded that they attracted drug and criminal activity. The management of public housing in many large cities had become abysmal, resulting in the long neglect of even the most basic repairs and maintenance needs.”45 In other words, where the federal government often failed to achieve its most basic objective—providing decent, safe housing—Habitat for Humanity not only housed people but also gave them ownership and developed them to be successful in life overall. As the Manhattan Institute’s Husock sums it up, “Habitat has shown that a non-profit organization, combining volunteers [and] a professional staff, can succeed where government has largely failed in housing the poor—and in the process create a movement that is broadly and genuinely popular.”46 In the years to come, America’s social entrepreneurs have powerful new tools to leverage human cooperation and altruism in order to provide public goods and assist the vulnerable. Introduced in 1989, “assurance contracts” allow social entrepreneurs to voluntarily build financial support from private citizens and organizations.47 Assurance contracts commit people to providing a certain amount of funding if a certain threshold of financial support is reached. For example, a group of motivated citizens in a small town may want to build a local park that costs $50,000. The local city council may not want to pay for the park so the group creates an online assurance contract that commits each signing member to pay $50 if and only if a thousand or more others do the same.48 Once a thousand people commit, each signer pays $50 and the park can be constructed using the gathered funds. Other versions of assurance contracts allow for social entrepreneurs to be compensated out

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of the proceeds, thus providing a way for people to pursue this type of work full-time and professionally. This represents a new way to gather public support for providing public goods without resorting to politics and to government. Many people have come to see traditional political action—electing agreeable politicians, lobbying for favored causes, building support for a desired bill, etc.—as the only way to make positive social change. Social entrepreneurship represents a compelling alternative. Social entrepreneurs can directly work on the causes they care about (for example, education, environment, community life, health) without relying on intrinsically flawed political institutions. Social entrepreneurs can define social objectives, raise funds, gather support, and get to work. Successful social entrepreneurs can build on previous successes to tackle larger and more challenging problems, like entrepreneurs in the private sector. TO MARS In recent years, a private American company—SpaceX—has taken a leading role in driving progress in an area experts once thought could only be within the province of national governments: space exploration. On May 2, 2020, SpaceX launched two NASA astronauts into space and delivered them to the International Space Station (ISS) using the company’s Falcon 9 reusable rockets. The two men spent sixty-two days in space before returning to Earth on August 2, 2020. The event represented a crucial milestone: the return of NASA astronauts to space aboard U.S. craft. America’s space agency, NASA, had not launched U.S. astronauts into space using American spacecraft since 2011. “Since the end of the Space Shuttle Program in 2011, the Russian Soyuz vehicle has served as the sole means of transporting astronauts to and from the ISS,” the federal government’s Office of Inspector General reported in a November 2019 report.49 “As of July 2019, NASA had purchased 70 Soyuz seats worth $3.9 billion to ferry 70 U.S. and partner astronauts to and from the Station,” the report found.50 Each astronaut trip on these Russian vehicles cost an average of $57 million with costs increasing from $21 million in 2008 to $90 million per seat in October 2020.51 In contrast, a set on SpaceX’s Crew Dragon flight cost an estimated $55 million, and the company’s Dragon Capsule can carry up to seven people versus three for the Russian Soyuz.52 Founded in 2002 by entrepreneur and engineer Elon Musk, SpaceX was founded to make humans a “multi-planetary species” with a focus on flying people into space and then colonizing other planets, starting with Mars.53

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Since its founding, the company has been on a run. In 2010, SpaceX became the first private enterprise to launch a spacecraft into orbit. Two years later, it delivered its first cargo to the ISS.54 And then, in 2020, it delivered two astronauts into space with the most affordable rockets and flights in the industry.55 These industry-transforming successes reflect a bold vision and several outside-the-box ideas and innovations that worked. Most notably, SpaceX committed itself to building reusable rockets. Traditionally, NASA and other national space agencies used one-time rockets. The rockets would launch a spaceship and then fall back into the ocean. Early SpaceX analysis found that reusable rockets could be developed and massively reduce costs. As SpaceX reported in 2015: SpaceX believes that a fully and rapidly reusable rocket is the pivotal breakthrough needed to substantially reduce the cost of space assets. The majority of the launch cost comes from building the rocket, which flies only once. Compare that to a commercial airliner—each new plane costs about the same as Falcon 9, but can fly multiple times per day, and conduct tens of thousands of flights over its lifetime. . . . A rapidly reusable space launch vehicle could reduce the cost of traveling to space by a hundredfold.56

For years, SpaceX worked on the technology and deployed it successfully in 2015. The company also took a different approach to building its rockets and vehicles. Unlike NASA and other competitors, SpaceX aspired to build as many parts and items in-house as possible to optimize the production process and substantially reduce costs.57 SpaceX designed its own engines, rocket bodies, capsules, motherboards, flight computers, and solar panels. Analysts have estimated that up to 70% of SpaceX rocket components are built in-house.58 The gambit has worked, and analysts now estimate that SpaceX has significantly lower production and launch costs than any private or government competitor. In an interview with Wired magazine, Musk explained SpaceX’s distinctive approach. “[There is] incredible aversion to risk within big aerospace firms. Even if better technology is available, they’re still using legacy components, often ones that were developed in the 1960s.”59 In his view, consistent government contracts do not help. “The company gets a built-in profit level no matter how wasteful its execution. There’s actually an incentive for it to make everything as expensive as it can possibly justify.”60 As Jonathan McDowell, an astrophysicist at the Harvard-Smithsonian Center for Astrophysics observed, “A lot of other space companies are trying to win contracts. SpaceX is trying to get to Mars. It turns out that having a goal can be economically successful.”61

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SpaceX got a big boost when NASA launched its Commercial Crew Program (CCP) in 2010 “with the goal of providing safe, reliable, and cost-effective transportation to and from the ISS.”62 The program would pay commercial U.S. aerospace companies to deliver U.S. astronauts to the ISS. If successful, these American companies would reduce and potentially eliminate NASA’s reliance on Russia’s space program to get astronauts to the ISS. In 2014, NASA awarded CCP contracts to SpaceX and Boeing. SpaceX received $2.5 billion and Boeing $4.3 billion, with about half going for developing and testing space flights.63 SpaceX’s May 2020 launch represented the company’s first successful delivery of astronauts. Including non-human research launches, SpaceX provided almost two-thirds of NASA’s 2020 space launches.64 The company now has its sights set on its original challenge: getting people to Mars. Under development since 2012, the SpaceX Starship is a “fully-reusable, two-stage-to-orbit, super heavy-lift launch vehicle” capable of delivering humans and large amounts of materials to the moon and to Mars.65 Experts estimate the fully reusable rocket and efficient fuel use could drop the per flight cost to $10 million per flight with Musk offering estimates as low as $2 million per flight.66 SpaceX aspires to launch commercial payloads with Starship in late 2021 or 2022.67 Meanwhile, NASA has been pursuing its own next-generation rocket ship since 2011, the NASA Space Launch System (SLS). From 2011 to 2020, the SLS program spent $19 billion with current estimates of a per launch cost of $900 million.68 The massively high launch costs reflect that, unlike SpaceX, SLS’s rockets are not reusable. And unlike SpaceX, SLS has relied on a massive number of contractors with NASA reporting that, “SLS is America’s rocket with more than 1,000 companies from across the U.S. and every NASA center supporting the development of the world’s most powerful rocket.”69 Originally planned to launch in November 2018, SLS has continued to be delayed with the most recent launch date targeted for the end of 2021.70 Many observers expect NASA to push back further.71 With SpaceX now planning to launch its first Starship in late 2021 or early 2022, many observers believe it is only a matter of time until NASA cancels the SLS program and relies on SpaceX’s Starship instead. In September 2020, former NASA Administrator Charlie Bolden, who oversaw the initial design and development of SLS, voiced his criticism of the program. “SLS will go away because at some point commercial entities are going to catch up . . . Commercial entities are going to build a heavy lift launch vehicle sort of like SLS that they will be able to fly for a much cheaper price than NASA can.”72As astrophysicist Jonathan McDowell observes, “If Starship works, that’s the death knell for SLS.”73 By that time, the U.S. federal government

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will have spent over $20 billion on a space program that never even launched. The writing seems to be on the wall. In April 2020, NASA asked SpaceX— and two other private companies—to design lunar landers for astronauts and supplies.74 With the first Starship launch targeted by end of 2022, Musk has set the goal of getting humans to Mars somewhere between 2024 to 2026, with or without NASA’s financial support.75 As Musk explains: “You want to wake up in the morning and think the future is going to be great—and that’s what being a spacefaring civilization is all about. It’s about believing in the future and thinking that the future will be better than the past. And I can’t think of anything more exciting than going out there and being among the stars.”76 RENEWING CIVIL SOCIETY Given its history, dynamism, and resources, American civil society should be renewed and given primary responsibility for areas of American life dominated by federal programs in recent decades. From research and development to space travel, private American institutions have proven themselves equal or better to their federal program peers. Where federal efforts have often failed, civil society often succeeds. Such a renewed civil society would take on three critical areas: services delivered by federal programs, helping assist the vulnerable, and providing critical “public goods.” Federal programs that provide public services that could be delivered by for-profit, private organizations—including the United States Postal Service and Amtrak—should be. Due to the “government surcharge,” the federal government provides the same or worse service at a higher cost than private organizations competing in open markets. The self-interest of federal politicians and federal employees makes it nearly impossible for a federally run service to implement the innovations and changes required to efficiently serve American customers and consumers. Taking a nod from numerous European and Asian countries, America should privatize these services to reduce costs, lower prices, improve service, and end taxpayer subsidies. In recent decades, innovative efforts from Habitat to Humanity to housing first homeless efforts have shown the valuable, unique contribution of civil society institutions in aiding America’s indigent and vulnerable. These success stories suggest a critical partnership between state governments given primary responsibility for running the nation’s social welfare programs and safety net and civil society institutions who can focus on developing more innovative, creative solutions and programs to help address root causes and make step-change improvements in this complicated, perennial challenge.

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This leaves critical “public goods,” including research and development and space exploration, that offer widespread public benefits but often meager private rewards. In this area, the federal government’s approach to R&D and NASA’s Commercial Crew Program provides a clear template: civil institutions—including universities, research institutions, private businesses, etc.—should do the work with the federal government focused on providing funding in areas with significant public support for doing so. These federal funds can be provided via open, competitive processes focused on outcomes, not activities, as much as possible. The federal government would not need to fund everything. Often overlooked and underappreciated, American citizens and institutions already donate massive amounts of money to various social causes. In recent years, Americans have given record sums. In 2018, American citizens and institutions gave $428 billion in charitable contributions—over 2% of the country’s economy—up from $298 billion in 2011.77 Over those years, U.S. charitable giving increased more than 5% a year. The giving is widespread and common with more than 70% of U.S. giving coming from individual donors. Most Americans, more than 65%, make financial donations, including 98% of high net worth households. In 2019, the World Giving Index ranked the United States as number one in the world for charitable giving.78 In fact, America’s charitable giving is not significantly less than the federal government’s non-mandatory, discretionary spending on programs including transportation, education, and housing assistance. In 2018, the federal government spend just a little over 3% of the nation’s GDP on these programs versus 2% of GDP contributed as charitable donations.79 To accompany this shift in the federal government’s role, the country would benefit from a shift in national mindset as well. In recent decades, many Americans have come to view the federal government as the nation’s default problem solver for America’s various social ills and opportunities. The country and its citizens should return to America’s traditional view of civil society as the default way Americans solve most public and community problems. This envisioned federal role—focused on funding public goods and leaving the rest to American society itself—would closely resemble the one envisioned by the Founders. The U.S. Constitution empowered the federal government to take on activities that would enable the dynamic, commercial, and scientific society that the Founders aspired to create, including nationwide bankruptcy laws and intellectual property rights and rules. The federal government had an important, but limited and indirect role, to play in enabling the country’s citizens and institutions to drive progress. Focusing the federal government on funding areas with significant public support—and leaving the provision to America’s citizens and institutions—aligns with this

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original vision and represents the best way for Americans to drive progress forward today. NOTES 1. Alexis de Tocqueville, Democracy in America, trans. Henry Reeves (London: Saunders and Otley, 1835–1840), vol. 2, bk. 2, chap. 5. 2. Frank Dekker Watson, The Charity Organization Movement in the United States: A Study in American Philanthropy; a Thesis (PhD diss.) (New York: Macmillan, 1922). 3. Dennis Smith, History of Firefighting in America: 300 Years of Courage (New York: Doubleday, 1980). 4. Daniel B. Klein, “Private Highways in America, 1792–1916,” Freeman: Ideas on Liberty 44, no. 2 (1994): 75–79, https://fee.org/media/16398/1994-02.pdf (accessed June 15, 2015). 5. Tocqueville, Democracy in America, vol. 2, bk. 2, chap. 5. 6. Tocqueville, Democracy in America, vol. 2, bk. 2, chap. 5. 7. Tocqueville, Democracy in America, vol. 2, bk. 2, chap. 5. 8. Tocqueville, Democracy in America, vol. 2, bk. 2, chap. 5. 9. “About Jane Addams.” Jane Addams Hull-House Museum. https://www. hullhousemuseum.org/about-jane-addams (accessed January 15, 2021). 10. T. H. Green, Lectures on the Principles of Political Obligation and Other Writings, ed. Paul Harris and John Morrow (Cambridge: Cambridge University Press, 1986), lectures given 1879. 11. Howard A. Husock, Who Killed Civil Society: The Rise of Big Government and Decline of Bourgeois Norms (New York: Encounter Books, 2019), 71. 12. Robert D. Putnam, “Bowling Alone: America’s Declining Social Capital,” Journal of Democracy 6, no. 1 (1995): 65–78, https://doi.org/10.1353/jod.1995.0002. 13. Francis M. Bator, “The Anatomy of Market Failure,” Quarterly Journal of Economics 72, no. 3 (1958): 351–79, https://doi.org/10.2307/1882231; Paul A. Samuelson, “The Pure Theory of Public Expenditure,” Review of Economics and Statistics 36, no. 4 (1954): 387–89, https://doi.org/10.2307/1925895. 14. Economists call a situation where no one can improve their well-being without harming someone else as “pareto efficient.” Thus market failures lead to pareto inefficiencies. 15. R. Mark Isaac, James M. Walker, and Susan H. Thomas, “Divergent Evidence on Free Riding: An Experimental Examination of Possible Explanations,” Public Choice 43, no. 2 (1984): 113–49, https://www.jstor.org/stable/30023749. 16. Robert Axelrod, The Evolution of Cooperation, rev. ed. (New York: Basic Books, 2006). 17. Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965; 1971). 18. Bator, “Anatomy of Market Failure”; J. E. Meade, “External Economies and Diseconomies in a Competitive Situation,” Economic Journal 62, no. 245 (1952): 54–67, https://doi.org/10.2307/2227173.

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19. H. K. Sharma, J. K. Gupta, and J. R. Thakur, “Effect of Bee Pollination and Polliniser Proportion on Apple Productivity,” ISHS Acta Horticulturae 662 [VII International Symposium on Temperate Zone Fruits in the Tropics and Subtropics] (2004): 451–54, https://doi.org/10.17660/ActaHortic.2004.662.68. 20. Mary K. Muth, Randal R. Rucker, Walter N. Thurman, and Ching-Ta Chuang, “The Fable of the Bees Revisited: Causes and Consequences of the U.S. Honey Program,” Journal of Law and Economics 46, no. 2 (2003): 479–516, https://doi. org/10.1086/377290. 21. Steve N. S. Cheung, “The Fable of the Bees: An Economic Investigation,” Journal of Law and Economics 16, no. 1 (1973): 11–33, https://www.jstor.org/ stable/724823. 22. Cheung, “Fable of the Bees,” 30. 23. Cheung, “Fable of the Bees,” 32. 24. Ronald H. Coase, “The Lighthouse in Economics.” Journal of Law and Economics 17, no. 2 (1974): 357–76, http://www.jstor.org/stable/724895. 25. Ashutosh Jogalekar, “Are We Entering a Golden Era of Private Science Funding?” Scientific American (blog), March 27, 2014, https://blogs.scientificamerican.com/ the-curious-wavefunction/are-we-entering-a-golden-era-of-private-science-funding/ (accessed June 15, 2015). 26. Ashutosh. “Are We Entering a Golden Era.” 27. Ashutosh. “Are We Entering a Golden Era.” 28. National Science Board (NSB), National Science Foundation. Science and Engineering Indicators 2012. (2012). NSB 12–01. Arlington, VA. http://www.nsf. gov/statistics/seind12/ (accessed January 25, 2021). 29. NSB, Science and Engineering Indicators 2012. 30. National Science Board (NSB). National Science Foundation. Science and Engineering Indicators 2016 (2016). NSB-2016–1. Arlington, VA., in “Chapter 4. Research and Development: National Trends and International Comparisons,” 10. https://www.nsf.gov/statistics/2016/nsb20161/uploads/1/7/chapter-4.pdf (accessed September 10, 2020). 31. NSB, Science and Engineering Indicators 2016, 4. 32. NSB, Science and Engineering Indicators 2016, 5. 33. William J. Broad, “Billionaires with Big Ideas Are Privatizing American Science,” New York Times, March 15, 2014. https://www.nytimes.com/2014/03/16/ science/billionaires-with-big-ideas-are-privatizing-american-science.html (accessed May 25, 2015). 34. Broad, “Billionaires.” 35. Broad, “Billionaires.” 36. Broad, “Billionaires.” 37. Broad, “Billionaires.” 38. Broad, “Billionaires.” 39. Samuel Broder, quoted in Abhi Nemani, “Asking the Right Questions,” Code for America (blog), August 5, 2010, https://www.codeforamerica.org/blog/2010/08/05/ asking-the-right-questions/ (accessed June 4, 2015). 40. Broad, “Billionaires.”

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41. Broad, “Billionaires.” 42. Habitat for Humanity, “History,” September 12, 2011, https://www.habitat.org/ about/history (accessed September 15, 2015). 43. Habitat for Humanity, “About,” September 12, 2011, https://www.habitat.org/ about (accessed September 15, 2015). 44. Millard Fuller, “Millard Fuller: Give That Man a Hammer,” Philanthropy (Roundtable), January 2001, https://www.philanthropyroundtable.org/topic/ excellence_in_philanthropy/millard_fuller_give_that_man_a_hammer (accessed June 28, 2015). 45. Rod Solomon, “Public Housing Reform and Voucher Success: Progress and Challenges,” Brookings, January 1, 2005, https://www.brookings.edu/research/ public-housing-reform-and-voucher-success-progress-and-challenges/ (accessed July 19, 2015). 46. Howard Husock, “It’s Time to Take Habitat for Humanity Seriously,” City Journal 5, no. 3 (1995), https://www.city-journal.org/html/it%E2%80%99s-timetake-habitat-humanity-seriously-11949.html (accessed June 20, 2015). 47. Mark Bagnoli and Bart Lipman, “Provision of Public Goods: Fully Implementing the Core through Private Contributions,” Review of Economic Studies 56, no. 4 (1989): 583–601, https://econpapers.repec.org/article/ouprestud/ v_3a56_3ay_3a1989_3ai_3a4_3ap_3a583-601..htm (accessed January 25, 2021). 48. The group would then gather citizen signatures and rely on altruism, a desire to cooperate and social status to build interest. For example, the group could publish a list of contributors online or in a public space. Social censure—such as naming businesses that have not contributed—could also be used to build support. Research suggests that social ensure often is effective in increasing support for social causes. 49. U.S. Office of Inspector General, “NASA’s Management of Crew Transportation to the International Space Station,” Report No. IG-20–005, November 14, 2019, https://oig.nasa.gov/docs/IG-20-005.pdf (accessed September 14, 2020). 50. U.S. Office of Inspector General, “NASA’s Management,” 1. 51. Morgan McFall-Johnsen and Dave Mosher, “Why SpaceX’s Astronaut Mission for NASA Is Such a Big Deal for Elon Musk’s Rocket Company and the US as a Whole,” Business Insider, July 31, 2020, https://www.businessinsider.com/whyspacex-astronaut-launch-nasa-is-important-2020-5 (accessed September 15, 2020). 52. McFall-Johnsen and Mosher, “Why SpaceX’s Astronaut Mission.” 53. Elizabeth Howell, “SpaceX’s Elon Musk to Reveal Mars Colonization Ideas This Year,” Space.com, January 9, 2015, https://www.space.com/28215-elonmusk-spacex-mars-colony-idea.html (accessed June 15, 2015); Cecilia Kang and Christian Davenport, “SpaceX Founder Files with Government to Provide Internet Service from Space,” Washington Post, June 9, 2015, https://www.washingtonpost. com/business/economy/spacex-founder-files-with-government-to-provide-internetservice-from-space/2015/06/09/db8d8d02-0eb7-11e5-a0dc-2b6f404ff5cf_story.html (accessed June 11, 2015). 54. Chris Anderson, Interview “Elon Musk’s Mission to Mars,” Wired, October 21, 2012, https://www.wired.com/2012/10/ff-elon-musk-qa/ (accessed June 14, 2015).

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55. Michael Belfiore, “The Rocketeer: Forget Tesla. Forget the Hyperloop. Elon Musk Is All About Space,” Foreign Policy, December 9, 2013, https://foreignpolicy. com/2013/12/09/the-rocketeer/ (accessed June 17, 2015). 56. “Reusability: The Key to Making Human Life Multi-Planetary,” SpaceX, June 10, 2015, https://www.spacex.com/news/2013/03/31/reusability-key-making-humanlife-multi-planetary (last accessed June 14, 2015). 57. Ashlee Vance, “Elon Musk’s Space Dream Almost Killed Tesla,” Bloomberg Business, May 14, 2015, https://www.bloomberg.com/graphics/2015-elon-muskspacex/ (accessed June 18, 2015). 58. Belfiore, “Rocketeer.” 59. Anderson, Interview, “Elon Musk’s Mission to Mars.” 60. Anderson, Interview, “Elon Musk’s Mission to Mars.” 61. Jonathan McDowell, quoted in Adam Mann, “SpaceX Now Dominates Rocket Flight, Bringing Big Benefits—and Risks—to NASA,” May 20, 2020, https://www. sciencemag.org/news/2020/05/spacex-now-dominates-rocket-flight-bringing-bigbenefits-and-risks-nasa (accessed September 15, 2020); see also Anderson, Interview, “Elon Musk’s Mission to Mars.” 62. Office of Inspector General, “NASA’s Management of Crew.” 63. Charlie Bolden, “American Companies Selected to Return Astronaut Launches to American Soil,” NASA.gov (blog), September 16, 2014, https://blogs.nasa.gov/ bolden/2014/09/16/american-companies-selected-to-return-astronaut-launches-toamerican-soil/ (accessed September 16, 2014); Office of Inspector General. “NASA’s Management of Crew,” 4. 64. Mann, “SpaceX Now Dominates.” 65. Quoted from SpaceX website, see “SpaceX Starship,” Wikipedia. https:// en.wikipedia.org/wiki/SpaceX_Starship (accessed September 30, 2019). 66. Mann, “SpaceX Now Dominates.” 67. Caleb Henry, “SpaceX Targets 2021 Commercial Starship Launch,” SpaceNews, June 28, 2019, https://spacenews.com/spacex-targets-2021-commercial-starshiplaunch/ (accessed January 25, 2021). 68. National Aeronautics and Space Administration (NASA), “2019 NASA Inflation Tables—To be Utilized in FY20,” last modified October 17, 2019. https:// www.nasa.gov/sites/default/files/atoms/files/2019_nasa_new_start_inflation_index_ for_fy20_final2.xlsx (accessed May 10, 2020); NASA Office of Inspector General (OIG), “NASA OIG Audit: Management of NASA’s Europa Mission,” May 29, 2019, http://astrobiology.com/2019/05/nasa-oig-audit-management-of-nasas-europamission.html (accessed November 8, 2019). 69. NASA, “Space Launch System (SLS) Overview.” ed. Lee Mohon, last updated September 16, 2020, https://www.nasa.gov/exploration/systems/sls/overview.html (accessed September 15, 2020). 70. Jeff Foust, “First SLS Launch Now Expected in Second Half of 2021,” March 2, 2020, https://spacenews.com/first-sls-launch-now-expected-in-second-half-of-2021 (accessed September 15, 2020).

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71. Stephen Clark, “NASA Declares First SLS Core Stage Complete,” December 15, 2019, https://www.spaceflightnow.com/2019/12/15/nasa-declares-first-sls-corestage-complete (accessed September 15, 2020). 72. Jacqueline Feldscher, “Bolden Talks Expectations for Biden’s Space Policy,” Politico. September 11, 2020. https://www.politico.com/newsletters/politicospace/2020/09/11/bolden-talks-expectations-for-bidens-space-policy-490298 (accessed January 25, 2021). 73. Mann, “SpaceX Now Dominates.” 74. Mann, “SpaceX Now Dominates.” 75. Jonathan Amos, “Elon Musk: Rockets Will Fly People from City to City in Minutes,” BBC, September 29, 2017, https://www.bbc.com/news/scienceenvironment-41441877 (archive accessed July 21, 2018; January 25, 2021); Jesus Diaz, “Humans Will Land on Mars by 2026, Says SpaceX Elon Musk,” Gizmodo, June 18, 2014, https://gizmodo.com/elon-musk-vows-for-2026-manned-marsmission-wants-self-1592859862 (accessed May 25, 2015). 76. SpaceX, “Mars & Beyond: The Road to Making Humanity Multiplanetary,” SpaceX, 2021, https://www.spacex.com/human-spaceflight/mars/ (accessed September 15, 2020). 77. Giving USA, “Giving USA 2019: Americans Gave $427.71 Billion to Charity in 2018 Amid Complex Year for Charitable Giving,” June 18, 2019, https://www. givingusa.org/giving-usa-2019-americans-gave-427-71-billion-to-charity-in-2018amid-complex-year-for-charitable-giving/ (accessed September 10, 2020); National Philanthropic Trust, “Charitable Statistics,” NPT.com, last modified July 22, 2020, https://www.nptrust.org/philanthropic-resources/charitable-giving-statistics/ (accessed March 1, 2013). 78. Leslie Albrecht, “The U.S. Is the No. 1 Most Generous Country in the World for the Last Decade,” MarketWatch, December 7, 2019, https://www.marketwatch.com/ story/the-us-is-the-most-generous-country-but-americans-say-debt-is-keeping-themfrom-giving-more-to-charity-2019-10-18 (accessed January 25, 2021). 79. U.S. Congressional Budget Office, “2019 Budget Infographic,” by Christine Bogusz, Aaron Feinstein, Dan Ready, and Jorge Salazar, April 2020, http://www. cbo.gov/system/files/2020-04/56324-CBO-2019-budget-infographic.pdf (accessed September 11, 2020).

Chapter 9

Restoring Individual Sovereignty

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights.”—The Declaration of Independence, 17761

In 1961, the Internal Revenue Service (IRS) seized three horses belonging to Valentine Y. Byler, an Amish farmer in New Wilmington, Pennsylvania, after Byler refused to participate in Social Security. Byler believed that the Amish needed to take care of one another communally and should not rely on a forced government social insurance system. Given these ethical beliefs, Byler refused to pay $308.96 in outstanding Social Security payroll taxes. His horses were confiscated and sold to collect this amount. Social Security might have been popular, but it was not optional.2 Participation in Social Security is mandatory. Similar rules existed through 2018 for the Patient Protection and Affordable Care Act (ACA) of 2010: an individual had to purchase health insurance or run afoul of federal law and pay a penalty.3 Coercing individual citizens to achieve socially expedient outcomes— whether by mandatorily paying into Social Security or requiring citizens to buy health insurance per federal law—goes against arguably the core foundational value of the United States political system: the sovereignty of the individual American citizen. The sovereign, self-governing citizen has served as the cornerstone and foundation of America’s political system from the beginning. All three of the country’s founding documents—the Declaration of Independence, the Constitution, and the Bill of Rights—prominently prioritized the individual citizen and the individual’s rights. This belief animated the entire American political project. As Bernard Bailyn sums up in his Pulitzer prize–winning The Ideological Origins of the American Revolution, “The ideology of the Revolution . . . was a cluster of convictions focused on the effort to free the individual from the oppressive misuse of power, from the tyranny of the state.”4 As historian Paul Rahe notes, James Madison, primary author of the 191

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U.S. Constitution and then the Bill of Rights, “took as his ultimate guide man’s natural rights.”5 In this, Madison reflected his generation. The country’s limited federal government thus served as a means to protect the Founders’ positive vision of free, self-governing citizens focused on individual pursuits, domestic concerns, and “the pursuit of Happiness.” This vision both motivated and justified the creation of American government: “That to secure these rights, Governments are instituted among Men,” the Declaration of Independence declared. America’s society and political regime gave primary place to the individual citizen, not to the federal or state governments or to the nation’s elected officials. As Paul Rahe notes, America’s founders constructed a political regime that would foster a society prioritizing labor, commercial pursuits, scientific achievement, and domestic life over politics.6 Much of America’s subsequent political development has focused on making good on the country’s original vision and promise, that “all men are created equal . . . endowed by their Creator with certain unalienable Rights.” EXTENDING AND EXPANDING Over time, with few exceptions, American history has seen core individual rights—guaranteed by and protected from the federal government—extend to more people, cover more things, and offer stronger protections. This journey has been long and subject to many pauses and retrenchments. But in the long-run, political movements and initiatives opposing this trend have almost always lost. The right to vote powerfully illustrates this dynamic. Scholars estimate that when the Constitution was ratified in 1789, over half the white male population could not vote based on property qualifications in place at the time.7 Delaware required voters to own fifty acres of land or property worth £40. But over the nation’s first few decades, state governments eliminated these property requirements.8 By 1840, over 90% of white males could vote in most states.9 National attention then turned to the most egregious violation of the principle that “all men are created equal”: slavery. Despite strong Southern support for the institution, culminating in a Civil War, slavery was eliminated in 1865. Slavery gave way to citizenship for African Americans with the right to vote not to “be denied or abridged” by federal or state governments, as guaranteed by the Fifteenth Amendment in 1870. State governments quickly took action to undermine this principle and continued to do so for almost a century until the federal Civil Rights Act of 1964 and Voting Rights Act of 1965 finally

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delivered on the promise of the Fifteenth Amendment and ensured African Americans equal access to the voting booth.10 Meanwhile, individual rights continued to extend and strengthen in other areas of national life. In 1920, women won the right to vote with the Twentieth Amendment. The Constitution’s Bill of Rights to free speech, assembly, and the right to keep and bear arms among other things—rights originally applied only to the federal government—slowly but continuously extended to apply against state governments as well starting in 1925.11 Changes that went against this trend—including the Eighteenth Amendment’s prohibition of the production, transport, and sale of alcohol—did not last. The amendment lasted only fourteen years before the country repealed it with the Twenty-First Amendment.12 This dynamic has only continued in recent decades. Miscegenation laws, which barred interracial marriage, were overruled in 1967 by the U.S. Supreme Court’s decision in Loving v. Virginia.13 Sodomy laws that banned homosexual sex were overruled in the 2003 Lawrence v. Texas decision.14 And in 2015, the Supreme Court declared marriage a universal right available to all two-person couples. Over American history, political, civil, and social individual rights have almost always won out over government power and laws if no direct, physical harm can be identified and used to justify a restraint on an individual’s choices and preferences. Voting rights stand out particularly clearly. From 1789 to today, the right to vote has expanded from white men of sufficient property to all citizens over the age of 18 years without a serious criminal conviction or mental impairment regardless of race, color, gender, sexual orientation, economic status, and national origin. The pursuit of equal individual rights has been arguably the most propulsive, unstoppable force in America’s long-run domestic political development. AN EXCEPTION Over the last century, individual economic rights stand out as a notable exception. The federal and state governments have become increasingly able to tell American citizens things they cannot do—work over a certain number of hours a day or for a certain wage—and other things they must do—such as participate in Social Security or buy healthcare insurance. This goes against the country’s founding vision and the emphasis on “unalienable rights,” including the principle of self-ownership. In the country’s founding vision, America’s sovereign, self-governing citizens had the right and responsibility to direct and take care of themselves. It was

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this principle that made slavery so egregious: it violated the principle of self-ownership and “free labor,” being able to choose where to work, when to work, and for whom to work. Economic self-ownership gives workers the right to leave their place of employment when and if they want, a right that helps check potential employer abuses, incents attractive and compelling workplaces, and gives workers leverage to get fair value for their work and contribution. And the principle provides a strong incentive to be economically productive, as workers and entrepreneurs get paid based on the value of what they produce in a competitive marketplace. Even today, this principle of self-ownership applies in so many contexts— with so few exceptions and so little debate—that it largely goes unnoticed, a powerful example that the values that most define a society are not the ones debated, but rather those that are assumed. Americans choose their occupations and employers, cities and houses, romantic interests and partners, and cars and clothes. Legal limits on individual choice, such as those outlawing interracial marriage, have shrunk over time. Outright state or federal requirements, such as those to buy car or health insurance, remain few and contested. And even when governments set requirements and regulations on the options available, individuals often get some choice about what option to select. Yet the exceptions do exist, and they are critical ones. Economic rights have not always been given second-class status. In the 1895 Supreme Court case Lochner v. New York, the Supreme Court voided a New York state law that limited the number of daily and weekly hours that bakers could work.15 Lochner’s lawyer denounced the idea that “the treasured freedom of the individual . . . should be swept away under the guise of the police power of the state.” While presented publicly as a law to protect bakers’ well-being, later investigations found that the legal restriction was, in large measure, an effort by the Bakery and Confectionary Workers’ International Union to stifle competition from hard-working immigrant Italian and Jewish bakers.16 But the Supreme Court’s broad defense of economic rights proved short-lived. During the New Deal, the Court—starting with its 1937 West Coast Hotel Co. v. Parrish decision—effectively overruled its decision in Lochner and the Constitution’s previously-defended restraint on federal regulation and control of individual economic decision.17 In a series of decisions, the Court ruled that the Constitution’s Commerce Clause (which granted the U.S. Congress the powers “to regulate Commerce with foreign Nations, and among the several States, and within the Indian Tribes”) now allowed Congress to pass almost any economic legislation whatsoever.18 By 1942, in Wickard v. Filburn, the Supreme Court even ruled that the Constitution’s Commerce Clause now gave Congress the power to limit an Ohio farmer’s ability to grow wheat on his own farm to feed his own cattle.19 Federal

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regulations had set limits on how much wheat a farmer could grow. Roscoe Filburn argued the rule did not apply to him since he did not sell or trade his wheat but used it only to feed his own cattle. The Supreme Court disagreed: in its view, Congress had this power. Filburn would have to stop growing so much wheat. Notably, this renunciation of long-standing American economic rights coincided with the creation of federal social insurance programs, starting with Social Security, that told American citizens things they must do: participate. As a result, Americans lost the default right to care for themselves whether for old-age or other reasons. Both Social Security and Medicare automatically tax and enroll almost all working and retired Americans. Working citizens cannot opt-out or control the amount contributed. They also have no right to their contributions or the promised benefits. Federal law can change either at any time. Other recent programs—such as the ACA—attempted to do a similar thing by punishing non-participating Americans with an extra tax. This provision—included in the original 2010 law—was later eliminated in a 2018 bill though the individual federal mandate remains. A few critical factors contributed to the creation of programs so at odds with America’s default approach of individual self-ownership. Congress created Social Security amid the Great Depression of 1929 through 1938/1939. The private economy had seemingly failed, many elderly Americans found themselves in poverty, and the federal government stood out as a source of security and safety. In this context, the idea of government-backed and funded social insurance became popular and won passage. Medicare’s passage in 1965 benefitted from Social Security’s popularity, relatively low rates of health insurance among the elderly, and increasing healthcare costs. Both programs also offered substantial rewards to early participants—who received massive windfalls—and the politicians who could take credit for those windfalls. But both Social Security and Medicare’s looming insolvency, stark inter-generational inequity, and weak protections for the most vulnerable suggest an alternative approach should be considered that better reflects America’s core, default commitment to individual sovereignty. Such an alternative exists and has much to argue for it. FIXING A FAILING SYSTEM Today, young American workers are forecast to earn net negative real returns on their Medicare and Social Security contributions despite contributing funds for decades. And despite the program’s massive spending, Social Security does a poor job of providing support to the most vulnerable. In 2020,

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researchers estimated that almost 10% of America’s elderly, age 65 years and over, live below the poverty line even after accounting for Social Security benefits.20 This is a system in need of improvement. Americans are eager to find a better alternative and to have a good sense of what such an alternative would look like. An “American Life Panel” poll conducted by the RAND Corporation asked participants in 2020: Some Americans are concerned about not having enough income once they retire. If you wished to increase your future retirement income, would you prefer to: Pay higher Social Security taxes while working and receive a higher Social Security benefit when you retire? Or make higher contributions to a private retirement account such as an IRA or 401(k) and receive higher income from that account when you retire?21

Andrew Biggs, the American Enterprise Institute scholar who commissioned the poll, summarized the poll’s results: Overall, 74% of Americans preferred personal saving versus 26% favoring paying more into Social Security. Whether by gender, race, education, income, or geography, strong majorities of Americans would rather boost their retirement incomes through personal saving than by expanding Social Security. Even among Americans under age 35, supposedly a progressive stronghold, 81% preferred to save more personally over paying more into Social Security. It’s hard to blame them: Social Security has been underfunded since the day these young Americans were born and Congress has gone three decades while doing precisely nothing to fix Social Security’s multi-trillion dollar financing shortfalls.22

Americans, particularly younger ones, have good reason to prefer investing more in personal accounts than in Social Security. While experts estimate Social Security now offers a 1% return or less to current workers, a private system consisting of stocks and bonds would offer between a 5% and 7% real return.23 Over decades, this difference leads to a massive difference in retirement income. Moreover, a large percentage of younger Americans’ Social Security payroll taxes goes to paying down the “legacy debt” incurred by the overly generous benefits given the previous generations. An analysis in 2005 by Peter Orzsag—a former Director of the Office of Management and Budget for President Obama—found that around a third of current worker’s payroll taxes go to paying down the “legacy debt” incurred by the overly generous benefits provided to previous American beneficiaries.24 America’s long-standing, default principle of individual ownership and responsibility can be combined with a commitment to protect the economically vulnerable to create a better, twenty-first-century approach for Social Security and Medicare. With a portion of their payroll taxes, working

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Americans could fund private retirement accounts to save and invest for income and healthcare needs during their retirement years.25 This would be paired with two federal guarantees: a minimum income guarantee—no elderly American will live below the poverty line—and a health insurance guarantee—no elderly Americans goes without health insurance—funded by the federal government. This approach would work better for almost all Americans. Based on the results of similar domestic and international programs, Americans would own their savings, build larger nest eggs, enjoy more spending flexibility, and have the ability to bequeath unused funds to others upon their death. This approach would also work better for the 10% of elderly Americans who today still live in poverty after receiving their Social Security benefits. FIRST TRY ROAD BLOCKED In 2004, President George W. Bush won his reelection campaign after making “personal Social Security accounts” a key part of his campaign. When polled, a strong majority of Americans supported the President’s proposed reform.26 Republicans controlled both houses of Congress, and the president seemed eager to win the reform debate. In February 2005, CBS News reported that, “Though many in his own party are wary of tampering with a beloved domestic program, the president said he would push ahead. “The harder the issue, the bigger the challenge, and the more exciting it’s going to be when we get the job done.’’27 Bush had a plan for critics too. ‘Bring’em on and we’ll sit down and have a good discussion about how to get something done. . . . Now is not the time to make this issue a highly partisan issue.”28 By early April 2005, the effort seemed well underway as several reform bills, including two from Senator John Sununu (R-NH) and Representative Paul Ryan (R-WI), were introduced in both houses of Congress. Under the formers’ proposal, workers under the age of 55 years would have been permitted to voluntarily redirect a portion of their payroll taxes to individual accounts and invest funds in several potential investment accounts. Upon retirement, these workers would then been allowed to annuitize their account funds so as to receive benefits comparable to those they would have been scheduled to receive under Social Security. The proposed reform had many benefits to argue for it. But informed observers noted that the legislative reform battle would be much more difficult than President Bush’s first term successes, and the White House did not seem ready. As the Economist noted in February 2005, “Seasoned politicos muttered about White House incompetence, pointing out Mr. Bush’s first-term legislative successes—tax cuts, the extension of Medicare and

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education reform—were much easier, since they left no political losers.”29 The president’s Social Security reform proposal would face significantly more opposition than the President’s previous legislative successes. Since January 2005, Congressional Democrats and key interest groups had committed to defeating reform. For Congressional Democrats, Social Security’s 70-plus-year-old social insurance model represented a unique, historic Democratic success, and epitomized the party’s governing philosophy. The president’s reform proposal undermined and called into question this success by suggesting it could and should be improved. As William A. Galston of the Brookings Institute would later note, Social Security was “part of their political DNA.”30 To oppose reform, Democrats turned to a new approach focused on language and narrative, as Matt Bai of The New York Times reported that summer.31 In this view, narratives were critical to winning political battles—nearly as important as facts, if not more so. As Bai reported, shortly after Bush had signaled his intention to reform Social Security, Congressional Democrats devised two “narratives” to oppose reform. The first, “Privatization: A Gamble You Can’t Afford to Take,” likened private saving as gambling and the second, “The Magical World of Privatization,” characterized the president as a sort of traveling snake-oil salesman.32 The two narratives helped shape Democrats’ opposition. In May 2005, then-House Minority Leader Nancy Pelosi and other House members held a press conference standing beside a stack of giant dice, signaling that Americans could not afford to gamble on Social Security reform. To fight reform, Senate Democrats established a “strategy group” and dedicated “war room” which, as Bai noted, “stuck to two simple ideas: Bush’s plan relied on privatizing the most popular government benefit in America, and it amounted to benefit cuts coupled with long-term borrowing.”33 To further boost effectiveness, opponents clamped down on compromise proposals from Democratic legislators. As Bai would report, war room leaders attempted to “stop senators and congressmen from offering compromise plans.”34 The Democrats’ strategy followed the example of Bill Kristol, Republican strategist and then-editor of the Weekly Standard, who urged Republicans against proposing any alternatives to Clinton’s 1993 health-care reform proposal.35 As one Democratic aide argued, “the minute we introduce a plan, we have to solve the problem. We are the minority party. It’s not our job to fix things.”36 To support this effort, Democratic leaders invited George Lakoff, a professor of linguistics at the University of California Berkeley who had helped develop the theory that narrative is critical to political debates, to meet with House Democrats who were considering private account plans. Lakoff strongly recommended they hold off, arguing that, “As soon as you allow them to get a privatization frame in people’s minds about retirement

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and Social Security, it becomes an unintelligible difference. People will not be able to tell the difference between your plan and the other guy’s.” The urging worked. Democrats dropped alternative proposals and focused solely on blocking reform.37 Bush dismissed the attacks, referring to them as “the same rhetoric you hear every campaign.”38 It was an argument he would return to often in the months of debate that followed. At a 2005 Washington, DC, fundraiser later that year, Bush characterized the Democrats’ approach as “the philosophy of the stop sign, the agenda of the roadblock. On issue after issue, they stand for nothing except obstruction, and this is not leadership.”39 Bush’s assessment was accurate and frustration understandable. But the Democratic approach seemed to be working. A Gallup poll found that the support for the President’s plan fell from 40% in January 2005 to 33% in April 2005.40 In addition, reform’s supporters faced formidable opposition from the American Association of Retired People (AARP)—the nation’s largest senior lobby with nearly 35 million members above the age of fifty years. Republican leaders had initially hoped to earn the group’s support; however, these hopes were quickly dashed when AARP declared its strong opposition to reform in January 2005. According to AARP’s CEO Bill Novelli, “[AARP] will oppose any proposal that takes money out of Social Security to create private investment accounts for today’s workers.”41 Novelli also disputed Social Security’s purported financial crisis.42 And he had a point: in 2004, the Congressional Budget Office (CBO) estimated that the program would remain solvent until 2052, undermining the argument that the program faced near-term insolvency.43 “We can fix Social Security without dismantling it,” Novelli argued, “which is what private accounts carved out of Social Security do.”44 Critically, AARP went beyond public criticism and embarked on a large-scale advertising campaign against the reform proposal.45 The campaign included over $5 million worth of advertisements in fifty-three newspapers and a television blitz.46 “This is just the beginning,” Novelli told USA Today, noting that the debate represented AARP’s top priority in 2005. “We expect to spend the whole year at this.”47 The group also set its sights on young workers (who tended to be more skeptical of Social Security and thus more supportive of the Administration’s plan) and took to the airwaves to convince them that reform would undermine Social Security and fail to ensure its long-term solvency.48 And AARP marshaled its own members against the plan, spending tens of millions of dollars to organize elderly volunteers, including Pittsburgh retiree Jack Heim, to deliver AARP’s messages opposing reform.49 “We can give them our message,” Heim said, “which is, ‘Don’t destroy the greatest program in the world.’”50

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The implication of the AARP’s well-organized, robust opposition was not lost on Congressional reform supporters including Senator John McCain (R-AZ) who noted at the time that, “It’s going to be very difficult to get Social Security [reform] without them [AARP]. They’re very well-organized, and we all know they turn out to vote.”51 AARP’s opposition proved critical. As Galston would later write, interest groups opposed to the reform—led by the AARP—had successfully mounted a “unified, well-conceived and amply funded campaign” one that had proven extremely effective and that had contributed much to the opposition’s efforts.52 Faced with such coordinated and effective opposition, reform supporters needed to play a near-perfect political game to pass their proposal—and they did not. Instead of just focusing on the popular and transformative idea of personal accounts, the Bush administration decided reform should both include personal accounts and improve Social Security’s long-term solvency. The two objectives made it harder to advocate for reform—and to build a legislative majority.53 As Peter Ferrara of the Heartland Institute would later recall in Forbes: By 2005, there was little evidence of the path-breaking, populist themes and rhetoric that the President had so brilliantly and successfully used in arguing for personal accounts during his 2000 campaign in particular. Gone was the discussion of a better deal and better benefits from personal accounts. We barely heard anything anymore about ownership, building personal wealth, and leaving an inheritance to children and family.54

All this led to a loss of support among a key demographic: America’s elderly. As Galston would later note, while young people supported reform by a two to one margin, older Americans opposed it by the opposite amount—and America’s elderly had far more political influence. As Galston observed, “Voters over the age of 60 represent about . . . 17 percent of the voting age population, and fully 24 percent of those who show up to vote in presidential elections.”55 By June 2005, the proposed reforms had lost public support. The failed effort came to a conclusion a few months later.56 America’s first attempt at establishing private individual retirement accounts had ended in failure. GLOBAL EXPERIMENTS While the United States has continued to rely on a traditional social insurance approach to provide retirement income, other countries around the world have adopted a different approach: systems built on private individual accounts often supplemented by government-guaranteed benefit minimums.

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In the last few decades, thirty-one countries and several U.S. counties and city governments have deployed this type of system.57 The approach originated in Chile in the 1970s when Chile’s traditional social insurance system faced insolvency.58 In response, the country transitioned to a retirement saving system built on individual, private accounts and a government-backed minimum pension guarantee. In 2005, during the Bush Administration’s attempt at reforming Social Security, New York Times writer John Tierney researched Chile’s model and compared it with U.S. Social Security.59 Tierney found that Chileans received almost two and a half times more retirement income for each dollar contributed. Tierney found that if he had participated in Chile’s system instead of Social Security he would have been able to: (1) retire at the age 62 years with an annual pension of $55,000—more than 300% his expected Social Security at that age; or (2) retire at age 65 years with an annual pension of $70,000—again, nearly 300% more than Social Security; or (3) retire at age 65 years with an annual pension of $53,000 and a one-time cash payment of $223,000, an option Social Security does not offer. And Chile’s system gives people ownership over their saved assets so they can bequeath them upon death. Social Security does not. With almost fifty years of experience, Chile’s system also highlights the challenges such a system faces.60 Like many developing countries, almost half of Chileans work in the country’s informal economy and thus participate in the program intermittently or not at all. These workers end up without private retirement funds. Many workers who do participate evade paying their contributions and end up with underfunded accounts. The country also has a relatively small contribution rate of 10%, versus a developed world retirement average of 20%, and has not adjusted its retirement age—65 for men and 60 for women—since the program’s founding, despite life expectancy increasing over a decade. Critics argue that the minimum guaranteed benefit should be raised and that a lack of competition among fund providers—in 2020, the country had five companies that manage personal accounts—has led to relatively high fees. These are valuable insights that governments around the world, including Chile’s, have begun using to take informed action to make retirement systems based on private accounts better. Sweden’s transition to a system based on personal retirement accounts offers another insight for American reformers to consider. Perhaps most importantly, the Swedish example demonstrates that countries with long-standing, generous social insurance systems can successfully transition. In the late 1980s, Sweden entered a recession that led to increasingly dire forecasts of the country’s social insurance system. Like Social Security today, Swedish actuarial estimates found the country’s program would become insolvent within the next decade or two leading to a precipitous loss of confidence in

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the program. As the World Bank later reported, “There emerged an increasingly widespread belief among new entrants into the labor force and the general public that the system could not meet its ‘promises.’” 61 In the 1991 Swedish election, the Social-Democratic Party, which had governed the country for almost fifty years, lost power to a coalition of parties promising reform. The country then debated reform for years with the final proposal getting support from 90% of the Swedish Parliament.62 The final proposal included personal accounts, a minimum pension guarantee, and a modified (though still-generous) social insurance system.63 Swedish workers pay an 18.5% payroll tax with 2.5% of that going into the personal accounts. The law passed in 1998 and went into effect in 2000. Sweden offers one other critical insight: the default investment for private accounts is critical. Whereas Chile’s private account system offered five fund options and Poland twenty-one during their inaugural years, Sweden offered participants 675 different investment funds.64 Workers who did not pick a fund were assigned the default option, which held between 80% and 90% of its assets in stocks.65 Initially, more than 60% of Swedes chose a fund, but this fell significantly over time with only 10% of new Swedish participants picking their own fund in recent years.66 The rest choose the default funds.67 As Lars Gedda, a retired Swedish participant explained to the New York Times, “You must have a knowledge that the average person does not have,” he explained.68 Based on this, experts view thoughtful default funds as critical, with a focus on “target retirement funds” or “lifecycle funds” that change investment mix and reduce risk by shifting participants from more stocks to more bonds over time.69 One need not go abroad to find an example of successful Social Security reform. Until 1983, local governments could withdraw their employees from Social Security and establish their own programs.70 A number of counties chose to do so, including the Texas counties of Galveston, Brazoria, and Matagorda, who all opted out of Social Security in the early 1980s.71 The reform started in Galveston when local officials began to question the benefits of staying in Social Security. As Ray Holbrook, Galveston’s county judge, would later recall: Just like today, everybody who paid attention to such issues knew that Social Security was in serious financial trouble. . . . We knew Social Security’s “pay as you go” system wasn’t working. . . . We faced a choice: we could either keep our people in the existing system with all its imminent tax increases and increased retirement ages and potential benefit cuts, or we could try to come up with a better, safer, more secure system.72

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The officials came up with an alternative with county employees given private accounts invested in a combination of lower-risk bank CDs and bonds and, if desired, mutual funds. The proposal was put to a vote, and county employees supported the proposal three to one. The program began in January, 1981.73 In the years since, the Galveston program has continued to earn widespread support from its participants and offered almost all participants higher benefits than traditional Social Security. In 2011, only five of the county’s 1,350 workers chose not to participate. As Galveston County Judge Mark Henry explained, “The plan works great. Anyone who spends a few minutes understanding the plan becomes a huge proponent.”74 In 1999, the Government Accountability Office (GAO) conducted an analysis to compare Social Security and Galveston’s “Alternate Plans.” The analysis looked at low, median, and high earners who worked for forty-five years and would retire in 2026.75 Galveston’s Alternate Plan provided a monthly benefit of 32%, 48%, and 115% higher than Social Security for each group respectively.76 Only the lowest income workers did better in Social Security. But that could be debated. While Galveston’s “Alternate Plan” is fully funded, Social Security is not. As the GAO’s report noted, “Our projections of future Social Security benefits assume the benefits available today will be available in the future.” Given “the system’s long-term shortfall,” Social Security’s “benefits . . . could be less.”77 While program details vary, retirement systems built on personal accounts— both globally and domestically—show the same basic results relative to social insurance programs like Social Security: higher retirement incomes, more distribution flexibility, personal ownership, inheritance rights, and more security for low-income citizens in those programs that include a minimum income guarantee. As Martin S. Feldstein of Harvard University observed, based on the large number of successful transitions by countries across the globe, almost any country “can successfully make the transition” to a system based on private accounts, including the United States.78 THE MEDICARE CHALLENGE While even skeptics acknowledge the potential benefits of reforming Social Security to include individual accounts, advocates of Social Security reform do not always recognize the potential to reform Medicare similarly. But Medicare could be similarly reformed and strong arguments exist to do so. Like Social Security, Medicare is headed towards a crisis. In recent years, Medicare has become the third largest federal program with $750 billion of spending in 2018, 15% of total federal spending.79 Moreover, the program faces a more dire financial outlook than Social Security. In 2020, Medicare’s

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trustees estimated the program’s unfunded liabilities—that is, the amount needed today to balance the program’s expected costs and expenses the next seventy-five years—at $46 trillion versus $20 trillion for Social Security.80 Both programs face looming insolvency. Medicare just faces a more severe situation. The root of Medicare’s financial problem is simple: beneficiaries spend far more than they contribute. A 2018 study by the Urban Institute estimated Medicare’s lifetime benefits and taxes for a married couple with two average earners who both turned 65 years old in 2020 and thus became Medicare eligible. The study estimated lifetime Medicare taxes at $161,000 and benefits at $498,000—over three times more. If only one spouse worked, the gap would be twice as large, with benefits almost six times more than the couple’s lifetime taxes.81 Medicare’s problems are poised to worsen as America’s population continues to age and healthcare costs continue to grow. Actuaries estimate that America’s 2010 ratio of workers to beneficiary of 2.8 will fall to 2.4 in 2030, and to 2.0 in 2080, meaning there will only be two workers to support every Medicare beneficiary.82 Meanwhile, medical costs are expected to continue growing faster than the nation’s economy, driven by increased medical consumption and rising prices. The recognition of Medicare’s problems transcends political party and ideology. As President Barack Obama explained during a press conference in July 2011, “the skyrocketing cost of healthcare” represented one of the nation’s largest threats. “Medicare . . . will run out of money and we will not be able to sustain that program no matter how much taxes go up. I mean, it’s not an option for us just to just sit by and do nothing . . . we have an obligation to make sure that we make those changes that are required to make it sustainable over the long term.”83 Medicare requires significant changes to get the program back into actuarial balance for the next seventy-five years. To bring the current Medicare program into long-term solvency, America’s Medicare payroll tax rate— imposed on worker’s wages—would need to increase 4.2 percentage points from today’s 2.9% for most workers to 7.1%.84 The program’s costs could also be reduced by increasing the eligibility age, premiums, or cost-sharing co-pays. All these changes would help—but something more substantive is likely to be required to get the program back on a sound footing. PREMIUM SUPPORT In response to Medicare’s dire long-term forecasts, reformers have developed a structural reform: premium support. In a premium support system, the

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federal government would provide individuals with a set amount of money— adjusted for health risk, income, and potentially geography—to pay their insurance premium from private insurers or Medicare.85 Older, sicker, and lower-income patients would receive higher premium supports than would younger, healthier, and higher-income beneficiaries. Under Medicare, beneficiaries enroll in either federally managed Medicare or a Medicare Advantage plan, an insurance plan offered by private insurers for Medicare beneficiaries.86 In a premium support model, beneficiaries would receive the premium support and be able to select from numerous insurance options varying in price. Beneficiaries could enroll in low-cost plans—and potentially keep a part of their premium support—or pay for a more expensive plan and supplement the premium support they received with their own money to make up the difference.87 Four major bi-partisan premium support plans were released in 2010 and 2011 as leaders in Washington, DC took a hard, honest look at the scale of Medicare’s problems. The earliest was the 2010 Ryan–Rivlin plan, developed jointly by Alice Rivlin, former CBO director under President Clinton, and Representative Paul Ryan, then-Chairman of the House Ways and Means Committee. The two shared a concern about Medicare’s unsustainability and believed a premium support approach represented the best path forward.88 Their proposal outlined how a premium support model could work. New Medicare beneficiaries would receive premium support vouchers based on historical beneficiary Medicare costs and gross domestic product (GDP) growth adjusted for health, income, and location starting in 2021.89 Healthier and better-off seniors would receive less support, and the eligibility age would increase from 65 to 67 years old from 2021 to 2032. Defending the plan, Ryan explained that: In order to make good on Medicare’s promise, I’ve put forward reforms that offer future seniors the same health coverage options I enjoy as a member of Congress. My reform plan makes no changes for those 55 and older, as efforts to save this program ought not disrupt benefits for those in and near retirement. For those now under the age of 55, Medicare would provide seniors with a payment, a list of Medicare-approved coverage options and the ability to choose a plan that works best for them. The Medicare payment would be adjusted so that the wealthy receive a lower subsidy, the sick would receive a higher payment if their conditions worsen, and lower-income seniors would receive additional assistance to cover out-of-pocket costs.90

In November 2010, Rivlin released a second premium support proposal with long-time Senator Pete Domenici (R-NM) through the Bipartisan Policy Center. Though similar in many ways, the Rivlin–Domenici plan differed

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in some key ways.91 The premium support payments would only grow at the United States’ inflation rate plus 1%, instead of the GDP rate plus 1%. Because inflation grows more slowly than GDP, the premium support would also have grown more slowly. And the amount provided would be set equal to the second-cheapest approved private plan or the cost for traditional Medicare in a given area. Payments would again be modified based on the location, health, and income of the retiree.92 In 2011, Ryan collaborated with Senator Ron Wyden (D-OR) to develop another proposal, which resembled the previous Ryan–Rivlin plan, but included traditional Medicare. Like the Rivlin–Domenici plan, the premium support amount would be set based on the cost of the second-cheapest private insurance option or the cost of traditional Medicare. But the plan offered more generous benefits: premiums would grow at no more than the GDP rate plus 1% plus inflation.93 Finally, the Bowles-Simpson Commission appointed by President Barack Obama, led by Erskine Bowles, former White House Chief of Staff for President Clinton, and former Senator Alan Simpson (R-WY), noted that “if necessary” the country should “move Medicare towards a premium-supported system.”94 MEDICARE COMPETITION Some critics have attacked the premium support approach as “radical” and “experimental.” The proposal would change Medicare from a defined-benefit system delivered largely by the federal government to one based on a defined-contribution delivered in a competitive market.95 The critics have raised valid concerns. For one, critics have pointed out for years that traditional Medicare costs less than Medicare Advantage plans provided by private insurers for Medicare beneficiaries. Second, the premium support plans have proposed capping the growth of the premium support vouchers. If old-age healthcare costs continue to grow faster than the voucher’s value, beneficiaries would increasingly pay the difference. These represent serious and legitimate concerns, but evidence in recent years calls both into question. For their first fifteen years, Medicare Advantage cost significantly more than traditional Medicare. Kick-started by the Medicare Prescription Drug, Improvement and Modernization Act, known as the Medicare Modernization Act of 2003, Medicare Advantage initially paid private insurance companies significantly more than traditional Medicare to incent private insurers to participate.96 The difference was substantial, with Medicare Advantage plans paid 10% or more between 2005 and 2010, and between 5% to 10% between 2010 and 2015.97

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But in recent years, the gap has completely closed. In 2017, Medicare Advantage plans reached cost parity with traditional Medicare.98 As the Kaiser Family Foundation reported, “In 2019, Medicare payments to Medicare Advantage plans (including bonus payments) are roughly equal to the per capita costs in traditional Medicare, 100 percent, on average.”99 At the same time, an increasing number of American seniors have chosen to participate in Medicare Advantage. In 2020, over a third of Medicare beneficiaries enrolled in a Medicare Advantage provided by a private insurer.100 Medicare Advantage plans have reached cost parity by innovating and delivering equally good health outcomes with lower cost health services. Medicare Advantage plans receive an annual, risk-adjusted payment per beneficiary and bonuses for quality and health outcomes. This provides the plans an incentive to innovate and find ways to provide equal or better care for lower costs. That is exactly what they have done. Rigorous studies have found that Medicare Advantage beneficiaries are less likely to be admitted to a hospital, less likely to be re-admitted to hospitals, more likely to be discharged directly home, and less likely to visit expensive medical specialists. In contrast, Medicare Advantage beneficiaries see primary care physicians and undergo surgeries in outpatient settings (outside hospitals) equal to or more than traditional Medicare beneficiaries. These changes reduce costs and—based on the evidence—have maintained and even improved health outcomes and quality.101 These lower costs allow private Medicare Advantage plans to market and sell their policies, invest in innovative care solutions, and still make a profit. As a group of Stanford economists reported in 2015, “We find that private (Medicare Advantage) plans have costs around 12% below fee-for-service costs.”102 And as the New York Times reported in 2017 about Medicare Advantage, “Enrollee satisfaction is generally high, and studies show that plans offer higher quality than traditional Medicare.”103 This competitive, innovative dynamic is what premium support advocates relied on to justify their proposed reform. As Representative Paul Ryan and Senator Ron Wyden argued in defense of their 2011 plan: By allowing private plans to compete directly with traditional Medicare, our plan would also spur a wave of innovation to lower health-care costs and provide higher-quality health care. . . . By giving seniors the power to choose among competing plans, our plan would add a level of cost control, customization and quality to the health security of older Americans that today’s Medicare is not in a position to achieve.104

Notably, the innovation and competition created by Medicare Advantage plans have coincided with a marked decrease in Medicare enrollee cost

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growth. Between 2006 and 2017, average Medicare enrollee costs grew 2.4% per year—equal to America’s economic growth over that period.105 A premium support model could be combined with Medicare personal savings accounts similar to personal accounts for Social Security. During their working years, American workers could save and invest money in Medicare savings accounts, which could then be used to help pay Medicare insurance premiums, co-pays, and out-of-pocket medical costs in retirement. The approach would mirror the one proposed for Social Security: personal accounts combined with federally guaranteed support in the form of a premium support payment that could vary based on one’s health status, age, location, income, and Medicare personal account savings balance. The proposed alternatives for Social Security and Medicare—based on private, personal accounts and federally-backed minimum guarantees—represent an attractive, plausible improvement to today’s increasingly insolvent social insurance approach. In the twenty-first century, few would argue with these programs’ intent. Americans want financial security and healthcare during their older years, but traditional Social Security and Medicare have met this need increasingly poorly and unsustainably. A better alternative can be built on the principle of individual ownership and sovereignty—centered on private accounts and personal choice—combined with federally-backed minimum guarantees. A transition to private accounts and minimum guarantees would take decades and require continued federal support over the long-term. But this approach offers many benefits—and would far better reflect America’s long-standing commitment to individual rights and sovereignty, values that represent the cornerstone of America’s political system. NOTES 1. U.S. National Archives. The Declaration of Independence: A Transcription. July 4, 1776. https://www.archives.gov/founding-docs/declaration-transcript (accessed January 11, 2021). 2. U.S. Congress. Senate. Congressional Record. 87 Cong., 1st sess. (June 26, 1961), Vol. 107, pt. 9, 11307–8. 3. Patient Protection and Affordable Care Act (ACA) of 2010, H.R. 3590, 124 Stat. 119, Public Law 111–148, 111th Cong., 2nd sess. (March 23, 2010), https:// www.congress.gov/111/plaws/publ148/PLAW-111publ148.pdf (accessed January 25, 2021); Author’s plaintiff status, see John Nantz discussed in Linda Greenhouse’s “Who Will Be Left Standing in the Supreme Court? New York Times, January 16, 2020, https://www.nytimes.com/2020/01/16/opinion/supreme-court-trump.html (accessed January 25, 2021).

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4. Bernard Bailyn, The Ideological Origins of the American Revolution (Cambridge, MA: Harvard University Press, Belknap Press, 1992), v. 5. Paul Rahe, Republics Ancient and Modern (Chapel Hill: University of North Carolina Press, 1992), 672. 6. Rahe, Republics, 778. 7. Francis Newton Thorpe, The Constitutional History of the United States, 1765– 1895. (Chicago: Callaghan, 1901), in 3 vols. 8. Donald Ratcliffe, Donald. “The Right to Vote and the Rise of Democracy, 1787–1828,” Journal of the Early Republic 33, no. 2 (2013): 225–27, https://doi. org/10.1353/jer.2013.0033. 9. USHistory, “The Expansion of the Vote: A White Man’s Democracy,” USHistory. org (n.d.), https://www.ushistory.org/us/23b.asp (accessed July 28, 2015). 10. Civil Rights Act of 1964, 78 Stat. 247, Public Law 88–352. 88th Cong., 1st sess. (July 2, 1964), https://www.govinfo.gov/link/statute/78/241?link-type=pdf (accessed January 18, 2021); Voting Rights Act of 1965, 79 Stat. 437, Public Law 89–110, 89th Cong., 1st sess. (August 6, 1965), https://www.govinfo.gov/link/ statute/79/437?link-type=pdf (accessed January 18, 2021). See also U.S. National Archives, The Declaration of Independence: A Transcription. July 4, 1776, https:// www.archives.gov/founding-docs/declaration-transcript (accessed January 11, 2021); U.S. Library of Congress, The Bill of Rights. September 25, 1789, Ratified December 15, 1791, Primary Documents in American History, https://guides.loc.gov/billof-rights (accessed January 13, 2021); U.S. National Archives, The Constitution: Amendments 11–27, March 4, 1794–May 7, 1992, https://www.archives.gov/ founding-docs/amendments-11-27 (accessed January 15, 2021); The Constitution of the United States: A Transcription, September 17, 1787, https://www.archives.gov/ founding-docs/constitution-transcript (accessed December 16, 2020). 11. Charles Warren, “The New ‘Liberty’ under the Fourteenth Amendment,” Harvard Law Review 39, no. 4 (1926): 431–65, https://www.jstor.org/stable/i257076. 12. Encyclopedia Britannica Editors. “Eighteenth Amendment, United States Constitution,” s.v. Encyclopedia Britannica Online (n.d.), https://www.britannica. com/topic/Eighteenth-Amendment (accessed July 28, 2015); National Constitution Center, “21st Amendment: Repeal of Prohibition,” Interactive Constitution (n.d.), https://constitutioncenter.org/interactive-constitution/amendment/amendment-xxi (accessed July 28, 2015). 13. Loving v. Virginia. 388 U.S. 1, No. 398 (June 12 1967), https://www.law. cornell.edu/wex/loving_v_virginia_(1967) (accessed July 28, 2015). 14. Lawrence v. Texas. 539 U.S. 558 (June 26, 2003). 41 S. W. 3d 349, reversed and remanded, https://www.law.cornell.edu/supct/html/02-102.ZO.html (accessed July 28, 2015). 15. Lochner v. New York, 198 U.S. 45 (1905), https://supreme.justia.com/cases/ federal/us/198/45/ (accessed July 30, 2015). 16. Daniel A. Crane, “Lochnerian Antitrust,” NYU Journal of Law & Liberty 1, no. 1 (2005): 496–514. https://static1.squarespace.com/static/514e1ca0e4b04c6ad1834313/ t/55a2ad83e4b0a5fcc4db511f/1436724611935/vol1no1_frontmatter.pdf (accessed January 25, 2021).

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17. West Coast Hotel v. Parrish, 300 U.S. 397 (1937), Landmark Cases, PBS, https://www.thirteen.org/wnet/supremecourt/capitalism/landmark_westcoast.html (accessed January 25, 2021). 18. Gibbons v. Ogden, 22 U.S. 9 Wheat. 1 1 (1824), Landmark Cases, PBS, https:// www.thirteen.org/wnet/supremecourt/antebellum/landmark_gibbons.html (accessed January 25, 2021). 19. Wickard v. Filburn, 317 U.S. 111; 63 S.Ct. 82; 87 L. Ed. 122 (November 9, 1942), https://www.loc.gov/item/usrep317111/. 20. Peter A. Diamond and Peter R. Orszag, Saving Social Security: A Balanced Approach (Washington, DC: Brookings Institution Press, 2005); Kathleen Romig, “Social Security Lifts More Americans Above Poverty Than Any Other Program,” February 20, 2020, https://www.cbpp.org/research/social-security/socialsecurity-lifts-more-americans-above-poverty-than-any-other-program (accessed September 9, 2020). 21. RAND, “American Life Panel,” 2003–2021, https://www.rand.org/research/ data/alp.html (accessed January 25, 2021). 22. Andrew Biggs, “Americans Want to Own Their Retirement, Not Expand Social Security,” June 19, 2020, RealClear Markets, https://www.realclearmarkets.com/ articles/2020/06/19/americans_want_to_own_their_retirement_not_expand_social_ security_496729.html (accessed January 25, 2021). 23. Martin S. Feldstein, “Transition to a Fully Funded Pension System: Five Economic Issues,” National Bureau of Economic Research (NBER) Working Paper No. w6149, August 1997, https://papers.ssrn.com/sol3/papers.cfm?abstract_ id=225912 (accessed January 25, 2021). 24. John Geanakoplos, Olivia S. Mitchell, and Stephen P. Zeldes, “Would a Privatized Social Security Really Pay a Higher Rate of Return?” in Framing the Social Security Debate, ed. R. Douglas Arnold, Michael J. Graetz, and Alicia H. Munnell (Washington, DC: National Academy of Social Insurance, 1998), 148; Diamond and Orszag, Saving Social Security. 25. William A. Galston, “Why President Bush’s 2005 Social Security Initiative Failed, and What it Means for the Future of the Program,” September 2007, NYU Wagner. 26. Peter Ferrara, “How George W. Bush Lost Personal Accounts For Social Security,” Forbes, April 7, 2011, https://www.forbes.com/sites/peterferrara/2011/04/07/ how-george-w-bush-lost-personal-accounts-for-social-security/?sh=6c3a28fc494d (accessed July 23, 2015). 27. Joes Roberts, “Bush Wraps Up Social Security Tour,” CBSNews, February 1, 2005, https://www.cbsnews.com/news/bush-wraps-up-social-security-tour/ (accessed July 22, 2015). 28. Roberts, “Bush Wraps Up Social Security Tour.” 29. Economist, “Social Security Reform: A Hard Sell.” Economist, February 24, 2005, https://www.economist.com/united-states/2005/02/24/a-hard-sell (accessed January 26, 2021). 30. Galston, “Why President Bush’s 2005 Social Security Initiative Failed.”

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31. Matt Bai, “The Framing Wars.” New York Times. July 17, 2005, section 6, 38. https://www.nytimes.com/2005/07/17/magazine/the-framing-wars.html (accessed July 17, 2005). 32. Bai, “Framing Wars,” 38. 33. Bai, “Framing Wars,” 38. 34. Bai, “Framing Wars,” 38. 35. Bai, “Framing Wars,” 38. 36. Bai, “Framing Wars,” 38. 37. Bai, “Framing Wars,” 38. 38. Leigh Strope, “Bush Moves to Privatize Social Security,” Associated Press; repr. USATODAY, November 10, 2004, https://www.memeorandum.com/04/11/11/ (last accessed July 23, 2015). 39. Edwin Chen, “Bush Becomes GOP’s Go-to Guy for Fundraising,” Los Angeles Times, June 15, 2005, https://www.latimes.com/archives/la-xpm-2005-jun-15-nabush15-story.html (accessed July 23, 2015). 40. Bai, “Framing Wars,” 38. 41. William M. Welch, “AARP ‘Dead Set Against’ Bush’s Social Security Plan,” USATODAY, January 25, 2005, https://freerepublic.com/focus/news/1327982/posts (accessed July 23, 2015). 42. Jill Zuckman, “AARP: Don’t Mess with Social Security,” Chicago Tribune, January 30, 2005, https://www.chicagotribune.com/news/ct-xpm-2005-01-300501300337-story.html (accessed July 23, 2015). 43. Mark Weisbrot and Dean Baker, “What Crisis?: It Ain’t Broke, So No Need to Fix It,” Washington Post, January 23, 2005. http://www.washingtonpost.com/wp-dyn/ articles/A28193-2005Jan22.html (accessed July 23, 2015). 44. Welch, “AARP.” 45. Welch, “AARP.” 46. Welch, “AARP.” 47. Welch, “AARP.” 48. Zuckman, “AARP”; “AARP Solicits Young in Its Latest Campaign,” USATODAY, February 10, 2005, (Last accessed July 23, 2015). 49. Welch, “AARP.” 50. Zuckman, “AARP.” 51. Zuckman, “AARP.” 52. Galston, “Why President Bush’s 2005 Social Security Initiative Failed.” 53. Galston, “Why President Bush’s 2005 Social Security Initiative Failed.” 54. P. Ferrara, “How George W. Bush Lost Personal Accounts For Social Security.” 55. Galston, “Why President Bush’s 2005 Social Security Initiative Failed.” 56. Michael A. Hiltzik, “Undoing the New Deal,” Los Angeles Times, June 26, 2005. Web. https://www.latimes.com/la-tm-hiltzik26jun26-story.html (accessed July 23, 2015). 57. Barbara E. Kritzer, “Individual Accounts in Other Countries,” Social Security Bulletin 66, no. 1 (2005): 31–37, http://www.ssa.gov/policy/docs/ssb/v66n1/ v66n1p31.html (accessed January 25, 2021).

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58. Sebastian Edwards and Alejandra Cox Edwards, “Social Security Privatization Reform and Labor Markets: The Case of Chile,” National Bureau of Economic Research (NBER) Working Paper No. w8924, May 9, 2002, https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=310471 (accessed January 25, 2021). 59. John Tierney, “The Proof’s in the Pension.” New York Times, April 26, 2005. http://www.nytimes.com/2005/04/26/opinion/the-proofs-in-the-pension.html (accessed July 30, 2015). 60. Barbara E. Kritzer, “Chile’s Next Generation Pension Reform. Social Security Bulletin 68, no. 2 (2008): 69–84, https://www.ssa.gov/policy/docs/ssb/ v68n2/v68n2p69.html (accessed September 25, 2020); Barbara E. Kritzer, Stephen J. Kay, and TopenSinha, “Next Generation of Individual Account Pension Reforms in Latin America,” Social Security Bulletin 71, no. 1 (2011): 35–76, https://www.ssa. gov/policy/docs/ssb/v71n1/v71n1p35.html (accessed September 25, 2020). 61. Edward Palmer, “The Swedish Pension Reform Model: Framework and Issues,” World Bank (2000): 1–50, https://www.oecd.org/finance/financial-markets/2638200. pdf (accessed January 25, 2021). 62. Alan Cowell, “Sweden’s Take on Private Pensions,” New York Times, February 12, 2005, section C, 1. https://www.nytimes.com/2005/02/12/business/ worldbusiness/swedens-take-on-private-pensions.html (accessed January 25, 2021); Annika Sundén, “How Will Sweden’s New Pension System Work?” Boston College, Brief: Center for Retirement Research 3 (March 2000): 1–16, http://crr.bc.edu/ wp-content/uploads/2000/03/ib_3.pdf (accessed July 29, 2015). 63. R. Kent Weaver, “Design and Implementation Issues in Swedish Individual Pension Accounts,” Social Security Bulletin 65, no. 4 (2003/2004): 38–56, https:// www.ssa.gov/policy/docs/ssb/v65n4/v65n4p38.pdf (accessed January 25, 2021). 64. Cowell, “Sweden’s Take on Private Pensions,” 1. 65. Alan B. Krueger, “Economic Scene; Some Lessons from Sweden on the Pros and Cons of Privatizing Social Security,” New York Times, February 4, 2004, section C, 2, https://www.nytimes.com/2004/02/05/business/economic-scene-some-lessonssweden-pros-cons-privatizing-social-security.html (accessed July 29, 2015). 66. Cowell, “Sweden’s Take on Private Pensions,” 1. 67. Cowell, “Sweden’s Take on Private Pensions,” 1. 68. Cowell, “Sweden’s Take on Private Pensions,” 1. 69. Krueger, “Economic Scene,” 2 70. Ray Holbrook, “An American Model for Social Security Reform,” Statement, President’s Commission to Strengthen Social Security, September 5, 2001, 1–5. http:// www.ssa.gov/history/reports/pcsss/Judge_Ray_Holbrook_Statement.pdf (accessed January 25, 2021). 71. Becca Aaronson, “How Privatized Social Security Works in Galveston,” New York Times, September 17, 2011, section A, https://www.nytimes.com/2011/09/18/us/ how-privatized-social-security-works-in-galveston.html (accessed August 1, 2015); Robert L. Clark, Lee A. Craig, and John Sabelhaus, “State and Local Pension Plans and the Evolution of Social Security: 1940–1975,” in State and Local Retirement Plans in the United States, ed. Robert L. Clark, Lee A. Craig, and John Sabelhaus (Northampton, MA: Edward Elgar, 2011), 59–82.

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72. Holbrook, “An American Model for Social Security Reform.” 73. Holbrook, “An American Model for Social Security Reform.” 74. Avik Roy, “The Texas Model for Social Security Reform,” National Review Online, September 25, 2011, https://www.nationalreview.com/the-agenda/texasmodel-social-security-reform-avik-roy/ (accessed August 1, 2015). 75. The study defined “low” as earners in the bottom 10th percentile of earners and “high” earner as those in the top 10th percentile. 76. U.S. Government Accountability Office (GAO), “Social Security Reform: Experience of the Alternate Plans in Texas,” Report to the Chairman and Ranking Minority Member, Subcommittee on Social Security, Committee on Ways and Means, House of Representatives, GAO/HEHS-99–31, February 1999, 18, https://www.gao. gov/archive/1999/he99031.pdf (accessed January 25, 2021). 77. U.S. GAO, “Social Security Reform,” 25. 78. Feldstein, “Transition to a Fully Funded Pension System.” 79. U.S. Centers for Medicare and Medicaid Services, “2020 Annual Report of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds: Communication,” April 22, 2020, https://www. cms.gov/files/document/2020-medicare-trustees-report.pdf (accessed September 25, 2020). 80. U.S. Centers for Medicare and Medicaid Services, “2020 Annual Report,” 202. 81. C. Eugene Steuerle and Caleb Quakensush, “Social Security and Medicare Lifetime Benefits and Taxes,” Urban Institute, October 24, 2018, https://www.urban. org/research/publication/social-security-and-medicare-lifetime-benefits-and-taxes2018-update/view/full_report (accessed September 25, 2020). 82. American Academy of Actuaries, “Medicare at 50,” July 2015, https://www. actuary.org/sites/default/files/files/Medicareat50_Sustainability_0715.pdf (accessed September 25, 2020). 83. White House, President Barack Obama, “Press Conference by the President,” July 11, 2011, https://www,obamawhitehouse.archives.gov/the-press-office/2011/07/11/ press-conference-president (accessed September 25, 2020). 84. U.S. Centers for Medicare and Medicaid Services, “2020 Annual Report,” 28 and 174. Note that the 4.2% increase was estimated as follows: the report notes on pg. 28 that the HI program would require a 0.76% increase to remain actuarially sound over the next 75-years, with the HI program growing from 1.52% to 2.01% of GDP over that period. Over that same period, per the table on pg. 174, the SMI program is expected to grow from 2.21% to 4.45% of GDP (an increase of 2.24%). Based on the HI as a percentage of GDP, and the required increase in payroll to make the HI program sustainable (a 0.76% increase in the Medicare payroll tax to cover a 0.49% increase in Medicare as a percentage of GDP), the SMI program will require around a 3.47% to compensate for a 2.24% increase of SMI as a percentage of GDP. Adding the 0.76% increase for HI and 3.47% increase for SMI leads to the 4.2% increase in total. 85. Robert E. Moffit, “Premium Support: Medicare’s Future and its Critics,” Heritage Foundation, August 7, 2012, https://www.heritage.org/health-care-reform/ report/premium-support-medicares-future-and-its-critics (accessed January 25, 2021).

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86. Gretchen Jacobson, Tricia Neuman, and Anthony Damico, “Transforming Medicare Into a Premium Support System: Implications for Beneficiary Premiums,” Kaiser Family Foundation (KFF), October 2012, https://www.kff.org/wp-content/ uploads/2013/01/8373.pdf (accessed January 25, 2021). 87. Jacobson et al., “Transforming Medicare.” 88. The four proposals were: (1) Alice Rivlin and Paul Ryan, “2010 Rivlin– Ryan Health Care Proposal to the Congressional Budget Office,” http://budget. house.gov/rivlinryan.pdf, Response: https://www.cbo.gov/sites/default/files/111thcongress-2009-2010/reports/11-17-rivlin-ryanpreliminaryanalysis.pdf (accessed January 25, 2021); (2) U.S. Congress, Senate, “Testimony by Sen. Pete V. Domenici and Dr. Alice Rivlin Co-Chairs, Bipartisan Policy Center Debt Reduction Task Force,” Committee on Finance, June 19, 2012, http://bipartisanpolicy.org/sites/default/files/ files/BPC%20FINAL%20REPORT%20FOR%20PRINTER%2002%2028%2011. pdf (accessed January 25, 2021); (3) Erskine Bowles and Alan Simpson, (BowlesSimpson Plan) “The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform,” December 1, 2010, http://momentoftruthproject. org/sites/default/files/TheMomentofTruth12_1_2010.pdf, see https://www.cbpp.org/ research/bowles-simpson-social-security-proposal-not-a-good-starting-point-forreforms#_ftn1 (accessed January 25, 2021); and (4) Ron Wyden and Paul Ryan, (Ryan–Wyden Plan, 2011), http://budget.house.gov/uploadedfiles/wydenryan.pdf, see https://www.npr.org/sections/health-shots/2011/12/15/143782004/wyden-ryanmedicare-plan-shakes-up-politics-more-than-policy (accessed January 25, 2021). 89. Uwe E. Reinhardt, “Restructuring Medicare and Rivlin–Ryan Plan,” New York Times, February 4, 2011. http://economix.blogs.nytimes.com/2011/02/04/ restructuring-medicare-and-the-rivlin-ryan-plan/?_php=true&_type=blogs&_r=0 (accessed January 25, 2021). 90. “Rep. Ryan on his Medicare Plan.” New York Times, November 17, 2010, http:// economix.blogs.nytimes.com/2010/11/17/rep-ryan-on-his-medicare-plan/ 91. Medicare Newsgroup, “What is the Rivlin–Domenici Plan?” 2014, http://www.medicarenewsgroup.com/news/medicare-faqs/ individual-faq?faqId=2c3ead91-0f35-4056-9ff2-25e82bb9c006. 92. Bipartisan Policy Center, Domenici–Rivlin Protect Medicare Act, 2012, http://bipartisanpolicy.org/domenici-rivlin-protect-medicare-act (accessed January 25, 2021). 93. Ron Wyden and Paul Ryan, (Ryan–Wyden Plan, 2011). 94. Vasanth Sathiyakumar, Jordan Apfeld, Daniel Stinner, and Alex Jahangir, “The Simpson-Bowles Plan and the Fiscal Cliff.” American Academy of Orthopaedic Surgeons (AAOS), January 2013. http://www.aaos.org/news/aaosnow/jan13/ advocacy3.asp, see https://www.researchgate.net/publication/277078016_The_ Simpson-Bowles_Plan_and_the_fiscal_cliff_what_orthopaedic_surgeons_need_to_ know (accessed January 25, 2021). 95. Reinhardt, “Restructuring Medicare.” 96. Medicare Prescription Drug, Improvement and Modernization Act, or Medicare Modernization Act (MMA) of 2003, H.R. 1, Public Law 108–173, 108th Cong., 1st

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sess. (December 8, 2003), https://www.congress.gov/108/plaws/publ173/PLAW108publ173.pdf (accessed January 27, 2021). 97. Yash M. Patel and Stuart Guterman, “The Evolution of Private Plans in Medicare,” Commonwealth Fund, December 8, 2017, https://www.commonwealthfund.org/ publications/issue-briefs/2017/dec/evolution-private-plans-medicare (accessed January 25, 2021). 98. Patel and Guterman, “Evolution of Private Plans in Medicare.” 99. Kaiser Family Foundation (KFF). “Medicare Advantage.” June 6, 2020. https://www.kff.org/medicare/fact-sheet/medicare-advantage/ (accessed September 26, 2020). 100. Jacob Glazer and Thomas G. McGuire, “Paying Medicare Advantage Plans: To Level or Tilt the Playing Field,” Journal of Health Economics 56 (2017): 281–91, https://doi.org/10.1016/j.jhealeco.2016.12.004. 101. America’s Health Insurance Plans and Center for Policy and Research, “Working Paper: Comparisons of Utilization in Two Large Multi-State Medicare Advantage HMOs and Medicare Fee-for-Service in the Same Service Areas,” December 2009, http://www.ahipresearch.org/pdfs/MAvsFFS-CO9and10.pdf (accessed January 25, 2021); Vilsa Curto, Liran Einav, Amy Finkelstein, Jonathan Levin, and Jay Bhattacharya, “Health Care Spending and Utilization in Public and Private Medicare,” American Economic Journal: Applied Economics 11, no. 2 (2019): 302–32, https://doi.org/10.1257/app.20170295. 102. Vilsa Curto, Liran Einav, Jonathan Levin, and Jay Bhattacharya, “Can Health Insurance Competition Work? Evidence from Medicare Advantage,” SIEPR Discussion Paper No. 14–015, 2015, https://siepr.stanford.edu/sites/default/files/ publications/14-015_0.pdf (accessed September 26, 2020). 103.Austin Frakt, “Medicare Advantage Spends Less on Care, So Why Is It Costing So Much?” New York Times, August 7, 2017, https://www.nytimes.com/2017/08/07/ upshot/medicare-advantage-spends-less-on-care-so-why-is-it-costing-so-much.html (accessed September 26, 2020). 104. Ron Wyden and Paul Ryan, “A Bipartisan Way Forward on Medicare,” Wall Street Journal, December 15, 2011, http://online.wsj.com/news/articles/SB10001424 052970203893404577098681919780636 (accessed September 26, 2020). 105. John Holahan and Stacey McMorrow, “Slow Growth in Medicare and Medicaid Spending per Enrollee Has Implications for Policy Debates,” Urban Institute, February 2019, https://www.urban.org/sites/default/files/publication/99748/ rwjf451631_1.pdf (accessed September 26, 2020).

Afterword: A Path Forward

The United States has run a nearly century-long experiment operating a much more expansive federal government than originally conceived by the drafters of the U.S. Constitution. This experiment found justification in the Progressive vision of politics and federal potential: publicly minded federal politicians and employees could use federal programs and laws to effectively solve many of the nation’s greatest problems. Based on this claim, the federal government took on an increasingly open-ended role, creating federal programs to supply retirement income, health care for those retirees, provide train service, and address poverty among other things. The experiment has not lived up to its advocates’ hopes or promises because their vision of politics and of human nature has proven unsound. Public officials—largely motivated by a self-interested pursuit of re-election— financially mismanaged the nation’s old-age social insurance programs (“windfall politics”). Federal services, including the United States Postal Service (USPS) and Amtrak, have incurred billion-dollar losses for years as federal employees and unions used disproportionate political influence to perpetuate outdated business models and practices, leading to relatively high costs for the same or worse service (“government surcharges”). And the federal government’s top-down, bureaucratic effort to address poverty coincided with and contributed to a forty-year pause in the American poverty reduction (“complexity failure”) that were perpetuated for decades by activists and supporters, insulated from reality by the federal programs that they propped up—despite significant and substantial amounts of evidence that the programs were not working. A better approach can be built by returning America’s federal government and political regime to the country’s original political idea: American Republicanism. This worldview saw state governments, voluntary organizations, and individual, sovereign, self-governing citizens taking ownership for almost all the country’s domestic responsibilities. Sovereign, self-governing citizens—the country’s primary political unit and political foundation—would direct their lives in the “pursuit of happiness” and justify the country’s political experiment. These citizens would 217

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come together voluntarily to create commercial, religious, and philanthropic organizations—America’s civil society—to solve numerous community problems, from indigent aid to road building. State governments—closer to the people, the people’s preferences, and local problems—would take responsibility for almost all areas of domestic American political life. This positive vision justified and undergirded the nation’s Declaration of Independence and Constitution and dovetailed with the Founders’ commonly shared concerns about human nature, politics, and the risks of a central government. Yet numerous foreign and domestic threats convinced the Founders that the nation needed a central government despite its many risks. Balancing these risks against the existential threats facing the country in 1787, the founding generation developed a pragmatic answer: give the federal government as few powers as necessary to address these foreign and domestic threats and then limit, divide, and check those same powers. That same approach provides modern Americans a useful, practical guide on how to reform America’s current political arrangement with its emphasis on expansive, open-ended federal powers and responsibilities. A wholesale return to the country’s original political system, now long-past, seems neither practicable nor advisable. Since 1787, the United States has abolished slavery, passed Constitutional amendments and federal laws to ensure civil rights and voting rights, and created numerous programs to aid vulnerable American populations, from the elderly to the working-age poor among other critical changes. A twenty-first-century American Republicanism would build on, not oppose, these changes and would reform the country’s political system, not by re-instituting but by re-applying the political vision and ideas championed by the Founders to America’s twenty-first-century situation. Such a re-application could start the way the Founders did in Philadelphia: by taking stock of what necessary powers the federal government should have. This would start with those powers given Constitutional sanction in 1789, supplemented by those added later due to explicit or implicit Constitutional amendments. The most notable pattern of explicit Constitutional amendments has given fulfillment to the country’s original promise, as stated in the Declaration of Independence, that “all men are created equal” in the country’s political and civil order. These Amendments—including the Thirteenth, Fourteenth, Fifteenth, Nineteenth, and Twenty-Fourth Amendments—extended and expanded the original Constitution’s guarantees—which banned “ex post facto” laws, “bills of attainder,” and religious tests for federal office—to include guarantees of political and civil equality for all citizens regardless of race, color, gender, and nation of origin. These Constitutional guarantees apply equally against both the federal and state governments. A twenty-first-century

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American Republicanism would incorporate all of these as foundational extensions of the basic moral guarantees included in the original Constitution. The United States has seen one other substantial addition to the original responsibilities given the federal government by the Founders: providing support for the country’s economically vulnerable. The Constitution does not explicitly empower the federal government to spend money on this cause. But a series of numerous laws passed over decades with often super-majority Congressional support—often exceeding the threshold required to submit constitutional Amendments for ratification to the states—suggests that the federal government now has a role to play in this area of national life. In 1935, Social Security passed with 372 “yea” votes to 33 “nay” votes in the House and 77 “yea” votes to 6 “nay” votes in the Senate, exceeding the two-thirds threshold required to submit a Constitutional amendment to the states.1 Votes on similar legislation had similar, lopsided results including welfare (1935), Section 8 housing (1935), Social Security Disability (1956), food stamps (1961), Medicare (1965), Medicaid (1965), and the Children’s Health Insurance Program (1997). All of these programs focused on groups viewed as economically vulnerable and deserving by most Americans. A twenty-first-century American Republicanism would accept the federal government’s responsibility to aid the economically vulnerable while supporting an approach driven by state governments, civic organizations, and local communities. In sum then, the federal government would have the powers granted it in 1789, the responsibility to ensure political and civil equality for all Americans, and support for the country’s economically vulnerable. Today’s federal government goes far beyond these responsibilities and largely earned poor results. The federal government has taken responsibility for all Americans’ retirement income and health insurance needs—not just the vulnerable—and managed Social Security and Medicare into insolvency. Federal services from the postal mail to train travel lose billions of dollars a year and have done so for decades. The federal government does not need to take on these responsibilities and—based on its results—should not. A twenty-first-century American Republicanism would re-focus the federal government on its comparative advantages—and turn all other responsibilities over to America’s citizens, state governments, and voluntary organizations. Most individual citizens can take better care of saving for and managing their retirement income and healthcare needs than the federal government, and polls show most want to. Individual citizens can be given this responsibility in the form of private accounts with the federal government’s support reserved for the nation’s most vulnerable elderly. The nation’s fifty-state governments can be given primary responsibility for running the nation’s social welfare, education, and training programs, among others. The

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fifty states can experiment and determine what works best with other states able to copy what works and drop what does not. Consumer services and public goods such as the USPS, Amtrak, and basic research can be delivered by private institutions, with federal funds provided for programs with widespread public support. All this would result in a renewed, well-functioning American political approach, aligned with the country’s original vision and built on a sound understanding of politics and of human nature. The United States has an attractive, credible, and tested alternative approach to the Progressive political vision—a renewed twenty-first-century American Republicanism. This approach offers the country a positive vision and a path forward rooted in the founding generation’s positive vision of a dynamic, consensual, commercial society rooted in the sovereign, independent citizen, a society that would, in the words of historian Paul Rahe, “give first place to man’s capacity as a tool-making animal,” with an emphasis on “labor, commerce, and technology, not politics.”2 NOTES 1. U.S. Social Security Administration, “1935 Congressional Debates on Social Security,” https://www.ssa.gov/history/tally.html (accessed November 29, 2018). 2. Paul Rahe, Republics Ancient and Modern (Chapel Hill: University of North Carolina Press, 1992), 571.

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Index

AARP. See American Association of Retired People abolition, of slavery, 18, 38, 196–97, 222 ACA. See Patient Protection and Affordable Care Act Acela lines, Amtrak, 120, 121 activists, 130–33, 138, 142 The Act Prohibiting Importation of Slaves (1807), U.S., 24 actuarial analyses, 87, 89, 92–93, 208 Adams, Brock, 118 Adams, Henry Baxter, 42 Adams, John, 18–19, 21 Addams, Jane, 173 administration, 42–43, 51, 92–93, 111–12; bureaucracy and, 133–37; Wilson, W., on, 91, 109–10 AFDC. See Aid to Families with Dependent Children AFL. See American Federation of Labor African Americans, 70, 139, 150–53, 197 Aid to Families with Dependent Children (AFDC), U.S., 136, 151 Altmeyer, Arthur J., 91 amendments, Civil War, U.S., 18, 37–38, 158. See also specific amendments

American Association of Retired People (AARP), 203–4 American Council on Education (nonprofit), 75 American Dream (DeParle), 141 American Federation of Labor (AFL), 92 The American Journey (Glencoe/ McGraw-Hill), 226 American populism, 43–44, 46 American progressivism, 42–45, 53, 60n104, 72, 221; civil society deskilled via, 172–74; federal government expansion via, 2–3, 5, 47–52, 76, 174; founding-era reassessed by, 47–49; on public servants, 109–12; reforms supported under, 2, 48–50; on self-interests, 46–57, 76–78, 109–12; on special interests, 109–10 American Republicanism, 3, 5–6, 221–24 American Revolution, 11–13, 15, 20, 24, 196 Amish, 195 Amtrak, 1, 3, 5, 77, 112, 186; Acela lines for, 120, 121; Congress overseeing, 1, 118–20; government surcharges for, 118–23, 186, 221; 257

258

Index

NEC, 119, 120–21; operating losses run by, 107, 118–21; reforms for, 119–20, 121–22; unions, 122–23 Amtrak Reform and Accountability Act (1997), 119 Ansari, Anousheh, 181 antebellum federal government, 22–24, 26, 37 Anti-Federalists, 20–21 anti-trust legislation, 51–52 Apple, Martin, 180 Arizona, 156–57 assurance contracts, 183 Axelrod, Robert, 175   Bai, Matt, 202 Bailey, Josiah, 70 Bailyn, Bernard, 16, 19, 21, 24, 196 Bakery and Confectionery Workers’ International Union, 198 bankruptcy laws, 17, 18, 188 banks, 46, 52; Federal Reserve impacting, 65, 68 Bator, Francis, 71 beekeeping, market failure of, 176–77 beneficiaries, 157; Habitat for Humanity, 181–83; Medicare, 208– 11; Social Security, 95–96; welfare programs, 138–41 Bensel, Richard Franklin, 37 Bernanke, Ben S., 65 Bill of Rights, U.S., 1, 18, 21–22, 37–38, 158; rights of citizens in, 195–97 BIR. See Bureau of Internal Revenue birth rates, U.S., 139–41 block grants, for Medicaid, 154–56, 157 Bluntschli, Johann Kaspar, 40, 42–43 Boeing (company), 185 Bolden, Charlie, 186 bond holdings, U.S., 65 Boutwell, George, 26 Bowles, Erskine, 210 Bowling Alone (Putnam), 174 Brandeis, Louis, 149

Brazoria, Texas, 206–7 Broad, William J., 179 Broder, Samuel, 180 Buchanan, James M., 72–74, 83n80, 87, 100, 159; on administration, 111–12 budgets, federal government, 86, 108, 155, 162; for scientific R&D, 178–80, 187 budgets, state governments, 155 Bunyan, John, 50 bureaucracies, 73, 133–38; federal government as, 3, 5, 111, 116, 221 Bureaucracy (Wilson, J.), 113, 116, 125n31 bureaucrats, self-interest of, 111–12 Bureau of Internal Revenue (BIR), U.S., 26–27, 37 Burrus, William, 116–17 Bush, George, W., 201–4, 205 Byler, Valentine Y., 195 Byrnes, John W., 95   The Calculus of Consent (Buchanan, Tullock), 159 California, 66 caseworkers, welfare, 129, 132, 151; bureaucracy experienced by, 133–34, 133–38 categories, of poverty, 138 CBO. See Congressional Budget Office CBS News, 201 CCP. See Commercial Crew Program central government, U.S., 1, 3–4, 11–13, 173–74; in founding era U.S., 16; powers of, 14–15 CES. See Committee on Economic Security charities, 171–73, 182, 187 charter schools, 160–61 Charter Schools and Their Enemies (Sowell), 161 Chase, Stuart, 66, 79n29 Cheung, Steven N. S., 176–77 Chevalier, Michel, 23 Chicago, 75, 132–33

Index

Chicago Tribune (newspaper), 132, 139 child poverty, U.S., 140–41, 151, 154 Children’s Health Insurance Program (CHIP), U.S., 154–55 Chile, 205 CHIP. See Children’s Health Insurance Program citizens, U.S., 3, 19; economic rights of, 197–99; as self-governing, 4, 15, 49, 195–96, 221–22; taxes for, 26–27. See also rights, of citizens City Academy (charter school), 160 Civil Rights Act (1964), 70, 150, 158, 197 civil society, U.S., 5; deskilling in, 172–74; role of, 186–88; scientific R&D supported by, 179–81, 183–86, 187; social entrepreneurs in, 181–83; SpaceX as, 183–86; voluntary associations in, 171–74, 221–22 Civil War, U.S., 18, 22, 25–28, 45, 150; amendments, 18, 37–38, 158; federal government expansion following, 26–28, 37–39, 53; segregation following, 150–53; veteran insurance following, 38–39, 50, 85–86 classical liberalism, 40 Clayton Antitrust Act (1914), 52 Clinton, Bill, 140, 153, 202, 209, 210 Cloward, Richard, 131 Coase, Ronald, 75, 177 Cobb, Thomas, 22 Cohen, Wilbur, 98–99 Collamer (senator), 27 collective bargaining, 107, 109 Collins, Jim, 1–2 Commerce Clause, U.S. Constitution, 198–99 Commercial Crew Program (CCP), NASA, 185–86, 187 Committee on Economic Security (CES), U.S., 87–88, 91–93 Common Sense (Paine), 16 complexity failure, 130–38, 149, 221

259

Confederate States of America (C.S.A.), 25–28 Confederation Congress, U.S., 11–12 Congress (Mayhew), 76 Congress, U.S., 14, 22, 23, 27, 44; Amtrak overseen by, 1, 118–20; Constitution limiting, 63; OAA programs supported by, 88, 91–92; powers of, 2, 18–19; Social Security overseen by, 89–90, 94–96; USPS overseen by, 113–15. See also House of Representative; Senate, U.S.; specific Acts Congressional Budget Office (CBO), U.S., 203, 209 Constitution, U.S., 1, 4, 37–38, 67, 188; Commerce Clause, 198–99; federal government limited by, 47–48, 69, 196, 221, 223; Philadelphia delegation drafting, 11, 16, 18; political representation in, 13–14; powers outlined in, 2–3, 17–20, 37; ratification of, 20–21; rights of citizens in, 195–96. See also Bill of Rights, U.S.; specific amendments Constitutional Government (Wilson, W.), 48 consumer services, 107, 109, 224 cooperation, 172–77, 190n48 copyright law, 17 corporations, 45–46, 51; government, 113–14 Coscia, Anthony, 118 costs: for Amtrak, 118–23; of Medicaid, 154–56, 157; of Medicare, 97–98, 99, 208–9, 210–12; of Social Security, 89, 93–94, 96; of space travel, 183–86; USPS, 114–17; of veteran insurance, 85–86; of war, 26–27, 178–79 The Creation of the American Republic (Wood), 3, 17 Croly, Herbert, 45–46, 47–49, 50, 51, 58n82

260

Index

C.S.A. See Confederate States of America   Daniels, Mitch, 156 data, 111–12, 141, 156–58 debts, 22, 100, 200–201; federal government, 24, 66 Declaration of Independence, U.S., 3, 13, 14–15, 19, 24, 48; rights of citizens in, 195–96, 222–23 defaulting, of USPS, 115 deficit, Social Security running, 91, 92 Delaware, 196 democracy, 3, 15, 45, 158–59, 172 Democracy in America (Tocqueville), 171–74 Democrats, 39, 51, 66, 69–70; on Social Security, 89, 202–4 demographics, U.S., 13, 27–28, 204 DeParle, Jason, 131, 132, 136–38, 141 Department of Education, U.S., 162 Department of State, U.S., 135 Derthick, Martha, 88, 90, 92–93, 95 deskilling, of civil society, 172–74 Deutsche Post (DHL) Group, 117 DeWitt, Larry, 39, 89, 95 DHL. See Deutsche Post Group Dickens, Charles, 23, 53 Dilliogold, Susan, 132, 134, 139 Dingell, John, 90 DiSalvo, Daniel, 108–9 discount rate, 65 discrimination, racial, 70, 130, 133, 150–53, 158 Domenici, Pete, 210 Donahoe, Patrick, 115 Downs, Anthony, 158–59 due process, rights to, 18, 38, 150   economic rights, 197–99 An Economic Theory of Democracy (Downs), 158–59 Economist (newspaper), 202 economy, U.S., 63, 66, 181–83; corporations in, 45–46, 51;

laissez-faire approach to, 64, 65–66; slavery impacting, 27–28, 32n105. See also recessions Edelman, Marian, 140 education reforms, 160–61 Eighteenth Amendment, U.S. Constitution, 197 Eisenhower, Dwight David (“Ike”), 71 elderly Americans, 85, 98, 155–57, 200, 203–4 electoral politics, 3–4, 49 Ellison, Larry, 180 Ellison Medical Foundation, 180 Ellwood, David, 137, 139, 141 Ely, Richard T., 42, 47 employees, federal government, 5, 23, 27, 108–9, 129; for New Deal programs, 67–69; self-interests of, 3, 5, 75, 77–78; in U.S. workforce, 2, 23, 67 End of the Line (Vranich), 122 England, UK, 4, 11–12, 15–16, 18–19, 40–41 entrepreneurialism, 180; social, 181–83 Europe, 13, 16, 39, 85, 178; influence via, 42–43, 53. See also specific countries executive branch, 2, 3, 19, 24, 113 expansion, federal government, 37–39, 63, 72, 92–93, 152–53; American progressivism fostering, 2–3, 5, 47–52, 76, 174; Croly on, 45–46, 47–49; New Deal program furthering, 67–70; Wilson, W., supporting, 43, 48–49, 109–10 expansion, of state governments, 40–42, 158–63 Expansionism in Social Insurance (Myers), 93   “The Fable of the Bees” (Cheung), 176–77 Factory Act (1802), UK, 41 failure persistence, 142–43 Fair Labor Standards Act (1938), 63

Index

farmers, 45, 52, 53, 60n110, 176–77; as American populists, 43–44; Byler as, 195; economic rights of, 199 FDA. See Food and Drug Administration FDIC. See Federal Deposit Insurance Corporation FDR. See Roosevelt, Franklin Delano Federal Deposit Insurance Corporation (FDIC), U.S., 63 Federal Farm Loan Act (1916), U.S., 52 federal government, U.S., 1, 11; antebellum, 22–24, 26, 37; budget for, 86, 108, 155, 162; as bureaucratic, 3, 5, 111, 116, 221; Civil War transforming, 26–28, 37–39, 53; Constitution limiting, 47–48, 69, 196, 221, 223; debts, 24, 66; economic rights of citizens limited by, 197–99; failure persistence of, 142–43; founding-era, 3–4, 17–19; New Deal programs transforming, 66–70; powers of, 2–3, 17–19, 37; responsibilities of, 2, 6, 24, 133–34, 173, 223; revenues, 23, 26–27, 95, 97; role of, 23–24, 37, 172–74, 187–88, 223; subsidies, 52–53, 107, 113, 117, 118–23, 176; veteran insurance funded by, 38–39, 85–86. See also employees, federal government; expansion, federal government; spending, federal government; specific agencies; specific branches; specific programs federal income taxes, 23, 26–27, 37, 64; American populists supporting, 44; American progressives implementing, 52 federalism, 158–61; voluntary, 162–63 Federalist No. 51 (Hamilton and Madison), 17, 19 Federalists, 17 federal legislation, 44, 51, 132–33 Federal Reserve, U.S., 52, 68; money supply controlled by, 65

261

Federal Reserve Act, U.S., 52 Federal Trade Commission (FTC), U.S., 52 FedEx, 117 fees, 27, 37 Feldstein, Martin S., 207 Ferrara, Peter, 204 Fifteenth Amendment, U.S. Constitution, 150, 197 Filburn, Roscoe, 199 fire departments, 171 First Amendment, U.S. Constitution, 21 First Principles (Taylor, John B.), 18 Fiscal Times (newspaper), 155 Fisher, Peter, 86 Florida, 161 Food and Drug Administration (FDA), U.S., 51 Food Stamp Program, U.S., 133 Forbes (magazine), 204 foreign affairs, 6, 21, 24, 52 foreign powers, 12, 16 founding-era, U.S., 16, 150, 188, 222–24; American progressives reassessing, 47–49; Confederation Congress in, 11–12; federal government in, 3–4, 17–19; on rights of citizens, 198–99. See also American Progressivism; specific founders Fourteenth Amendment, U.S. Constitution, 38 France, 12, 85, 112 Franklin, Benjamin, 171, 178 Frederick William III (king), 39 Friend, Sharlee, 133–34, 138–39 FTC. See Federal Trade Commission Fuller, Ida May, 95 Fuller, Linda, 181–83 Fuller, Millard, 181–83   Gallup, George, 69 Galston, William A., 202, 204 Galveston, Texas, 206–7, 217n75

262

Index

GAO. See Government Accountability Office Garver, Rob, 155 GDP. See gross domestic product Gedda, Lars, 206 generational inequity, 87 George III (King), 15–16 Georgia, 12, 20, 22, 25, 161–62 Germany, 39–40, 42, 69, 85, 117, 178 Gilens, Martin, 151 Gillula, James, 122 Glaeser, Edward L., 139 gold standard, 65 Goldwater, Barry, 71, 99 government, 1, 15–16, 72–73. See also state governments; specific governments Government Accountability Office (GAO), U.S., 99–100, 137, 207; Medicaid assessed by, 155–56; USPS assessed by, 114–15 Government Against Itself (DiSalvo), 108–9 government corporations, 113–14 government surcharges, 108–9; for Amtrak, 118–23, 186, 221; for USPS, 109–17, 186, 221 Grantham, Dewey, 43, 44, 50, 52, 57n52 Great Britain, 15, 85 Great Depression, U.S., 53, 63–66, 68, 86, 199 Great Society welfare programs, 71–72, 77 Greece, 3, 16, 40 Green, Thomas Hill, 40–42, 43, 173–74 gross domestic product (GDP), U.S., 100, 209–10; federal government spending and, 53, 66, 179 Guelzo, Allen C., 45 Guggenheim foundation, 178   Habitat for Humanity (nonprofit), 181–83, 187 Hamilton, Alexander, 17, 18, 19–20, 75 Hammond, James, 25

Hancock, John, 21 Handler, Joel F., 132, 135–38 Hardin, Clifford, 133 Harding, Warren G., 52–53, 60n110 Harrington, Michael, 130 Haskins, Ron, 140 Haswell, Anthony, 107, 121 Hayek, Friedrich von, 73 health savings accounts (HSAs), 156 Healthy Indiana Plan (HIP), Indiana, 156 Hegel, Georg Wilhelm Friedrich, 37, 39–40, 42–43 Heim, Jack, 204 Helvering v. Davis, 94 Henry, Mark, 207 HIP. See Healthy Indiana Plan Holbrook, Ray, 206–7 Hollingsworth, Ellen, 132, 135–38 Hood, Leroy, 180–81 Hoover, Herbert, 53, 64, 65–68 House of Representatives, U.S., 13–14, 66, 69–70, 140; Republicans in, 71, 140, 201; Social Security in, 89–90, 94–95. See also Senate, U.S. Howard, Paul, 155 How the Mighty Fall (Collins), 1–2 HSAs. See health savings accounts Human Genome Project, 181 human nature, 20, 46–47, 50, 52, 76. See also self-interests Humphrey, Hubert, 98 Husock, Howard A., 174, 182   ICC. See Interstate Commerce Commission The Ideological Origins of the American Revolution (Bailyn), 16, 150, 196 immigrants, 45, 57n52, 131, 173, 198 incentives, 18, 76, 112, 130, 138– 40, 141, 159 income, 45, 139; retirement, 205–7, 223; via Social Security, 86, 200. See also federal income taxes Indiana, 118, 156

Index

individuals. See citizens, U.S. industrialization, 27–28, 45, 57n52 inequity, generational, 87 inflation rate, 65, 210 influence, 75, 108, 159, 202–4; Amtrak and, 118–23, 186, 221; European, 42–43, 53; of unions, 109, 121–23; USPS, 113, 116 insolvency: of Medicare, 86–87, 99–100, 199, 208–9; of Social Security, 88–90, 93–96, 199 interest rates, 43–44, 65, 68 Internal Revenue Service (IRS), U.S., 27, 195 International Space Station (ISS), 183–86 Interstate Commerce Act (1887), 44 Interstate Commerce Commission (ICC), U.S., 38 Inventions of Prudence (Rahe), 14 IOG. See Office of Inspector General IRS. See Internal Revenue Service Italy, 73   Jay, John, 11 Jefferson, Thomas, 22, 24, 25–26, 47, 107, 112–13 Jenkins, Thomas, 85 JFK. See Kennedy, John Fitzgerald Jim Crow laws, 150–51 JMU. See Johns Hopkins University Jogalekar, Ashutosh, 178 Johns Hopkins University (JMU), 42 Johnson, Lyndon B. (LBJ), 3, 63, 70, 130; Medicare promoted by, 97–100; War on Poverty by, 1, 71, 129 Journal of Conflict Resolution, 175 judiciary branch, 3, 17, 19, 21, 24, 37   Kennedy, David M., 43, 46, 51, 53, 57n52 Kennedy, John Fitzgerald (JFK), 70–71 Kennedy, Ted, 97 Klein, Daniel, 171 Kristol, Bill, 202

263

  labor, 25, 41, 108; economic rights impacting, 197–99; industrialization of, 45–46, 57n52 laboratories, states as, 149–50, 153–58, 160–62, 223–24 labor force. See workforce, U.S. laissez-faire economics, 64, 65–66 Lakoff, George, 203 Larabee, Mary S., 152 Lawrence v. Texas, 197 LBJ. See Johnson, Lyndon B. Lee, Henry, 13 legislation, 13, 17, 197–99, 223; by American progressives, 49–52; antitrust, 51–52; federal, 44, 51, 132–33; Great Society, 71–72; liberalism and, 41; New Deal program, 67–70; state, 18, 44, 150–51. See also specific laws legislative branch, 3, 18, 19, 24. See also House of Representatives, U.S.; Senate, U.S. Leuchtenburg, William E., 64 Levine, Robert, 131 liabilities, 96; Medicare, 208; USPS, 108, 114–15 liberalism, 40–42, 173–74 light houses, market failure of, 177 Lincoln, Abraham, 25 Link, Arthur S., 44–45, 53, 60n104, 60n110 lobbying, 5, 92, 109, 112, 142; by AARP, 203–4 Lochner v. New York, 198 The Logic of Collective Action (Olson), 75, 159 London, England, 18–19 Loving v. Virginia, 197   Madison, James, 4, 17, 18, 21, 196; on self-interests, 19–20, 46 Manzi, Jim, 154 Maricopa County Medical hospital, Arizona, 157

264

Index

market failures, 74, 83n80, 174–77, 189n14 marriage rights, 197 Mars (planet), 184–85 Martin, Luther, 14 Massachusetts, 11, 12–13, 20–21 Matagorda, Texas, 206 Mayhew, David R., 76–77 McCain, John, 204 McConnell, Grant, 51 McCormick, Charles T., 37 McDowell, Jonathan, 185, 186 McKenzie, Richard B., 112 Meany, George, 109 Medicaid program, U.S., 71, 133, 158; block grants for, 154–56, 157 Medicare, U.S., 1, 5, 71, 217n84; insolvency of, 86–87, 99–100, 199, 208–9; payroll taxes for, 208–9, 217n84; reforms for, 208–12; trust fund for, 77, 86–87, 99–100; windfall politics of, 97–100 Medicare Advantage plans, 209–12 Medicare and Medicaid Act. See Social Security Act (1935) Medicare Prescription Drug, Improvement and Modernization Act (2003), U.S., 211 Michigan, 153 military, U.S., 12, 71, 113 Mills, Wilbur D., 98–99 Milwaukee, 161 minimum wage, 63, 68 Minnesota, 160 Mississippi, 153 Missouri, 22 monarchy, 15, 39–40 money supply, 66 money supply, U.S., 65 Montana, 118 Morris, Robert, 24 Moyers, Bill, 99, 140 Moynihan, Daniel Patrick, 140 Musk, Elon, 184–86 Myers, Robert J., 93

  NARP. See National Association of Railroad Passengers NASA. See National Aeronautics and Space Administration Nation (newspaper), 131 National Aeronautics and Space Administration (NASA), U.S., 183–86, 187 National Association of Railroad Passengers (NARP), 121 National Bureau of Economic Research (nonprofit), 64 national debt, 100 national defense, 1, 24, 72, 86 national government. See central government, U.S. National Institute of Health (NIH), U.S., 180 National Labor Relations Act (1935), U.S., 63 National Recovery Administration, U.S., 69 National Science Foundation (NSF), U.S., 180 NATO. See North Atlantic Treaty Organization Nazis, 69 NEC. See Northeast Corridor, Amtrak neutrality, in administration, 91–93 New Deal programs, 63–70, 71–72, 172, 198 New Hampshire, 21 New Jersey, 20 New York, 12, 22, 131, 153–54, 157 New York Times, 26, 64, 69, 115, 131, 180; on Medicare reform, 211; on Social Security reform, 202, 205, 206 NIH. See National Institute of Health Nixon, Richard, 133 North Atlantic Treaty Organization (NATO), 23 Northeast Corridor (NEC), Amtrak, 119, 120–21 Novelli, Bill, 203

Index

NSF. See National Science Foundation   Obama, Barack, 200–201, 208, 210 Office of Inspector General (IOG), USPS, 116 Ohio, 25, 118, 157, 199 old-age assistance (OAA) programs, U.S.: Congress supporting, 88, 91–92; Social Security compared to, 87–92, 95; state governments supporting, 85, 88 Olson, Mancur, 75, 135 The Open Society and Its Enemies (Popper), 39–40 operating losses: Amtrak running, 107, 118–21; USPS running, 107–8, 114–15 Oracle (company), 180 Orzsag, Peter, 200–201 The Other (Harrington), 130   Paine, Thomas, 16 paperwork, bureaucratic, 135–38 pareto efficiencies, 189n14 Parliament, UK, 16, 40–41 Partenheimer, Dave, 115 patent law, 17 path dependency, USPS, 112–14 Patient Protection and Affordable Care Act (ACA) (2010), U.S., 195, 199 payroll taxes: for Medicare, 208–9, 217n84; for Social Security, 88–91, 94–97, 195, 200–201 Pelosi, Nancy, 202 Pendleton Civil Service Reform Act (1883), U.S., 113 Pennsylvania, 11, 16, 18, 171, 195 Perkins, Frances, 86, 87–88, 94 Personal Responsibility and Work Opportunity Reconciliation Act (1996), 153 Personal Wellness and Responsibility, HSAs, 156 Pestritto, Ronald J., 49

265

Philadelphia, Pennsylvania, 11, 16, 18, 171, 222 Philanthropy (magazine), 182 philanthropy, U.S., 179–81, 187 The Pilgrim’s Progress (Bunyan), 50 Pinckney, Charles, 14 Piven, Frances, 131 Poland, 69 Policymaking for Social Security (Derthick), 88, 92 political patronage, 113 politicians, self-interest of, 3, 73–74, 76–77, 100, 221 The Politics of Bureaucracy (Tullock), 73, 111–12, 135, 160 The Poor Ye Need Not Have With You (Levine), 131 Popper, Karl, 39–40 Postal Accountability and Enhancement Act (2006), 114 Postal Regulatory Commission, U.S., 114–15 Postal Service, U.S. (USPS), 1, 3, 5, 47, 77, 107, 125n31, 186; Congress overseeing, 113–15; government surcharge for, 109–17, 186, 221; operating losses for, 107–8, 114–15; path dependency of, 112–14; prefunding requirements for, 114–16 poverty, U.S., 1, 5, 77–78, 137, 199– 200; categories of, 138; child, 140– 41, 151, 154; recessions impacting, 129–30, 140, 154; as structural, 130–32. See also War on Poverty Power and Prosperity (Olson), 135 powers, political, 3, 12, 20, 46, 48, 196; of central government, 14–15; of Congress, 2, 18–19; of federal government, 2–3, 17–19, 37; foreign, 12, 16; of state governments, 19, 172; Supreme Court, 19, 197–99 prefunding requirements, USPS, 114–16 premium support models, for Medicare, 209–12

266

Index

presidents, U.S., 19, 42, 49, 64; vetoes by, 90, 96. See also specific presidents Price, Sol, 181 Primus, Wendell, 140–41 private insurance, 93–94, 100 private investors, 178–81 private retirement accounts, 201–7, 217n75 private sector, 44, 107, 108; Amtrak compared to, 112; scientific R&D funded by, 178–81, 183–86, 187; USPS compared to, 115–17 private unemployment, 64, 68, 69 privatization, 117, 187, 201–4 Proceedings of the Commissioners (1786), 11 The Promise of American Life (Croly), 45–46, 47, 50, 58n82 Prussia, 39–40 Public Choice (journal), 75–76 public choice scholars, 72–77, 83n80, 100, 135–38 public goods, 47, 53, 73, 187; scientific R&D as, 178–79; social entrepreneurs supporting, 181–83 public housing programs, 182–83 public interests, 51, 72, 74–76 public libraries, 171 public sector labor, 108, 109 public servants, 109–12 Public Works Administration, U.S., 67 Purdue University, 75 Putnam, Robert D., 174   racism, 70, 133, 150–53 Rahe, Paul A., 11, 14, 17, 19, 196, 224 railroads, U.S., 43–44, 45–46, 52. See also Amtrak ratification, of U.S. Constitution, 20–21 Reagan, Ronald, 96, 118 recessions, 53, 65–66, 77, 114, 206; poverty rate impacted by, 129–30, 140, 154; “the Roosevelt Recession” as, 64, 68–69

reforms: by American Progressives, 2, 48–50; for Amtrak, 119–20, 121–22; education, 160–61; for Medicaid, 154–56; for Medicare, 208–12; for Social Security, 86, 89–90, 94, 200– 207; for USPS, 114–15; for welfare programs, 140–43, 153–58 Rennolds, Emma, 134, 136 representation, political, 3–4, 13–14, 47 Republicans, 39, 52–53, 71; in House of Representations, 71, 140, 201; on Social Security, 89, 95 Republics Ancient and Modern (Rahe), 11 responsibilities, 4, 48, 221; federal government, 2, 6, 24, 133–34, 173, 223; state governments, 22, 150 retiree healthcare, 115–16, 200 retirement income, 205–7, 223 revenue, 22, 125n31; for federal government, 23, 26–27, 95, 97; Medicare, 97; Social Security, 83, 94 Revenue Act (1932), 64, 66, 68 Revenue Act (1913), U.S., 52 Revolutionary War, U.S., 12 Rhode Island, 12, 157 Richmond, Mary, 173. 174 rights, 18, 53; due process, 18, 38, 150; economic, 197–99; state, 150–51; voting, 38, 196–97 rights, of citizens, 13, 14–15, 18, 38, 195–99, 222–23; Wilson, W., on, 48 risks, 43–44, 185 Rivlin, Alice, 209–10 Rivlin–Domenici Medicare plan (2010), 210 Roberts, Al Caldy, 98 Rockefeller foundation, 178 roles, 49, 113; of civil society, 186–88; of federal government, 23–24, 37, 172–74, 187–88, 223; of state governments, 15, 37, 158–63; welfare caseworkers, 132–33 Rome, 3–4, 16, 40

Index

Roosevelt, Franklin Delano (FDR), 64, 85, 86, 109; CES via, 87–88, 91–92; Hoover compared to, 65–68; New Deal programs by, 66–70, 172; Social Security under, 87–90 Roosevelt, Theodore, 45, 47, 51 “the Roosevelt Recession,” 64, 68–69 Russell, Dick, 97 Russia, 66, 79n29, 183–86 Ryan, Paul, 201, 209–10, 211–12 Ryan–Rivlin Medicare plan (2010), 209–10   Sandy Springs, Georgia, 161–62 Schuck, Peter H., 120–21 Schuyler, Michael, 116 Scientific American (journal), 178 scientific R&D, 181–83; civil society funding, 179–81, 183–86, 187; federal government budgeting for, 178–80 187 Scots Charitable Society, 171 SEC. See Securities and Exchange Commission Securities and Exchange Commission (SEC), U.S., 63 segregation, 70, 150–53, 163 self-governing, citizens as, 4, 15, 49, 195–96, 221–22 self-interests, 2, 4, 16, 18–19, 50, 108; American progressives on, 46–57, 76–78, 109–12; of CES staff, 91–93; cooperation and, 174–77; of federal government employees, 3, 5, 75, 77–78; Madison on, 19–20, 46; of politicians, 3, 73–74, 76–77, 100, 221; public choice scholars on, 72–76; of public servants, 111–12; Social Security attracting, 90–91 self-ownership, 198–99 Senate, U.S., 13, 27, 66, 70; Republicans in, 71, 201; Social Security in, 90, 94–95 Shaker, Lee, 159 Shays’ rebellion, 12–13

267

Shelden, Rachel A., 23 Sherman Antitrust Act (1890), U.S., 46, 51 Shuck, Peter H., 116 Simpson, Alan, 210 Sixteenth Amendment, U.S. Constitution, 51–52 slavery, U.S, 13–14, 32n105, 163, 198; abolition of, 18, 38, 196–97, 222; states divided over, 14, 22, 24–28, 150 SLS. See Space Launch System Smoot–Hawley tariffs, U.S., 64, 66 social censure, 177, 190n48 social entrepreneurialism, 181–83 social insurance programs, 5–6, 63, 85, 87, 93–94, 199; veteran insurance preceding, 38–39, 85–86. See also Medicaid program, U.S.; Social Security, U.S. Social Security, U.S., 1, 5, 38, 63, 83, 199, 202–4, 208, 223; beneficiaries, 95–96; Congress overseeing, 89–90, 94–96; insolvency of, 88–90, 93–96, 199; New Deal programs enhancing, 67, 69–70; OAA compared to, 87–92, 95; payroll taxes for, 88–91, 94–97, 195, 200–201; private retirement accounts compared to, 205–7; reforms for, 86, 89–90, 94, 200–207; trust fund for, 77, 86–87, 89, 90, 96; windfall politics of, 88–91, 221 Social Security Act (1935), U.S., 86, 88, 92, 94, 136, 152 Social Security Act Amendments (Medicare and: Medicaid Act) (1965), U.S, 86, 97–99, 133, 154 Social Security Administration (SSA), U.S., 39, 86–87, 92–94 Social Security Amendment Act (1939), 89 Social Security Amendments (1950), U.S., 94–95

268

Index

Social Security Amendments (1983), U.S., 96 Solomon, Rod, 182 South Carolina, 14, 25, 26 Sowell, Thomas, 161 Soyuz (Russian space vehicle), 183–86 Space Launch System (SLS), NASA, 185–86 SpaceX (company), 183–86 Spain, 11 special interest groups, 50–51, 108, 118, 157, 202 spending, federal government, 23–24, 53, 66, 72, 108, 179, 223; on Medicare, 86–87, 208; on Social Security, 86–87, 96; on veteran insurance, 38–39, 85–86; via New Deal programs, 67–69; on welfare programs, 129–30; windfall politics and, 87 SSA. See Social Security Administration Standard Oil (company), 51 Starship, SpaceX, 185–86 The State (Wilson, W.), 43 State Department, U.S., 107 state governments, 3, 4–5, 12, 63, 133, 197, 222–24; budgets for, 155; Croly on, 46; debt of, 22; expansion of, 40–42, 158–63; Hegel on, 39–40; Medicaid programs via, 154–58; OAA programs, 85, 88; powers of, 19, 172; racial discrimination via, 70, 130, 133, 150–53, 158; responsibilities of, 22, 150; role of, 15, 37, 158–63; U.S. Constitution on, 18, 37; welfare programs via, 132–33, 140–43, 153–58 states, U.S., 3, 11, 13, 20–21; as laboratories, 149–50, 153–58, 160–62, 223–24; legislation, 18, 44, 150–51; rights of, 150–51; slavery dividing, 14, 22, 24–28, 150; taxes, 12, 22. See also specific states Stephens, Alexander H., 25 Stewart, James I., 43

stock market, collapse of, 64, 65 structural poverty, 130–32 subsidies, federal government, 52–53, 107, 113, 117, 118–23; market failures and, 176 Sununu, John, 201 Supreme Court, U.S., 44, 63, 69, 158; powers of, 19, 197–99; Social Security in, 94 Sweden, 206 Switzerland, 40 Sykes, Russell, 155   Taft, William, 51 TANF. See Temporary Assistance for Needy Families tariffs, 12, 23, 50, 112 taxes, 53, 68, 77, 87; payroll, 88–91, 94–97, 200–201, 208–9, 217n84; for Social Security, 88–90, 94, 96; state, 12, 22. See also federal income taxes Taylor, John, 4 Taylor, John B., 17–18 technologies, 174, 178–79; space travel, 183–86 Temporary Assistance for Needy Families (TANF), U.S., 154 Tennessee Valley Authority (public corporation), 67 Texas, 133–34, 136, 153, 206–7, 217n75 Thailand, 15 The National Grange (farmer’s group), 44 Theory of the Modern State (Bluntschli), 40 Thirteenth Amendment, U.S. Constitution, 38, 150 Thomas Jefferson Center, University of Virginia, 72–75 Tierney, John, 205 Time (magazine), 64, 69 de Tocqueville, Alexis, 171–74 toll roads, 171 Transportation Act (1920), U.S., 52 Treadway, Allen T., 89

Index

Treaty of Paris (1783), 11 Truman, Harry S., 70–71, 94 trust funds: for Medicare, 77, 86–87, 99–100; for Social Security, 77, 86–87, 89, 90, 96 Tugwell, Rexford, 68, 79n29 Tullock, Gordon, 73, 75–76, 111–12, 135, 159–60 Turner, Jason, 153 Twentieth Amendment, U.S. Constitution, 197 tyranny, 15–16, 18, 196   UI. See Urban Institute (UI) unemployment, U.S., 64, 68, 69 the Union, 11, 25, 26–28 unions, 63, 68, 93, 198; Amtrak, 122– 23; influence of, 109, 121–23; selfinterest of, 75, 77–78; USPS, 107, 113, 116–17 United Kingdom (UK), 16. See also England, UK United Parcel Service (UPS), 117 United States (U.S.). See specific topics universities, 39, 42–43, 178–79. See also specific universities University of Berlin, 39 University of Chicago, 75 University of Heidelberg, 39 University of Virginia, 72–76 UPS. See United Parcel Service Urban Institute (UI) (think tank), 97 USPS. See Postal Service, U.S. US Steel (company), 45   Venezuela, 15 veteran insurance, 38–39, 50, 85–86 vetoes, presidential, 90, 96 Vietnam, 71–72 Villareal, Joseph, 136 Virginia, 12, 21 voluntary associations, 171–74, 221–23 voluntary federalism, 162–63 voting, 38, 112, 150–51, 158–60, 196–97, 204

269

Voting Rights Act (1965), U.S., 71, 150, 197 Vranich, Joseph, 119, 122   Wabash, St. Louis, and Pacific Railway v. Illinois, 44 wages, 85, 97, 123, 197–99; minimum, 63, 68 Wagner Act (1935), 63 Wallace, George, 151 Wallis, John Joseph, 22 Wall Street, 63–64 Wallstreet Journal (newspaper), 155 War on Poverty, U.S., 1, 71, 129, 137 wars, 11, 24, 69, 90; costs of, 26–27, 178–79. See also specific wars Washington, DC, 23, 26, 53, 133–34, 172 Washington, George, 4, 11, 12, 24, 69 Washington Brotherhood (Shelden), 23 Weekly Standard (newspaper), 202 welfare programs, federal, 132–33; complexity failure of, 130–38, 221; incentives in, 138–40; reforms for, 140–43, 153–58. See also caseworkers, welfare welfare-to-work support programs, 153–54 Wells, Richard, 24 West Coast Hotel Co. v. Parrish, 198 West Virginia, 118 What Happened (Link), 60n104, 60n110 Whinston, Andrew B., 76 White, William Allen, 46–57 Whitney, Eli, 25 Who Killed Civil Society (Husock), 174 Why Americans Hate Welfare (Gilens), 151 Why Government Fails So Often (Schuck), 120–21 Wickard v. Filburn, 63, 199 William I (emperor), 85 William Volker Fund, 72–73 Wilson, James, 4 Wilson, James Q., 113–14, 116, 125n31

270

Wilson, Woodrow, 42–43, 47, 48–49, 51–52, 65; on administration, 91, 109–10 windfall politics, 5, 87; for Medicare, 97–100; for Social Security, 5, 88–96, 221 Wired (magazine), 185 Wisconsin, 143, 153–54 women, 140, 141, 151, 152, 197 Wood, Gordon S., 3, 17 Woodson, Robert, Sr., 138 workforce, U.S., 45, 117; federal employees in, 2, 23, 67

Index

Works Progress Administration (WPA), U.S., 67, 69 World Bank, 206 World Giving Index, 187 World War I, 52 World War II, 178 WPA. See Works Progress Administration Wright, Charles Alan, 37 Wright, G., 32n105 Wyden, Ron, 210, 211–12

About the Author

John Nantz is a Stanford-educated, McKinsey-trained strategy consultant whose former clients include Lyft, Johnson & Johnson, National Geographic, NASA Education, and the Bill & Melinda Gates Foundation. In 2016, John moved his strategy consulting firm, Redwood Advisors, from the San Francisco Bay area to Austin, Texas, where John now lives. John was a named plaintiff in the U.S. Supreme Court case California v. Texas (2020), which challenged the constitutionality of the Patient Protection and Affordable Care Act (ACA) of 2010.

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