If we want smaller government, drastic action may be required
By: David Coughlin
Our Constitution documents how we “…establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity…” Recognizing that the Constitution was open-ended, the 10th Amendment clarified the limits of federal power “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Beginning in the New Deal, the Commerce Clause was used to justify expansion of federal power into areas reserved for the States and/or the private sector. The federal government may oversee and regulate private industry, but nowhere in the original Constitution does the federal government have any role competing directly in the private sector. Now that the Roberts Court ruling on ObamaCare has re-opened the limitations of the Commerce Clause, perhaps it is time to re-examine many of these past decisions to possibly rollback federal programs to the States or to abandon the private sector completely?
The Constitution in Article 1, Section 8 enumerates the role of the federal government including raising revenues, paying debts, borrowing money, and coining money. This nation has had a checkered past trying to participate in the financial industry and these monopoly players may have outlived their usefulness. Two successive central banks were established as private corporations in the early 19th century, with public duties handling all fiscal transactions for the US Government, and accountable to Congress and the US Treasury. Both “Banks of the United States” charters were allowed to expire and the banks were privatized as the notion of a national bank was debated and deemed unconstitutional. Seventy seven years later in 1913, the Federal Reserve System was established by Congress as the central banking system of the United States of America, and granted it the legal authority to issue Federal Reserve Notes and Federal Reserve Bank Notes as legal tender. The biggest criticism of the Federal Reserve is its ability to create money out of nothing, debasing the means of exchange and injecting inflation into the money supply. In 1934, The Export-Import Bank of the United States was established as the official export credit agency of the United States federal government, for the purposes of financing and insuring foreign purchases of United States goods for customers unable or unwilling to accept credit risk, but frequently to the most politically connected. Considering the mixed results by these quasi-governmental agencies, it is about time to question whether their existence as designed should be continued or perhaps re-privatized, saving the American taxpayer the liability for their political decisions.
During the Great Depression, the federal government entered the housing market to unclog the mortgage pipeline by securitizing mortgages, allowing lenders to reinvest their assets into more lending and, in effect, increasing the number of lenders in the mortgage market. But once the issue of social engineering was injected, the government sponsored enterprises have done more harm than good. In 1938, The Federal National Mortgage Association (Fannie Mae) was founded as a government-sponsored enterprise (GSE) to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities. In 1968, the Government National Mortgage Association (Ginnie Mae) was spun off from Fannie Mae, as a separate government organization, to support FHA-insured mortgages as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages. In 1970, the Federal Home Loan Mortgage Corporation (Freddie Mac) was created as a public government sponsored enterprise (GSE) to expand the secondary market for mortgages by buying mortgages on the secondary market, pooling them, and selling them as a mortgage-backed security to investors on the open market. Meanwhile the Community Reinvestment Act (CRA) in 1977 “encouraged” commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods. When “affordable housing goals” were given to Fannie Mae and Freddie Mac to encourage more lending in low- and moderate-income neighborhoods, higher risk loans were accepted. The use of mortgage backed securities only served to camouflage this risk into a huge housing bubble that burst in 2007. These government sponsored enterprises, and ultimately the American taxpayers, then enabled the huge number of failed mortgages and over-valued mortgage-backed securities. It is time to exit the housing mortgage marketplace by privatizing these GSEs, much like was done in the seven year privatization transition for Sallie Mae in 1997.
In 1953, the cabinet level Department of Health, Education and Welfare was created to protect the health of all Americans and providing essential human services, especially for those who are least able to help themselves. At some point the idea of protecting the health of Americans morphed into competing directly in the health insurance industry. In 1965, Medicare was created to provide health insurance for Americans ages 65 and older and younger people with disabilities. In 1965, Medicaid was created to provide health insurance for Americans with with low incomes and resources, and is jointly funded by the state and federal governments, and is managed by the states. In 1997, The State Children’s Health Insurance Program (SCHIP) provides matching funds to states for health insurance to families with children in families with incomes that are modest but too high to qualify for Medicaid. ObamaCare just expands the scope of this over-reach into the health care industry. In 1935, Social Security was created to provide some income (insurance) to those of retirement age, but through the years this program has also been corrupted to remove the personal ownership and dedicated funding. The Constitution makes no mention of these entitlements or participating in the insurance industry, and expansion through the years now accounts for over half of the federal budget. Social Security should transition to a personal account basis, and the health insurance programs should devolve to the states where a patient based approach will rescue these unsustainable programs.
In 1967, the Department of Transportation was created to ensure a fast, safe, efficient, accessible and convenient transportation system. The only mention in the Constitution refers to the establishment of “post roads.” At some point the idea of ensuring transportation systems morphed into owning and operating key elements of the transportation industry. The Federal Highway Administration has no Constitutional role redistributing funds between the states for selective highway construction. The U.S. Postal Service continues to require federal subsidies to survive, and is long overdue for privatization. The Federal Transit Administration has no Constitutional role to help plan, build, and operate transit systems. Amtrak has never been profitable and only operates with federal subsidies, and thus is long overdue for privatization. The Federal Aviation Administration has no Constitutional role to own and operate a network of airport towers, air route traffic control centers, and flight service stations. Finally the Constitution does not authorize the Homeland Security Transportation Security Administration to staff and provide airport security. Ensuring fast, safe, efficient, accessible, and convenient transportation systems does not require operating key components, so privatization of these operational elements is required to return to our federal Constitutional limits.
In 1977, the Department of Energy was created to ensure America’s security and prosperity by addressing its energy solutions, but over time this included selective energy production facilities across the country. The Power Administrations and the Tennessee Valley Administration produce over $5 billion in revenue that competes with private energy providers as an inefficient government monopoly. The Constitution also makes no mention of the energy industry and privatization of these energy production facilities is also long overdue.
Now is the optimal time to re-examine our federal government to ensure each department is specifically authorized by the Constitution. Many departments and agencies may be candidates to be devolved to the States or to be privatized directly back to the private sector. If pursued objectively this analysis could downsize the federal government and it oppressive budget by as much as 50%. The exciting byproduct is that for each department downsized, eliminated, or privatized, their budget amount can be deducted from future outlays to reduce the deficit or potentially reduce tax rates. However even if intellectually justified, decommissioning multi-billion dollar agencies and organizations that have been in place for decades is a daunting task that can not be accomplished with the waive of a wand. The next President would have to give many of his Cabinet Department Secretaries the charter to develop a plan to downsize their department or eliminate its scope by mission transfer or privatization in a reasonable timeframe, allowing for smooth transition and protection of existing programs. This federal initiative may require drastic changes to the federal government, but it is actually long overdue.
David Coughlin is a political pundit, editor of the policy action planning web site “Return to Common Sense,” and an active member of the White Plains Tea Party. He retired from IBM after a short career in the U.S. Army. He currently resides with his wife of 40 years in Hawthorne, NY. He was educated at West Point (Bachelor of Science, 1971) and the University of Alabama in Huntsville (Masters, Administrative Science, 1976).