Monday, August 25, 2014

A Government That Is Not Spending Any Money On Government, Is Not A Government

When do you reach the point that government is no longer governing but it is doing nothing but redistributing?

Is it even a government at that point?

I have previously written about the gigantic increase in the amounts of payments for individuals in the federal budget over that last 70 years.

Less than 1/3 of the budget today is spent on what the Constitution established as the big priorities and what most people think of as the true functions of government---defense, justice, police, roads, parks, education, public health and the like.  In 1945, we spent 97.6% of the budget on these items. In 1960, we spent about 75% on these priorities. As late as 1990, we still spent the majority of the federal budget on these government roles.

Direct payments to individuals now account for 67.9% of all federal expenditures in the federal budget. In dollars, that is $2.57 trillion out of $3.77 trillion in total spending.

In other words, we are spending twice as much on these "special interest" payments as we do on defense, justice, prisons, roads, research, national parks and everything else that is for the overall "public interest"---combined!

If Defense spending is excluded (arguably the one function of the federal government that is probably most essential), direct payments to individuals account for 82% of all federal spending.

However, we have not seen anything yet. A recent Congressional Budget Office report shows that in only ten years payments for entitlements, mandatory spending and interest on the federal debt will consume 93% of projected federal revenues.

Put another way, there will only be enough tax revenues after paying for Social Security, Medicare, Medicaid, other mandatory federal spending programs (welfare etc) and interest that only 7% will be left for everything else.

I always find it interesting that in federal budget language, defense, roads, public health and running the government are discretionary but welfare, food stamps and unemployment compensation are mandatory.

The chart below provides a picture of how we are spending money today in the federal budget and what it will look like in 10 years based on the most recent Congressional Budget Office projections.

77% of federal revenues today are going to fund entitlements, mandatory spending and interest, leaving only 23% of federal revenues for traditional government functions like defense, roads, education, parks, public health, the post office and the like. By 2024, the CBO projects that 93% will be going to "mandatory" spending and only 7% will be left for everything else.

I dare say that when government is only spending 7% on government, you have no government left. It is scary to think that we will be at that point in a scant ten years.

Let's look at the numbers in a little more detail. The CBO has used % of Gross Domestic Product to reflect spending in each category and revenues so it is easy to compare the projections from year to year. To put this in context, U.S. GDP for 2014 is estimated at approximately $17.2 trillion. Therefore, 1% of GDP is equal to $172 billion in today's dollars.

Social Security spending is projected to increase from 4.9% of GDP to 5.6% in 2014.

Medicare spending is projected to go from 3.0% to 3.2%. This looks too low to me and obviously assumes that health care costs are going to be constrained more than they have been in the past.

Medicaid spending (including Obamacare exchange subsidies) is projected to increase from 1.9% to 2.7%. Note that in dollar terms this is larger than the increase in projected Social Security spending. It is also 4x the increase in the amount of projected Medicare spending.

Other mandatory spending (welfare, food stamps etc.) is actually projected to decrease from 2.5% to 2.2% of GDP. Good luck seeing that happen.

The biggest increase is going to involve paying interest on the federal debt. It is projected to increase from 1.3% of GDP in 2014 to 3.3% in 2024. That is $344 billion of additional costs in today's dollars.

How much is that? It would take a doubling of corporate income taxes across the board to just pay for that increase. Or a 25% across the board hike in individual income taxes. Or a 33% across the board increase in employer and employer FICA taxes. All of that to pay for something that provides no value whatsoever to those paying the taxes! The interest on the money that was borrowed to finance past spending will be a distant memory to those taxpayers when the bill comes due.

The overall annual deficit increases from 2.8% of GDP ($482 billion in 2014) to 3.6% of GDP in 2024 ( $619 billion in today's dollars) in the CBO projections. This is despite the fact that federal tax revenues are projected to increase from 17.6% of GDP today to 18.3% of GDP in 2024 based on current tax law.

The bottom line is that we are on a collision course with a catastrophe with our federal budget. Something is going to have to give over the next ten years. The government has nothing to give. They only have the power to redistribute.

Therefore, the American people are going to be the ones giving. Taxpayers will almost surely have to give more. Those with entitlements and those receiving mandatory spending amounts may also have to give something up. There is no other answer unless we are at the end of the federal government as we know it. I hope that is not the case but the numbers are leading us to some stark choices.

A government that is not spending any money on government, is not a government.

What choices are we willing to make to continue to have a government?

Wednesday, August 20, 2014

The Elephant In Ferguson

In light of what has been going on in Ferguson, Missouri I thought it might be appropriate to once again republish a blog post that I wrote last year right after the George Zimmerman trial.

In that case, there were conflicting accounts of what happened. The same appears to be the case with Michael Brown and Officer Darren Wilson. We do know that the 18 year old Brown died from at least six shots fired by Wilson even though he though the young man was unarmed.

Does that automatically mean that Wilson is guilty? It is not supposed to in our system of justice. That is why there are internal police investigations, grand juries and criminal trials to sort out the evidence. That is why someone is supposed to be presumed innocent until proven guilty.

The bigger question is why is this happening all over again? Why is there such a rush to judgment? Why can't people wait for the facts and trust the system?  Why is there bias?

I wrote about this right after the Zimmerman acquittal and I think it bears repeating again because nothing seems to change.  This post is as relevant today as it was last year.

The Elephant In The Room
(Originally published July 21, 2013)

In the aftermath of the George Zimmerman acquittal there is a lot of talk about racial bias in the judicial system.  I have heard many African-American commentators argue on cable tv that there is inherent bias throughout the police and justice system against African-Americans.  They cite the Zimmerman verdict as just one more example of that bias.

I agree with that general conclusion.  However, I think it is misplaced in trying to make that point in the Zimmerman case. I have no doubt there is bias at times if you want to use that word.  If you are black in America there is undoubtedly a greater chance that you will be pulled over in a car.  You will be looked at with greater suspicion in a convenience store.  You will find it harder to get a fair shake in a court room.

It is not right.  However, as I wrote recently, profiling and stereotyping are fundamental to the way the human brain operates.  It is not fair but that is the way the brain is wired.  We are too quick to jump to conclusions based on past experiences, emotions, events, associations and their consequences.

The elephant in the room that no one wants to talk about is why does that bias exist?  Why do we keep hearing about a police and a justice system that is unfair to African-Americans?

These statements are particularly interesting when you look at who is overseeing these systems today at the federal level.

The President of the United States is an African-American.

The Attorney General of the United States is an African-American.

They have both been in place for almost five years.  Why all this talk of institutional bias when you look who is on top of our governing and justice system today?

Here are the cities with the highest violent crime rates in the United States according to the FBI.  The majority of the cities are headed by an African-American.

1. Flint, Michigan (African-American Chief of Police, Alvern Lock)

2. Detroit, Michigan (African-American Chief of Police, James Craig)

3. Oakland, California (African-American Chief of Police, Howard Jordan stepped down in May and was replaced by an interim Chief who is white.)

4. St. Louis, MO ( White Chief of Police, Sam Dotson)

5. Memphis, TN (African American Chief of Police, Toney Armstrong)

Therefore, we hear about the bias of the "system" but that "system" is increasingly being overseen by African-Americans.  The old argument of institutional bias just does not add up as it might have at one time.  If the deck is stacked, who is stacking the deck?

We also hear outcries that Republicans are somehow responsible for bias in the system and they simply don't care about the plight of African-Americans.  However, if you look at the Mayors that oversee the 30 largest U.S. cities, only two are Republicans. (Gregory Ballard in Indianapolis and Betsy Price in Fort Worth.)

What is the real elephant in room?  Let's look at the crime statistics.  In order to do that I went to the most recent Statistical Abstract of the United States.  It helps you better understand the dimensions of the issue.

First, it should be recognized that crime rates have decreased substantially in the last 15 to 20 years as this first chart demonstrates.  This is a very positive development especially in light of the challenging economic environment.

Blacks are much more likely to be victims of crime than Whites or Hispanics.

This is particularly the case for murder.  In fact, the chances of being murdered are over 5 times greater if you are Black than if you are White.  Note that there is currently no data for Hispanics in the next few charts because the federal government right now consider Hispanics to be an ethnicity rather than a race. This will change next year in the collection of this data.

Who is committing these crimes?  Blacks commit almost 5 times as many violent crimes (murder, manslaughter, rape, robbery and aggravated assault) per 1,000 population as Whites according to FBI data based on arrests for violent crimes.

What about overall arrests that are made for both violent and property crimes?  The incidence of arrests for Blacks is over twice what it is for Whites on per capita basis.  In fact, this data suggests that, on average, there is one arrest each year for every 12 Blacks in the U.S.

What about hate crimes?  The Justice Department also tracks this data.  There are many more hate crime incidents perpetrated against Blacks than Whites.  However, these incidents pale in comparison to the hate that is spewed towards Jewish people.  How come we never hear about this?

In fact, Jewish people have almost six times the chance of being the victim of a hate crime as an African American and over four times the chances of a Muslim in this country!  For some reason these facts just never seem to make the evening news.

It is important to remember that the vast majority of crime is committed against people of the same race. Crime is a function of proximity and opportunity.  For example, from 1976 to 2005 according to this article in the Daily Beast, 94 percent of Black murder victims were killed by Black offenders.  At the same time, 86 percent of Whites were killed by other Whites.

However, what about interracial crime, white-on-black attacks and the reverse?

Patrick J.Buchanan wrote about this in a recent column.

After researching the FBI numbers for “Suicide of a Superpower,” this writer concluded: “An analysis of ‘single offender victimization figures’ from the FBI for 2007 finds blacks committed 433,934 crimes against whites, eight times the 55,685 whites committed against blacks.
Interracial rape is almost exclusively black on white – with 14,000 assaults on white women by African Americans in 2007. Not one case of a white sexual assault on a black female was found in the FBI study.”
Though blacks are outnumbered 5-to-1 in the population by whites, they commit eight times as many crimes against whites as the reverse. By those 2007 numbers, a black male was 40 times as likely to assault a white person as the reverse.
Today, 73 percent of all black kids are born out of wedlock. Growing up, these kids drop out, use drugs, are unemployed, commit crimes and are incarcerated at many times the rate of Asians and whites – or Hispanics, who are taking the jobs that used to go to young black Americans.
Buchanan points out the real elephant in the room.

As I stated above, discrimination and bias exists against Blacks in the criminal justice system and in their daily lives. It is disingenuous for anyone to deny this. However, all of the energy of the African American community about this problem seems to be only directed outwards.  I don't see much energy devoted to looking inward for solutions to the problem.

William Galston, who was an advisor to President Clinton, has spent a good part of his career studying the causes of poverty.  He concluded that in order to avoid being poor you just needed to do three things, (1) graduate from high school, (2) wait until getting married to have children, (3) wait until age 20 to have children.  His research indicated that only 8 percent of young people who followed these rules ended up poor.  However, breaking just one of these rules means a 79 percent chance of ending up below the poverty line.

Where are the voices talking about the nearly three out of four African American children born out of wedlock? Where are the voices decrying the culture among black youths that seems to glorify drugs and violence?  Where are the voices speaking out about the fact that only 54 percent of African Americans are graduating from high school?

Crime is largely a function of poverty and poor home environments.  The absence of a father in the home is a significant factor in this equation.  That is why I think it is especially ironic that there is so much energy being devoted to enabling gay marriages in this country but you hear almost nothing about encouraging African Americans to marry before having a child.

Failure to complete high school is almost a certain path to poverty in this day and age.  We are spending massive amounts of money on welfare and other programs to help the poor but you hear little about the massive failure of young African Americans to graduate from high school.  We are spending enormous sums of money on the symptoms but pay little attention to the underlying disease.

If we look at the data above, and you consider the way the human brain works and the role heuristics plays in our thinking, bias, racial profiling and stereotyping is going to occur.  It is not right and it is not fair but that is the way the human brain is wired.  It is always looking for shortcuts based on past experience and associations.  A lot of the time this is very helpful in assessing things.  However, it can also lead to generalizations, stereotypes and bias that lead us astray.

The only sure way to change that is from the inside-out in the African-American community. Discrimination, bias and stereotyping are not unique to Blacks. For example, prior to the 1950's, Asians who lived in the United States were stereotyped as cheap, poor, uneducated laborers.  Products from Asia were derided as nothing more than cheap junk.  That stereotype no longer exists.  It literally has been turned on its head.

Today, students in high school and college cringe when they see Asian-Americans entering their classrooms on the first day of class.  American businesses have learned some hard lessons from their Asian counterparts.  The old stereotype is gone.  That change did not occur because people just started to think differently one day.  It changed because they were forced to change their thinking because of what they experienced and the behaviors and results they saw from greater and greater numbers of Asians they came in contact with.

Someone needs to start talking about the elephant in the room in the African-American community. My hope would be that it would be the President of the United States. I think that was the hope of most Americans when he took office.  We were looking for a uniter and all we got was a divider.  I still have hope.  It just doesn't look like he is going to change.  That might end up being the biggest disappointment of the Obama Presidency when all is said and done (unfortunately, that would be saying a lot).

Monday, August 18, 2014

Starting and Finishing

I have been offline most of the last two weeks in Texas focused on the birth of my third grandchild.

Warren Buffett would say that little Tyler won the birth lottery. He was born in the United States of America (even better, in Texas). He has loving parents who are both college graduates. Two sets of supportive grandparents. He is white (although whites will be a minority among students in public schools in the United States this Fall).

He has some built-in advantages that many, many other children in this world do not have.

However, as I have written before here and here, success is ultimately more about attitude and application than aptitude and advantages. That is particularly true if you are one of the four out of hundred in the world that are born in the United States.

I am thankful for that advantage every day of my life. In particular, to my great-great grandfather who immigrated to this country in the mid-1800's.

I am also greatly in debt to my father who was the first in our family to go to college. Both his father and grandfather worked on the railroad. Both were killed on the job. My father, at age 5. was the oldest of three children when his father died. There were no social security survivor benefits and a pittance of life insurance. My father sold cottage cheese door to door when he was 6 years old to help support the family. He worked almost every day of his life from that point forward until he retired in his 60's.

He graduated from high school and was working in a washing machine factory at age 19. College was out of the question. There was simply no money. He used to joke that he was so poor growing up he did not know there was any more to a chicken dinner than the neck and wing until he was 20 years of age.

He made it through the Pacific Theatre in World War II and was able to attend college on the GI Bill and by working various odd jobs . He began a career as a corrugated box salesman and ultimately ran a company division with over 20 box plants across the country.

You can't ever say enough about that first person in a family who rises above their circumstances and allows you to stand on their shoulders.

I have a friend who did the same. He was the only one of fifteen cousins to graduate from college and reach a level not experienced by other family members. He broke out and broke the cycle. He not only helped himself but he also greatly increased the birth lottery odds for those that follow him.

This was further driven home to me over the last week or so as I read a biography of Dale Carnegie, Self-Help Messiah, by Steven Watts.

For those who are unfamiliar with Carnegie, he wrote one of the most widely-read and popular books of the 20th century, How To Win Friends and Influence People, in 1936.  He developed the Dale Carnegie course which is still teaching thousands of people each year all over the world how to improve their communication and human relations skills for success.

My maternal grandfather gave me a copy of the book when I was a teenager.

Carnegie grew up dirt poor in Missouri and only through the love and dedication of his parents (who relocated so that he could attend a free teacher's college in Missouri) was he able to escape the hardscrabble existence of his home. He was a traveling salesman and actor before he was able to settle into his first love--teaching people the art of public speaking and effective communication.

His lessons in self-help and his secrets to success had particular resonance with people in the Great Depression who had seen their self-worth eroded and their confidence shaken as well as the notion that hard work would produce success.  Carnegie offered a formula for getting ahead through better human relations skills.

What I found particularly interesting in the book was the stark difference in how people looked at their situations then as compared to today. The predominant feelings of most people who were out of work were of shame and guilt. They did not blame the government, Wall Street or the wealthy. They blamed themselves first and foremost.

Watts cites Studs Terkel who interviewed scores of Depression survivors including a psychiatrist who treated many patients who became unemployed who said this to Terkel.

In those days, everyone accepted his role, responsibility for his own fate. Everyone, more or less, blamed himself for his delinquency or lack of talent of bad luck. There was an acceptance that it was your own fault.

That is a long, long way from where we are today. It is particularly ironic considering the events that are occurring in Ferguson, Missouri in recent days, not too far from where Dale Carnegie grew up in poverty.

I understand the frustration of living in a nation of opportunity when one believes they have no opportunity. However, Dale Carnegie, my father and my friend could have felt the same thing. They did not let it stop them.

It is true that race adds an additional dimension but when we have an African-American in the White House and as head of the U.S. Justice Department (as well as on the Supreme Court) it does show that doors are not as closed as they may have been in the past and there are many more open minds than closed minds among us today.

Could it still be better? Absolutely. But we have come a long way in my lifetime. What is unfortunate is that there are too many who don't take any time to look inward for the solution to their problems.  It is always someone else who is keeping them down and out.

All of this reminded me of a study I cited last year on income mobility.  We often hear that it is no longer as easy to get ahead in America as it was for Dale Carnegie or my father.

However, this study showed that there is still quite a bit of income mobility taking place. For example, in Houston,Texas (where my grandson was just born), 42% of the children born to parents in the bottom quintile were in the top 3 quintiles (middle class or better) by the time they were age 30.

The average child in Houston who had parents in the 10th income percentile ended up in the 38th percentile. That is close to touching the lower reaches of what could be defined as the middle class.

On the other end of the scale, children with parents in the upper quintile do not automatically get a free pass to stay on top.  On average, only about 35% of children raised in households in the top quintile enjoy the same income lifestyle as their parents when they are on their own. This chart (published in a New York Times story on the study) shows the chances of someone raised in both the bottom fifth and top fifth ending up in the top fifth as an adult.

Source: New York Times

It is without question there is a real advantage to being born in the right place and to the right parents to increase the odds of one's success. It is always much easier to be able to climb on the shoulders of someone else starting out. However, merely sitting on someone's shoulders does not get you anywhere in the long run. At some point you have to walk on your own.

The point here is that we have no control over our birth.  Prince George was born last year and does not have any idea right now that he won the Super Bowl World Cup of birth lotteries.  DeShawn who was born in Grady Hospital in Atlanta on the same day is not so lucky.  Sumon in Bangladesh is unluckier still.

We also have little control over the behavior, bias and blather from other people.

What we can all do is take control of our place and position in life by doing all we can with what we have. That starts with looking inside ourselves first before looking outside.  Understanding that we have more control over our life than anyone else.  Understanding that life is often not fair but we are in the best position to change other people's minds by our attitudes, actions and willingness to take accountability when it is necessary.

I hope my grandson appreciates the shoulders upon which he has the benefit of climbing on. However, he also needs to understand his responsibilities and his role in maintaining the hard fought legacy entrusted to him by his forefathers to pay it forward.

It is what you do with your own walk in life that will ultimately define who you are, what you become and where you finish.

These are all lessons that I hope my new grandson understands well as he begin his life.

Tuesday, August 5, 2014

A 3-D View Of Debt

There are many things in this world that can be of great benefit but are also of great danger if they are not kept under control.

Fire used in a controlled manner can help cook our food and warm us. Fire that is out of control can wreak unspeakable damage.

We need water to nourish us and irrigate our fields of food. However, a flood of water can wipe away those fields in an instance.

The same can be said of debt. It can assist us in building a business, purchasing a home or completing our education. However, when debt is not quickly repaid it can destroy just as easily as any natural calamity. Compound interest crushes anyone who does not quickly get out of its path.

There are always two parties to any debt transaction. A lender and a borrower. However, many times there is a third party--the middleman or underwriter--who collects a fee for facilitating the transaction.

Many financial institutions have recognized that it is much better to be the middleman in a debt transaction than a lender. They take no credit risk and just take a fee for facilitating the loan or packaging a bunch of loans and finding willing lenders.

The 2008 credit crisis was really driven by this activity as packages of real estate loans were packaged together with little care about what went into the packages. After all, it was all about the fee income that went with putting the loan package together.

We have been living with the after effects of that debt debacle for six years. The economy is still sputtering, tens of millions are unemployed or underemployed and the Federal Reserve has pumped trillions of dollars into the money supply to prop up the economy, asset values and keep interest rates low.

How is all of this working out for the three parties involved with debt?

Let's take a deep 3-D perspective of some of the ramifications of the low interest rate environment that has been manipulated and sustained with the help of the Federal Reserve and other central banks around the world.

Borrowers are being paid less for the risk they take in loaning their money than just about any time in history. For perspective, look at this graph showing long-bond yields in the U.K. from 1750 to 2014. That provides a 250 year perspective on how low interest rates are.

This is also evident in junk bond yields, the riskiest form of corporate borrowing which have been trading near record lows the last two years. This is a graph of the Barclays U.S. Corporate High Yield Bond Index through June 30, 2014. As of today, the yield has increased to 5.87%

Here are 6-month Certificate of Deposit interest rates going back to 1964. The current average national rate is .01%.

It is pretty clear that lenders are not doing real well in the current environment.

What about borrowers? There clearly are winners here with the low interest rate environment helping businesses and home owners in particular. However, it is not as benefiting consumers as much as you would expect. The underperforming economy over the last few years and declining real incomes continues to squeeze household budgets and, after a small retracement in 2008-2009, consumer debt is once again on the rise. This is a graph of consumer loans at commercial banks. This debt is almost 50% higher than it was in 2011.

This is a broader view of household debt including mortgage, student loan, auto, credit card and home equity loans to the grand total of almost $11.7 trillion.

Source: Federal Reserve Bank of New York

You might have also seen or heard of this report by the Urban Institute last week on how well consumers are coping with this debt in their household budgets.

Roughly 77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections. These adults owe an average of $5,178 (median $1,349). Debt in collections involves a nonmortgage bill—such as a credit card balance, medical or utility bill—that is more than 180 days past due and has been placed in collections.

My bigger concern for borrowers with the current low interest rate environment is what happens when interest rates rise?  This is of particular concern for those that have variable interest rate debt or short-term debt that will need to be rolled over. An increase in interest rates could be fatal.

Look no further than the federal government.

Consider this chart that shows the average interest rate paid on the $17 trillion in federal debt. As of September 30, 2013, the federal government borrowings were costing a mere 2.43%  As of June 30, 2014 the average interest rate had fallen to 2.4%.

However, what would be the impact on the federal budget if interest rates were to rise?

Consider that if interest rates were to rise to their historical average (6.85%) the federal government would be spending an additional $750 billion per year on interest expense.

Let's put that it in context.

Total projected individual income tax receipts for 2014 are $1.4 trillion. That means that individual income taxes would have to be increased by over 50% to just pay for interest on the federal debt. Of course, taxpayers would receive absolutely nothing in return. The interest would merely be paying for past spending well back in time.

If you don't like the idea of raising taxes to cover the added interest cost, how about cutting something in the budget to pay for it?

The Defense budget this year is $627 billion. You could cut the entire amount and still not have enough to pay the increased interest bill.

You don't want to do that?  How about Medicare? $531 billion. Still not enough by itself.

The fact is that you could cut out the largest single item in the federal budget (Social Security Old-Age and Survivor Benefits) at $713 billion and still not be able to cover this increase in interest costs.

Current interest rates have given a false sense of security to many borrowers. There is real danger ahead.

That leads us to the final perspective of the players in the debt scene---the real winners in all of this---those middlemen.  The Wall Street bankers who but the borrowers and lenders together---for a fee.

Of course, you might recognize those winners today as being the same players that nearly brought the whole house of cards down in 2008. And most of those names would no longer be in business but for the bail-outs compliments of American taxpayers.

Here are the biggest beneficiaries of the low interest rates as borrowers have lined up to get some of the "cheap" money that is available.


In total, the top 10 debt bookrunners have pocketed a mere $12.2 billion in manager fees for their efforts in just the first six months of 2014.

There is little question that in the 3-D world of debt that is the best place to be right now. Right in the middle.

That's great work if you can get it.

I just hope that all of this leads us to a place where more people can find any type of work.  And we don't end up in a place where we are going to see a whole lot more worry and "work-outs" on the other side of all of this.

I don't know about you but I don't like what I am seeing with this 3-D view of debt. It's a little scary.

Credit: John Dunbar Kilburn's Blog

Sunday, August 3, 2014

What Happened To "We The People"?

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

The preamble to the Constitution lists five significant priorities in order "to from a more perfect Union". Our founders specifically stated that they wanted to "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".

Of these five priorities, note that four of them have strong verbs attached. They wanted to establish justice. They wanted to insure that there is domestic tranquility.  They wanted to provide for the common defense. They wanted to secure the Blessings of Liberty.   There seems to be no doubt that they saw all of these as the most important national priorities.

However, when it comes to the general welfare, they only wanted to promote it. There is no mention of establishing it, or insuring it, providing for it or securing it. They also did not say anything about individual welfare. They referred only to the general welfare.

This seems to suggest that when they referred to general welfare they were considering those things that would be generally available to all. They were not considering items that would make some people winners and other losers at the hand of the federal government.  What are items of general welfare? Roads, post offices, the coining of money, standard weights and measures and the regulation of international and interstate commerce are specifically mentioned in Article 8 as is the erection of forts, dockyards and other needful buildings.

You could probably also consider the national park system, public health programs, public transportation  and other broad-based programs available to the public at large to clearly be within the spirit of promoting general welfare.

How much of the federal budget is spent on defense, justice, police and internal security and other programs that benefit the population at large today?  Less than 1/3 of the budget is spent on what the Constitution established as the big priorities.  In 1945, we spent 97.6% of the budget on these items.  In 1960, we spent about 75% on these priorities. As late as 1990, we still spent the majority of the federal budget on these government roles.

Direct payments to individuals now account for 67.9% of all federal expenditures in the federal budget. In dollars, that is $2.57 trillion out of $3.77 trillion in total spending.

In other words, we are spending twice as much on these "special interest" payments as we do on defense, justice, roads, research, national parks and everything else that is for the overall "public interest"---combined!

If Defense spending is excluded (arguably the one function of the federal government that is probably most essential), direct payments to individuals account for 82% of all federal spending.

What are "payments for individuals"? These are federal government spending programs designed to transfer income (in cash or in kind) to individuals or families.  This includes Social Security, Medicare, Medicaid, Veteran's Benefits, Welfare, Food Stamps and Student Loans.  It does not include salaries to government workers or the military as these are considered to be payments in return for services provided.   Therefore, "payments for individuals" effectively represent what amounts to the redistribution of income from one person to another with the federal government serving as the middle man.

These are not outlays for the common defense, the common good, public works or public safety. These are government payments that are intended to benefit select individuals based on their age, their income, their health or any one of a number of other distinctions.

Where is this money being spent and who is receiving it?

Social Security and Medicare account for about half of it.  However, almost $1 trillion is being spent on direct or indirect forms of welfare---Medicaid, food stamps, disability, public assistance, housing assistance, unemployment assistance and student loans.

This chart shows the breakdown of payments of individuals in the 2014 federal budget.

By comparison, in 1974 the federal government spent just $120 billion on outlays for payments to individuals in the federal budget.  The various forms of welfare (Medicaid, unemployment, food stamps etc) have grown from $41 billion to $968 billion (an increase of 23.6x between 1974 and today.)

The chart below shows the increases in the major categories of payments to individuals in the federal budget between 1974 and 2014 in comparison to total spending, inflation, population and the Defense budget.

Interestingly, Medicare and Medicaid are both up over 50x in 40 years. Looking at these numbers who can honestly believe that more government money and regulation in the healthcare market through Obamacare is going to do anything but further increase costs? That is double the increase of any other spending category.

I am not suggesting that all of these programs are ill-considered or bad.  After all, Social Security and Medicare are there for everyone.  Workers pay into these programs and deserve a return on their "investment" without someone drastically changing the rules on them just as they near retirement.

However, we all need to look in the mirror and ask ourselves how we have allowed what began as well-meaning social safety net programs to reach the point that they now account for over 2/3 of federal spending?

Even worse, the federal budget for 2014 estimates that individual income taxes and payroll taxes will only amount to $2.4 trillion in the current year.  This means that the $2.6 trillion in "payments for individuals" in the federal budget are not even being covered by the $2.4 trillion in "payments from individuals" in taxes. You could call it redistribution but more is being redistributed than is being taken in.

What began as a social safety net has become a societal noose around our necks!

I don't believe that our Founding Fathers would believe it.

Is there anyone who still believes in what "We the People" means anymore?  It seems to be clear that the people we have been electing for the last couple of generations don't.

All of the data on federal government spending is taken from Budget of the U.S. Government, Fiscal 2014 Historical Tables.