Making sense of the federal “freeze” (with Phil Rocco)

Greetings and welcome to the Recombobulation. My name is Dan Schafer, thank you for joining us.

I've been a discombobulating week. Lots going on in the federal government, beginning of Donald Trump's second term.

Among those, I light items from the past week, was when he and his administration tried to effectively push pause on the federal government.

And there's a lot here to dissect and unpack and recombobulate with.

So we're joined here by regular recombobulationary contributor and market university professor Phil Racko. Phil, welcome to the recombobulation.

Saloo, how are you Dan? I'm hanging in there. We've had a week, we've had a week, but we're making the best of it here.

And it's wonderful to recombobulate with you as always.

So I think first I just wanted to talk about what has happened this week or last week with the pause.

I don't even know how you characterize it. The pause in the federal, the entire federal government, arts of the federal government, Medicaid head start, wheels for wheels.

I think we're some of the main programs, but the Office of Management and Budget put out this memo. What was it Monday night?

Yeah, it's probably the most chaos inducing two-page memo that's ever been, think of the worst two-page memo that's ever been written of work.

And then multiply that by a factor of several trillion. And that's the effect that this thing had.

But OMB is arguably the most powerful bureaucratic agency in all of Washington.

And I say that because OMB is not often an office that people think about. When you think about powerful agencies, I don't know, maybe you think about the Department of Defense.

Sure.

Right, or the...

The Pentagon.

The way that OMB is really powerful. It's like the bureaucracy is bureaucracy. It determines what rules the bureaucracy makes.

It's the real conduit between the White House and the president and the rest of the federal government.

Because as much power as you might think a president has over the vast apparatus, the executive branch, it's only as really good as their ability to micromanage those details.

The OMB is like the micromanager par excellence. So the OMB...

But just really the nuts and bolts of like where the rubber meets the road in federal government though, right?

Absolutely. And including in things like most of the way that the federal government works is not directly the federal government when it grew during the New Deal and during the great society in the middle of the 20th century.

Most of how that happened was not through a huge growth in the number of federal employees.

Most of that growth happened because the federal government was sending out grants, aid, loans to local governments, state governments, nonprofits, basically most of the work that goes on in the United States, that the federal government does.

Most people take it for granted because there's not a big emblem on the side of whatever that thing is.

Meals on wheels, protection for victims of domestic violence, take your pick, the fire truck in the town of Hull, Wisconsin.

You know, it doesn't have a big federal eagle emblazing on it, but that doesn't mean the federal government isn't working there.

It is, but it's working in subtle ways. And in a way, it's like not until you have an administration that is so both hell bent on manipulating the bureaucracy to its own hands.

And frankly, bad at actually using the leverage of the government that actually begin to see it, you don't really know how government works until it shuts off.

And it's like they've been going around flicking the light switches on and off like, what does this one do? What does this one do?

And that's effectively what this policy has been like.

So this is like very much like what happened in 2017 in the early days of that.

You get these really chaotic orders. And of course, you have this vast executive branch, which basically follows orders.

So it takes them seriously. So when the OMB...

I just writes the law that the executive implements it, right?

And so, you know, when the OMB sends out this order, it says all federal grants and aid...

Like with the exception of like Medicare and Social Security, everything else is like paused.

Yes.

Until question mark, until we get the quote-unquote like woke ideology and literally in the text of the memo, Marxist equity, terms that by the way, not defining the memo,

not really easily definable. It's not like they were saying we want overpayments to certain medical providers to be, you know, eliminated.

That, you know, we're pausing over a trillion dollars in grants.

How much is hard to say? And then they had to release the memo that said here's actually the 2,600 programs, right?

So it's just like vast scale.

I was actually trying to quantify in the state of Wisconsin how many grant obligations would be paused.

And it's actually very hard to quantify because there's the state and that's like 28 billion in a biennial budget.

But then it goes so far beyond the state because it's local governments.

And I came up with a number that's like a little over 42 billion in a year of obligations that are out. So it's a lot.

So 42 billion of federal taxpayer dollars that would come to Wisconsin once in one way should perform?

Yeah. And it could be to the state government, it could be to local governments, it could be to nonprofits, it could be to schools.

That's like the scale of obligations by obligation. I mean, it's money that's gone out the door from the Treasury, but also money that the federal government is committed to pay.

It's signed a contract to pay, but it hasn't paid out yet. And that's the stuff you really got to worry about.

So this is where I talk to a budget analyst in city that's not in Wisconsin. And I said, you know, what is this looking like for you?

And he's like, well, we had to make you're about on the precipice of making this big purchasing decision for the fire department.

And there's a huge federal grant program to support the purchase of fire equipment, fighting wildfires and things like that.

And he's like, well, we're going to purchase respirators and hoses and axes. And we're not going to do, you know, we're not going to do that.

And that was before the pause was rescinded. But like, that's the scale at which this is kind of operating.

It is really hard to summarize in like concrete terms. So it's this and not that.

And then the crazier thing was the Trump administration saying like, oh, no, no, but don't worry. It's not going to, it's actually not going to affect Medicaid.

Oh, it's actually not going to affect food stamps or snap. But then obviously like, you know, as early as the day the order was implemented, Medicaid portals were down.

Right.

Our story is just here in Southeastern Wisconsin saying there was a head start in Wachsha County.

I think they were like saying that they were at risk of running out of money within the next 10 days.

And that we're going to have to start laying people off.

Exactly.

Right.

So but in part because, you know, when governments, so the other thing, the sort of line that I saw kind of defending this is like, well, why, why would state local governments need this money anyway?

Um, because that is how fiscal federalism works in the United States.

We've over the last 60 years created a web of partnerships that actually allows to draw on the strengths of multiple levels of government to leverage the local knowledge that people have with the resources the federal government have to do things that neither of those governments would have been able to do on their own.

Wheels on wheels as an example head start as an example aid for victims of domestic violence as an example.

These are not controversial programs.

They're basic programs.

We take them for granted, but they're really, really important and just getting us through this, you know, life.

But they rely on this web of partnerships.

So it's not like the federal government in, in pausing this aid for this ridiculous kind of policy reason.

Yeah.

It is like, taking away money that, oh, you know, state local government should have been able to pay for that themselves.

The entire design of these programs was meant to be intergovernmental.

So that's sort of an absurd argument.

Yeah, and you, you know, this is one of the things that you, that you study that you've, that you've, you know, spent a lot of time on is just like kind of the relationship between different parts of government.

And, and I think that is one of the things that is difficult to articulate a lot of the time is just how interconnected so much of this is.

And how, you know, like you said, a lot of these, a lot of this is, is governments relying on other, you know, the federal government relying on the state government to try and to like make something better out of it.

Right.

And, you know, there are, it's always this type of thing in politics.

Or it's like, oh, we want low taxes, right?

Well, we don't want to cut that though, right?

We don't want to cut Medicaid.

We don't want to cut Medicare and Social Security.

We don't want to cut this that and the other thing.

And it is, it does always come back to that when, you know, Republicans are always talking about, oh, we need to shrink the size of government.

We need to do this that and the other thing.

It's, it's, it comes back to this.

And I think what happened this past week really shined a light on it is that a lot of people like these programs when you really get down to them.

People like, you know, meals on wheels or head start or.

And it's not just the fact that they like them.

Our economy depends.

Yeah.

Yeah.

For simulation on a relationship between the public and private sectors.

And so it's not just people losing access to benefits when these programs go away or get cut, which by the way, we're not out of the woods on that by any means, right?

But it is huge potential drop in economic growth in purchase orders for suppliers that the governments rely on.

It is, you know, you can't get out of the fact that government expenditure stimulates the economy.

And when you try to do what they did and what they, you know, might indeed try to do further with cutting back on Medicaid and, and all these other things.

We're going to have huge economic problems.

Fewer people are going to have jobs.

Yeah.

And, you know, there's going to be less money changing hands.

Yeah.

And I think, you know, it seems to me like what happened this week.

And I'm curious your thoughts on this too is that this and some of the other things that the Trump administration is doing.

Is just kind of stress testing the system in certain ways too.

So I did a podcast last week about about immigration and about one of the things we talked about was birthright citizenship, right?

And so the order goes on to try and let go after birthright citizenship.

And then, you know, it goes to the courts, right?

And so like there's the immediate state of the executive order, whatever it might be.

And, but I think it is signaling the fights that are ahead.

So the Trump administration is, you know, even if they know that this initial action is probably going to be unconstitutional and whatever it might be, it's setting it up for the fight ahead.

Is that the way you see it for kind of what this pause, I guess, for lack of a better words it to call it is, is doing is, is setting up the fights ahead for, you know, just all sorts of different.

Safety net programs, federal programs, like all these different types of things and the, you know, what Republicans will call the administrative state of the bureaucracy or whatever.

Yeah, I mean, so let's, let's like go back a little bit, right?

Because the first Trump administration was by many metrics.

Pretty slap dash and haphazard and pretty ineffectual and advancing the policy goals that even Trump kind of set for himself.

What was the big accomplishment on domestic policy?

A big, upwardly redistributive tax cut, but that was in it and sort of mucking about in the bureaucracy.

But ultimately, you might not be surprised to learn that like consolidating power in a government that's as complex and polyarchic, you know, multiple centers of power as ours is, is pretty hard.

So what's, you know, and I think one of the elements of the United States where you actually saw the resilience of democracy was was the fact that we have multiple sites of power in our country.

We've got states, we've got cities, we've got civic organizations that mobilized during those years and pushed back.

And so it's not surprising to me that among the first of the targets in the Trump administration is the grant making apparatus that supports civil society.

In other words, that supports nonprofit organizations that helps to support schools, institutions of higher education, mechanisms of cultural reproduction.

Things that Trump really lacked access to in that first term, he's going after, you know, pronto in a second.

And in a way, trying to change their cost benefit calculations with how they engage politically, because nonprofit organizations, city, states, so on.

They were really quick to litigate.

But if Trump is able to get the courts to engross his approach to power here, and that is there was a memo released.

I forget which new source kind of leaked, leaked it.

The whole ambition here was with the grant memo was to tee up the issue for the Supreme Court.

In part because they knew that John Roberts, the chief justice, when he was in the office of legal counsel in the White House many years ago before he became the Supreme Court justice.

He actually was pretty critical of this 1974 impoundment control act that makes it really difficult for the president to do what Trump just tried to do.

And so they want to tee it up so that the Supreme Court ultimately says that Congress trying to, you know, claw back its authority over the things that it's appropriated is in fact unconstitutional.

So I mean, in a way, you can kind of see the policymaking intention here, which is to go at all of those sites of power that were the most powerful antagonists to the administration in the first term.

And the thing is to challenge their cost benefit because during the first term they push back hard, but if you weaken their resources, if you take things away from them, you threaten to take things away from them and you put their bottom line in a way on the table.

You know, organizations, especially those have like a fiduciary duty to their, you know, Board of Trustees and so on, they're pretty risk averse.

They don't want to do things that violate the law.

They don't want to do things that risk them not being able to fulfill their mission year in year out.

So if the federal government is really able to put the screws to them, right, we got a problem.

Yeah, we got a problem for the basic apparatus of civil society that allowed the United States to not fall into a, you know, a much more serious kind of competitive autocracy in 2016 to 2020.

It's a little bit concerning. I must say.

Yeah, and I, but you know, I think on the flip side, just a little bit.

Yeah, it is concerning. And I think we also have, I think it's important to like pull back and have that level of analysis because the whole project here is like finding a way to take the things that make American democracy work, the kind of the rudiments of its strength and to weaken them to the point where they can no longer really perform the functions that they perform.

And I guess I get, you know, sort of optimistically, or at least, you know, to not be entirely doom and gloom about it.

Those lawsuits came pretty quickly.

Right.

You'll notice, right?

And the guardrails, right?

We always hear about the guardrails when we come to Trump and stuff like that.

And I was watching, I was watching the Daily Show on Monday because I loved John Stewart.

He was talking about this, you know, with a reaction that that every little thing that, you know, the kind of like cable news media, the MSNBCs of the world would fly out the handle that every little thing.

And it's just like, OK, so when does, when does it actually get real? And it does seem like this.

I'm just going to keep calling it a pause for lack of a better word.

The freeze is the one of the news. Yeah, the freeze.

That seemed pretty real, right?

And, and just more broadly, even if, even if they rescinded it a day later, even if whatever.

Why this is pretty real is because, like I was talking about before, this is part of the stress test that they are putting the, you know, the guardrails on.

Well, you can look at places where it's still where we're the, it's, there are actual funding freezes.

And with National Science Foundation grants, with National Institute of Institutes of Health grants, these are real policy changes that are going into effect.

And guess what?

People who have to plan budgets, they're trying to plan for the contingency of not being able to do what they do.

So it's like, so like we're just state budget here, right?

So like as they're crafting this, this year's state budget as Tony Evers' team is putting together their proposal that, you know, the legislative Republicans will surely, I'm sure, take a, take strong look at not just kick into the curve like they do every other year.

But like, how much of a calculation does those like do state governments have to put into what's happening with just this stress test of a freeze?

Well, I mean, I, I think the, you know, certainly something like this, this freeze, whether intentional or not, it creates this climate of.

The year of risk aversion and so on and I'm sure that that will become fodder for the argument that well, you know, we can't budget for X, Y, and Z because who knows what the federal government might do where they're not it's going to make matching payments and so on.

So it creates that sort of, at least it attempts to license those sorts of arguments now.

I would counter by saying what they just tried to do is patently illegal, patently illegal.

That's the other piece of it, right?

And I would say you can't as a state government budget in the shadow of an assumption that the federal government will act in a flag really illegal way to stop payments from coming to you.

Let's just now, what if you do start doing then what you're admitting is that we're already down the rabbit hole of, you know, a system where the rule of law is just a quaint convenience.

So do you think what do you mean what do you make of the response to the public response to this and how do you think that is going to have an impact because there was obviously a big freak out when this freeze happened right and so is this something you think is.

Do you think the Trump administration back down because of the public pressure or do you think the public pressure is something that they're going to lean into more because I kind of think it's going to be the latter because even as they do things that might be unpopular might be whatever it gets everyone's attention right and they're going to and I think that is something that Trump understands that that frankly right now Democrats don't is that attention is a really big deal and getting everybody's attention with something like this.

Set up the fight that they're going to have later which is what I think is that is part of the strategy what certainly changes what you're fighting about yeah I mean in a way that's that's a presidential power is often I think overstated much of what the president does exercise power is a power projection sure.

And then the question is whether or not other actors in society buy into the projection right and so I think that the president certainly by doing something like this I mean that's real power in the sense that with rule following actors there you know people were getting ready to turn off spigots and so on but the thing that I think matters.

The situation like this is in way I think the Trump administration by going going for broke in these kind of policy fights is it reveals parts of the way the government work that people take for granted yeah because that's how the US federal system is sort of designed it's designed to kind of mask to submerge government.

It allows that paradox of public opinion that you talked about before like we want we don't really want government we actually want all the things that it does right sort of classic paradox American public opinion media and voter policy the fact that the federal government when it works it often works silently and sub-rosa

That sort of what allows that paradox to persist and one thing one little piece of evidence that I think is valuable of political scientists Suzanne metler at Cornell and Larry Jacobs at Minnesota and a couple other political scientists as well have some really great work that looks at the way that public opinion on the affordable care act changed.

And what they find is that there's this like enduring you know partisan divide in how people see the ACA but in general what turned overall public opinion in the direction of supporting the affordable care act didn't really happen until there was a threat of repeal.

Only with the threat of repeal again because people are risk averse their loss averse only when the possibility of something is you know being taken away do you really begin to see how it all fits together right you might not know much you know or or or care much or or really you know want a big OK federal government but.

You I think that there's some some basic aspects of American public philosophy that are you know about supporting other people in the community and once you start seeing the kind of you know realities of that now you know taken away then I actually think that's like an opportunity to mobilize for political mobilization now I think what you're talking about though.

So is if you look at what the order for the memo was the preconditions that memo where it was about reviewing all of these policies for what.

Locke ideology right and I think.

The idea is different right the the litany of pretty amorphous concepts that I I was talking to a reporter in Kansas City and I said yeah I'm curious where the how they're going to do a systematic policy review of openness in the.

You know lie he been in the heating and energy assistance payments program that I think I started thinking about somebody in.

The agency that administers that program will have to write a protocol for doing that right but actually saw Minnesota senator Tina Smith was was tweeting about this talking about how you know international falls Minnesota like the temperature was 25 below and like what happens right then so.

So you know but I think that they will try to find places in the federal government in grants and aid in what schools are doing I think schools are going to be a really important part of that you know political calculus chair to.

Deep in cultural divides and to say in fact the reason why you're not getting more eating assistance payments is because of this other thing like they'll use it but I think the important thing is like these these moments actually create a possibility for telling stories about the way the government works and people's everyday lives that actually shows that in fact these these terms kind of a distraction really not.

You know that that's really not what the fight is is about the fight is about are we going to use the power of government to try to make life a little bit better for most of our neighbors and to give people a fair shot or is government.

As I think one of the big and I don't think the ambition of the Trump administration necessarily to cut the size of government I think it's about to redirect the resources of government in a way that allows it easier for.

Trump to expand the system of patronage that he's already begun to develop you know one of the difficult things for presidents in modern era is that most of the jobs in government or civil service jobs that are basically outside of the sphere of presidential influence low and behold you actually have to have some sort of competence to do them.

And the you know the reality is that what he's doing with schedule F trying to replace a lot of civil servants with political.

Loyalist he's trying to expand the number of chips he has to play with and I think the same thing is true with tariffs you know tariffs there is a completely I think.

Misunderstood little understood and gigantic program of tariff waivers that gets very little congressional oversight well when you impose massive tariffs then you can give out tariff waivers to companies there's been a study from the high university that's shown this is the companies that donated a great deal to the Trump campaign they were in the last administration they got the lion share of tariff waivers so once you create this it's basically.

You create a terrible policy and then in order for people to bail out of it they have to buy themselves and that to becomes a way that you aerate power to yourself well it's kind of some of those farm bailouts that happened during the first.

Exactly term as well if the tariffs that he was implementing at the time had a significant impact there and then a lot of the you know direct.

Assistance that the federal government has those farms it's a protection racket so so essentially it's the mafia comes here you know your business and says you know hey we go around collecting from everybody just for their own protection say I don't want to pay and then they you know you throw throw a you know a grenade through your window or something and their business blows up like well is you know.

We're happy to fix it for you if you if you make the payment you should have made us last week right so it's not what you want though no but I but I also think it's like it's worth trying to be somewhat clear right about what going on if you begin with the assumption the Trump has all of this.

Yeah if you got to ask the question then why is he doing all this stuff if you have all of this power already why do you go you know why target.

Organizations like if you have all that power ready why go after NPR and PBS which their FCC share is doing now right.

You do this stuff because you don't have the power and the question is that I think civil society organizations have to confront is how are they going to leverage the power that they currently have so that they don't lose it.

So from an imp from a local state and local impact like you know again I was talking about how you you've studied like the levels of government like what can state and local government do in response to this like you know.

20 years in Josh call signed on to this this lawsuit opposing whatever was going on I don't know exactly the status of it where it's going forward but like what what can state local.

What can happen at the state local level to push back or or you know try to find a better path forward well I mean I think that state local governments of a couple different important roles here so first.

State local governments have standing in federal court and we've already saw there were two big lawsuits you had nonprofits and you had state attorneys general yeah.

And I think you know there's there's like a bedrock of of precedence in the past the basically say that when the federal government has agreed to give you a big sum of money.

Can't then just like entirely play Calvin ball with what the rules for getting that money are and that's actually interestingly enough that was the ruling on Medicaid.

In the first challenge to the affordable care act you know the Robert's court said that you know the federal government couldn't force states to expand medicated the pain of losing all of their existing Medicaid funding because that was like in their words like a gun to the head.

Right the states had already made this so called like contract with the federal government and that contract couldn't be you know sort of like abrogated overnight and I think that that's the kind of thing that like state local governments can at least litigate on because.

The end of the day they're the front lines of service delivery for a lot of stuff and and they have an important responsibility to.

You know carry out the programs they carry out and the federal money that fits on the line there protecting that is an important way they're going to do that the other thing that I think state local governments can do is to the extent that they have you know some legal rights here to actually begin to exercise them and I think this is kind of what we're beginning to see with with cities and states not just using their authority to.

Challenge some of these immigration policies but also to think about how do they use the resources they have to support people and institutions organizations that are under attack from the Trump administration I think we're beginning to see.

That emerge in different cities around the country cities actually using there's a very interesting feature in American public opinion I think is is not surprising which is that people have.

A far higher level of trust in their local government than they do in their state government and a far higher trust in their state government than they do in the federal government and I think that that reservoir of trust is an important tool because.

Stay local governments they have a many more.

Points of contact with their residents than do then does the federal government and so that ability to communicate with people you've interested in more people about what's going on for people of what their rights are and so on is pretty powerful.

In addition to providing resources to to support them can be pretty powerful and the other thing I think that that state local governments can do is that they can in the policies that they create.

In a way like prefigure what an alternative vision of the United States sort of could be and I think that there are states where that's happening in a way that's sort of the Trump administration as we're seeing it is kind of the after effective prefiguration done by Florida and Texas right if you want to know.

I know kind of like the way that things are going now especially areas like education policy and immigration just look at what Florida and Texas have been up to for the last you know few years right and you'll get a glimpse of what is being sort of imported into the federal government so we should I guess look at I guess the counter example would be like Washington state or Massachusetts or like different stuff like that for you know the blue state.

I don't want to use the word resistance but why would you say this state governments have long been I think thought of as kind of the second bananas like in American politics but you know American history where did the right to vote for women first emerge.

In Western states and sort of marched east where did the progressive income tax right here in Wisconsin you know social security the predecessors to you know Medicare and Medicaid all of those ideas you know emerged first at the state level before getting traction in Washington.

It's kind of the thing that I that I talk about a lot of time about democracy being built from the ground up not from from the top.

Yeah and I think and I want to I want to contrast what I'm saying to I think sometimes the way when I hear people say well you know people of a progressive band say like well I'm going to focus on statement you know I'm going to focus on look things locally now right in a way that sounds like cope right and what I'm talking about is is absolutely not.

Using a focus on state government simply to distract yourself or to engage in some sort of coping right in fact that's actually the political project of creating actually existing examples of what you want government to use the power that it has to do.

Do you want it simply to enrich a a coderie of people who are already very rich or do you want to actually bring the vast majority of people into a you know slightly you know better position than they currently are and not have to worry all the time about whether or not that you know getting into a car accident is going to be the you know the end of their.

You know financial life like that that to me is sort of what the.

What the stakes are and why you know again.

It's not the same local politics not necessarily way of just distracting stuff emotionally but actually kind of building a reservoir power right.

It's like you're trying stuff on your single a team so that when you get to the majors you have.

Something that's didn't ready well to say nothing of the fact that where is the team coming from right politics is as if we've learned us nothing in the last few elections right that the ability to connect with people on a very local level to turn out voters to one neighborhood at a time and to like.

Matter in a way in the life of everyday life or it's like they said that you can't do that you're going to have a very hard time winning elections period it's always been in a way it's always been true and American politics and I think we're covering that.

The promise of like localism as a way of like doing.

Politics is probably going to be really important over the next you know the next of our next next next few decades of our life certainly all right let's wrap things up here what what are what are you looking at looking for going forward on this particular issue.

But on the grants thing I am sort of looking at what just at a very like practical level.

What is going to be happening over the next few like so the memo was rescinded but I've heard from some organizations that work with like the housing and urban development departments communities.

We have a continuum of care program that they're actually they have some credible fears about whether or not homelessness funds that will promise are coming that that fight is going to continue so I mean in a very short term I'm actually going to be looking at whether or not what this sort of daily level of government writing checks is and I'm going to try to follow that pretty closely I mean I think in the medium term I think we have to look at how this.

Fight between the legislative and the executive branches gets teed up again and what the possibility of another Supreme Court case on this is going to look like and I also I guess I'm kind of curious about you know how.

Even Republican members of Congress get drawn into the fight because ultimately you know a you know an executive that can completely squash their power to do appropriations I mean it does sort of cut both ways you know and that that might be something to watch.

Yeah well you know all of our constitutional originalist friends on the other side of the aisle seem to be your remarkably quiet on a lot of this but you know I guess that's to be expected.

Phil thank you so much for taking some time to to recombobulate on the madness.

I don't know that I did much of.

I think I'm recombobulated but in a short term but still very much.

Thanks a lot Phil.

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