Elon Musk’s understanding of the so-called deep state comes off as rather shallow. The Tesla CEO reckons $2 trillion can be slashed from the U.S. bureaucracy, echoing decades of arm-waving over wasteful spending in Washington. It’s a noble cause, but an implausible figure. Although there are undoubtedly savings to be found, it would be more helpful to find better ways to use allocated government capital.
President-elect Donald Trump has enlisted Musk and biotech entrepreneur Vivek Ramaswamy to lead a newly created Department of Government Efficiency. Setting aside the unserious tone set by naming it to have an acronym that references Musk’s preferred cryptocurrency, dogecoin, the endeavor lacks a dedicated budget and has no legal jurisdiction in a system where Congress controls the purse strings. Moreover, no one has yet explained how the 13-digit headline number was derived or even what period of time it covers, suggesting it might have just been pulled from thin air.
What’s clear is that of the $6.1 trillion U.S. budget in 2023, only about $1.7 trillion is discretionary, or spent on optional items. The rest goes to healthcare for poor and elderly voters, the Social Security retirement fund and federal interest payments, none of which require regular legislative reauthorization. To cut them would mean rescinding benefits for millions of Americans or defaulting on the country’s debt, unlikely propositions to say the least.
During their prescribed 18-month assignment to produce an analysis, Musk and Ramaswamy will uncover plenty of grist to enrage social media users, including funding for obscure government research projects, numerous grants and subsidies, and absurdly priced supplies bought through tedious procurement processes. Early efforts, however, have been lackluster. Musk’s political action committee released a list of cost-cutting targets that includes $659 billion of government interest expenses. For one thing, it’s for money already borrowed and spent. And not repaying bondholders would be catastrophic.
There is no shortage of belt-tightening exercises around the world to study both for inspiration and avoidance. Musk, for example, has lauded, and befriended, Argentina’s libertarian President Javier Milei, whose own electoral campaign symbol was a chainsaw. Since being inaugurated in December 2023, he has closed entire government departments, ended popular consumer subsidies and devalued the country’s currency. They helped Buenos Aires record its first quarterly budget surplus in 15 years. Curbing monthly inflation to 3% from 25% also won plaudits from creditors including the International Monetary Fund. At the same time, more than half of Argentines now live below the poverty line, up from 42% at the end of 2023.
What’s more, given its long history of runaway inflation, public mismanagement and bailouts, Argentina is probably not a model to follow. More developed economies haven’t fared much better with austerity.
After the 2008 financial crisis, Britain’s Conservative government under Chancellor of the Exchequer George Osborne ruthlessly attacked the budget. Typically taboo areas like pensions and housing weren’t spared either. Whitehall spending as a percentage of GDP fell to 38% by 2019 from 51% a decade earlier, but also badly missed targets. Public sector debt hit 84% of GDP in 2016, when Osborne left office, even though he had predicted it would peak at 70%. The Bank of England discovered there was a 2% hit to GDP growth between 2010 and 2015, and a House of Lords report blamed the cuts, including to the National Health Service, for 300,000 deaths.
The United States had its own brush with austerity after the collapse of Lehman Brothers and other bank rescues. A ballyhooed bipartisan supercommittee – the National Commission on Fiscal Responsibility and Reform – led by Alan Simpson and Erskine Bowles aimed to pare the federal deficit by almost $4 trillion over a decade using a range of reductions in military and other spending, accompanied by the elimination of certain tax credits and deductions. Despite garnering support from the likes of JPMorgan boss Jamie Dimon and House Speaker Nancy Pelosi, only 11 of 18 committee members voted in favor. Congress and the Obama administration did subsequently commit to spending caps, but they proved so unpopular that they were scrapped in later budgets.
Musk and Ramaswamy say this time will be different. They plan to use untested legal strategies to shift powers of the purse from Congress to the executive branch, and to focus on deregulation alongside spending, in a bid to boost economic growth. For that to work, however, they will need the Supreme Court to shred civil service protections so that bureaucrats in neutered agencies can be fired. Federal labor unions already are exploring legal options to protect jobs and challenge Trump’s expected attempts to relocate departments out of the Washington area, which he tried to do during his first term. Federal contractors and their congressional allies would fight any changes to longstanding government procurement rules. Musk’s companies, it’s also worth noting, have more than $3 billion in federal contracts with 17 different agencies, the New York Times reported.
Instead of embarking down this tortuous road, there’s a better template to consider: Al Gore’s National Performance Review from 1993. The vice president under Bill Clinton at the time was able to take advantage of post-Cold War defense and intelligence bloat. His commission identified actionable savings from streamlining regulations and eliminating more than 400,000 government jobs, trimming $136 billion in the process. Gore, a techno-optimist throughout his career, also pushed federal agencies to modernize and improve customer service, including by embracing the internet in its early days.
At the start of Clinton's term in 1993, U.S. government spending represented 34% of national economic output. Gore's efforts combined with the military drawdowns reduced it to 32% by 1997. Today, it’s back to 34% of GDP, suggesting that comparable cuts probably would chop at least $500 billion. Still, it would be equivalent to almost a third of discretionary budget items.
The more promising pieces of Gore’s initiative are the concrete user-experience improvements, and an area where Musk’s skillset is better applied. He has materially changed the U.S. dealership and delivery model for cars. He’s already talking about a free electronic filing system for taxpayers. Maybe congressional Republicans will come around on the idea after opposing the Biden administration’s test run of such a program. Taxpayers getting better service out of their government will be easier to implement and pay bigger dividends. Outstretched hands make a better symbol than a chainsaw.
Billionaire Elon Musk and former presidential candidate Vivek Ramaswamy met on Thursday with Republican lawmakers whose support they will need to win the sweeping spending cuts that President-elect Donald Trump has asked them to find.
The two entrepreneurs have been named by Trump to a task force that aims for a sweeping overhaul of the U.S. government, which spent $6.8 trillion in the most recent fiscal year. Musk has set a target of $2 trillion in savings, though he has not said whether that would come in a single year or over a longer period. The two chairs of the "Department of Government Efficiency" have called for firing thousands of federal workers, slashing regulations and eliminating programs whose authorization has expired, such as veterans' healthcare.
That could be easier said than done. Any changes to veterans' benefits or other popular programs that serve millions of Americans would likely encounter fierce blowback, and efforts to thin the workforce could disrupt everything from law enforcement to air traffic control.
Musk, clutching the hand of a small child, rushed down the corridors of the Capitol near the Senate chamber while surrounded by police, reporters and photographers.
After being peppered with questions about whether he would support cuts to entitlement programs like Medicare and Medicaid and cuts to defense, Musk finally replied: "I think we just need to make sure we spend the public's money well."
Asked about getting rid of electric vehicle tax credits, Musk said: "I think we should get rid of all credits."
Ramaswamay met separately with a group of Senate Republicans including Thom Tillis, who said he believed there were "tens of billions of dollars" in spending that could be quickly clawed back.
As co-chairs of the efficiency task force, Musk, the billionaire CEO of Tesla (TSLA.O) and SpaceX, and Ramaswamy, a former biotech executive, would likely have to work with Congress to secure significant reductions.
Republicans will control both chambers of Congress and the White House next year, but they may struggle to win significant reductions. While lawmakers sign off on roughly $1.7 trillion in defense and domestic programs each year, most federal spending consists of health, pension and other benefit programs that lie outside of the annual budget process. Lawmakers have no control over interest payments, which are projected to top $1 trillion in this fiscal year.
Republican lawmakers have said they are eager to cooperate. Representative Marjorie Taylor Greene, a hard-right firebrand, will chair a House of Representatives panel to work with Musk and Ramaswamy, and Senate lawmakers have also expressed openness to the idea. Republicans secured limited spending cuts in a 2023 showdown with Democratic President Joe Biden but have been unable to agree on further reductions since then.
Trump has broken with conservative orthodoxy by saying he will not cut benefits for the Social Security pension plan or the Medicare health plan for seniors, which together account for more than one-third of federal spending.
Trump also showed little interest in spending cuts during his first 2017-2021 term in office, when federal expenditures grew from $4 trillion to $6.2 trillion. Congress did not act on his proposal to eliminate more than a dozen small government agencies and failed to repeal Democratic President Barack Obama's signature Affordable Care Act, a central goal of the party.
Ramaswamy said on Wednesday that the Trump administration should first try to find savings by reducing waste, fraud and abuse in benefit programs like Social Security before asking lawmakers to consider more difficult reforms.
"We're taking on a very big problem here and we're going into it with an appropriate level of humility," he said at the Aspen Security Forum in Washington.