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Elon Musk wants to make big cuts to government spending.
Along with former presidential candidate Vivek Ramaswamy, the Tesla CEO and X owner was appointed the co-head of the newly founded Department of Government Efficiency (DOGE) by president-elect Trump last week, and has said he wants to cut $2 trillion from the national budget. DOGE aims to reduce government waste and bureaucracy, and the co-heads are getting to work: Musk is looking to hire "small-government revolutionaries" for the department, and Ramaswamy wants to "delete" entire government agencies outright.
But Musk might want to double check his math, according to Simon Johnson, the recent winner of the Nobel Prize in economics.
According to the Congressional Budget Office, federal spending in 2024 is projected to total $6.5 trillion, meaning that Musk is looking to shave off nearly a third of the current federal budget.
Mandatory outlays in the federal budget include Social Security, Medicare, Medicaid, and other healthcare-related spending. These expenditures are estimated to come out to approximately $3.9 trillion in 2024.
"He's proposing to cut $2 trillion from a domestic budget. The headline budget is more than $6 trillion, but most of that is Social Security and Medicare," Johnson said.
That leaves around $1.6 trillion of the budget for discretionary spending. Historically, half of that has gone to defense spending.
"I don't think he's going to cut military spending because I don't think Republicans will want that," Johnson said of Musk. "So he's going to try and cut $2 trillion from $0.8 trillion."
"Look, I'm not opposed to more efficiency or less waste in government," Johnson continued. But "it's been tried many times before. Mr. Musk is obviously a very creative character. I don't think he's got his head around the numbers yet because the numbers he stated don't make sense," Johnson added.
Eliminating agencies and slashing unnecessary spending might sound simple, but the process is anything but. Congress, not DOGE, supervises the budget for these agencies, meaning that Musk isn't directly in charge of implementing his cost-cutting ideas. Additionally, proposals to slash areas of the social safety net are wildly unpopular and likely to be met with backlash.
"There is no way Mr. Trump will cut Medicare and Social Security payments to people because many people who rely on those payments just voted for him," Johnson said.
You can't discuss the US federal budget without getting into the topic of the national deficit either. Some market experts are predicting that Trump's policies could increase the national debt by $10 trillion in the next decade, with BlackRock's head of global fixed income predicting that the national debt could reach problematic levels by the end of 2025.
Johnson isn't taking such a drastic stance, but he's still concerned about where the national debt is going, especially since it looks like Trump will renew the Tax Cuts and Jobs Act once he's in office.
"The tax cuts will be enormous, which is not a good idea for the long-term future of the country," Johnson said.
Less tax revenue means that Social Security and Medicare, which are already underfunded, will take a hit. According to the Committee for a Responsible Federal Budget, Trump's stated tax policies could make the Social Security fund "insolvent" in the next six years. With Musk proposing drastic budget cuts and Trump advocating for lower taxes, it doesn't seem like there's a solution to address underfunded government programs.
That's not to say that Johnson is completely writing off Musk's DOGE ambitions. Perhaps a technocrat outsider will have unconventional ideas for improving government efficiency. For example, AI could be a useful tool for businesses and government agencies alike to streamline their operations.
"It will be very interesting to see what Mr. Musk can come up with," Johnson said. "Are there clever ways to use AI to improve the delivery of government services?"
