Pushing on the Rope

I wish Elon Musk and Vivek Ramaswamy well in their efforts to find efficiencies in the federal government but I’m afraid I’m materially in agreement with Jackie Calmes in the Los Angeles Times:

So it’s worth examining just why the goal is a mission impossible, and why the actions they say Trump will take are unlikely to significantly reduce federal debt. In fact, if we subtract Trump’s promised tax cuts from the projected revenue, annual deficits and the debt could well increase — just as they did during his first term, when his actions caused the national debt to balloon by $8.4 trillion over a decade.

A little fiscal math: The federal budget for the fiscal year that began Oct. 1 is $6.8 trillion. Musk proposed to cut 30% of that. Which would be hard enough if the whole amount were on the chopping block. But roughly three-quarters of the $6.8 trillion is either politically untouchable (especially Medicare and Social Security, which Trump has vowed to leave unscathed) or legally off-limits (interest on the debt).

That leaves just over a quarter of federal spending: $1.9 trillion in so-called “discretionary spending” that Congress controls annually through its budget process. But discretionary programs account for just about everything that the government does and that Americans expect it to do — including domestic spending and funding the military.

A few examples: air traffic control, agriculture programs, disaster aid, education, courts, highways and other infrastructure, immigration, homeland security, law enforcement, national parks, the Pentagon and scientific research. (For those America First-ers who like to trash foreign aid: It’s less than 1% of spending, not the roughly 25% that many Americans tell pollsters they think it is.)

In short, Musk’s aim to cut $2 trillion would require wiping out not just supposed waste, fraud and abuse but also all discretionary spending — even though Trump has said he wants to increase the defense portion. And still the cuts would come up short. Musk conceded “temporary hardship” would result, but Bloomberg News wrote that slashing so much “would require a level of austerity unprecedented since the winding down of World War II.” That’s probably an understatement.

That’s as good a summary as any of why I have opposed cuts in personal income taxes, the revenue side of the ledger, whenever they have been proposed for the last 20 some-odd years. There isn’t as much to cut from the expense side of the ledger as people seem to imagine which means that we will borrow to make up the difference but there is empirical evidence that public debt overhang impedes private sector growth so taking the time-hallowed approach of outgrowing our debts is much harder than it was thirty years ago.

I’ve supported cuts in the corporate income tax rate both for reasons of competitiveness as well as corporate income taxes being inefficient—they are invariably passed on either to companies’ employees in the form of wage cuts or to consumers in the form of price increases.

Not too long ago I saw a piece from David Stockman in which he announced that he was going to post his plan for cutting spending. I’ll pass that along when it actually appears. I don’t believe that Mr. Stockman feels bound by President-Elect Trump’s campaign promises not to touch Social Security or Medicare.

I think there is plenty of room to introduce efficiencies in the federal government. Maybe Mssrs. Musk and Ramaswamy will propose some. Just don’t overestimate how much room there is for economization.

6 comments… add one
  • CuriousOnlooker Link

    You would be surprised.

    The Committee for a Responsible Federal Budget found between $830 billion to $1.4 trillion dollars could be saved over 10 years by repealing or reverting discretionary executive actions from the Biden administration (https://www.crfb.org/blogs/reversing-biden-executive-actions-could-save-14-trillion)

    Its only 5% of projected “discretionary” congressional spending over 10 years; but one trillion dollars still represents a significant amount of money.

    To my eye; all of these executive actions significantly affect federal budget but because they are programs outside of yearly congressional budget — none of it was assented to by Congress. What exactly is the point of Congress and its so called power of the purse if executive actions can incur outlays or savings of $1 trillion.

  • Its only 5% of projected “discretionary” congressional spending over 10 years; but one trillion dollars still represents a significant amount of money.

    I agree. But it’s not close to the amount Musk and Ramaswamy are claiming to reduce which is $2 trillion PER YEAR.

    In my view the reason for greater efficiency is more to receive value for what we are spending.

  • steve Link

    They can finish cutting Big Bird! Anyway, they will claim they came up with enough cuts to achieve $2 trillion but then they will blame the Democrats for not being able to pass the cuts. It’s what Reagan and his people did.

    Steve

  • CuriousOnlooker Link

    I agree with that.

    If efficiency is output per input; greater efficiency could mean greater output for the same input. And even those who like big government should want that, because getting more services / infrastructure / goods for what we pay into government means taxpayers would be more willing to pay to get what they receive.

    And efficiency can be measured in different ways. One is time; it takes 2 years since passing a law to an agreement with Intel on chip subsidies; never mind disbursement and actually using the money. 2 years to build a dozen electric chargers. Time is money.

    Amusingly, the $1 trillion if repealed through the Congressional budget process, would count significantly towards extending Trump’s tax code changes in TCJA on the personal side which are expiring in Jan.

  • bob sykes Link

    There is no chance at all, zero probability, that federal spending can be brought under control. There is no will in Washington to do so. Politicians have convinced themselves that deficits don’t matter, that debt doesn’t matter. So, our budget deficits will continue to grow, our debt will increase, until there is an actual default. Weimar America is happening right before our eyes.

    Will we get our own Hitler? More likely, since many of our leaders are, in fact, marxists of one sort or another, we will get a Kim.

  • Drew Link

    It seems to me that any discussion of the revenue and expenditure realities of the country needs to deal first with the structural issue of the baby boomers. This bulge moving down the snake has been a dominating variable in the US economy since just after WWII.

    It has already affected the unemployment rate, artificially low due to retirements (and COVID early retirement).

    It is in the midst of affecting SS and Medicare. But the bulge will pass. I have no such analyses at my fingertips. But in business this would be called a long term financial workout. Everyone is in for the long haul, unless they want to commit financial suicide. But let’s not just look at the next two years and say “it can’t be done” or “its got to be fixed right now.” I’ve been hearing that from management teams or banks for decades.

    I think Bob touched on the point I fear most: there is no political will. And that goes for both the politicians and the voters. Let’s face it, Harris just ran basically on a free beer platform. If the ebbing of expenditures as the boomer generation passes on is viewed as “found money” then it will be spent. If it is viewed as an opportunity to bring our debt to revenue ratio back into some sort of sensible ratio, we can have a moment.

    And a last thought. Our country’s politics have become contests to give money we don’t have to people we favor, be it from taxes, or monetizing treasuries. Legitimate functions of government, say, infrastructure and the grid, have been neglected and present strategic risks. eg Biden just left us with an inflationary period because of a pork bill that was mislabeled.

    I really don’t know what path we will choose. But Trump certainly has some outside the box thinkers.

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