🔋Very Waste, Much Spend

Despite success in the private sector, Elon Musk and DOGE are fighting a losing battle.

Feb 12, 2025

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The government is undoubtedly the worst offender when it comes to inefficiency and waste. While businesses and individuals can go bankrupt or lose everything if they do not keep their budgets under control, the government seems to overpay, fail to pass yearly audits, and lose billions of dollars without recourse. On top of that, they seem to be hiring people enthusiastically while the private sector is screaming that it is a bad time.

All is okay though with the flashy new Department of Government Efficiency (DOGE) led by Elon Musk in town right? In theory, the ability of DOGE to cut waste and improve efficiency in the government like a business would reduce the deficit and improve the US fiscal issues.

Like him or hate him, Musk has a tremendous track record of success managing businesses. Tesla is the most successful EV maker in the US and the only one generating meaningful profits. Then there is Space X which has seen greater success than any other space agency including NASA in recent years. Most pressing though is his work at Twitter, which was heavily criticized for laying off 80% of the workforce. Many predicted failure with many advertisers ditching the platform out of distaste for the new leader. Before Musk took over, Twitter’s EBITDA (earnings before interest, taxes, depreciation, and amortization) was $682 million on $5 billion in revenue. Now EBITDA is $1.25 billion on annual revenue of $2.7 billion. This means that even though Twitter’s revenues were cut in half, they still have twice the earnings as before. This is unquestionably a success and adds credibility to his selection for this position at DOGE.

Personal feelings about Musk aside, his businesses have done well. I would be more wary of their motives swaying with the political winds and trying to gain favors with the current administration. From someone who advocates for less government involvement in the economy, you may be wondering why I am setting this piece up to criticize DOGE. Well, let’s dig in.

First of all, DOGE is kind of an oxymoron by making something bigger to make it smaller. Assuming it cuts more than it adds, this is an easy concession though. Before 1900 there were likely less than 100 government agencies, while today there are ~430. This means that ~3 new government agencies have been created per year since 1900. On top of the bloat, DOGE’s role is to reduce wasteful spending in the government. Let’s hope they can do what they say instead of being just another in an increasing pie of government agencies.

DOGE's stated purpose is to reduce wasteful and fraudulent federal spending and eliminate excessive regulations. According to the executive order that established it, its formal purpose is to "modernize federal technology and software to maximize governmental efficiency and productivity"

Early reports of items discovered by DOGE are of course political, of which some can be seen here. My place is not to make judgments on the politics of the decisions here, just the promised financial benefits. In theory, they should be able to cut costs make the US balance sheet better and reduce the deficit. Is this realistic though?

The main issue arises with how much DOGE could realistically have control over cutting. Federal spending is made up of mandatory, discretionary, and net interest. Off the bat, only just over 25% of all federal spending is discretionary. DOGE is unlikely to have much control over mandatory spending without congressional approval. These are made up of primarily social security, unemployment insurance, and Medicare. Net interest is also mathematically determined by the amount of debt coming due that year which isn’t controlled by the federal branch.

As far as discretionary is concerned, half of that is defense. While the national defense is riddled with waste, like this $2,000 wrench, it is doubtful that DOGE will have much control over military contracts and spending. That leaves a “meager” $917 billion of non-defense discretionary spending for DOGE to try to reign in. Even some of these items may be difficult legislatively or politically unpalpable to axe like veterans benefits or certain laws enacted through Congress.

This leaves only 15% of the federal budget in realistic reach of DOGE. Assuming optimistically they can get rid of 50% of this category completely, it would only account for $450 billion or ~7.5% of total spending. Yes, this is a lot of money, but it won’t balance the budget. Using 2023 numbers to stay consistent, the $1.7 trillion deficit would go down to $1.2 trillion. This hardly makes a dent in the grand scheme, and the government will have to continue to finance the deficit with new debt issuance.

Trump and DOGE may say they will be more fiscally responsible, but the reality is they will have an extremely hard time doing so. Unless Trump wants to cause major issues by going after Social Security, defense, or Medicare, there isn’t much that can be done. Even with what can be done on the discretionary side, what support for the hyperfinancialized economy could impact large US corporations could cause issues too. Lower corporate profits because of fiscal restraint or retaliatory tariffs could decrease tax revenues and make the deficit grow larger. Longtime readers will also likely know that recession odds are higher than normal which could force the government into a stimulating mindset and Trump was not shy to spend money in his first term to save the economy and markets.

At the end of the day, DOGE is worth keeping an eye on. There will certainly be some more jaw-dropping discoveries by this department, but their ultimate impact on government spending and the deficit in the grand scheme will be a drop in the bucket in what needs to be done to get the size of the federal government to a reasonable size. These conditions are unlikely to be met and if anything the fiscal issues will only get worse. Until next week,

-Grayson

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