MW Americans may think twice when Musk and Ramaswamy try to break the things they value
By Paul Brandus
Trump's DOGE leaders look for inspiration from Javier Milei, Argentina's chainsaw-wielding president
Now THIS is a math problem. U.S. President-elect Donald Trump's new "efficiency czars" Elon Musk and Vivek Ramaswamy think they can slash $2 trillion from the federal budget of about $6.75 trillion over the next year and a half. I admire these co-chiefs of Trump's new "DOGE" (Department of Government Efficiency) and wish them well.
Just one catch. Trump says about two-thirds of that vast sum is off limits and can't be touched. Which means the $2 trillion in cuts will have to come from the remaining $2.37 trillion or so that Trump says is up for grabs.
Two trillion out of that? That's an 84% wipeout. So my question for you is this: What are you willing to give up? Consider what falls into that $2.37 trillion basket. Food safety inspectors. Fixing that old, rusty bridge you drive over each day. Cancer research. Airport security. And you should hope there won't be any more floods, fires, hurricanes or earthquakes, because federal disaster relief is included here as well - along with countless other things that Americans probably take for granted.
Trump, Musk and Ramaswamy have already made the classic Washington mistake of overpromising, thus setting themselves up for underdelivering.
Obviously, spending cuts of this magnitude aren't going to happen. We need a safe food supply, clean water and all the rest. No serious person questions the need for airport security. And helping a neighbor in need? This is what we do. "After all," as former President Ronald Reagan said, "We are Americans."
This reality bumps against a honeymoon-like glow that hovers over the president-elect, Musk and Ramaswamy. They've already made the classic Washington mistake of overpromising, thus setting themselves up for underdelivering. It happens all the time: In the immediate days after an election victory, the cheers are loud and the potential for change seems boundless. But the nitty-gritty details of governing eventually intrude, and, to use one of Musk's favorite words, "externalities" occur which have to be dealt with. Before long, the next election (now 23 months away) rolls around, and attention turns to that.
And so Musk, Tesla's $(TSLA)$ CEO, and Ramaswamy, a serial entrepreneur, face not just a math problem, but a calendar one as well. Men like this live by the creed to move fast and break things. I'm sure they'll do both. But their effort could play out in two ways, one of which could have lasting effects.
I mentioned Reagan. In his 1981 Inaugural address he famously said that "government is the problem," and he soon launched a task force, made up of "outstanding experts from the private sector" who would conduct a top to bottom review of the government and make recommendations for eliminating waste and inefficiency. It was called the Grace Commission, and within two years it gave Reagan a list of some 2,500 action items. It was music to the ears of conservatives.
So what happened? By the time Reagan left office in January 1989, the federal workforce hadn't gotten any smaller. In fact, according to the St, Louis Federal Reserve, it had grown almost 7%, to 3.16 million. The national debt meanwhile, tripled. After leaving office, Reagan said the explosive rise in debt in his watch was "greatest disappointment" of his presidency. If he hadn't signed a massive Social Security tax hike in 1983, it would have been even worse.
Will America follow Argentina's path?
That's one way. The other way the DOGE effort could play out involves a certain visitor to Trump at Mar-a-Lago last week, Argentina's President Javier Milei. Speaking of moving fast and breaking things, that's exactly what Milei has done in Argentina. Brandishing a chainsaw as a symbol of his determination to slash spending, the far-right Argentine leader (he's also an economist) hasn't even been in power for a year, but has already slashed spending, shut down entire ministries and fired thousands of civil servants.
Has it worked? Judge for yourself: A Reuters report says Milei's scorched earth tactics have "tamped down triple-digit inflation, rebuilt central bank reserves, overturned a deep fiscal deficit" and more. But a separate report by the same news agency also notes that Argentina's economy has now contracted for five consecutive quarters, "pushing the embattled South American nation deeper into recession." Civil unrest and labor strikes have also grown, adding to instability.
This unrest notwithstanding, investors have responded favorably. Since Milei took office almost a year ago, Argentina's Merval, a large-cap stock index, has more than doubled. Global X MSCI Argentina ARGT, an exchange-traded fund, has jumped 60%. Argentine bonds, long wallowing in distressed territory, have racked up sharp gains as the country's interest rates have fallen. But Argentina is hardly out of the woods: Even after a sharp cut three weeks ago, the central bank's benchmark rate - equivalent to the U.S. Federal Reserve's fed funds rate - remains a lofty 35%. But it was a staggering 113% a year ago.
Milei's chainsaw tactics have righted the ship. Of course, the U.S. economy is hardly like Argentina's, but the fear is that it one day could be.
There can be no doubt that Milei's chainsaw tactics - financial triage if you will - have righted the ship. Of course, the U.S. economy is hardly like Argentina's, but the fear is that with runaway federal spending and soaring debt, it one day could be.
Which is why Milei - who has been friends with Musk for some time - has urged him and Ramaswamy to wield chainsaws of their own. "Go all the way," he said, summarizing his advice for the DOGE chiefs on a recent podcast. "Cut to the very limit."
Milei, an inspiring figure for Musk and Ramaswamy, ha? moved fast. He has broken things. But what will the long-term impact be for Argentinians, and when will Argentina pull out of its economic tailspin? Such questions are unanswerable, as they are for the task that the DOGE boys are about to undertake. Two things seem clear, however: The math appears daunting, and political honeymoons tend to be short-lived. The clock is ticking.
-Paul Brandus
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November 30, 2024 09:42 ET (14:42 GMT)
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