Yves here. Satyajit Das takes a high-level, measured approach to DOGE, stressing an issue that is oddly underplayed in American debates: that it’s fundamentally wrong-headed to approach government using the same standards as for business, which is implicit in the DOGE project. Even so, he comes to a grim conclusion.
To confirm that if anything, Das is downplaying the severity of the US slide, please read this Fortune story ‘The Big Short’ investor who predicted the 2008 crash warns the market is ‘underestimating’ the economic impact of DOGE’s mass spending cuts (hat tip resilc). Representative bits:
[Danny] Moses argued investors are already beginning to see disruptions in consumer confidence—which last month saw its steepest drop in four years—and will continue to hear similar trends in upcoming earnings calls. These slowdowns have yet to be priced into the market, he said…
The tell-tale signs of the weakening economy will be seen in small businesses and “private contractors that are doing legitimate work services that are now being forced to make decisions on their business,” Moses said.
The government spent about $759 billion on contracts in fiscal 2023, an increase of about $33 billion from the year before, with about $171.5 billion going to small businesses, according to the U.S. Government Accountability Office. Musk’s own companies receive at least $20 billion in government contracts.
DOGE’s mass cuts have already begun to jeopardize major contracts. Accenture chief executive Julie Spellman Sweet told investors Thursday its Federal Services business, representing 8% of global revenue, lost U.S. government contracts as part of DOGE’s review. The consultancy’s share price tumbled 7.3% following the announcement.The elimination of both federal jobs and contracts creates what Moses called an “unvirtuous cycle.” As more fired federal workers look for private sector jobs, they may find fewer opportunities because of shrinking revenue streams in government contracts.
By Satyajit Das, a former banker and author of numerous works on derivatives and several general titles: Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), (2022). His latest book is on ecotourism and man’s relationship with wild animals – Wild Quests (2024). Jointly published with the New Indian Express Online
The acronym for the new US Department of Government Efficiency, DOGE, was historically the chief magistrate of Venice or Genoa. The phonetic ‘dodgy’ is defined as dishonest, likely to fail, or causing problems or pain. DOGE’s plan to reduce waste is being run in imperial fashion by the multi-skilled super ‘genius’ Elon Musk and is likely to fail with significant collateral damage.
The government’s revenue and spending are around $5.5 trillion and $7 trillion, respectively. DOGE is targeting expenditure cuts of around $2 trillion. It claims to have cut $100 billion, although real savings may be only $2-$10 billion. Eliminating 25 percent of federal employees saves 1 percent and terminating USAID only 0.6 percent. Meaningful spending reductions require politically toxic cuts to defence, social security, Medicare/Medicaid, veterans’ benefits, defence, and interest payments, constituting 75 percent of federal spending.
The cuts ignore the costs of DOGE actions. Cancelling contracts incur payment for completed work and penalties. Fired workers get termination payments. At around $1,00,000 per head, $7.5 billion is the cost of 75,000 employees taking deferred resignations against annual savings of $11.6 billion if they are not replaced—unlikely if they perform essential tasks.
The plan won’t reduce the budget deficit and debt. Extending tax cuts, eliminating taxes on social security, tips and overtime, and reinstating state and local tax deductions will reduce revenues by around $900 billion annually. Over the next decade, the deficit may rise from $2 trillion to $3.6 trillion due to rising payouts for social security, aged care, and health care. Where once five workers financially supported every retiree, there are now three, which will eventually be two.
DOGE’s corporate restructuring approach misunderstands the public sector’s challenges. Businesses focus on profit maximisation and shareholder returns, whereas the government must balance security, growth, living standards, justice, and values. Businesses operate within defined product-market structures, picking and choosing activities. In contrast, governments must manage in a complex environment shaped by domestic and foreign factors, many of which they don’t control or influence, requiring effective cooperation across constituencies and countries. Many state activities are driven by the absence or failure of market-based solutions.
Earnings and share prices provide a reasonable measure of the effects of business decisions. The success or failure of government choices is less quantifiable as the benefits of infrastructure, education, and welfare are complex and can take decades to become evident. DOGE’s education and research spending cuts risk undermining long-run US competitiveness. Businesses can avoid the broader impact of decisions to reduce workforce, shift production overseas, seek subsidies or minimise taxes. The state effectively deals with unemployment, income support, retraining, and social damage. There is no such safety net for government decisions. Government time horizons must, of necessity, be longer than those businesses follow.
With limited accountability, corporate managers wield extensive power, controlling their organisations through threats (dismissal) or rewards (remuneration or promotion). Government actions require legislative body support and are restricted, at least in theory, by the separation of powers, restraints on executive or governmental action and international obligations. Governments cannot fire legislators and traditionally face significant barriers in rewarding or replacing public servants.
DOGE cannot lawfully change spending already legislated or alter executive spending authority without Congressional amendment to existing laws or passing new legislation. Implementation requires negotiations and engineering consensus with factions within one’s party and opposing politicians, supporters, funders, and the bureaucracy. Republican legislators are finding that DOGE actions are not universally popular with constituencies with the power to vote them out of office. Courts have already begun disallowing cancellation of contracts and terminations.
Execution of government decisions is complicated. Deep domain knowledge is a prerequisite. DOGE staff seemingly lack the necessary knowledge and understanding of the constitution and legislation, government accounting, and systems. The cuts in public sector employees may hamper the administration’s much-touted tariffs and deportation, which are labour-intensive and require extensive documentation.
The identified factors suggest few cost savings. The US government spending hit new highs in February 2025, underlining this. So, what are the US administration’s real objectives?
One interpretation is that DOGE’s actions are surrealist theatre or performance art, giving the appearance of achievement but really activities to please the President’s MAGA base. They distract from failures to end the Ukraine war in 24 hours, reduce prices, boost economic activity, improve living standards, and increase wealth.
The other is more worrying. DOGE and Musk could be Trojan horses for dismembering government capabilities and decreasing regulatory constraints on business. Actions to date have significantly weakened bodies responsible for oversight and enforcing legislation. This would allow interests associated with the President to loot the nation. The Trump family and businesses have already sought to monetise their brand, for example, through investment and trading in cryptocurrencies. Continued business support suggests that DOGE’s cuts may be a precursor to privatising some public services. The relevant parallel is Russia in the 1990s when the West pressured an ineffective government to sell off state assets at bargain prices, benefitting some oligarchs.
Elon Musk purchased his role with $250 million in campaign contributions and enjoys extraordinary authority without being elected and having no Senate confirmation. Despite palpable conflicts of interest, he is well positioned to maintain and expand government contracts for his businesses, such as SpaceX and X. He may leverage access to confidential data and proprietary government software to advance his business interests in areas like AI and disadvantage competitors. Some DOGE measures have resulted in shutting down investigations of Musk-related businesses.
Without strong congressional resistance and an administration willing to ignore court orders, DOGE may indicate a deeper shift—the US becoming a powerful, wealthy, but failed state.
