Great write-up and very interesting to see those numbers crunched with deficits stabilizing per your simulations. I mean, some must see the 160% "death mountain" approaching somewhere if they don't do anything.
If DOGE comes to fruition, the creation of the "Government Efficiency Department" I can already see the wailing and screaming across "mainstream media" and the incumbent "rooted in government (subsidy)" groups - "It'll all crash down, they're destroying our country... etc."
Some of the money suckers of useless subsidies will surely need to look for a real job, since DOGE might cut job loss benefits for non-productives if it comes to the worst.
When they deliver cuts and the country miraculously not only survives, but - heavens forbid - thrives, now that should open the last encrusted eyes to what's been happening.
The only thing I can say: One can dream for it to come to pass!
Also I think you left out a "not" in this sentence, unless I'm misinterpreting? Should it not say "to not cut taxes too far" since cutting them "too far" would negate the positive effects of reducing deficit / GDP ratio?
"DOGE has the potential to improve public finances dramatically, but it’s also a huge incentive to
Thanks for your comments! Agree it's going to be very interesting to see which spin the MSM will put on it when the results come in.
Regarding your question: if DOGE is indeed successful and reduces wasteful spending, government balances improve - which is a temptation to hand out new favors in the form of lower taxes, ringing in a new round of testing the limits of government debt. I should have said 'temptation' instead on 'incentive'.
Of course, the MSM will scream bloody murder for any cut in spending that is not from the DOD. And we will endure endless "heartbreaking" stories about how critical programs are being cut and people are losing their jobs.
Ah, yes, "temptation" makes more sense in that context, thanks for clarifying that one! I still think that indeed it would negate all the (potential) good if they give into that temptation.
Ben Bernanke didn't invent QE, the BOJ did. Every dollar of "government waste" is somebody's income somewhere, so if you think it will be possible (politically, not technically) to just withdraw $2T from the economy in one fell swoop, I have a bridge I'd like to sell you.
The problem is not government spending but 'government malinvestment'. The government can give a dollar of income to someone digging holes, and many governments do a lot of that. Because they have no competitive pressures.
If all of this money was spent and generating real value for people, there'd be no problem, indeed a dollar of income for someone.
In the context of the overall economy today, government spending is excess spending. First thing to happen when spending goes down, the trade deficit will go down, which by the way is another policy priority of Trump. So in the end it’s foreign countries which will have to deal with a decline in U.S. aggregate demand.
Can't help thinking that a 10% tariff on all imports will penalize the lower 1/3 of income earners (inflationary) and spike a need for more income supports (welfare, food stamps, etc).
A 25% tax reduction for them is meaningless.
If the plan is to concurrently reshore industry and it benefits blue collar the most (although pressures to lower wages at same time are sure to try and offset the benefit), the lag time from pain to benefit will be too much and cause its failure (??)
Wouldn't the better actions be to reduce superfluous regulations, causing a renaissance in primary energy production/exports and lowering corp time spent on other unproductive business activities/reporting. Creating tax incentives for business to reshore/invest (accelerated depreciation, marginally lower corp taxes, penalize stock buyback activity/excessive option granting) while increasing minimum wages could be the balance needed to promote a more equitable split of profits??
how did you model the interest rate expense under the adjusted deficit? it would be interesting to see what the Fed impact will be on the overall outlays, especially with Bessent talking about a shadow governor
You can back out the interest rate on debt from CBO budget projections. Then you project changes to government debt, and new total debt, from annual budget deficits/ surpluses, and use the CBO’s interest rate to determine the interest expense. In fact I think CBO estimates of the interest rate are too conservative.
I've been thinking about the trillions they hope to cut and welcome thoughts on what happens to the overall economy during a transition like that. When the government tightens its belt by trillions it creates some ripples through jobs and businesses, clearlysome regions/sectors more heavily impacted. Just curious how that might play out and what we can learn from past examples, appreciate any insights.
Overall, the U.S. economy currently overspends (private consumption + government deficit spending), i.e. the nation consumes more than it produces, hence the large trade deficit. If government spending is cut by a meaningful amount, I think those are the macro impacts:
- The trade deficit will go down, i.e. on balance foreign countries will have to deal with lower U.S. aggregate demand
- It is dis-inflationary
Another target of DOGE is to reduce bureaucracy and excessive regulation – if successful, this will stimulate investment even more.
As always, transition periods create noise, and winners and losers in a sector-by-sector comparison.
Much appreciated. Agreed it is dis inflationary but what about effects on employment? Clearly near term employment is decreased at directly impacted departments/agencies and program beneficiaries. Do you not see those having any meaningful ripples? Nearly 80% of GDP is domestic service based and trillions of government cuts is roughly 7-8% of gdp.
Cutting wasteful spending long term is excellent, I’m trying to assess the near and medium term impact of sucking money from the domestic sec ice economy.
Great write up here from Econolog on DOGE.
The current rate of debt accumulation in the United States is flatly unsustainable.
The US has become locked in a death spiral of debt for some time:
When in power, the democratic party expands spending but fails to raise taxes.
When the GOP is in power, they raise taxes and fail to cut spending.
Will DOGE break the cycle? I wouldn’t hold my breath, but never bet against Elon Musk.
you meant to say "When the GOP is in power, they cut taxes and fail to cut spending."
Yes. My mistake
A late comment and request - this is excellent and will you set up a DOGE Tracker???
I'll do my best to provide updates down the road.
Great write-up and very interesting to see those numbers crunched with deficits stabilizing per your simulations. I mean, some must see the 160% "death mountain" approaching somewhere if they don't do anything.
If DOGE comes to fruition, the creation of the "Government Efficiency Department" I can already see the wailing and screaming across "mainstream media" and the incumbent "rooted in government (subsidy)" groups - "It'll all crash down, they're destroying our country... etc."
Some of the money suckers of useless subsidies will surely need to look for a real job, since DOGE might cut job loss benefits for non-productives if it comes to the worst.
When they deliver cuts and the country miraculously not only survives, but - heavens forbid - thrives, now that should open the last encrusted eyes to what's been happening.
The only thing I can say: One can dream for it to come to pass!
Also I think you left out a "not" in this sentence, unless I'm misinterpreting? Should it not say "to not cut taxes too far" since cutting them "too far" would negate the positive effects of reducing deficit / GDP ratio?
"DOGE has the potential to improve public finances dramatically, but it’s also a huge incentive to
cut taxes too far*."
Thanks for your comments! Agree it's going to be very interesting to see which spin the MSM will put on it when the results come in.
Regarding your question: if DOGE is indeed successful and reduces wasteful spending, government balances improve - which is a temptation to hand out new favors in the form of lower taxes, ringing in a new round of testing the limits of government debt. I should have said 'temptation' instead on 'incentive'.
Of course, the MSM will scream bloody murder for any cut in spending that is not from the DOD. And we will endure endless "heartbreaking" stories about how critical programs are being cut and people are losing their jobs.
Ah, yes, "temptation" makes more sense in that context, thanks for clarifying that one! I still think that indeed it would negate all the (potential) good if they give into that temptation.
Ben Bernanke didn't invent QE, the BOJ did. Every dollar of "government waste" is somebody's income somewhere, so if you think it will be possible (politically, not technically) to just withdraw $2T from the economy in one fell swoop, I have a bridge I'd like to sell you.
The problem is not government spending but 'government malinvestment'. The government can give a dollar of income to someone digging holes, and many governments do a lot of that. Because they have no competitive pressures.
If all of this money was spent and generating real value for people, there'd be no problem, indeed a dollar of income for someone.
In the context of the overall economy today, government spending is excess spending. First thing to happen when spending goes down, the trade deficit will go down, which by the way is another policy priority of Trump. So in the end it’s foreign countries which will have to deal with a decline in U.S. aggregate demand.
Can't help thinking that a 10% tariff on all imports will penalize the lower 1/3 of income earners (inflationary) and spike a need for more income supports (welfare, food stamps, etc).
A 25% tax reduction for them is meaningless.
If the plan is to concurrently reshore industry and it benefits blue collar the most (although pressures to lower wages at same time are sure to try and offset the benefit), the lag time from pain to benefit will be too much and cause its failure (??)
Wouldn't the better actions be to reduce superfluous regulations, causing a renaissance in primary energy production/exports and lowering corp time spent on other unproductive business activities/reporting. Creating tax incentives for business to reshore/invest (accelerated depreciation, marginally lower corp taxes, penalize stock buyback activity/excessive option granting) while increasing minimum wages could be the balance needed to promote a more equitable split of profits??
how did you model the interest rate expense under the adjusted deficit? it would be interesting to see what the Fed impact will be on the overall outlays, especially with Bessent talking about a shadow governor
You can back out the interest rate on debt from CBO budget projections. Then you project changes to government debt, and new total debt, from annual budget deficits/ surpluses, and use the CBO’s interest rate to determine the interest expense. In fact I think CBO estimates of the interest rate are too conservative.
Nice read.
I've been thinking about the trillions they hope to cut and welcome thoughts on what happens to the overall economy during a transition like that. When the government tightens its belt by trillions it creates some ripples through jobs and businesses, clearlysome regions/sectors more heavily impacted. Just curious how that might play out and what we can learn from past examples, appreciate any insights.
Overall, the U.S. economy currently overspends (private consumption + government deficit spending), i.e. the nation consumes more than it produces, hence the large trade deficit. If government spending is cut by a meaningful amount, I think those are the macro impacts:
- The trade deficit will go down, i.e. on balance foreign countries will have to deal with lower U.S. aggregate demand
- It is dis-inflationary
Another target of DOGE is to reduce bureaucracy and excessive regulation – if successful, this will stimulate investment even more.
As always, transition periods create noise, and winners and losers in a sector-by-sector comparison.
Much appreciated. Agreed it is dis inflationary but what about effects on employment? Clearly near term employment is decreased at directly impacted departments/agencies and program beneficiaries. Do you not see those having any meaningful ripples? Nearly 80% of GDP is domestic service based and trillions of government cuts is roughly 7-8% of gdp.
Cutting wasteful spending long term is excellent, I’m trying to assess the near and medium term impact of sucking money from the domestic sec ice economy.