Trump v Musk is the final battle before a catastrophe

Sydney Morning Herald

2 days ago

In any case, against total federal spending last year of nearly $US7 trillion, it is but a drop in the ocean, and only goes to show how difficult it is to find serious savings in government administration, even when given a free hand with the headcount.
The rampant corruption and incompetence that Musk's Department of Government Efficiency expected to find in the Washington and wider government machine has turned out to be largely an illusion, and many of the cuts he has managed to make seem to have done more harm than good.
This is not to argue that it's not worth trying, or that you cannot make public services more efficient. But it takes time, substantial upfront investment, and the savings are generally not as big as anticipated.
To nobody's great surprise, it transpires that the skills needed to run a successful business do not transfer easily to the public sector, where the disciplines of the bottom line, the profit motive and competitive markets don't exist.
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The shame of it is that the Musk who built Tesla and SpaceX into two of the world's most successful companies over a period of nearly two decades has been almost entirely absent while at DOGE these past four or five months.
Instead, we have seen a reckless, chainsaw-wielding – and if the American press is to be believed, drug-fuelled – Musk who, like his one-time boss Donald Trump, seems to regard government more as performative art than public service.
We can all point to myriad examples of public sector waste, of unfathomable spending decisions and stultifying, jobsworth bureaucracy, but the imagined savings from addressing these things nearly always turn out to be a mirage.
In Britain, Nigel Farage's Reform UK claims there is £7 billion to be saved by scrapping public sector spending on diversity, equity and inclusion (DEI) programs. Sadly, no such saving exists.
Recent government figures showed just £27 million ($56 million) was spent by the civil service on DEI measures during 2022-23. This might well be £27m too much, but it is not going to solve Britain's debt crisis.
The two big cash-burners in advanced economies' state spending are public sector salaries and welfare, and both desperately need to be addressed if Western democracies are ever to extract themselves from now mountainous debt.
Musk has comprehensively failed on the first of these missions, and not surprisingly so. The sort of productivity-improving automation and digitalisation we see widely applied in the private sector to stay competitive is a marathon, not a sprint, and it requires precision in planning and execution.
None of these characteristics was on display from the tech bros sent in to tackle the bloated size of the American state. Their approach was one of slash and burn rather than the slow, methodical re-engineering of government needed to achieve sustainable savings and productivity improvement.
What's more, Trump shows little or no appetite for meaningful entitlement reform.
OK, some attempt is being made to trim spiralling Medicaid spending, but it's half-hearted and is really only there as a gesture to appease fiscal hawks among House Republicans.
Nobody can tell you exactly when the storm will break, but Musk's failure brings the final reckoning that much closer.
The bottom line is that Trump is as much a creature of fantasy economics as any.
He wants both low taxes and high spending, and expects economic growth to make up the difference. It's the same delusion as Liz Truss, only very much more dangerous in its seeming rejection of fiscal orthodoxies.
Unlike Britain, America is the beating heart of the global financial system, and if US debt markets go belly-up they'll take everyone else down with them.
Back here in Britain, Rachel Reeves, the Chancellor, shows similarly little sign of getting to grips with the leviathan of public spending as she puts the finishing touches to next Wednesday's spending review.
Public sector salary costs are rising, not falling, and while ministers talk the talk on welfare reform, their approach to the issue is no more convincing than that of Trump. It's just a little tinkering around the edges.
Simply getting working-age benefits back to their pre-pandemic level would save £49 billion a year – more than enough to avoid tax rises and fund the desired increase in defence spending to 3 per cent of GDP, Jeremy Hunt, Reeves' Conservative predecessor as chancellor, points out.
Spending on disability benefits alone has surged from £37 billion just before the pandemic to £56 billion now, much more than in any comparable economy, with the bulk of the growth coming from mental health conditions.
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Yet Reeves used up almost all her political capital axing the winter fuel allowance to all but the poorest pensioners, a course of action that saves only £1.5 billion a year. This has left her with virtually no space for more serious entitlement reform.
In both the US and Britain, cutting state spending back to size is simply not happening on the scale needed to stem the rising tide of debt.
Attempts by Musk to draw a line in the sand have ended in acrimony and recrimination. Nobody can tell you exactly when the storm will break, but Musk's failure brings the final reckoning that much closer.