Since his inauguration as US President, Donald Trump has not wasted any time upsetting the applecart. Within days, federal aid had been paused to ensure spending matched the administration’s agenda. Further actions include the freeze on hiring federal employees and the creation of the Department of Government Efficiency, otherwise known by its acronym, DOGE.
The above policies are incredibly popular with Trump’s base; however, one need not be a Trump supporter to see the case for cost-cutting. In 2024, the US saw a $1.8 trillion deficit, contributing to national debt of over $36 trillion. According to Elon Musk – the tech magnate deployed to run DOGE – this includes a potential $50 billion a year of fraudulent entitlement payments within the Treasury Department.
In the UK, many commentators on the Right have been quick to support these measures due to the belief that a radical overhaul of the state will solve the economic malaise seen since the 2007-08 financial crisis.
While a different approach is clearly necessary, acting too quickly without considering all implications will not lead to positive outcomes. A look back to Ronald Reagan’s political career may prove instructive as an example of how ambitious plans can promise much but deliver little.
As Governor of California, Reagan created a privately financed and staffed body, the Governor’s Survey on Efficiency and Cost Control. Recommendations were set out based on delivering state services ‘in the most efficient, expeditious and economical manner’. By this point, Reagan had completed his journey from self-described ‘New Dealer’ to an ardent Republican, intent on trying to reduce the size of government.
However, results of spending reductions were mixed. A prime case study was the Lanterman-Petris-Short Act that abolished involuntary hospitalisation except for extreme cases. By the early 1970s, California saw almost all mentally ill patients removed from state hospitals, with little likelihood of returning to hospital if the patient relapsed.
Such patients ended up in board-and-care homes owned by for-profit chains and clustered in rundown urban areas. California was the first state to see an increase in homelessness and an increase in incarceration and crime as a direct result of deinstitutionalisation. This is a significant contributing factor to the homelessness crisis facing California today.
Reagan also attempted a similar cost-cutting exercise later in his career, but on a national scale. This had its own challenges. Shortly after becoming President, Reagan announced his plan for tax and spending cuts. The Grace Commission was then established, a private-sector body focused on reforming federal bureaucracy and controlling spending. This has been compared to the newly created advisory group, DOGE.
The Grace Commission submitted over 2,500 recommendations during its two-year tenure, but only 27% of these could be implemented by presidential authority. The other 73% required action by Congress.
Similar issues will likely face DOGE. Legal scholars have been quick to mention that there is little in either the Constitution or US law to support the executive branch acting alone to overturn what Congress has authorised and funded.
During Reagan’s presidency, the federal government became much larger. Total federal employment increased by about 400,000. The deficit almost doubled from $79bn to $155bn, partially due to government spending also almost doubling from $599bn to a little under $1.1trn.
DOGE’s mission statement, slashing federal spending, can only be achieved by cutting social security, defence, Medicaid or Medicare expenditures. Spending outside of these four ‘big ticket’ items has not been lower as a percentage of GDP for over 40 years. Examples of ‘waste and fraud’ are mere window dressing, and will not bring the scale of expected outcomes.
Tackling regulation may be a far more fruitful way to reinvigorate the US economy. The executive has the power to change much of this. While the sentiment of shrinking the size of government is a worthy one, the Trump presidency should be careful not to overpromise and learn from past errors.
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