Elon Musk claims the new Department of Government Efficiency can save America US$1 trillion, but putting fear into the bureaucracy is not a way to encourage better results, says this economist.
File photo. Elon Musk talks with Donald Trump at the launch of the sixth test flight of the SpaceX Starship rocket on Nov 19, 2024 in Boca Chica, Texas. to establish a Department of Government Efficiency – to be known by the acronym DOGE – to “dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures and restructure federal agencies”.
Entitlement programmes offer the largest potential savings as the biggest expenditure item for the government. The easiest savings come in reducing eligibility, such as raising the pension age, or tightening the criteria around periods of unemployment or income. The second consideration is the effect on investment. If the spending reductions raise the level of investment and shift it towards productive capital, productivity will rise.It will be a case-by-case question. Shifting costs to people, governments and businesses that have ample resources might influence their choices but is unlikely to have major effects on their productivity. It may even make some improve their efficiency, as reducing industries subsidies often does for businesses.
Big spending programmes with eligibility requirements usually require big bureaucracies to deliver them. Assessing eligibility, especially if there is regular reassessment, is resource intensive. Given the tech interests of the emerging DOGE team, they will no doubt be looking for artificial intelligence-type solutions.
Deregulation is a commonly offered solution to improving productivity. Again, this needs to be considered case by case as a lot of regulation is about reducing the costs that a business’ activities impose on the environment, its workers, and consumers .
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