Elon and Vivek: Please listen before cutting government

President Donald Trump has selected Elon Musk and Vivek Ramaswamy to head the non-government Department of Government Efficiency, or DOGE, to reform and modernize government, generating huge savings along the way.

Musk, the world’s richest man, has promised to cut $2 trillion from the government’s annual $6.7 trillion budget. He did not declare how long this would take.

But be very careful.

Even if $100 billion, or about one-sixth of the federal budget, could be cut every year, it would take 20 years to reach the $2 trillion mark. That does not account for the uncontrolled real annual cost increases of 5 percent to 7 percent in spending, which by 2044 could accrue to a total federal budget of about $24 trillion in that year's dollars. (At 7 percent annual growth, principal doubles every 10 years).

And with mandatory spending taking up about 60 percent of the budget, defense about 13 percent and interest payments on the national debt of 14 percent, less than one-seventh of the budget can even be cut under current law.

Beyond these fiscal realities, Musk and Ramaswamy would be well advised to review the hundreds of studies aimed at government reform dating back to Sen. Harry Truman’s investigation of defense procurement during World War II.

The Reagan administration authorized the Grace Commission to review reforming government and the Packard Commission to study defense acquisition. I had the privilege of serving on both boards.

Named for the successful businessman J. Peter Grace and former deputy defense secretary and entrepreneur, David Packard, neither commission had much impact on improving government efficiency and cutting costs.

After the Packard Commission released its findings, I took David to lunch. When I asked how he felt about his panel he replied that this “was the most stupid (expletive) thing I have ever done.”

If Elon and Vivek are to make any headway, here are the three largest points of leverage. First, federal government acquisition regulations along with associated department directives amount to millions of pages. These must be streamlined, reduced and codified or codified, reduced and streamlined. That takes time. Great care must be exercised to prevent unintended consequences.

For example, in defense, $600 toilet seats and $1,000 hammers forced President Ronald Reagan to create the Packard Commission. But these did not cost those amounts. Federal acquisition regulations specify that overhead costs be prorated for accounting purposes. Hammers, toilet seats and other basic products fell into this category. Following the accounting rules demonstrated the irrationality of the regulations.

Second, one of the major causes of budget instability and inefficiency is Congress's failure to pass budgets on time, relying on continuing resolutions. Continuing resolutions add billions in additional costs.

If Congress passed a two-year instead of an annual budget, these inefficiencies would be alleviated. Congress will not forego that authority.

Third, instead of railing against “waste, fraud and abuse” and extolling the virtues of fixed-price contracting, DOGE could take a strictly analytical posture. A fixed price contract is when a contractor agrees to produce an item for a specific product at a set price on which a profit margin is added. If there are overruns, it is the contractor’s responsibility to make good no matter the losses. And if the product comes in under cost, the contractor gains.

Cost-plus contracts mean the government will pay all costs plus a profit margin. In research and development where accurate costs cannot be estimated, no contractor would accept fixed costs unless there is no risk. Hence, both types of contracts have their place.

Waste, fraud and abuse are inherent in defense for a simple reason: The private sector is not driven by specific requirements for a product. Apple and Steve Jobs were driven by innovation and imagination. In defense, the need for a stealthy jet fighter capable of supersonic flight without an afterburner is specific. But given the technological risks, a fixed-price contract is business malpractice.

No matter how brilliant Musk and Ramaswamy may be, the U.S. government is simply too enormous with over four million employees and nearly a $7 trillion annual budget. No company in the private sector is as large or has such responsibilities. A degree of humility is essential in any attempt to reform it and institute major changes with huge savings.

DOGE will likely achieve a few early wins that lead to some cuts across government. But unless the sectors with the greatest leverage to achieve efficiency and savings are addressed, along with seeking to reduce uncontrolled annual real cost growth, it will fare no better than its predecessors.

Elon and Vivek — are you listening?

Harlan Ullman Ph.D. is a senior advisor at the Atlantic Council. His 12th book, “The Fifth Horseman and the New MAD: How Massive Attacks of Disruption Became the Looming Existential Danger to a Divided Nation and the World at Large,” is available on Amazon.