Federal Budget I: The DOGE Boys.
“The Gunfight at Dodge City” is a 1959 Western film. After his brother the sheriff is murdered, Bat Masterson is elected to the job of sheriff and is determined to find the killer and make Dodge City safe. Today, there are gunfights going on in DOGE City to restore law and order to fiscal policy. Will the new sheriff in town get the job done, or will the Bond Vigilantes do it?
The Department of Government Efficiency (DOGE), led by Elon Musk (who reminds us of a superhero on a mission to save humanity), is scrambling to uncover waste and fraud in the federal government. That should be easy. The question is whether he and his team—a.k.a. the DOGE Boys—can find enough waste and fraud to make a big difference to the federal budget outlook if eliminated.
The reason the boys are scrambling is that the Democrats are regrouping and coming to DOGE City for a gunfight. The Democrats have rounded up a posse of Democratic district attorneys from all around the country to stop Musk’s muckrakers by filing motions in courts to block them from raking the muck they find.
Treasury Secretary Scott Bessent probably also alerted the DOGE Boys that the Bond Vigilantes might be coming to DOGE City for a shootout if the Trump administration doesn’t convince them there’s no need for a gunfight because the President will deliver fiscal discipline and resist telling the Fed to lower interest rates.
After all, the Fed did lower the federal funds rate (FFR) by 100bps from September 18 through December 18 last year, but the Bond Vigilantes immediately expressed their dismay that monetary policy was stimulating an economy that didn’t need to be stimulated and enabling fiscal excesses. They did so by pushing the bond yield higher by 100bps (Fig. 1 below). In the past, the Fed lowered the FFR from cyclical peaks because the peaks were followed by recessions (Fig. 2 below). There has been no recession this time.
Now, consider a few of the recent developments that led up to the trouble brewing in DOGE City:
(1) Summer 2024. Elon Musk floated the concept of DOGE in discussions with Donald Trump during the summer of 2024 as the then-former President campaigned for a second term. In an August campaign event, Trump said that, if elected, he would consider giving Musk an advisory role on how to streamline the government. Musk immediately tweeted, “I am willing to serve.”
(2) October 27, 2024. Elon Musk first declared that DOGE would cut $2 trillion from the federal budget on October 27, 2024, during a Trump rally at Madison Square Garden. Over the 12 months through January, the federal government’s budget deficit totaled $2.14 trillion (Fig. 3 below).
(3) January 8, 2024. However, on January 8, 2025, Musk stated in an interview with Mark Penn that achieving the $2 trillion cut was unlikely and that the best-case outcome would be around $1 trillion. Over the past 12 months through January, federal government outlays totaled $7.1 trillion, with $6.0 trillion in mandatory outlays (including Social Security, Medicare, health, income security, national defense, and net interest) (Fig. 4 below). Net interest outlays alone totaled $920.6 billion, exceeding the $910.2 billion spent on defense over the last 12 months (Fig. 5 below).
(4) January 20, 2025. On Inauguration Day, President Trump signed an Executive Order titled “Establishing and Implementing the President’s ‘Department of Government Efficiency.’” The order renamed the existing United States Digital Service “the United States DOGE Service” (USDS). Within the USDS, a new organization was established, the US DOGE Service Temporary Organization, which is headed by the USDS administrator (Musk) and is scheduled to be terminated on July 4, 2026.
Each government agency must establish a “DOGE Team of at least four employees, which may include Special Government Employees, hired or assigned within thirty days of the date of this Order. Agency Heads shall select the DOGE Team members in consultation with the USDS Administrator. Each DOGE Team will typically include one DOGE Team Lead, one engineer, one human resources specialist, and one attorney.”
The goal of this Executive Order is to modernize “federal technology and software to maximize efficiency and productivity.” To achieve that, the DOGE Teams will have “full and prompt access to all unclassified agency records, software systems, and IT systems.”
Needless to say, DOGE has stirred up lots of controversy in Washington. There are almost daily headlines on DOGE’s success at finding lots of inefficiencies, waste, and possible fraud within the government accounts. Many of these headlines are generated by Musk’s tweets on X.
There is lots of pushback by Democrats, who are challenging the legality of the DOGE Boys’ flipping through government files. Douglas Holtz-Eakin, who had served as the director of the Congressional Budget Office, compared DOGE to the former Grace Commission, which had zero of its 150 proposals enacted.
