Musk and Trump's "governing" blueprint: a fiscal austerity storm reminiscent of the Thatcher era?

As Musk continues to advance his policy proposals, the Trump administration may lead an economic reform comparable to the Thatcherism of the 1980s. After taking over the newly established "Department of Government Efficiency" (DOGE) in the White House, Musk proposed a radical fiscal reform plan: cutting $1 trillion in federal spending in the next year - a figure that many economists and budget experts see as highly unlikely to achieve. This is partly because, without touching the welfare programs such as health insurance and social security that Trump promised to protect, cutting such a huge amount of spending would be extremely difficult. However, this $1 trillion figure shows their ambition and their willingness to implement what is essentially equivalent to economic shock therapy. In fact, in terms of the proportion of Gross Domestic Product (GDP), Musk's envisaged fiscal austerity scale will exceed Thatcher's measures in the 1980s when the Iron Lady significantly cut government spending to compensate for budget deficits and fight inflation, ultimately causing an economic recession, to which she showed no remorse. Currently, federal spending accounts for about a quarter of the US GDP, so even a small part of the cuts as expected by Musk could have an impact on the economy, which is already tense due to slowing risks. The efforts of the Trump administration also have similar ideological goals as Thatcher: significantly reducing government involvement in areas from infrastructure to innovation, believing that doing so will unleash the vitality of private enterprises. Treasury Secretary Benett once talked about the need to quickly reduce the budget deficit to 3% of GDP, less than half of the current level, and to stop hindering business development. "Our goal is to re-privatize the economy," Benett said in a speech last month. He pointed out that, over the past year, the government, education, and healthcare employment accounted for 95% of all jobs in the US, which is "neither desirable nor sustainable." "Markets and the economy have become addicted to government spending," Benett said in an interview on March 7, indicating that there will be a withdrawal period. The market's assessment of these remarks is rather pessimistic. However, Stephen Milan, the incoming chairman of the Trump Economic Advisory Council, and Howard Lutnick, the Secretary of Commerce, also hold similar views, believing that the government is an inefficient burden. Lutnick also proposed a plan to increase revenue by $1 trillion through new tariffs. In the seven weeks since taking office, the Trump administration has developed a plan to cut more than 100,000 federal jobs, and economists predict that up to 500,000 federal employees could be unemployed this year. The prospect of substantial cuts has sparked financial reckoning in local governments, universities, and other institutions, which rely on federal funding for a range of projects from scientific research to social services to transportation projects. Analysts from the non-profit organization "Transportation for America" estimate that there is more than $20 billion in federal funding at risk in the transportation sector alone, as the government cuts spending citing opposition to climate change and social justice measures. This could mean a halt or delay in hundreds of road and transportation projects nationwide. Martha Gimbel, the executive director of the Yale Budget Lab, said: "The federal government is an integral part of the US economy, and if you make substantial cuts, it will have a ripple effect. Even if you do these things in a way that gives people time to adapt, it will still be very painful." This pain may have political consequences for a president who promised prosperity, not austerity - he has already wrestled control of the party from deficit hawks. Trump has stated that his goal is only to eliminate improper payments in welfare programs, while Musk identified widespread fraud in Social Security as a potential target for cuts. "There is a lot of fraud," Musk said in an interview, baselessly claiming that DOGE has found evidence of people illegally applying for Social Security benefits and Small Business Administration loans. "I estimate this to be about 10% of federal spending, which is $500 billion." Musk portrays his agenda as a prudent move for a country burdened with $36.5 trillion in debt, with annual interest payments comparable to the Pentagon's budget. "This is not optional, it is a necessity. That is why I am here," Musk said at a cabinet meeting on February 26. He proposed a target of cutting $4 billion in spending per day from now until September. "If we don't do this, the United States will go bankrupt." This also reflects his deep-seated contempt for the government, a contempt that goes beyond regulatory agencies monitoring his companies. Musk implies that federal employees are inefficient and suggests that the public sector should not even be included in economic metrics. He recently condemned John Maynard Keynes as a "bad man," showing his contempt for the economist's belief in the government as an economic stabilizing force. However, in his lengthy diatribes, he often overlooks how his companies benefit from government loans and contracts. As Musk's austerity plan is being rolled out, congressional Republicans are proposing a tax bill that includes cutting $2 trillion over the next 10 years while still increasing the deficit. Achieving his goal may involve cutting spending already authorized by Congress, a power granted to Congress by the US Constitution. Opponents argue that this is illegal, and lawsuits have questioned the constitutionality of Musk's cutting plan. The imminent risk of a new era of austerity has caught the attention of prominent investors such as Steven Cohen, founder of the Point72 asset management company. Last month, he said at a conference, "Regardless of where you stand on the DOGE issue, this is austerity policy." And austerity policies "will inevitably have a negative impact on the economy." According to statistics, if federal spending is reduced by $1 trillion this year, the US will fall into recession, with GDP contracting each quarter and the economy shrinking by 3.3% from expectations. (This estimate does not take into account other policy measures that could drag down the economy, such as tariffs or immigration crackdowns, nor does it consider the positive effects of the tax cuts and deregulation the Trump administration claims can bring)."Je t'aime plus que tout au monde." "I love you more than anything in the world."Chief economist Anna Wong of the United States stated that this will also lead to a 1.5 percentage point increase in the unemployment rate, and by the end of the year, the unemployment rate will reach 5.7%. For Republicans, perhaps the good news is that in this situation, "next year's economic growth will rebound strongly," Wong said, just in time for the midterm elections. The speed of the cuts is one of the reasons for its significant impact. Musk's overall goal means that a year's worth of spending cuts is equivalent to 3% of GDP. Economist Robert Pollin of the University of Massachusetts, who studies government austerity measures, stated that even at the peak of the Thatcher austerity movement, the annual rate of cuts by the British government was only equivalent to 1% of GDP. It is known that Thatcher's austerity policies led to an economic crisis in the UK, until the economy recovered and the Conservative Party celebrated her. There is almost no precedent for such a large-scale spending cut in modern American history as proposed by Musk. The only two larger cuts occurred after World War II and in 2022, when spending reductions decreased following the pandemic stimulus spending led by Trump and Biden in 2020 and 2021. "We are entering into uncharted territory," said Pollin when discussing Musk's plan. Indeed, even if lawsuits do not stop his plan, Musk may still not be able to achieve the $1 trillion reduction goal. This has caused economists and bond investors to dismiss Musk's ambitious goal. But even if he only achieves partial success, it will still have an impact on the economy. Bloomberg Economics found that a spending cut of around $100 billion will cause a 0.3% decline in the US GDP this year. In an economy where federal spending accounts for about a third of state budgets, this impact may be widely felt. This could also backfire on Trump's own supporters. While Thatcher won elections after initiating austerity policies, it does not mean that the Republicans can do the same. Andrew Reamer, a public policy expert at George Washington University, stated that in the 31 states that Trump won in November last year, 30 states received more funds from federal revenue than they paid in taxes to Washington. In a recent article, Reamer wrote, "The budgets of states that voted to support Trump in 2024 are more likely to be affected by cuts in federal aid compared to states that voted to support Harris."