The Risk of Instability
Federal government shudders as Elon Musk and DOGE strike out
This is my third contribution analyzing emerging macro risks to the economy and geopolitics. Each Vuepoint has - and will throughout the year draw on the outline of risks anticipated by the respected Eurasia Group in its January publication, Top Risks 2025.
The prospect of risk this month is the direct result of President Trump handing immense power to a corporate boss with billions of dollars in US government contracts to gut the federal bureaucracy. The claims by the president and Elon Musk cite dubious evidence as rationale for taking draconian action to root out deep-seated corruption, fraud and incompetency in the institutions of government. They say their authority comes from voters who elected Trump to a second (non-consecutive) term.
The risk is that the spectacle in Washington will undermine the federal government’s huge economic footprint – 2.4 million workers ex postal workers and $6.75 trillion in spending last fiscal year ending Sept. 30 – and contribute to undercutting the solid economy Trump inherited when he was elected in November. By the same token, the worry is the shuttering of the major institutional arm for $40 billion in annual US aid will undermine America’s soft power globally.
❝ People voted for major government reform,” Musk told reporters in a joint appearance with Trump in the Oval Office, his young son, X, hoisted on his shoulders. “That’s what people are going to get. That’s what they voted for.
Bloomberg Podcasts, Feb 2025
The vehicle is the Department of Government Efficiency (DOGE), an entity set up by an executive order which repurposed President Obama’s United States Digital Service (USDS). It was set in motion by Musk’s team of 20-something coders from X, the social media outlet formerly called Twitter and which Musk bought in 2022. It has been nothing short of a spectacle where whole agencies of government have been dismantled, tens of thousands of civil servants fired or suspended, unprecedented access gained to troves of data from intelligence records to employees’ bank details to health records; and an abrupt end to spending programs ranging from consumer fraud services to billions of dollars in US aid around the world.
Parts of the federal government are no doubt inefficient and in need of modernization. Most voters do indeed support this idea. Yet reform benefits from planning, openness, oversight and consulting with both the Congress and the stalwart professionals who are US civil servants. While these are critical stakeholders at the very heart of the matter, all are being sidelined by an impatient White House.
This post and the two before it each references the Eurasia Group’s Risk #2 – the Rule of Don, which is defined as the risk of Trump II asserting the power of the White House to purge the vast federal bureaucracy, defying policies, practices and precedents contrary to his interests in the process. That’s what is driving the risk highlighted in this post – the Rule of Don.
Legal Pushback
Notably, dozens of lawsuits are challenging what one news outlet terms “an historic presidential power grab”. And decisions are coming down. Last week, four decisions by four separate federal judges respectively
Blocked attempts to shut down USAID;
Barred putting thousands of the agency’s workers on leave;
Continued to block Doge’s access to sensitive Treasury Department records and systems;
Temporarily blocked layoffs at the Consumer Financial Protection Bureau, another agency Musk has said he wants to dismantle.
The Trump administration did score one win in the course of the week when a judge allowed DOGE’s “Fork in the Road” resignation offer to proceed. The ruling found that the plaintiffs in the case who had challenged DOGE’s methodology to coerce workers to agree to step down by a date certain or risk being fired, lacked legal standing.
Indeed, the Feb 15th NPR report took note that both the Reagan and Clinton administrations also had spearheaded vigorous government efficiency moves, but both did so working within the system. President Clinton and Vice President Al Gore sought input from civil servants to find cost savings. President Reagan worked with Congress to pass lasting legislation.
In the meantime, the cascade of events in Washington is denting post-election business and consumer optimism. The fear is Trump, while having inherited a solid economy, is handing down conflicting policies that are sowing economic uncertainty. The S&P 500 rose 5% in the first five days after his election but is now moving sideways. The University of Michigan cited a drop in consumer sentiment in February based on surveys conducted since Trump’s inauguration.
A small business survey by Vistage Worldwide for the Wall Street Journal showed a reversal this month in a post-election pop in confidence. And Wall Street reported the slowest January in a decade for mergers and acquisitions.
While hardly funny, an attempt to find even a scintilla of humor can help ease the heartburn, if not offer a short-term distraction. Check out the Feb 14th cover and lead story in The Week: The Best of US and International Media, a popular slim and slick US and UK publication. Its cleverness masks ever so lightly the seriousness of the lead story, “Musk’s Rampage” and what may lie in its wake. Notably, Trump’s actions are creating a constitutional crisis - according to constitutional law scholars.
The spectacle we are witnessing in the White House is giving rise to a radically new conception of presidential power, these scholars say. And because of the breadth and breathless pace, the actions could end up thwarting sober and measured responses on the part of the Judiciary - the Third Branch of government. It’s typical that in dramatic cases such as this a legal ruling will lead to a course correction while still allowing legitimate policy objectives to stand.
❝ It’s an open question whether the administration will be as contemptuous of courts as it has been of Congress and the Constitution. At least so far, it hasn’t been.”
––Kate Shaw, Professor, Penn Law School in The New York Times
Still, the question persists.
In 1832, President Andrew Jackson refused to enforce a Supreme Court decision arising from a clash between Georgia and the Cherokee Nation. A comment frequently attributed to Jackson about Chief Justice John Marshall suggests a worrisome portent: “John Marshall has made his decision; now let him enforce it.”
Will that be the response from Trump, Musk and DOGE? It’s clearly part of the risk of the Rule of Don.
📍San Francisco