Lessons to be learnt from Musk/DOGE and Milei/Argentina
Britain desperately needs to cut down the size of its state. Two examples from across the the Atlantic provide a blueprint for what could work and what probably wont.
News that Rachel Reeves wanted to find efficiencies in public spending, cut wastage and reduce bureaucratic bloat was met with a degree of exasperation by many of us. I have written numerous times on the need to tackle the absurd head count and inefficiency in our public sector, as well as the necessity to cut general public spending. Our public sector is both large and ineffective, and a lot of us believe the two are intrinsically linked. I have described the situation as one where “Government output is simply less than the sum of its parts”.
Cutting public spending and tackling the bureaucracy is nothing new to British politics. The Cameron Government introduced austerity which cut public spending by 5% of GDP, although they never eradicated the budget deficit. During the Conservative party’s last term in Government (from 2019-2024) there were several attempts to reduce the size of our bureaucracy. Jacob Rees-Mogg was assigned by Boris Johnson to cut civil service headcount. He outlined plans to take 90,000 people out of the system. Jeremy Hunt spoke of his plan to tackle ‘immoral’ Whitehall waste in 2024. Oliver Dowden, Deputy Prime Minister at the time, put forward plans to use AI and technology to improve public sector efficiency. All of this fell by the wayside when Labour won the 2024 General Election. Sir Kier Starmer has however recently publicly backed plans to cut the size of the state (or at least not to make it much bigger). Robert Jenrick led on civil service cuts during the Tory leadership race with a plan to cut 100,000 jobs.
I am not confident this Government will be successful, and that is before you take into account their political and ideological preference for an active and intrusive state that demands size and reach. I am not confident because ‘cutting’ is actually damn hard. Hard because you come up against political opposition, vested interests, HR regulations, employment law, contract law, bureaucratic push-back, etc etc. It is easy to talk a big game on cutting the size of our state... in reality it is much much harder.
Which is why it has been interesting to watch and analyse the efforts of both the Argentinian and American Governments as they execute radical cost cutting programmes. Javier Milei has been relatively successful in reducing Government expenditure, headcount and driving inflation downwards. It is still early, but I doubt the efforts of Donald Trump and Elon Musk will be as successful. Here I detail thoughts on both.
Javier Milei and Argentina
We all know the story. The Argentine economy has been a basket case since Juan Peron and Peronism took hold of the economy in the 70s. The chart below is a perfect illustration of the divergence between the pro-market US economy and an Argentine economy that became over-burdened with high spending, capital controls, high debt levels and an unstable currency.
Milei’s presidential campaign pitch centred on ceasing this decline and taking on the ‘Peronist status-quo’. Two moments that characterised him for the West were the video of him ripping department name tags off a whiteboard shouting hysterically ‘Afuora!’ (“Out” in Spanish), and his calmer, more academic speech to Davos in which he extolled the virtues of capitalism and criticised ‘collectivism’. Since entering office, he has followed through on the promise to reform the South American economy and he has done so somewhat successfully, much to the surprise of many commentators. In total public spending was cut by approximately 30%, which generated a fiscal surplus of $300m in 2024/25, the first surplus in 14 years (and something western economies can only dream of now). Inflation is down from >200% to 36% (although that is still high by international standards) while GDP growth is projected to stabilise at approximately 5% yoy until 2029. So how did he achieve this?
Firstly Milei exploited executive power by issuing Necessity and Urgency Decrees (effectively an Executive Order). These bypass normal law-making processes, while maintaining the full force of the law.
The Executive Orders closed down and abolished a number of public offices and arms-length-bodies. This included 9 cabinet level Departments and 52 Secretariats. US based Cato Institute believe they have '“abolished about 100 secretariats and sub-secretariats in addition to more than 200 lower-level bureaucratic departments”. The Presidential Decrees also set about cutting headcount across the public sector, ending contracts for people with less than one year of service under their belt. Along with forced redundancies this has generated 34,000 job cuts.
Milei has taken his famous chainsaw to Government corporate support, cutting “subsidies in gas, electricity, and other public utilities, and temporarily paused the funding of public works”. Critically he has also tackled some of the more generous entitlements enjoyed by members of the Argentinian population. For instance he reduced pension entitlements, scrapped some free medication, healthcare expenditure was cut substantially, public funds for social programmes such as food stamp programmes for the poor and urban regeneration were heavily cut. He also reduced provincial transfers to local Government organisations (something the British Government did during the austerity years).
The three main takeaways for foreign observers are firstly, that the scope and reach of the cuts and changes were huge. Scrapping half the central Government infrastructure, cuts to entitlements, and privatisation is certainly ambitious (remember the outrage when the last Government tried to sell Channel 4). He even took steps to devalue the Peso by 50%, which has triggered a boom for the exporters, specifically local farmers sector who sell soybean, wheat and corn around the world. It has truly been a radical agenda.
The second takeaway is that, despite the clear mandate and need for reform, Milei still came up against political opposition and legal challenge, but he persevered. The Executive Decrees have been criticised by the legislative and challenged in the courts. This is something that the US President is currently finding, and while it has not stopped Milei so far, if the Executive Decrees are judged to be unlawful, he may be forced to unwind some of the changes introduced.
Lastly, it is also the case that Milei has successfully conditioned the Argentinian’s to accept the cost of necessary reform. Unemployment and poverty rates are climbing (a BBC report from 2024 stated poverty rates has jumped from ~40% to over 52%). For many this might have been too high a social and economic cost, but Milei has gone some way to winning the argument for reform.
Elon Musk and DOGE
Elon Musk has had less time to perform, and slightly less success in achieving a similar feat in the US. The US economy is very different to that of Argentina - it has been robust, grown consistently, and is home to the worlds largest and most innovative companies. However, debt continues to rise exponentially. US Public Debt has more than quadrupled since 2010. Some on the political right are starting to voice major concern about the long-term stability of the US dollar. Financier and economics author Ray Dalio have said a trajectory like this will inevitably end in economic catastrophe.
Similar to the UK, there has also been huge frustration with public sector workers not going back to work in an office post-Covid, with the proliferation of Diversity, Equality and Inclusion (DEI) related roles within public organisations, and with a sense of distance and unaccountability among civil servants.
Musk was appointed to lead the Department of Government Efficiency (DOGE) in January 2025 to find $2T of cuts within the $7.6T US Budget. As of June 2025, the DOGE/US Government shows $170b in savings generated so far (8.5% of the target savings, 1.3% of total budget; 0.4% of total debt). Even if you assume non-linear exponential growth in accumulated savings, it is hard to see how DOGE gets to $2T of public spending cuts within a 2 year time frame.
The DOGE website says savings have come from a “Combination of asset sales, contract/lease cancellations and renegotiations, fraud and improper payment deletion, grant cancellations, interest savings, programmatic changes, regulatory savings, and workforce reductions”. However if you dig into the data (which is a little confusing and inconsistent, see this Sky News on how the truth has been hard to dig out), the big savings have come from Government contracts and grants that have been either cancelled entirely or cut substantially. The most obvious cuts have come in policy areas and departments that are considered woke, or at least, very unpopular - notably the Department for Health and USAID.
A $3.3b contract for an organisation called Family Endeavours to build a refugee resettlement centre for unaccompanied children was cut down to approximately $400m generating a $2.9b saving. $1.7b in grants to the GAVI Alliance (an international alliance to establish research in to vaccines) was cut. $350m was cut from the US commitment to the International Bank for Reconstruction and Development. Familiar consultancy names - Deloitte, Booz Allen Hamilton, Accenture - have all shouldered significant contract cuts.
On Federal headcount, Mush and DOGE deployed several mechanisms to force Departments and Agencies to cut staff, including the ‘Fork in the Road’ offer allowing federal employees to resign while being paid out in full until September of this year. If you scan the internet (with a little help from ChatGPT) you see coverage of 1,000 staff being laid off from the Office for Veterans Affairs, 5,4000 probationary workers laid off at DoD, 10% of the workforce cut at the Centre for Disease Control. It is estimated that Musk and DOGE have managed to lay-off 260,000 Federal employees by May 2025. That’s approximately 10% of the entire Executive Branch, not a trivial percentage.
One of the Departments that has received huge attention is the Department for Social Security. It has seen a 12% cut to its workforce, and Musk has been in hot ‘legal’ water for using social security databases to tackle out fraud. However, Musk’s mandate does not extend to overall entitlement policy and the Trump Administration have yet to come forward with a proper plan to reform/cut eligibility and generosity across social security programmes. Social Security costs the US taxpayer more than $1T every year. A 2% reduction in social security entitlements would more exceed the savings generated by the 10% cut to Executive Branch employees. But of course, whereas Javier Milei was able to overcome pressure against cuts to welfare, the Trump administration will face significant popular and legal push-back against cuts to social security from across the country.
There has also been substantial criticism that Musk’s changes to the shape of the Federal Government will end up costing the US taxpayer more. Firstly, unemployed former Federal employees will now claim social security and medicare/medicaid (the chart below shows social security benefits costing $46.2b more under Trump compared to Biden). Fewer staff hunting out tax fraud at the IRS are expected to see fraud prevalence rise. I have always felt these estimates are slightly exaggerated, but they can’t be ignored.
Lessons Learnt
There are some lessons from both these examples of Government’s pursuing aggressive cost cutting programmes. Cross over between both countries is limited, and parallels with Britain are thin as both have very different economy’s. But here are a few takeaways for me and others in Blighty interested in civil service reform and deficit cutting:
Cuts are possible - When I worked in Government, senior British civil servants questioned the premise that there was wastage in the centre of Government and claimed few if any savings could be realised without compromising on policy output. I disagreed with that vehemently back then, and both these examples validate the notion that cuts can be made without the world imploding.
Change has to be driven from the top - Milei was elected on a platform to radically change the shape of the Argentinian state. Trump wasn’t elected on the same premise. Musk’s involvement in delivering a policy programme was unveiled until after the General Election, and once he was in place at DOGE (after shenanigans with Vivek Ramaswamy) he struggled to be taken seriously by people outside of the White House. His short tenure and recent news that he has been micro-dosing on Ketamine (true or untrue) are symptomatic of the shambolic nature of his appointment.
Build the case that benefits outweigh the costs - There will be huge costs to Government reform of this type; unemployment, poverty, homelessness, economic growth (or a lack thereof). The argument should be that countries/economies will be much better off in the long run once they have reformed the state and made it more effective. But that argument does not come easily. Look at Thatcher in the 1980s… she successfully reformed the British state and our economy, becoming the most consequential Prime Minister since Churchill, but her record remains controversial. Milei has clearly made the case that the near terms costs are worth the long term benefits. That is not obviously the case with Musk and Trump.
Aim BIG - Both Milei and Musk set their sights high with aspirations for large cuts to the state. The difference was that Milei went after the big cost centres in social security (below inflation increases in pensions, cutting healthcare and welfare spending) and Government subsidies. Milei has also followed through with plans to cut Government Departments, whereas (as of writing) the Department for Education still exists in Washington DC.
Entitlement generosity and eligibility is key to long term shaving of budget deficit - Western economies have largely shifted away from military-centric spending of the ‘Cold War-era’ 20th century, to become welfare states in the 21st Century. It is known as the ‘Peace Dividend’. If Britain and others are going to successfully move away from deficit financed growth models, bureaucratic bloat, high debt levels, and inefficient public services… they probably need to take cash out of the entitlement programmes. As we have mentioned before, the social and economic costs in the near term will be high, but in the long term it is crucial for state reform.