Donald Trump and Javier Milei have met several times. The Argentine president's influence on the adjustment process could be significant. (AFP File Photo)
Donald Trump and Javier Milei have met several times. The Argentine president's influence on the adjustment process could be significant. (AFP File Photo)

Milei, Musk, and Trump: How severe will U.S. fiscal tightening be?

President Trump established the Doge and is analyzing Argentina's economic adjustment. How far will he be able to go in reducing public spending?

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Donald Trump’s administration started by delivering on one of its promises: the establishment of the Department of Government Efficiency (Doge). Trump's goal is to reduce the weight of the bureaucracy. And he is inspired by the most radical fiscal reforms globally—specifically those implemented in Argentina under President Javier Milei—aims to reduce costs and modernize public management.

The Trump Administration's interest in the Argentine type of adjustment has been evidenced many times. Milei himself has said that people from his team have been in meetings with Elon Musk, who heads the Doge. Vivek Ramaswamy, very close to President Trump and who sounded to run the new Doge, wrote last November in his X account: "A reasonable formula to fix the U.S. government: Milei-style cuts, on steroids."

But Trump and Musk's approach raises a big question: Is a draconian adjustment in the U.S. feasible, considering the system's political and economic limitations?

The creation of Doge by executive order aims to maximize efficiency in public spending. This department has the mission of implementing the so-called "Doge Agenda," which includes strategies such as digitizing administrative processes, eliminating redundancies in federal agency functions, and using advanced technologies to reduce operating costs.

Each federal agency will have specialized teams, called "Doge Teams," in charge of analyzing areas for improvement and proposing reforms. According to the executive order, the Doge not only seeks to reduce public spending but also to improve public perception of government efficiency, a key point to gaining political legitimacy in the midst of an adverse fiscal context.

How bad are we doing?

President Trump has a point about government spending. The country has been walking on the ledge for a while now because of overspending. The 2024 Monthly Treasury Statement paints an alarming fiscal picture. Government revenues of $5.56 trillion were exceeded by total spending of $7.44 trillion, resulting in a fiscal deficit of $1.88 trillion. This deficit was financed with more debt, bringing the gross debt balance to $36.2 trillion.

But adjusting spending is a difficult task, because it has many inflexibilities. It is worth remembering that the United States spends $1.63 trillion on Social Security, $1.25 trillion on Medicare and Medicaid combined, $879 billion on National Defense and $308 billion on interest on the debt.

The central challenge lies in the uncontrolled growth of mandatory programs such as Social Security and Medicare, which represent more than 50% of total spending. It is worth asking whether the government would be measured to propose a reform in these systems, which would mean getting the country into a complex discussion. It is worth remembering that in 2017, during his first administration, Trump suffered a major defeat and had to withdraw his health care reform.

The influence of Javier Milei

But while the adjustment process will be difficult, Trump already has a success story in the region in his sights. It is what Argentine President Javier Milei has done to balance an economy that just a year ago was on the brink of the abyss. This process has attracted international attention for what Milei describes as "the biggest adjustment in the history of mankind". Under his administration, Argentina significantly reduced the size of the state (16 points of GDP), eliminated ministries, privatized public companies and cut subsidies.

However, Milei's proposals have generated controversy in Washington. While some conservative sectors see them as a bold solution to control spending, critics warn about the social impact of these measures, especially in a country where social programs are fundamental for economic stability.

Unlike Javier Milei in Argentina, Donald Trump does not have special powers that allow him to implement adjustments without congressional approval. This significantly limits the scope of the Doge and any radical proposals. Moreover, the political context in the United States, characterized by polarization between Democrats and Republicans, further complicates the possibility of consensus on structural reforms.

Donald Trump's attempt to implement draconian belt-tightening in the United States faces monumental challenges. While Doge represents a significant effort to modernize the bureaucracy and reduce government spending, the lessons of Argentina and Elon Musk's technology proposals highlight the risks and opportunities of this approach.

The future of these reforms will depend on the government's ability to balance the need for fiscal efficiency with protecting the social programs that underpin the U.S. economy. In this sense, the "greatest adjustment in human history" could be an inspiring model, but also a warning about the limits of change in a complex democratic system.

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