LOS ANGELES.–Violating every known principle of Keynesian macroeconomics, 53-year-old billionaire CEO of Tesla Motors, SpaceX and X, etc, shows he knows nothing about well-established economic theory, especially the life’s work of British economist John Maynard Keynes. Musk told 78-year-old President Donald Trump that he would find and eliminate $2 trillion in waste, fraud and mismanagement in government programs, forgetting that the economy depends just as much on government jobs as it does any other source of employment. Whatever Musk has found in legitimate waste, fraud and mismanagement, the Trump economic team hasn’t figured out what to do with a sudden shock to government employment. Firing as many as 24,000 federal workers, Musk hasn’t figured out what happens to the overall U.S. economy with those same workers filing for unemployment.
Investor Danny Moses, of “Big Short” fame based on the 2008 crash in mortgage backed securities, worries about another market crash where short sellers take over Wall Street, betting the so-called put options, where investors can sell stocks before a given date, betting on share prices to go down. If enough put options flood Wall Street, major stock indexes can go into correction phase, which they’ve already done, selling off over 10%. “I think wer are being overly optimistic [as to] how this is going to play out,” Moses told CNBC’s “Power Lunch.” Musk continues to offer early retirement packages to federal workers now estimated at 75,000, beyond the ones already fired. Moses noted that consumer confidence has dropped to the lowest level in four years, as businesses and consumers look to an economic downturn, the kind of market psychology bad for Wall Street.
Moses sees the economy as weakening due to the rapid pace of government jobs cuts. “The telltale signs of the weakening economy will be seen in small businesses and private contractors that are doing legitimate work services that are now being force to make decisions on their businesses,” Moses said, meaning that private sector businesses, like Musk’s SpaceX, are likely to see a slowdown in government contract spending. So, even if laid off government workers pivot to the private sector, there might not be the jobs needed to absorb them with a loss of government contracts. Again, Musk and the Office of Government Efficiency, have not considered the adverse effects of government job layoffs on the economy. Keynesian economics requires a partnership with government and private sector spending to lift the economy. Losses of government spending could be catastrophic.
Coming off the 2020 pandemic, the government took a Keynesian approach with several trillion dollar spending bills, arguably flooding markets and consumers with too much capital that caused the latest inflationary cycle. Former Treasury Secretary Larry H. Summer predicted that Biden’s Covid stimulus bills would generate runaway inflation, something actually happened fairly quickly. Once Biden decided to embargo Russian oil in 2022 after the Ukraine War, it sent shock waves through world economic markets causing inflation in energy markets and spreading to every other economic sector. Trillions in government spending created an unprecedented employment boom, something that’s begun to cool off. No one knows whether or not the private sector, even the booming health care industry, can absorb the current waves of government jobs losses.
Without calculating in the losses of government jobs from DOGE, the Bureau of Labor Statistics reported 10,000 fewer government jobs in February. Once Musk’s job cuts enter the picture, it’s going to paint a pretty bleak picture going forward for jobs. Yet Federal Reserve Board Chairman Jerome Powell could not see the economic downturn ahead to cut the Federal Funds rate at its March 19 meeting. “There’s a lot of uncertainty that’s playing in right now that we’re not fully able to quantify,” Moses said, worried that the uncertain tariff environment could only make a bad situation worse. With consumer spending accounting for 70% of the U.S. Gross Domestic Product, a recession could be in the cards sometime soon. Too much unemployment is bad news for Keynesian-oriented economists that think the government needs to spend more in times of economic slowdowns.
Musk and Trump’s economic team are playing around with basic macroeconomic principles, requiring the government to play a vital role in stimulating the economy. When the cash runs out from all of Biden’s post-Covid spending, the economy could grind to a halt, especially if Musk continues to slash the federal work force. “Should a substantive number of federal workers fail to find new jobs, spending will like slow, a not insignificant hit to the U.S. economy made up nearly 70% of consumer spending,” said chief market strategist at Ritholtz Wealth Management in a note to investors. If the country lapses into a slowdown or recession, the Fed will be forced to lower interest rates, the only positive outcome. Meanwhile unemployed federal workers will no longer contribute to the consumer economy, now hurting economic growth. Trump’s DOGE experiment will have blown up.
About the Author
John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.
