Good morning Hank! It's Tuesday.

So I think one of the broadest misconceptions about the U.S. government at the moment is that the Trump administration is cutting the size of the federal government through the Department of Government Efficiency or DOGE. In fact, in each of the first four months of the Trump administration, despite mass layoffs of federal workers and mass cuts to foreign aid and science research, the federal government has spent more in 2025 than it did in 2024 or 2023. Also, the margin is going up not down. In short, the federal government is getting bigger and more expensive and the federal deficit is also increasing.

So if you're arguing that DOGE is good because they're cutting the deficit in spending or you're arguing that DOGE is bad because they're cutting the deficit and spending, in both cases, I just disagree with your presupposition. And yet at the same time, it's true that tens of thousands of people are losing their jobs and there have been severe cuts to foreign aid and science spending. So what's going on here?

So first, it's important to understand how the federal government actually spends its money. So, yes, tens of thousands of employees of the federal government have been laid off in the last few months, but all federal employees combined only account for about 5% of U.S. federal government spending. So even losing 10% of them, which is far more than have been fired thus far, would mean only cutting the budget by about 0.5%. The same is true for cuts to things like foreign aid and USAID. Altogether, that only accounts for about one half of one cent of our tax dollar. So like George W. Bush's program PEPFAR that has saved tens of millions of lives, all the money for the global fund that fights HIV, malaria, and tuberculosis, all of USAID, etc, all of that is only about 0.5% of the U.S. federal budget.

Cuts to it do not meaningfully matter to overall federal spending, but they are very politically divisive, which means they get a lot of attention which makes it look like they're significant cuts. The U.S. federal spending looks like this. We spend about 21% of all federal money on Social Security, our retirement plan for seniors. Another 15% goes to Medicare, our national program to provide health care for seniors. 13% goes to national defense, 13% goes to Medicaid, and 13% goes to interest on the debt, which will be going up again because we are spending more money and also taking less in. So right there, that's 75% of federal spending. Benefits for veterans are another 6%, unemployment benefits, retirement benefits for federal workers, nutrition support add up to about 11%. USAID and much more fall into that 3% of other and so even very minor increases in spending for big ticket items like defense mean that the U.S. is spending more in 2025 than we were in 2024 despite hollowing out scientific research and foreign aid and other minor spending categories.

The things we're cutting just aren't very significant. I mean they're very significant in the sense that they've saved tens of millions of lives and fueled research that saved tens of millions more, but I mean they're not like expensive. Also, we're collecting fewer taxes which is another reason why the budget deficit and federal debt are increasing faster than they were last year.

Now there may eventually come a time when there's a cut to the overall federal budget, but we haven't seen that yet and frankly we're unlikely to see it as long as everybody is focused on these tiny tiny categories of spending. Like, you're just not gonna get there by firing federal employees or cancelling politically-divisive small projects like heating support for low-income families or whatever because they're just isn't enough money in them. Instead, we are cutting things to make it look and sound like we are cutting things. This isn't like serious austerity being implemented by DOGE to bring down the debt or deficit or whatever. This is a political choice made to enact a political worldview, and you can agree or disagree with that political worldview, just don't labor under the delusion that it makes the federal government less expensive.

If you actually wanted to cut the deficit, you would have to implement real austerity measures which would probably mean both decreasing spending and increasing taxes. That's what countries do when they're in an actual austerity mode. They cut spending on big ticket items like national defense and benefits for seniors and they also raise taxes. So to be clear, fighting about whether to cut foreign aid is a political argument, not an economic one. It is quite literally like spending $10,000 a month with your spouse on rent and then having an argument with your spouse over whether you can afford one $50 dinner per month. Like, the problem is not the dinner.

So I just think it's important to understand that cutting foreign aid and science grants has not led to a reduction in overall government spending. In fact, overall government spending is going up and indeed cutting foreign aid and science grants cannot lead to a meaningful reduction in government spending because it's just too small a percentage of government spending.

Hank, I will see you on Friday.