The Trump administration intends to treat the government like a business, removing waste and increasing productivity. Can it be done? It’s difficult to say. Firing government employees is notoriously difficult (hence the “fail up” theme that is common in the public sector).

Having said that, there’s clearly room for improvement/ cost cutting. The bigger issues pertain to how the Elon Musk and Vivek Ramaswamy’s Department of Government Efficiency (DOGE) would affect the overall economy.

Let’s dive in. All told, over 23 MILLION people are employed by the government in the U.S. That’s not a typo. You can see this for yourself. The chart has gone straight up with few drops in the last 80 years.

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Of this, the Federal Government is currently responsible for ~3 million workers. To put that into context, Wal-Mart employs roughly 1.6 million people in the U.S. So, Uncle Sam employs a little under two times as many people as the country’s largest private sector employer.

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Does the government need all these employees? It’s difficult to say. There are plenty of stories of wasteful spending in government, but is the wasteful spending pertaining to programs, employees, or both?  Put another way, is DOGE’s mission to improve the U.S.’s fiscal situation… or is it meant to primarily reduce the size of the government?

This remains to be seen.

Moreover, is DOGE meant to apply to just Federal Employees, of is it mean to also streamline state and local government operations? The U.S. has 167 million people in its labor force. With three million of these people employed by Uncle Sam, this means that less than 2% of labor force would be in DOGE’s targets. If DOGE is meant to also apply to state and local government, then the percentage of people who could be affected jumps to 13% of the labor force.

These issues need to be clarified for us to get a better sense of the impact of DOGE on U.S. employment.

Finally, and perhaps most pressing for investors, will DOGE trigger a recession? Elon Musk famously laid off 80% of Twitter (now X’s) employees without too much difficulty. If he and Vivek Ramaswamy manage to accomplish even half of that (meaning laying off 40% of Federal Government employees), if would mean 1.2 million Federal Employees losing their jobs.

There are currently 6.9 million people unemployed out of a labor force of 168.4 million. This comes to a U-3 unemployment rate of 4.1%. Adding 1.2 million unemployed people to this ratio would increase the U-3 unemployment rate to 4.8%. And bear in mind that this analysis assumes that the overall labor force dynamics do NOT change at all in the private, state or local government sectors (unlikely if DOGE is also cutting spending).

The lowest U-3 unemployment rate during this current cycle was 3.4%. So, a spike to 4.8% in unemployment would mean a total increase of 1.4% to the unemployment rate trough to peak. That is roughly equal to the unemployment rate spikes that occurred during the recessions of the early ‘90s and the early ‘00s (1.6% and 1.4%, respectively) so this is recessionary territory.

Would President Trump be willing to stomach a technical recession if it was triggered by delivering a campaign promise to shrink the government? I have no idea. President Trump was extremely proud of the economy’s strength during the first three years of his first term. Would the pride of shrinking government for the first time in decades eclipse the perceived economic “failure” of a technical recession occurring during the first two years of his term? 

This remains to be seen.

The one thing that IS clear is that DOGE would improve the U.S. fiscal situation. This would remove one of the biggest concerns for the stock market (the U.S. debt mountain/ massive deficits) and open the door to new highs.

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