Another Day in Paradise
Move fast and break things
Trump and Musk Share the Founder’s Mindset
There is a tension between exploitation and exploration in any organization. Startups focus entirely on exploration; mature companies preoccupy themselves with exploitation of something successful that the firm discovered in the past. Most companies are a portfolio of these projects, each falling somewhere unique on the spectrum.
Government hasn’t been in the exploration phase for a long time. They think they have all the answers; they know that they have the processes to generate all the answers. They are hard over on scaling exploitation. This is the way of the bureaucrat.
This mindset explains much of the fear and loathing surrounding DOGE. Not only is it willing to destroy the bureaucracy that has subrogated the government’s moral authority and subsequently enfeebled it, but DOGE is actually improving the exploitation dimension by upgrading systems like the Treasury’s outdated, myriad payment setups.
Musk is from Mars, Pahlka is from Venus, indeed.
‘Founders are biased toward decisive, even disruptive, action. Mr. Musk’s biographer sums up the Musk business philosophy as: “Take risks. Learn by blowing things up. Revise. Repeat.” For the typical founder, problem-solving is a priority. He must constantly look for ways to innovate to lower costs and beat the competition. This means a founder is generally risk-tolerant rather than risk-averse, and he doesn’t like to back down when facing pressure.
‘Founders also hate to delegate, just as they hate unnecessary costs. They prefer to work through small, trusted teams—hence the importance of loyalty—and are continually asking subordinates and colleagues, “What have you done for us lately?” In other words, how are you advancing our vision? If you lose a founder’s trust, it can be hard to win it back.
‘Managers define leadership differently. They like to build consensus and oversee incremental change instead of pushing what President George H.W. Bush called “the vision thing.” They pride themselves in delegating and see managing a “team of rivals” in their cabinet or boardroom as necessary to their job. Mr. Trump’s Republican predecessors, even Ronald Reagan, generally operated in this “manager” mode—even as the federal government and the power of the administrative state continued to grow on their watches.’
Musk and DOGE make the case for their efficiency, tech work
What’s the argument in defense of the existing technology for the federal government?
‘“We have to fix the computers,” Musk said during an interview with several Department of Government Efficiency associates Thursday on Fox News, which the New York Times described as a “charm offensive” for DOGE.
‘Federal agencies have indeed often struggled with aged technology, data systems that don’t connect and user experiences that leave Americans with headaches. The IRS, for example, has been trying to get off its 1960s-era system for individual tax account administration for years.
‘“If the computers can't talk to each other, you can't get research done. If the computers can't stay online, people won't receive their Social Security,” said Musk. “So what we have here are a bunch of failing computer systems that are preventing people from receiving their benefits, that are preventing research from happening, that are extremely vulnerable to fraud, and we're fixing it.”’
Musk makes case for controversial DOGE cuts in 3-hour Rogan interview
While we’re at it, what’s the argument against GAO?
‘“Many things that DOGE is fixing were identified by Government Accountability Office many years ago,” Musk said during the episode that aired on Friday.’
The DOGE Playbook Targeting Federal Agencies
The New York Times has its own narrative for explaining how DOGE has worked and evolved.
‘The so-called Department of Government Efficiency, led by billionaire Elon Musk, has appeared at agency after agency to slash spending and cut the federal work force. Here’s how DOGE employees do it.’
For years, the progressive state leveraged the subsidies for higher education to universities to extract compliance with their political agenda. Now that the same leverage is being applied to extract compliance with someone else’s political agenda everyone is shocked.
‘It’s not quite, “You f***ed up, you trusted us,” but, “You f***ed up, you never thought the federal leviathan could be turned against you.”
‘Progressives put Chekhov’s proverbial gun on the table, assuming that it would be used only against someone else.’
There Is No Bessent Put in the Market
The Treasury Secretary has a very tricky job to finance the government given these levels of debt and the maturity profile he inherited from the previous Administration who played games for political purpose by keeping funding at the short end of the curve. One way he might help himself is by loosening the capital requirements for financial institutions related to holding Treasuries.
‘He can create regulatory incentives for banks to buy more Treasuries. The key regulation would be the supplementary leverage ratio, as Steven Kelly of the Yale Program on Financial Stability explained to me. The SLR is a ratio that divides banks’ common equity by their total assets; the resulting percentage must be above a certain threshold, depending on the bank’s size. During the Covid epidemic, both Treasuries and central bank reserves were temporarily excluded from the calculation altogether, in order to loosen conditions in the Treasury and credit markets. In 2021, as the exclusion expired, the Fed said it was “inviting public comment on several potential SLR modifications”. Nothing came of that, but Kelly says the regulatory stars are aligning to reduce the weighting of Treasuries in the SLR. This would make it more attractive for banks to hold Treasuries (they’d have to hold less capital against them). This is quantitative easing where the buyer is commercial banks rather than the central bank. Kelly thinks it is very likely to happen.’