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Hal Weitzman: Elon Musk's DOGE, the Department of Government Efficiency has driven a steamroller through the federal government slashing jobs and dismantling entire agencies. But will it actually do much to address the US' budget deficit? Welcome to the Chicago Booth Review Podcast, where we bring you groundbreaking academic research in a clear and straightforward way. I'm Hal Weitzman, and today I'm talking with Chicago Booth's Sam Peltzman, a long-time critic of government regulation and bureaucracy, and a one-time federal employee himself. Does he think that DOGE will actually save taxpayers any money? Sam Peltzman, welcome back to the Chicago Booth Review Podcast.

Sam Peltzman: My pleasure.

Hal Weitzman: Now, we are here to have you talk about DOGE. You yourself had some experience working in federal government, did you not? Tell us about that.

Sam Peltzman: Yes, I did. It's a long, long time ago, and before I get any further, I want to recommend it to any young person who's starting out in a career which is going to be influenced by government.

Hal Weitzman: Really? Even now?

Sam Peltzman: It was an eye-opener. Even now, yes.

Hal Weitzman: Okay. What was your-

Sam Peltzman: Yes, once the dust settles.

Hal Weitzman: What was your experience?

Sam Peltzman: I was on the staff of the Council of Economic Advisers, which was a much more important agency in that era than it is now.

Hal Weitzman: When was this?

Sam Peltzman: Early 1970s.

Hal Weitzman: Okay.

Sam Peltzman: We're talking about a very, very long time ago.

Hal Weitzman: So who was the-

Sam Peltzman: But my impression is things haven't changed a bunch.

Hal Weitzman: President Nixon? Who was the president?

Sam Peltzman: It was Nixon. Yes.

Hal Weitzman: Right, okay.

Sam Peltzman: Yes, it was the Nixon administration, believe it or not.

Hal Weitzman: So tell us about your experience.

Sam Peltzman: I was the head of an interagency committee, which was looking at lots of transportation issues. This is the part of my experience which is relevant to DOGE. This required me transportation issues. It was amazing to me. The generals in the Pentagon got interested in this because they have a regime that affects the movement of military personnel. There's lots of issues. The one that I remember most when DOGE came along, it struck a memory chord, was agriculture. I had to find out about the institutions and rules that govern the transportation of agricultural goods. I said, "Okay, I need to know this. Let me go over to the agriculture department," and indeed there is a bureau somewhere in the agricultural department building, a whole floor who are concerned with the transportation of agricultural products. Finally, I found two people in the entirety of the Department of Agriculture who knew something about agricultural transportation and what they knew was very valuable.

Hal Weitzman: Okay. So what did you learn from that experience?

Sam Peltzman: What I learned from that experience was most of the lower level bureaucrats do very standardized routinized work. They can't think really outside of a very narrow box. That's their life. When you hear about DOGE coming to an agency and saying, "You got to fire 10,000 people," that's not the problem with government and regulation. Those people are doing narrowly focused unrisky kind of jobs that are routinized. They're there because somebody wants them to be there doing that kind of work, which isn't to say you can't get rid of half of them and not have a big effect on agency productivity. That may or may not be the case. The number of people who really drive agency decisions, agency work and have broad knowledge is very small. Very few of the bureaucrats that you're laying off these days have that kind of knowledge.

Hal Weitzman: Right. And so your view essentially was that shape your thinking about Washington was that most of the people in the bureaucracy are doing execution type tasks?

Sam Peltzman: That's right.

Hal Weitzman: As you described them, routinized type tasks.

Sam Peltzman: That's right. And they're very risk averse. They're not the entrepreneurial type who is going to shake things up. When I started asking broad questions about agricultural transportation, they didn't even know what planet I was on.

Hal Weitzman: Yeah, well that makes sense. There's a large federal bureaucracy. I mean, presumably people are focused on the particular tasks they've been asked to do.

Sam Peltzman: There's 2 million plus employees in the federal government, and it's been that way for a long time. You can fire all of them and then the government will stop, and maybe that's what you want, but you have to understand that the major decisions that drive policy are not being made at that level.

Hal Weitzman: Okay. So you're saying... it sounds like what you're saying is the deep states ain't that deep. It's somewhat shallow.

Sam Peltzman: Well, it may be deep. There are substantial issues of implementation, but they have to come from the top.

Hal Weitzman: Right. Okay. So it's interesting you put it that way because this is not the first time governments of the right and the left in the United States have tried to cut the size of government and some of them in a more kind of planned way, perhaps using technology. And it hasn't really... as you say, it hasn't really been that effective. But it does sound like what you are saying that if people are working on execution type tasks, that those tasks could in theory be done in a more technologically superior way.

Sam Peltzman: Absolutely. DOGE is not about government efficiency or how many employees, the federal government. It's about sending a message that this bunch is serious about this issue, and the way it's chosen to go about it is shock and awe. We're going to shake things up. I mean, that's been Musk's modus operandi since the beginning. I'm going to shake up the car industry. I'm going to shake up the space exploration or satellite industry. Now he's getting into artificial intelligence and he has, I mean, you got to hand it to the guy. He's taken industries which weren't supposed to exist, and he's made them profitable, efficient enterprises. So the message is that's what we're going to do. We're going to start breaking some eggs. Going about it by firing a lot of lower level bureaucrats doesn't strike me as a way that's going to be productive in the long run.

Hal Weitzman: Okay. So you referred then... we will get into it what you think the real aim of DOGE is, which is something maybe political rather than practical.

Sam Peltzman: Yes, that's my view.

Hal Weitzman: But I mean, the stated aim at least is to cut the size of the federal budget. And part of that is cutting the number of people who, as you said, employed doing these quotidian tasks which maybe could be automated.

Sam Peltzman: I absolutely think we should have that conversation.

Hal Weitzman: Yeah.

Sam Peltzman: Absolutely. And certainly on the regulatory side, the number of regulations per bureaucrat has gone up quite substantially over time. The number of bureaucrats hasn't gone up a lot, but the rules and the regulations that they're supposed to enforce has gone up quite substantially. And that's another aspect of the current turmoil, and we should have that conversation too.

Hal Weitzman: Okay. So I think the Trump administration said its aim was to get rid of 10 regulations for every one regulation that... new regulation comes in place.

Sam Peltzman: No, that's glib. Right? You got to know exactly what that means in practice.

Hal Weitzman: I mean, I guess the point is that, as you say that... I guess the counter argument is that had the government carefully laid out a plan and there was a commission and a committee of wise Congress people or whatever, and it had gone on for years, and they came up with a proposal that nothing would really have happened because we've seen that many times before.

Sam Peltzman: That's certainly possible.

Hal Weitzman: So the only way to... I mean, this is the argument. We have recorded a previous episode on this, and a lot of people came to me and said, "But you don't understand The only way to do it is to do it with shock and awe, otherwise it never happens."

Sam Peltzman: Well, I don't want to get into my own views on this, but I think it is correct to view what's going on as an attempt to break some eggs, to break the status quo violently or sort of make disruption. Is that the only way to do it? I really don't know. Maybe they're right. I think what you said is absolutely right that every previous attempt has gone nowhere.

Hal Weitzman: If you're enjoying this podcast, there's another University of Chicago Podcast Network show that you should check out. It's called Entitled, and it's about human rights. Co-hosted by lawyers and law professors, Claudia Flores and Tom Ginsburg, Entitled explores the stories around why rights matter and what's the matter with rights. Okay. Sam, in the first half, we talked about DOGE and how it's... well, we talk about what it might be trying to do basically, but one of the big aims is to save money from the federal, which is obviously the government is spending too much. I think most people would agree on that.

Sam Peltzman: I don't think that's right.

Hal Weitzman: You don't think it's right that it's trying to save money?

Sam Peltzman: No.

Hal Weitzman: Okay, go ahead. In what way?

Sam Peltzman: No one who looks at the facts of the case can view reduction of the number of bureaucrats as a big, big way to save money. I mean, even if you got rid of the whole workforce, you're talking about half a trillion dollars, which sounds a lot like a lot, but it's less than 10% of the total budget. You're not getting rid of all of them.

I don't want to poo it. I mean, there is savings to be had, and that's good if that's the direction that the government wants to go. But it's not going to be a big... it's going to be more like a blip when you wash out... when everything calms down again, you're going to see a very small budget effect. To get at the budget deficit, you really have to start talking about shutting down programs and spending. We've had a big bump since COVID, getting rid of programs that you put in to take care of COVID. You're talking about the Inflation Reduction Act. You're talking about the COVID money that's still rolling over. You're talking about major programmatic change, and then down the road you're talking about entitlements, which no one wants to touch.

Hal Weitzman: Right. Absolutely. So it sounds like you are saying that if you actually had wanted to cut money from the federal spending, you needn't have fired anyone. You actually should have gone around cutting programs first.

Sam Peltzman: Yes, exactly. And as I said, entitlements, you can't solve the permanent deficit that's built. You can reduce the deficit a little bit. You can't get rid of it unless you deal with entitlements and no one wants to do that.

Hal Weitzman: Right. Yeah. That seems even less likely than actually saving money.

Sam Peltzman: So view what's going on as an excuse for dealing with the real problem.

Hal Weitzman: Right. Okay. So at the same time, you talked in the first half about how this will have an effect, and one effect it might have is that the government agencies that survive, not USAID and Department of Education, but those that have been left are alive may be much less effective.

Sam Peltzman: That's a risk of this kind of very disruptive change. If you come to an agency and say, "Well, you got to get rid of half of your workers," you can't be sure which half you're going to get rid of. In the case that we started this discussion with, had you fired the two guys who knew something about agricultural transportation, I would still be high and dry on that subject. Yet you run a quite substantial risk.

Hal Weitzman: It's not clear where knowledge resides.

Sam Peltzman: And it's a political risk. I mean, think about the veterans hospital in a red district in the middle of nowhere and the veterans hospital fires half its staff. That's a political risk for the red representative, and that's going to come back to the presidency at some point. So you run those kind of not only just operational risks, but political risks down the line, and you'll have to pull back and say, "Wait a minute, I don't want that hospital to be turning away veterans who vote for my party. I don't want to put that congressional seat at risk. Just a minute. Let's back off." That's where you're going.

Hal Weitzman: Okay. And as you say, if you're just firing people, presumably you're losing a lot of knowledge. You don't know exactly where knowledge resides in any one agency.

Sam Peltzman: Well, if you're doing it in that way, firing quotas, that's what you're going to get.

Hal Weitzman: So it sounds like you would think a better idea would be to make a plan first and then cut after that.

Sam Peltzman: That would be my preference. But as you say, that doesn't have a good track record either.

Hal Weitzman: It doesn't. What would such a plan look like? I mean, what would we be if we had our ideal world and you wanted to-

Sam Peltzman: I'm afraid you'd have to do it with agency by agency. What do you want to do? How do you do it best? How much of it should stay within the government? How much can we use the private sector to accomplish this? What are the institutional arrangements? This is what I spent my life doing research on. You have to get at the public choice aspects. What kind of incentives do I want the bureaucracy to have? It's a tough slog, and in this age of instant 24/7 news cycles, it's hard to bring off. If your objective is to really make the government more efficient, I don't see a substitute for doing it on a case by case. Have a plan first, and then execute it. And I'm not that pessimistic going forward that you can't do that. I think one of the reasons you haven't been able to do that in the past is that the top really hasn't been willing to push hard.

There've been good political reasons to concede some ground and move on to the next topic. I mean, the last time you had a major deregulatory, downsized government initiative was in the Reagan administration, and that worked, but it only flattened the curve. Once the next guy took over, Bush, it turned up again. So there has to be political will to do it. I don't see why it couldn't be done after all the top people in all these agencies are political appointees. They're not civil service. They're not the kind of bureaucrats I started the program talking about. They can make policy and their job, you have to give them the incentive to carry out the program that you want that agency to carry forward.

Hal Weitzman: It's a different way of thinking about it than kind of the shock and awe.

Sam Peltzman: Yeah.

Hal Weitzman: The incentives approach.

Sam Peltzman: I don't think shock and awe. I think what might work in the private sector doesn't necessarily work in the public sector.

Hal Weitzman: Where do you think... Given your knowledge and your observation of the federal government, where do you think in the federal bureaucracy, there's opportunities for trimming?

Sam Peltzman: That's very, very hard to say out of the context of do you want the program in the first place? Do you want to have an environmental protection agency that's worried about windmills and solar panels, or that's worried about pollution as it was set up to do? It's a much bigger agency now, but only because you gave it the task of green energy and so on and so forth. So you have to start with the program. Do you want that program? And unless you do that, I think the rest-

Hal Weitzman: And you think there's been bureaucratic creep to expand the size of these agencies?

Sam Peltzman: As I said, the number of rules and regulations per bureaucrat has gone up. That includes the Environmental Protection Agency as well. It's got many more rules to enforce. And the question is, do you want those rules? I have my favorites. I think drug regulation can be cut back substantially, but that's an old hobbyhorse of mine. And again, you can't avoid agency by agency, program by program kind of questions like that. I would be, as an economist, very, very opposed to reducing the part of the Department of Commerce that generates statistics. That would be very-

Hal Weitzman: As long as you get your data, you'll be happy.

Sam Peltzman: I would be very happy and I am willing to make the argument that they should be doing that. In fact, they should be doing more of that.

Hal Weitzman: All right. Well, Sam Peltzman, this has been a great conversation. Thank you very much for coming back on the Chicago Booth Review Podcast.

Sam Peltzman: You're very welcome.

Hal Weitzman: That's it for this episode of the Chicago Booth Review Podcast, part of the University of Chicago Podcast Network. For more research, analysis, and insights, visit our website at chicagobooth.edu/review. When you're there, sign up for our weekly newsletter so you never miss the latest in business-focused academic research.

This episode was produced by Josh Stunkel. If you enjoyed it, please subscribe, and please do leave us a five-star review. Until next time, I'm Hal Weitzman. Thanks for listening.