The Trump administration came into office with an ambitious set of promises in tow. During his campaign, President Donald Trump, among other things, committed to end the immigration crisis at the U.S. southern border, stop the war in Ukraine, deregulate crypto, and break the power of the so-called “deep state” and the influence of “wokeism” in government agencies and the military.
Trump also committed to rebuild the U.S. economy by negotiating better international trade terms, onshoring manufacturing, and unleashing domestic energy production. At the same time, he and his team committed to eliminate the more than $2 trillion federal deficit and reduce the massive $36.5 trillion mountain of national debt that prior deficits have produced.
The financial profligacy of the U.S. government has substantially hurt the economy in recent decades. Excessive regulatory burden and administrative red tape killed American innovation, drove entrepreneurs offshore, and added nearly unbearable costs to small- and medium-sized businesses. This hurt private labor-market growth, while maintaining the illusion that “everything is fine” because government jobs—which produce nothing of real value—grew.
An impossibly complex tax and financial compliance code has made every taxpayer a probable criminal, guilty of violating one obscure rule or another. Taxpayer money has been wasted on servicing debt rather than serving Americans and investing in their children’s future. The national debt has become a drag on productivity and growth.
Last year, the government spent some $6.7 trillion, but took in only about $4.4 trillion of revenue, leaving a $2.3 trillion deficit that could only be funded by more debt. Our national debt has doubled in the past decade. The national debt is now a national emergency. The country urgently needs drastic and comprehensive action to arrest it before it is too late to prevent financial ruin. The first step to meaningful debt reduction is to eliminate the deficit that adds trillions to it each year.
The deficit can be reduced from new revenue sources such as tariffs, renewed domestic energy production, and increased productivity, but these initiatives will take time. In the meantime, the administration has set its sights on bloated government budgets and the obscene waste that seems endemic to government spending.
The Department of Government Efficiency (DOGE) was tasked with reviewing all of the major government agencies and recommending to the president a set of actions to eliminate fraud, waste, and inefficiencies. Moving at breakneck speed, DOGE has already shaken the Washington establishment to the core. It looks like some agencies, such as the Agency for International Development, may be completely eliminated. Budgets are being slashed, headcounts are being reduced, and waste, corruption, and fraud identified and rooted out.
All of this will have an enormous long-term benefit to the economy, but in the meantime, the immediate effect of DOGE and similar cost-cutting initiatives now being proactively undertaken by recently appointed agency heads is likely to be recessionary. As unpleasant or painful as this may be, it is a necessary first step. Just as a gravely sick patient requires stiff medicine despite its known side effects, so the U.S. economy needs a strong dose of financial and operational restructuring if it is to be made whole again.
Recession is inevitable as part of a normally functioning business cycle. But this time, recession will come not because of credit tightening or soft demand. Nor should the recession properly be blamed on DOGE-style cost cutting. The culprit for any recession in 2025 is the legacy of deficit spending that the new administration has inherited. Because the Biden administration spent too much money that it didn’t have for too long, the withdrawal of this monetary opium requires a comedown to fiscal reality and a likely recessionary hangover.
Federal spending—not private investment—drove economic growth in the Biden years. Government spending is always low- or negative-productivity investing. It creates the illusion of wealth, but only those close to the government trough receive the benefits. As I and others have previously argued, the private sector was likely in recession as early as 2023.
Now, government employment is going to go into reverse as a result of layoffs, early retirements, restructurings, and mergers of government entities. Federal agencies are now in a hiring freeze. State and local governments may soon follow suit, although the political courage required to act may need support from Washington.
Without doubt, trade will be impacted by tariffs. Although this is obvious, estimating how much and where is difficult. The uncertainty itself is creating a chilling effect on economic activity and investment.
Inflation is stuck above 3 percent and will continue to run high for the foreseeable future. Imposing tariffs on imported goods may indeed be in the United States’ long-term best interest, but in the meantime, tariffs are likely to result in higher prices on many industrial and consumer goods. If the Federal Reserve is forced to lower interest rates to fight recessionary pressures, then inflation will get a second wind. Long-term inflation expectations are now at a 30-year high, according to a University of Michigan survey of U.S. households.
Austerity has a price. In the case of the U.S. economy, belt-tightening is likely to lead to a recession later this year. Nonetheless, this process must be allowed to run its course. The nation and the economy will be stronger for it. Transparency and disclosure will bring us out of darkness into the light. Reformation must precede renaissance.
