Featured in Wealth of Nations: How Great Powers Fail plus other existential questions

Thoughts on how Trump's retrenchment benefits China, when bullying allies works and when it doesn't, Europe's incomplete Zeitenwende, what DOGE gets wrong, and a sexy future for humanoid robots

- Simon Nixon

In this newsletter:

• How Great Powers Fail: A chance for China?

• Bullying Allies: When it works, when it doesn’t

• Europe’s Zeitenwende: Waiting for the Hamiltonian moment

• What DOGE Gets Wrong: It’s all about the balance sheet

• Humanoid Robots: Sexy prospects

What DOGE Gets Wrong

It’s clear that Elon Musk’s Department for Government Efficiency (DOGE) is central to the Trump administration’s attempt to balance its books, or at least convince Congress to deliver Trump’s tax cuts - even if, as noted last week, the way that Musk is going about his work is creating significant extra uncertainty over the outlook for the US economy. But while the way Musk is going about his task is highly unorthodox, the nature of the task is as old as government itself.

In an essay for Bloomberg this weekend, I traced the origins of modern efforts to drive government efficiency to William Gladstone’s 1866 reforms which created the Exchequer & Audit Department, arguably the world’s first DOGE. Unlike previous government auditors, which had been around since the middle ages, this proto-DOGE was tasked with not just checking what was spent, but how it was spent, to ensure that it complied with what parliament had authorised.

Over the century and a half since Gladstone, the challenges facing state waste-busters has evolved as governments have become far larger and more complex. The New Public Management reforms that were widely adopted by English-speaking countries in the 1980s sought to make the state more efficient by privatising many of the activities of the state either through sales or by turning the state into a procurer of services. But this attempt to make government more commercial created fresh problems, not least by creating powerful new regulatory bureaucracies of the sort to which Musk is taking his metaphorical chainsaw.

As I say in the piece, one risk in Musk’s slashing approach is in focusing narrowly on cutting spending, he ends up creating even bigger costs for the public sector.

Cutting the number of aviation officials may increase the risk of air traffic accidents; slashing disaster relief agencies may lead to bigger losses from future extreme weather events. Shrinking financial regulatory agencies may increase the risk of future financial crises. Indeed, much of the growth of the modern state reflects the need to monitor and regulate all the risks that governments have underwritten, creating vast contingent liabilities on national balance sheets. DOGE appears to take no account of any of this.

Meanwhile, it won’t surprise regular readers of Wealth of Nations to hear me say that the biggest opportunities to drive government efficiencies may lie on the other side of the balance sheet: on improving the performance of government assets. In this respect, as significant as anything Musk is doing may be the executive order signed by Trump a couple of weeks ago asking Treasury Secretary Bessent and Commerce Secretary Lutnick to provide him with plans for a US sovereign wealth fund (SWF) within 90 days, and operational within 12 months.

We don’t know yet what form this SWF will take, how it will be funded or what it will be invested in. But the Executive Order states that the US has “a vast sum of highly valued assets” that could be invested by a SWF “for greater long-term wealth generation.” Adding that the Federal government “directly holds $5.7 trillion in assets... [and] ...Indirectly, including through natural resource reserves, holds a far larger sum of asset value”. As Ian Harnett, co-founder of Absolute Strategy Research, noted in a recent report:

While some focus on the Gold, and the 200,000 seized bitcoin the government hold as funding source, the key source is likely to be the government’s natural resources wealth. This is not the $5 trillion recorded on the Fed balance sheet, but at least $100 trillion. The government owns buildings, roads, levees, rail infrastructure, and hydroelectric facilities as well as large scale mineral rights [according to] the Bureau of Land Management. However, that $100 trillion figure dates from 2013, and may understate the value of the government’s resource assets by 100%, given that land prices have doubled since 2013.

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