Perfect Example of “Penny-Wise but Pound-Foolish” – DOGE Attempts to “Cut Waste, Fraud and Abuse”

by Proactive Technologies, Inc.^® – Staff

What have we learned? For one thing, the projected $2 trillion in budget savings touted as the reason for going after “waste, fraud and abuse” ended up being less than $202 billion as reported by them, and some of that doubtful. But was the upheaval inflicted upon what seemed to be working government programs worth the rationale to offset unnecessary tax cuts for the privileged worth it? It seemed to be taking a jackhammer to dig a pin hole – the hole just gets bigger with no improvement and the original purpose lost.

The daily drip of new chaos across the media spectrum of legal challenges is tiring and affects our collective mental health. What is lacking in the rush to report it is enough information to allow us adequately process the events into a logical conclusion as to whether it is a relatively “good” of “bad” thing. It becomes one more bit of uncertainty on the pile of uncertainty we all face – businesses and workers.

Take, for example, Elon Musk’s management tactics, as they apply to his own businesses and then the federal government, which at face value seemed reckless and mindless. The advertised rationale was they were truly meant to save America money, reduce the debt and make government more efficient. Was it that or a classic case of what is wrong with accounting practices grossly neglecting “worker value” and investment from the discussion? Depending on the source of one’s news, it is presented as both.

As widely understood in business, the cost of replacing a private sector worker in which the organization invested time, money and other resources to develop and utilize that expertise, can be enormous. To indiscriminately and vindictively fire a worker asset, along with the technical knowledge, proprietary and, in this case classified and historical knowledge, should be viewed with great caution.

To use an industry standard published by Gallup, employee turnover costs U.S. businesses $1 Trillion annually.  To put that into perspective, a recent American Machinist magazine article which focused the analysis on manufacturing, “Continuous Learning in the Shop:”

• “A trillion dollars. That’s what U.S. businesses are losing every year due to voluntary turnover. And the most astounding part is that most of this damage is self-inflicted.

• The cost of replacing an individual employee can range from one-half to two times the employee’s annual salary — and that’s a conservative estimate.
• So, a 100-person organization that provides an average salary of $50,000 could have turnover and replacement costs of approximately $660,000 to $2.6 million per year.”

These numbers only apply to the cost of turnover, and do not reflect the opportunity costs of undeveloped or underdeveloped worker capacity, malperformance and noncompliance pertaining to lack of adequate training – of which mitigation would have increased the worker value and, therefore, the replacement cost.

Consider this. Assuming a conservative average of white and blue collar employee salaries of $90,000 annually, applying of 1.5 years of average annual salary lost as an investment when terminated. If the DOGE plan was to fire 10% of the 2,254,000 federal  employees (225,400 employees), multiplying it by an expected cost to replace value it would come to $30,429,000,000.

Now further assume that for every 1 federal worker 3 other worker’s jobs are affected, that replacement cost rises to $91.287,000,000. But the affect is far reaching. Government provided services will be less efficient or non-existent. The economy will feel the dramatic loss in consumption power and small, medium and large businesses will be affected. Local and state governments will feel the drain on unemployment benefits and social services as they are dealing with an eroding tax base. This was based on a 10% cut to federal staff, not the 30-50% Mr. Musk originally proposed.

Cost of buyout and severance packages, cost of litigation (which will be expansive due to hold this was conducted) including back-pay and penalties for illegal firings. This may provide DOGE with the short-term cover they need for Congress to feel safe in approving the proposed continuation of the  $3-4 trillion tax cut primarily and predominately for those who don’t need it, the addition to the national debt of one term of presidency might be $7-10 trillion…when once again Americans, who had no say in this, to stand by for more cuts to their social well-being.

There is the loss in morale and productivity by those who are asked to provide the same federal service level and quality with gutted staffing.

Then there is the cost of hiring back workers laid off, forced to retire or  reassigned when the office might have shut down, and the efficiencies lost in the upheaval being recreated.

This looks more like a case of “penny-wise but pound-foolish.”  Mr. Musk’s “private equity” bulldozer approach to government efficiency and the unproven cutting of waste, fraud and abuse seems to be more a short-term illusion of balance sheet improvement and underplayed long-term loss of capacity, capability and sense of purpose. Worst is the cost of building back government programs and the workers that staffed them when the efforts are revealed for what they were.

Combined with the chaotic approach to tariffs and world diplomacy, businesses face an uncertain place flirting with the edge of economic peril.