This story was originally published on Judd Legum’s Substack, Popular Information, to which you can subscribe here.

President-elect Donald Trump has appointed Elon Musk and former presidential candidate Vivek Ramaswamy to head the Department of Government Efficiency. Despite the name, it is not a government department. In fact, it is not part of the government at all. It is a non-governmental commission that will provide advice to the Trump administration.

Musk says he will identify “at least $2 trillion” in savings from the $6.5 trillion federal budget. How will Musk do it? Details are scarce. Musk is recruiting “high-IQ revolutionaries” to work 80-hour weeks for no pay to help him with the task. 

Cutting $2 trillion is impossible politically. But if Musk is serious about cutting government spending and waste there is only one place to start: the defense budget. About half of the discretionary budget—the spending that Congress approves each year—is spent on defense. For the 2024 budget, the amount allocated for the Department of Defense (DOD) exceeded $840 billion. 

The 15 agencies that could not properly account for their finances in the latest audit account for 68 percent of the Pentagon’s budget.

About half of the massive defense budget goes to military contractors, with tens of billions directed to “Big 5” firms—Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman. These contractors, according to a “60 Minutes” investigation last year, “overcharge the Pentagon on almost everything the Department of Defense buys.” The misuse of taxpayer dollars became more acute “in the early 2000s when the Pentagon, in another cost-saving move, cut 130,000 employees whose jobs were to negotiate and oversee defense contracts.” Another factor is the consolidation of the defense industry, resulting in less competition for contracts. 

Still, Musk may have a difficult time cutting DoD spending. First, Musk is the CEO of the company, SpaceX, that actively seeks billions in defense contracts. Second, if Musk is able to overcome his conflict-of-interest, defense industry lobbyists will lobby Congress to reverse any planned cuts. Finally, Trump has pledged to increase military spending during his second term. 

“I will provide record funding for our military,” Trump said in a video posted on his campaign website. 

Trump is calling for more defense spending even though defense spending has doubled over the last 20 years. The DOD struggles to accurately account how it spends this gusher of money. For the seventh year in a row, it has failed an independent audit. 

This year’s audit failure means that the DOD has not passed since Congress began mandating the audits in 2018. The 2024 audit, which surveyed 28 separate agencies that operate under the Pentagon’s umbrella, found that 15 agencies failed to provide enough information for the auditors to assess how they handle their money. 

Michael McCord, the Pentagon’s comptroller and chief financial officer, was unfazed by this failure, calling it “expected.” He also argued that because some agencies passed, the audit was actually a success. “So if someone had a report card that is half good and half not good, I don’t know that you call the student or the report card a failure,” McCord told reporters at a press conference on Friday. “We have a lot of work to do, but I think we’re making progress.”

Nine agencies passed their audit and three agency audits are still pending. In 2023, auditors failed 18 agencies.

Eight agencies also did a better job this year of balancing their spending and the amount of cash they have in government accounts. But of those eight, only two agencies actually passed their audit. The other six, while properly accounting for their cash, did not have enough information about their other assets to pass the audit.

Even with the improvements McCord touted, the scope of the Pentagon’s failure to keep track of its assets is still vast. According to the audit, the 15 agencies that could not properly account for their finances make up 44 percent of the Pentagon’s total assets and 68 percent of its budget. This year, the Pentagon held over $4.1 trillion in assets and had a budget of over $840 billion, meaning that auditors were unable to pin down $1.8 trillion in assets and $571 billion of the budget. 

Despite these failures, Congress continues to appropriate more money every year to the DOD. The 2024 National Defense Authorization Act requires the department to pass its audit by 2028, but has no mechanism for penalizing failure. 

McCord insisted that the Pentagon was on track for a clean audit by 2028, but that it would take the cooperation of the incoming Trump administration to reach that goal. If Trump is serious about improving government efficiency, he could push his DOD to do a better job tracking its assets. But if he decides not to, the Pentagon will not face any consequences.

This story was originally published on Judd Legum’s Substack, Popular Information, to which you can subscribe here.

President-elect Donald Trump has appointed Elon Musk and former presidential candidate Vivek Ramaswamy to head the Department of Government Efficiency. Despite the name, it is not a government department. In fact, it is not part of the government at all. It is a non-governmental commission that will provide advice to the Trump administration.

Musk says he will identify “at least $2 trillion” in savings from the $6.5 trillion federal budget. How will Musk do it? Details are scarce. Musk is recruiting “high-IQ revolutionaries” to work 80-hour weeks for no pay to help him with the task. 

Cutting $2 trillion is impossible politically. But if Musk is serious about cutting government spending and waste there is only one place to start: the defense budget. About half of the discretionary budget—the spending that Congress approves each year—is spent on defense. For the 2024 budget, the amount allocated for the Department of Defense (DOD) exceeded $840 billion. 

The 15 agencies that could not properly account for their finances in the latest audit account for 68 percent of the Pentagon’s budget.

About half of the massive defense budget goes to military contractors, with tens of billions directed to “Big 5” firms—Lockheed Martin, Boeing, Raytheon, General Dynamics, and Northrop Grumman. These contractors, according to a “60 Minutes” investigation last year, “overcharge the Pentagon on almost everything the Department of Defense buys.” The misuse of taxpayer dollars became more acute “in the early 2000s when the Pentagon, in another cost-saving move, cut 130,000 employees whose jobs were to negotiate and oversee defense contracts.” Another factor is the consolidation of the defense industry, resulting in less competition for contracts. 

Still, Musk may have a difficult time cutting DoD spending. First, Musk is the CEO of the company, SpaceX, that actively seeks billions in defense contracts. Second, if Musk is able to overcome his conflict-of-interest, defense industry lobbyists will lobby Congress to reverse any planned cuts. Finally, Trump has pledged to increase military spending during his second term. 

“I will provide record funding for our military,” Trump said in a video posted on his campaign website. 

Trump is calling for more defense spending even though defense spending has doubled over the last 20 years. The DOD struggles to accurately account how it spends this gusher of money. For the seventh year in a row, it has failed an independent audit. 

This year’s audit failure means that the DOD has not passed since Congress began mandating the audits in 2018. The 2024 audit, which surveyed 28 separate agencies that operate under the Pentagon’s umbrella, found that 15 agencies failed to provide enough information for the auditors to assess how they handle their money. 

Michael McCord, the Pentagon’s comptroller and chief financial officer, was unfazed by this failure, calling it “expected.” He also argued that because some agencies passed, the audit was actually a success. “So if someone had a report card that is half good and half not good, I don’t know that you call the student or the report card a failure,” McCord told reporters at a press conference on Friday. “We have a lot of work to do, but I think we’re making progress.”

Nine agencies passed their audit and three agency audits are still pending. In 2023, auditors failed 18 agencies.

Eight agencies also did a better job this year of balancing their spending and the amount of cash they have in government accounts. But of those eight, only two agencies actually passed their audit. The other six, while properly accounting for their cash, did not have enough information about their other assets to pass the audit.

Even with the improvements McCord touted, the scope of the Pentagon’s failure to keep track of its assets is still vast. According to the audit, the 15 agencies that could not properly account for their finances make up 44 percent of the Pentagon’s total assets and 68 percent of its budget. This year, the Pentagon held over $4.1 trillion in assets and had a budget of over $840 billion, meaning that auditors were unable to pin down $1.8 trillion in assets and $571 billion of the budget. 

Despite these failures, Congress continues to appropriate more money every year to the DOD. The 2024 National Defense Authorization Act requires the department to pass its audit by 2028, but has no mechanism for penalizing failure. 

McCord insisted that the Pentagon was on track for a clean audit by 2028, but that it would take the cooperation of the incoming Trump administration to reach that goal. If Trump is serious about improving government efficiency, he could push his DOD to do a better job tracking its assets. But if he decides not to, the Pentagon will not face any consequences.