Musk and Ramaswamy, meet the real deep state

During the 2024 presidential primaries, then-former President Donald Trump vowed to strip federal employees of their job protections and “shatter the deep state.” Several other contenders for the GOP nomination echoed Trump. For example, Florida’s Governor Ron DeSantis warned Washington’s “deep state people” that on day one of a DeSantis presidency he’d “start slitting throats and be ready to go.” And businessman Vivek Ramaswamy declared that “shutting down the administrative state” would top his domestic policy agenda.

Now, with Republicans poised to lead both chambers of Congress, President-elect Trump is preparing to deliver on his promise to “dismantle government bureaucracy. He has tapped Mr. Ramaswamy and Elon Musk to co-lead a new “Department of Government Efficiency.” Mr. Musk is a certifiable genius when it comes to engineering feats and entrepreneurial ventures. He has suggested that he might find $2 trillion in “efficiency” savings.

Maybe! Whether situated in a new “department” or, as I suspect it will actually be, a new White House office, “efficiency czars” Musk and Ramaswamy could make a real and positive difference by tackling huge and persistent but fixable problems like the estimated $2.7 trillion (yes, trillion) in improper payments that federal executive agencies made between 2003 and 2023.

But as the efficiency duo will soon learn if they don’t already know, federal government reform isn’t rocket science; it’s way harder. That’s because while there is a deep state, it does not emanate from within the federal bureaucracy.

Rather, the real deep state is the contractor state. It consists of four intersecting networks: financially well-heeled and politically well-protected mega-corporations led by big defense contractors; state and local government leaders in both parties that bark and bloviate about federal bureaucracy and overspending but fight for their constituents’ shares of federal dollars; taxpayer-subsidized nonprofit organizations with multi-million-dollar annual budgets; and, last and most lethal to reform efforts, career congresspersons in both parties.

The citizens of the real deep state stoke nonstop federal deficit spending on everything from Medicare to missiles. They steer funding through intentionally maze-like federal programs. They use federal tax dollars to privately employ millions of people. They are behind the “waste, fraud, and abuse” that everyone typically blames on “bureaucrats” who are mostly mere grant and contract managers in a workforce that has not grown since the 1960s.

Five sets of facts, all hiding in plain view, pave the path to recognizing and reforming the real deep state.

1. The number of people who get paid from the U.S. Treasury but work for private businesses and nonprofits is now more than three times as large as the entire on-payroll federal civilian workforce.

In 1960, when John F. Kennedy was elected president, there were about 1.8 million full-time federal civilian workers or bureaucrats. By the time of Ronald Reagan’s presidency, this number had increased to 2.2 million, roughly the same level that it currently remains. Yet while federal employee levels have kept stable, the number of people paid by federal grants and contracts but not counted on the federal payroll rose to around 7 million, a number that reflects 4.8 million contractors and 2.3 million grantees.

2. Eliminating the entire on-payroll federal workforce would reduce total federal spending by less than 5%.

In its September 2021 report, Open the Books, a nonprofit organization that has built a unique database for tracking spending at all levels of government, put the number of “disclosed” federal bureaucrats, including civilian defense workers and postal service workers, at 2.8 million. The same report pegged estimated total compensation costs for these “disclosed” feds at $225 billion plus an estimated 30% in benefits, or $292 billion in all.

In 2020, if not a single penny had been spent on any federal worker, then total federal spending would have been about $6.2 trillion, for a savings of about 4.5%. So, eliminating the entire federal civilian workforce would leave in place about 95% of all federal spending and the $34 trillion national debt.

3. The “Washington swamp” is not where the vast majority of federal bureaucrats, citizen-beneficiaries, and contractors live.

For example, Florida, home to Trump and DeSantis, is also home to about 100,000 full-time federal bureaucrats, 5 million Medicare beneficiaries, and nearly 16,000 Florida-based businesses that since 2000 have received about $250 billion in federal defense contracts.

4. Congress uses federal bureaucrats to pay whomever they say.

In 2021, under heavy congressional oversight and direction, federal bureaucrats doled out more than $630 billion for both defense and civilian products and services, more than double the roughly $300 billion that went to federal workers’ wages and benefits. Aided by about 15,000 congressional staff members, Congress has controlled the federal bureaucracy’s day-to-day operations and funding decisions.

The real deep state’s biggest contracts consistently go to the military-industrial complex’s mega-corporations via the U.S. Department of Defense. But nonprofits registered with the I.R.S. receive about 30% of their more than $2 trillion a year in revenues from government grants plus fees for goods and services from government.

5. Federal contractors have spent recent decades weakening federal oversight.

Federal contractors are the largest disclosed corporate contributors to federal campaigns and elections. Even controlling for many variables, businesses that contribute to career politicians today get more government grants and contracts tomorrow.

Until the mid-1990s, it was illegal for the federal bureaucrats who manage and monitor many different types of contractors to take past vendor performance fully into account when deciding whether to renew contracts. By congressional design, federal agencies have neither the manpower nor the authority to challenge competitive bidding rules that camouflage contractor oligopolies; police bid-rigging schemes and outright grantee fraud (like multi-million-dollar payouts for goods or services never provided); or correct persistent performance failures.

Many federal programs have made the Government Accountability Office’s (GAO) “high-risk” list every year for decades. Invariably, the very worst cost overruns, financial management meltdowns, and other acute or chronic performance failures have belonged to the very federal programs that rely most on for-profit and nonprofit contractors and grantees.

Most Americans favor “smaller government” in theory but not in practice, love federal government benefits, and loathe federal taxes and “bureaucracy.” So, for decades now, both parties and their leaders at both ends of Pennsylvania Avenue have delivered federal benefits financed through deficit spending on programs administered by non-governmental organizations, a shadow bureaucracy whose employees don’t count on the federal payroll.

Thus, for all the ideological sound and partisan fury supposedly signifying that we live in hyper-polarized times and are divided by culture war issues, America’s two political parties remain at core the red party of “tax little” and the blue party of “spend lots.” Together, the two parties tax little, spend lots, and never lose. In the 21 national elections held from 1982 to 2022, more than 90% of House members and 85% of senators who sought reelection won it.

Still, rolling back the real deep state is possible. For starters, require federal contractors and their most highly paid executives to disclose all donations and contributions, including funds given to unions, trade associations, and other organizations that can receive unlimited donations from individuals and corporations and spend money on elections without disclosing their donor list.

In tandem, place a lifetime employment ban on all former federal employees, political or career, of the White House or Congress, from earning more than $200,000 a year (in 2024 dollars) in total from any for-profit organization that receives more than half its annual revenues via federal contracts.

We also need laws, rules, and regulations that empower all federal agencies, not just watchdog units like the General Accounting Office’s successor, the U.S. Government Accountability Office, to keep and routinely publicize detailed, up-to-date data on contractors and grantees—laws that make it much harder to hide big government’s proxy bureaucracy and the federal money that flows through and to it.

Over time, we need to foster a culture of evidence-based outsourcing in which the costs and benefits of outsourcing versus insourcing are assessed through empirical analyses that are conducted openly, honestly, and without undue political or other pressures being brought to bear on anyone involved.

Model studies that do just that remain scarce but are not hard to find. And, led by the dean of U.S. public administration scholars, Donald F. Kettl, there is robust, well-researched, nonpartisan, and smartly prescriptive academic literature to guide a new generation of efforts to reform the federal civil service.

While I have profound doubts and disagreements with President-elect Trump’s “Schedule F” plan to replace thousands of federal civil servants with political appointees, if Musk and Ramaswamy acknowledge the whole truth about how the federal government works, face up to the contractor state, face it down, and start by ending improper payments, they will have outdone themselves and served the country very well indeed.