US commerce secretary Howard Lutnick addressed concerns about potential economic slowdown due to spending cuts pushed by Elon Musk’s DOGE, suggesting that government spending should be excluded from gross domestic product (GDP) calculations.
Speaking to Fox News on Sunday, the official alleged that governments historically have messed with GDP.
“They count government spending as part of GDP. So I’m going to separate those two and make it transparent,” he said.
Such a move could majorly alter how economic performance is measured in the US.
Traditionally, government spending is included in GDP calculations because tax policies, public sector employment, and state-funded projects directly influence economic activity.
The GDP report provides detailed breakdowns of government spending, offering transparency to economists and policymakers.
On Friday, Musk took to social media platform X, claiming that government spending does not add real value to the economy.
“A more accurate measure of GDP would exclude government spending,” Musk wrote on social media platform X. “Otherwise, you can scale GDP artificially high by spending money on things that don’t make people’s lives better.”
Lutnick elaborated his point by comparing military procurement to bureaucratic inefficiencies. “If the government buys a tank, that’s GDP,” he said. “But paying 1,000 people to think about buying a tank is not GDP. That is wasted inefficiency, wasted money. And cutting that, while it shows in GDP, we’re going to get rid of that.”
The latest GDP report, released by the commerce department last week, showed that the US economy expanded at an annual rate of 2.3 per cent in the final quarter of last year. Growth was largely driven by consumer spending and an increase in federal defense expenditures. For the whole of 2024, government spending rose by 2.6 per cent, slightly below the overall economic growth rate of 2.8 per cent.
Government spending also contributed significantly to personal income, which amounted to over $24.6 trillion last year. Nearly one-fifth of this comes from programs such as social security, military veteran benefits, and medicare. However, government spending can also contract GDP, as seen in 2022 when pandemic-related financial aid ended.
Lutnick reiterated that the Trump administration intends to balance the federal budget through spending cuts, arguing that this would help drive economic growth and lower interest rates.
“When we balance the budget of the United States of America, interest rates are going to come smashing down,” he said. “This is going to be the best economy anybody’s ever seen. And to bet against it is foolish.”