Why Ending USAID Is Huge, Even If It’s a Small Part of the Budget

The lobby of the U.S. Agency for International Development (USAID) headquarters in Washington on Feb. 3, 2025. Kevin Dietsch/Getty Images

Commentary

Elon Musk’s DOGE is signaling the end of the United States Agency for International Development (USAID). The USAID website is currently down, and employees have been locked out of computer systems.

USAID has a controversial history, and has been accused of imperialism by the left and waste and corruption by the right. In a previous article discussing National Security Study Memorandum 200, I highlighted one of these issues: a government document which proposed utilizing USAID (among other levers) to lower the population in developing countries under the guise of providing aid.

Many defenders of USAID argue that the fiscal concern behind Musk’s offensive is overblown because the agency represents less than 1 percent of the federal budget.

However, the fact that USAID is a small part of the budget gives us no information on whether or not it should be removed. In fact, it’s likely one of the best places to start slashing government spending. Why?

1) Bigger Cuts Cost More

If your goal is to cut down on spending, whether personal or government, larger expenditures are better to cut, everything else held constant. If you cut an item that represents 15 percent of your expenses instead of 5 percent, you’ll be making a bigger impact with—in theory—the same amount of effort. However, some things are more expensive to cut than others.

For example, personal finance classes often suggest that people can save by cutting back on meals out or buying coffee. Yet for most people, the monthly cost of eating out or getting coffee is a tiny fraction of their overall budget (much like USAID). So why start there?

You start with that because it is easy to cut those things out of life relative to big-ticket items.

For most people, expenditures on rent and mortgage payments dwarf coffee spending; however, it’s very difficult to lower spending on housing and transportation! For someone who has very little income to go around, even cheap housing will be expensive relative to his or her whole budget, and transportation is necessary for most jobs.

In the long run, people may be able to cut housing expenditures by finding roommates or downsizing, but the point is that in the short run, these big-ticket budgets are hard to modify. As such, cutting Starbucks and restaurant meals may be the easiest first step when we are struggling to make ends meet.

The same goes for the U.S. government. The big-ticket items for the budget (Medicare, Medicaid, and Social Security) will be very difficult to address. Since those benefits are so large, modifying them will be expensive, both politically and financially. As such, even if these categories ultimately need to be tackled, this doesn’t imply that the government should be financially irresponsible with small expenditures in the short term.

In deciding what to cut, it isn’t just the total expenditures that should be considered, but the difficulty associated with cutting it. Saying USAID is too small to cut is ignoring this important consideration. As I put it on X:

“1% of the budget does not sound like a big cut, until you realize that getting a budget under control usually involves making lots of small cuts since large cuts are often infeasible.”

Ultimately, to borrow a modern version of a phrase coined by Benjamin Franklin: a penny saved is a penny earned. Small progress is still progress.

2) 0.7 percent is not 0.7 percent

The other problem with the “It’s only 0.7 percent” argument is that this view is too simplistic. In an accounting sense, it’s true that USAID only accounts for 0.7 percent of total spending. However, USAID’s impact on spending is not limited to what the department itself spends. USAID is a part of a network which includes various federal agencies and bureaucrats. These agencies can sometimes act as a team which works to increase overall spending. To understand this dynamic, we need to look at the economics of team production.

Economists Armen Alchian and Harold Demsetz were the first to highlight the importance of team production in firm decision-making. Team production is based on a pretty simple idea: the sum is greater than the parts.

Let’s say Patrick and I start a moving company. Imagine I can move 15 things per hour by myself, and Patrick can move 20 by himself. However, if we work together, we move 40 things. In other words, working together makes us more productive than each person working individually put together (40>15+20).

The reason for this is obvious—some objects are better moved by teams. It would take an individual a really long time to move a couch by himself. Working as a team is more than doubly fast.

Since some of the boxes are essentially being produced by “the team,” it’s hard to account for who’s responsible for them.

In for-profit business, teams work together to produce revenue. But in government bureaucracies, teams often work together to grow their budgets (see this article for more detail).

So, when the Department of Defense puts together their budget proposal, and they use studies conducted by USAID to justify it, who is responsible for the increase? Well, the whole increase will be attributed to the DOD, but clearly USAID is partly responsible.

In this sense, bureaucracy has the ability to feed on itself, thereby making the impact of a relatively small bureau like USAID harder to account for.

3) Establishing a Precedent

The last reason shutting down USAID is important can be highlighted with the following question: What was the last standing U.S. government department to be shut down permanently?

Can you think of one? Congratulations if so, because I can’t. The closest thing I can find is departments being renamed (Department of War became Department of Defense) or temporary departments being shuttered (such as the National Recovery Administration). But even in the latter case, much of the department got turned into what is now the Small Business Administration.

Shutting down USAID would set an important precedent. Our government, and society, need to build up experience and infrastructure on how to shut down government bureaus. Complaining that USAID should not be a target for cuts because it is small is like complaining that someone is going on a 5-minute run in an attempt to train for a marathon.

Of course a 5-minute run doesn’t solve your problem of getting ready for the marathon by itself. That isn’t the point. The point is that the 5-minute run gets your body used to running for 5 minutes. You increase from there.

For my money, the shutdown of USAID will be an important bellwether, indicating that Trump’s administration has the power to take on the deep state. If he can’t remove USAID, there’s no chance he’ll take on anything bigger.

Furthermore, I see this as a bellwether for the country itself. If the deep state in the United States is so strong that it’s impossible to cut off even an agency established by executive order that makes up only 0.7 percent of the budget, how can we expect to deal with an exploding debt interest problem and an insolvent social security system?

Many in D.C. scoff when you talk about the national debt. After all, people have been warning about the debt for decades now. However, as one of my friends recently pointed out, countries are never in sovereign debt crises… until they are.

From the Foundation for Economic Education (FEE)

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.