Reactions to Executive Actions
How markets have responded to a flurry of new executive orders, memoranda, and market-shifting press conferences.
Trouble in Paradise
The second week of the Trump administration was about as busy as the first, with a flurry of new executive orders, memoranda, and market-shifting press conferences.
Last Tuesday, federal workers received an email offering them a buyout worth 7 months of salary (or rather, a deferred resignation at the end of the government fiscal year) if they agreed to resign by February 6th. News of this caused markets tracking federal layoffs to spike, expectations tempering slightly after reports that only about 1% of eligible federal workers had accepted the offer with two days left to decide.
Perhaps some of the hesitancy was due to fears that the government’s end of the bargain wouldn’t be upheld. Markets seem to think those fears are well-founded, with only a 44% chance that federal employees will receive the full, promised compensation. Commenters noted that the move to offer buyouts mirrored a similar action taken by Musk after his purchase of Twitter, down to the subject line of the email. Musk previously won a lawsuit against the employees who felt that they did not receive the promised severance package.
After the rapid dismantling of USAID and news of a potential executive order to eliminate or merge the Department of Education into another department, traders adjusted quickly upwards to above 60% for the likelihood of the DoEd facing a similar fate as USAID. Traders don’t seem to be fazed by news reports downplaying the possibility of such an action occurring without filibuster-proof legislation clearing the Senate, which might seem a remote possibility.
Speaking of the senate, with their eyes peeled on C-SPAN, Manifold users converged on high likelihoods for the confirmation of the two cabinet picks with remaining uncertainty: Tulsi Gabbard for Director of National Intelligence and RFK Jr. for Secretary of Health and Human Services. In the case of Tulsi Gabbard, the forecast dipped below 50% on news that Senator Susan Collins might prevent the nominee from even getting out of committee, forcing a workaround that could jeopardize her nomination, but after a couple of terse exchanges on Twitter and some work to address senators’ concerns about Edward Snowden, Gabbard’s confirmation is all but confirmed.
Department of Government Efficient Market Hypotheses
While in a normal week within the first 100 days of an administration, all eyes would be on the actions of the president, media attention has unusually fixated on the role of Trump’s close advisor, Elon Musk, the Department of Government Efficiency he heads, and some of the workers employed therein. Manifold traders are fairly confident that DOGE’s work will be held up by judicial review (or arrests or even physical assault)…
…and indeed, their access to treasury systems has already been halted by a federal judge, though Manifold thinks it likely that their access will resume within the next month.
Traders also seem concerned about the possibility of a DOGE-related data breach, a possibility that members of Congress have raised the alarm about.
Despite no clear signs of a thawing in the relationship between America’s wealthiest man and president, markets are speculating on the direction it may take over 2025, with markets showing little activity in their forecasts on a Trump-Musk split.
Markets also think it quite plausible that Trump will issue a pardon for Musk, despite no active reporting of the possibility of a preemptive pardon in the press.
I tried to import a joke about tariffs, but it was too taxing
Last weekend, markets reacted to Trump’s threats to levy 25% tariffs on Canada and Mexico and 10% on China, only to rescind the tariffs at the 11th hour. A market on the likelihood of a 6% quarterly tariff rate during 2025 remains one of the most liquid markets on the site:
Since public comments during a press conference a couple of weeks ago, markets have speculated on the likelihood of tariffs on Taiwanese semiconductors, which would have massive implications on the American tech industry and supply chains for some of the world’s largest companies.
Given the likelihood of this occurring, the effects have been explored by financial media. If you’re the kind of trader who is bored by a well-trod path, perhaps try out this market on the likelihood of US destruction of Taiwanese semiconductor manufacturing capabilities, conditional on an invasion.
Happy forecasting!
-Above the Fold
how the president and congress with simple majority votes can gut agencies. No fillibuster proof majorities needed.
Presidential Executive Orders
Reorganization Plans:
The President can issue executive orders under existing laws, such as the Reorganization Act of 1977, to restructure or consolidate agencies. Congress has 60 legislative days to disapprove; otherwise, the reorganization takes effect611.
Example: President Trump’s recent executive orders eliminated programs like the Federal Executive Institute by directing relevant agencies to terminate operations and revoke their legal basis.
Defunding via OMB:
The Office of Management and Budget (OMB) can be directed to propose budgets that reduce or eliminate funding for specific agencies, effectively forcing Congress to act on these recommendations.
Example: Recent executive actions have included regulatory caps and budgetary constraints to reduce agency funding.
Transfer of Responsibilities:
Executive orders can reassign agency functions to other departments or state governments, reducing the agency's role or making it redundant. This could be done for agencies like the Department of Education by transferring its functions to Health and Human Services or state-level entities.
Regulatory Rollbacks:
Executive orders can mandate aggressive deregulation, such as requiring agencies to repeal multiple existing regulations for every new one introduced (e.g., 10-for-1 deregulation policy.
Legislative Strategies (Simple Majorities)
Budget Bills:
Congress can pass appropriations bills that zero out funding for targeted agencies. Without funding, these agencies cannot operate effectively.
Authorization Bills:
Amendments to authorization legislation can either sunset an agency’s existence or significantly narrow its scope. For example, Congress could rewrite the Department of Education’s authorizing statutes to phase out its functions.
Incremental Reductions:
Gradual reductions in an agency’s budget, staff, or responsibilities through annual budget bills can make the process politically palatable while achieving long-term downsizing goals.
Legislative Reorganization:
Congress can pass reorganization bills consolidating agencies or transferring their responsibilities to other departments or state governments. For instance, education-related functions could be merged into block grants managed by states.
Sunset Clauses:
Introduce sunset provisions in legislation requiring periodic reauthorization of an agency’s activities. Failure to reauthorize would result in automatic termination.
Block Grants:
Convert federal programs into block grants for states, reducing federal oversight and administrative costs while shifting control to state governments.
Reconciliation Process:
Use budget reconciliation, which requires only a simple majority in the Senate, to enact spending cuts or structural changes indirectly impacting agency operations.
Joint Resolutions:
Pass joint resolutions disapproving specific regulations or directives from an agency, which require only a simple majority in both chambers