Finally Something Economists Can Agree On: Trump’s Debt Talk Made Zero Sense

No, an increase in values of stocks owned by shareholders does not decrease the national debt owed by taxpayers.
President Donald Trump arrives to speak about tax reform in Harrisburg, Pennsylvania, on Oct. 11.
President Donald Trump arrives to speak about tax reform in Harrisburg, Pennsylvania, on Oct. 11.

WASHINGTON – President Donald Trump may still be divisive to most Americans, but his recent explanation about how an increasing stock market decreases the national debt appears to have unified both Republican and Democratic economists.

They think it’s nuts.

“The thing he said last night was just mind-achingly wrong,” said Jared Bernstein, once the top economic adviser to former Democratic Vice President Joe Biden. “Literally to the point where it was making my head hurt. I had to shut it off, and it made me feel better.”

Douglas Holtz-Eakin, Sen. John McCain’s economic adviser during the senator’s 2008 presidential run, agreed. “There’s no relationship,” he said. “So that’s pretty clear.”

The cause of Bernstein’s headache: Trump’s interview with Fox News’ Sean Hannity, in which he claimed that the increased value of stocks somehow reduced the accumulated national debt – apparently on a dollar-for-dollar basis.

“As you know, the last eight years, they borrowed more than it did in the whole history of our country. So they borrowed more than $10 trillion, right? And yet, we picked up $5.2 trillion just in the stock market,” Trump told his friend and informal adviser. “So you could say in one sense, we’re really increasing values. And maybe in a sense, we’re reducing debt.”

The two values, though, have nothing to do with each other. The national debt is the accumulated amount owed by the nation because the government over the years has spent more than it has received in tax revenues. The value of all the stocks of all the publicly traded companies is owned by their various shareholders, not the government.

An increase in the latter cannot decrease the former unless Trump plans to confiscate the aggregated increase in stock value since his election and use it to pay down the debt.

The White House on Thursday said Trump was speaking more broadly. “The president was simply making the point that we’ve seen enormous growth in the stock market since his election,” a White House official said on condition of anonymity. “That means more money in the pocket of everyday citizens, and more circulating in our economy as a whole.”

Trump’s explanation to Hannity also neglected to mention that former President Obama took office in the middle of a major financial crisis, whereas Trump took over following seven years of stable growth.

It was not, however, the first time Trump has shown signs of not understanding the functioning of the debt.

In June, during a visit by South Korean President Moon Jae-in, Trump said he was unhappy with a trade agreement with South Korea because that country’s exports to the United States are worth more than its imports. “We cannot allow that to continue,” Trump said. “This is really a statement that I make about all trade: For many, many years the United States has suffered through massive trade deficits. That’s why we have $20 trillion in debt.”

Holtz-Eakin, who at one time served as director of the Congressional Budget Office, said there actually is a relationship between trade deficits and the national debt, but it is the opposite one from what Trump appears to believe. In reality, he said, large budget deficits can cause a trade deficit, not the other way around.

Bernstein, meanwhile, said he thinks Trump was talking up the stock market because he understands that his proposed tax cuts would add trillions more to the national debt and wants his supporters to continue to believe that increased stock market values will offset that.

“I think there’s a method to his madness,” Bernstein said.

Hear S.V. Date talk about Trump’s weird debt comment on the HuffPost Politics podcast. The conversations starts at 29:50.