Donald Trump does not comprehend macroeconomics

Donald Trump claims he can fix our trade deficit by renegotiating better deals with other countries, principally the Chinese. If he understood trade deficits, he would not say that. Trade surpluses or deficits are based on the net difference between exports and imports with a particular country. They are consumer driven. For example, we run a trade deficit with China, if consumers in our country buy more products made in China than consumers in China buy from us. Therefore, a trade deficit is based on a comparison of business or individual spending by two countries.

Trump does not know what he is talking about when he says he will pay for the $16 million wall that he wants to build along the Mexican border by raiding Mexico’s $58 million surplus in its balance of trade with us because that money has been paid to businesses in Mexico, not the Mexican government.

A government deficit is the difference between government spending, rather than business or individual spending, and government revenues. Our national debt (total of all debt since 1790) at the end of Fiscal Year 2016 is estimated to be $19.4 trillion. The amount is large, but so is our economy. There is no reason to freak out. Investors certainly aren’t freaking out or they would not invest in Treasury bonds. Here is a Wikipedia explanation using Modern Monetary Theory (MMT):

The government sector is considered to include the treasury and the central bank, whereas the non-government sector includes private individuals and firms (including the private banking system) and the external sector – that is, foreign buyers and sellers.

In any given time period, the government’s budget can be either in deficit or in surplus. A deficit occurs when the government spends more than it taxes; and a surplus occurs when a government taxes more than it spends. Sectoral balances analysis states that as a matter of accounting, it follows that government budget deficits add net financial assets to the private sector. This is because a budget deficit means that a government has deposited more money and bonds into private holdings than it has removed in taxes. A budget surplus means the opposite: in total, the government has removed more money and bonds from private holdings via taxes than it has put back in via spending.

Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector, whereas budget surpluses remove financial assets from the private sector.

This is represented by the identity:

(G-T) = (S-I) -NX

where NX is net exports.

The conclusion drawn from this is that private net saving is only possible if the government runs budget deficits; alternately, the private sector is forced to dissave when the government runs a budget surplus.

According to the sectoral balances framework, budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation. Therefore, budget surpluses are required only when the economy has excessive aggregate demand, and is in danger of inflation.Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.

Our government can afford and should pay a living wage to put people to work fixing our infrastructure. Every dollar spent will be respent 7 times dramatically increasing tax revenues. If we tax the rich, we can pay down the debt as desired.

There is no evidence-based reason to hit the panic button.

Donald Trump is an idiot willfully ignorant and stubborn.

He demonstrates his ignorance and idiotic ideas in this interview:

Transcript: Donald Trump interview with Bob Woodward and Robert Costa

12 Responses to Donald Trump does not comprehend macroeconomics

  1. bettykath says:

    Idiot assumes a lack of intelligence. I don’t believe that of Trump. He is ignorant, willfully so. It’s correctable but he isn’t interested. He assumes he already knows it all.

  2. girlp says:

    Most business people don’t understand Macroeconomics, most understand their industry many are not very good at running corporations. If they understood Macro they would understand you can’t run government like a business.

  3. Malisha says:

    Naturally, since Trump has used only one technique all his life to get what he wants (bullying), he thinks that technique is the one that anybody uses to get what they want. He also thinks there only IS one technique and since he is the biggest bully he knows, he presumes HE IS BEST at the only technique in the world and this makes him the best in the world. So naturally, a trade deficit is fixed by … wait for it … bigger and better bullying. An immigration issue is managed by … yes you guessed it … bullying. And one or another version of this will be the answer to every question (bullying women to prevent abortions, bullying countries to win wars, bullying everybody to get whatever…) etc. etc. etc. ad nauseam…

    • gblock says:

      And he sees it as a winning strategy for the election. Does he believe that the right bullying will eventually bring enough people on board that he can win? Or does he believe that he can make nicey-nice later and everyone will forget about the bullying and embrace him?

  4. Rachel: Sorry, I lost the post during an edit and had to delete and recreate it. Unfortunately, I lost your comment.

  5. racerrodig says:

    Trump can’t even formulate a complete sentence…..nor stay focused on a simple question. Idiot is putting it mildly.

    • I try to avoid using that word because it implies someone who has no control over their mental limitations. He has control and chooses to be willfully stupid. I’m going to change it.

      • racerrodig says:

        Most of use use that word incorrectly, and I understand fully. But one who claims to be above everyone and still can’t actually answer a direct question like…..”….well, it first occurred to me that I might run for president at some point in late 2014 and I’ll tell you why. I feel……..blah, blah, boring blah”

        Noooooo, the Donald jumps around and says crap like “…and you were there…” like that matters.

        Then likens his event to the Academy Awards…….seriously now.

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