Episode 55: Economic Myths with Jeff Yass - Co-Founder and Managing Director of Susquehanna

**Amir Fischer** (0:02)
Well, Jeff, I want to thank you for coming back on. You're my first repeat guest.
So yeah, thanks for taking the time.

**Jeff Yass** (0:09)
It's my pleasure, Amir, thrilled to be here.

**Amir Fischer** (0:11)
Well, like our last episode, I think this is gonna be different from most episodes I've done in the sense of instead of talking about your background, informative experiences and stories, I think we'll talk about two things that kind of a few economic myths under two umbrellas, one of which being budget deficit in the US, what people consider the US debt crisis, and then consumer surplus in the US tax system, and I guess these two general umbrellas. So I want to kick it off by, we talked a bit and I know you have a nuanced way of thinking about what most people treat as the looming debt crisis in the US.
National debt is now one to one with GDP and I think a lot of people are a bit anxious and scared about where it goes from here, if the US government might default. Why is measuring debt like purely against GDP the wrong way to judge the US?

**Jeff Yass** (0:56)
Well, I think if we have a problem, you want to diagnose the problem correctly, otherwise you obviously can't fix it. So we have roughly $31 trillion in debt and we have a GDP of roughly 31 trillion which we get the 100 percent number from. But the United States, unlike other countries, has a wealth that is vastly superior to its GDP. So our wealth is probably seven times our GDP, close to $230 trillion.
That's because our stock market is worth $80 trillion, or more than two and a half times our GDP, while other countries, particularly Europe, China, their stock market value and their GDPs are roughly one to one.
So we're in a different situation than other countries.
And the quick way to figure out whether you have a debt problem was compare it to GDP. And that was a pretty good approximation for a long, long time. It no longer is because our wealth is so enormous. If you were lending money to somebody and they said they made $100,000 a year and they wanted to borrow a million dollars, you'd be afraid to do it. But if you knew they had $5 million in the bank, you wouldn't be afraid to do it. You really wouldn't care what their earnings are. And the GDP is essentially your earnings. You'd only care what their real wealth is. So our real wealth is so enormous that the debt really isn't a problem. It's roughly 13% or 14%.
Of our wealth, which is, I believe, an historic low. Now, it's pretty much an historic high, except for World War II, if you measure it to GDP. But if you measure it to wealth, which is really the only thing that matters, it's at a very low number. Now, the problem is the wasteful spending that we have is wasteful. We're losing, we're spending $7 trillion when $5 trillion could have gotten the same job done. So it's a shame to waste $2 trillion a year, but we're not going broke. The way we go broke is if that $230 trillion wealth gets annihilated and goes down to $100 trillion, which is about where it was 10 or 15 years ago. Now, with bad policies, that can happen. But as long as we keep the growth engine going and people are productive and they're making new businesses and they're creating wealth, we really don't have to worry. So what we don't have to worry about is the debt. What we do have to worry about is destroying the golden goose that creates the wealth.

**Amir Fischer** (3:41)
Yeah, and I guess the point you're making is when you're analyzing a company, when someone wants to invest in a company, they don't just measure debt on balance sheet to what its current income. Income in this sense would be like GDP, but you're going to measure debt against assets.
So the US assets are far greater than its income. So yeah, like you said, it's not a great way to make an assessment. It totally makes sense. I'm going to get to your point about-

**Jeff Yass** (4:08)
It's debt to equity, as you said.

**Amir Fischer** (4:11)
I guess to your point about don't limit, or as long as the economy keeps growing and the stock market keeps growing, we're in a totally good place, if not a great place, like you said, these numbers want to like kind of the historical lows. I guess, what are these things that if we limit, it can kind of kill the economy? What are these like general policies or whatever you think are somewhat kind of limiting?