How Much will Trump Cost?

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Occupy Math takes the position that we could do much better if the ability to perform simple calculations was more widespread — but, even more so, if the ability to think clearly was. Learning math increases your ability to think clearly. A former student of Occupy Math’s, Sara Brown, helped Occupy Math land a large industrial grant by walking around a company and figuring out what everyone was doing. She sense-checked everything she could, resulting in millions of dollars in savings for the company. Occupy Math was delighted at the assistant plant manager’s take on this: “we need more mathematicians!” In this post we will look at the cost of not thinking clearly in the context of President Trump’s proposed policies.

How will President Trump impact our financial well-being?

We begin with a simple math error in a meme that attempts to explain why Americans will end up paying for Trump’s wall. In order to pay for the proposed wall on the Mexican border, one option is a 20% tax on Mexican imports. Since it is the prices of goods sold in the US increasing, it will be Americans, mostly, supplying the money raised by this tax. A meme explaining this idea notes that if a $5 avocado is taxed at 20% and the Mexican producer still wants the same income, the price would become $5 plus 20%, or $6 — but that’s wrong. The money to the producer is 80% (numerically 0.8) of the sale price so we get Price X 0.8=$5 Divide both sides of the equation by 0.8 and we get Price=$5÷0.8=$6.25. This means that even the people opposing Trump are cutting him a break by discounting the cost of his idea to the US consumer by 25¢ or about 4%. Four percent of $20,000,000,000 is a lot of money and, mostly, US citizens will pay.

The weird thing is that 4% isn’t even the beginning of the cost. A supply chain is the branching river of paths that the parts that make up a product follow. Because of the North American Free Trade Agreement, many supply chains run back and forth over both the Mexican and Canadian borders. Suppose the parts of a car cross the Mexican border four times (twice into the US and twice into Mexico) and that they pay a 20% tax each time they cross into the United States. Now each 20% tax multiplies the cost by 1.2. Multiply by 1.2 twice and you get 1.44 — the effect is roughly a 50% increase in the cost of the car! This highly optimistic scenario assumes that the Mexicans sit back and take it. Let’s assume they are reasonable and restrained and only impose their own 20% tariff. Then we multiply by 1.2 four times and get a cost multiplier of 2.07. Ready to pay over twice as much for your car? If you think Occupy Math is exaggerating, a somewhat dry report from the Congressional Research Service makes a very similar point.

But the effects are potentially far worse that making a $20,000 car cost $41,472.00.

In 1929 a stock market bubble burst, triggering an event called the Great Depression. We did eventually get out of the Great Depression — the rise of the totalitarian state of Nazi Germany led to the Second World War which did repair the American economy while devastating a large part of the rest of the world, including the first use of nuclear weapons against cities full of people. When the world economy started coming apart at the seams in 1929, countries reacted with “America First!” type policies: high tariffs (border taxes) to protect their own economies from foreign competition. The result was to substantially prolong and deepen the depression because the total amount of economic activity declined. With integrated supply chains crisscrossing the entire world, the impact of protectionist trade policies would be far greater: ask yourself — is world trade more integrated now than it was in 1929?

Where is the math in this doomsday scenario?

First of all, it depresses Occupy Math that he first encountered the math used to demonstrate the problem when a tax is applied over and over in an eighth-grade history book that was reporting on Renaissance Italy. The grenade-like economy destroyer proposed by the Trump administration was discovered by fifteenth century Italians — we should already understand why it’s such a bad idea. Second, the border tax combined with integrated supply chains is simply an exercise in compound interest. The fundamental error being made by the Trump administration is to assume that the economy is a zero sum game. It is not — cooperation pays huge benefits. If you are interested in this topic, look at the earlier Occupy Math It’s not them or us.

No-one will pay 2.07 times as much for a car. What might actually happen?

  • The US might pull the supply chains back to the US. This means that the production infrastructure would need to be rebuilt at titanic cost. Since we have to rebuild something it will probably be highly automated. In this scenario the total number of jobs in both countries declines sharply and Mexico becomes much poorer, driving the country into the arms of their backup economy, illegal drugs.
  • A trade war might simply collapse the economy. The United States will be the instigator and bear the brunt of the retribution from, well, everyone. We might get a fairly healthy world economy with the US left out, or we might get Great Depression II, making the Great Recession of 2008 look like a spring day.
  • Best case scenario, we talk Trump out of this and merely waste billions in forgone opportunity and good will.

These options are not mutually exclusive, but there is no good outcome. And this is just one place where we are not thinking clearly. Let’s look at a few more.

The cost of bad health care.

Occupy Math is linking an article penned by Francis Collins on Growing importance of health in the economy. The point is this: a healthy population is more productive. Under the Affordable Care Act, US health care went from criminally negligent to inadequate. The current government of the United States is trying to return to a state of criminal negligence (which Occupy Math defines by the simple metric of infant mortality), impaired only by having trouble avoiding becoming unpopular as a result. This is another example of people that refuse to do the math. A wonderful example of not thinking clearly is that a substantial number of American voters are against Obamacare while favoring the Affordable Care Act — when they are the same thing. The simple idea that one thing might have more than one name is an important part of thinking clearly.

In general, the success of an enterprise is related to the quality of leadership. This isn’t a mathematical fact, but it is a strong statistical trend. The current situation has many instances of persons being appointed to lead large, complex government departments when they are unaware of the department’s mission — as an example, Governor Perry, eager to be America’s ambassador for the oil and gas industry, was surprised that the Secretary of Energy is in charge of America’s nuclear weapons. In a later post, we will look at the impact of the new Secretary of Education on mathematics and the teaching of mathematics. In general, incompetence has a high but unpredictable cost.

Occupy Math thanks Tom Magliery for pointing out the lack of avocado algebra in some of the attempts to explain who is going to pay for Trump’s wall that sparked this post. If Occupy Math has offended some readers, consider that none of this is speculation or unsupported opinion — sources are given and conclusions are based on reliable reports. This post is somewhat afield from pure mathematics, but so is the situation in which Occupy Math is writing. The point about the danger of Trump collapsing the world economy is not only mathematically rigorous, it is history-tested and rock-solid. Occupy Math loves to hear from readers — please comment or tweet — you trigger some of the most popular posts.

I hope to see you here again,
Daniel Ashlock,
University of Guelph,
Department of Mathematics and Statistics

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