Thursday, July 28, 2016

Today's Practical Math Problem

Presidential candidate Trump says Mexico "will pay for the wall".  He plans to amend the Patriot Act on his first day in office to require that "no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States". If not, he'll withhold remittances from Mexicans living in the US, a sum estimated at $24B annually. He will forego this if Mexico agrees to a payment of $5-10B to fund the construction of the wall.

Note: Conservative independent estimates price the wall to at least $49B. I find that reasonable.  With current concrete costs coming it at an average of $93/cu.yd, making even a 1-foot thick wall would cost at least $3B not counting labor and property acquisitions. And of course the wall would have to be more than one foot thick.

Our GDP is about $17T. Mexico's is $1.14T. Mexico's federal budget is about 28% of GDP or about $320B. (We both run 3% deficits). $49B would be about 16% of the entire federal budget.  Mexico would either have to borrow and raise the deficit to 4% or raise taxes which the government has already promised not to do.  Average annual income in Mexico is about $17K.  (The enmity this would cause would be a good anti-US platform to run on in the next Mexican election).

Of course, President Trump is letting them off lightly with only demanding up to $10B or 3 percent of the annual budget. 

The candidate has not clarified whether Mexico would be allowed to break up the payment into installments over time or whether the US government would pick up $40B difference. The more time involved the more illegal immigration will continue unabated.

$40B would be more than twice the requested budget for NASA in 2017.

1. Would it be more correct to have Trump supporters chant Mexico will partially pay for the wall?

2. Won't Mexico have a significant amount of time to consider their response since the President can't amend the Patriot Act by fiat.  A bill will have to be submitted to congress and passed by both houses which could take time.  I imagine if Republican majorities in the house and Senate are maintained or expanded this could be accomplished. Of course nothing takes place in a vacuum in politics.  I presume companies involved in profit from remittances such as Western Union would be lobbying congress heavily against the amendment.

3. If Mexico pulls out it's wallet and pulls out a $10B bill, meeting the Trump request and assuring continued remittances, will our taxes have to be raised or government services cut to cover the remaining costs? 

Note to small government conservatives: This would not result in an overall lowering of government expenditures. Just a shift of what the funds are spent on. 

4. Building the wall would result in a boom in the construction sector in the states bordering Mexico,  lowering the overall unemployment rate.  (President Trump could legitimately argue that he has brought blue collar jobs back to at least a part of America). This boom would be temporary since at some point the wall would be complete.  The Trump campaign has released no estimates on what the ongoing costs to maintain a nearly 2000 mile wall in perpetuity would be.

Note: An interesting and ironic turn would be to charge each of the border states with maintaining their section of the wall.  This would keep with conservative philosophy that states should handle their own business as much as possible.  One assumes that during an upswing in the national economy, these states might come to resent the additional financial burden.

5. We also share oceans with Mexico. If the wall precludes land-based migration, is it reasonable to expect an uptick in coastal migration? If so, would that require additional federal expenditure on the US Coast Guard which would also be expansionary to the budget?  Should the Trump campaign modify it's request to Mexico to include these likely costs? Or modify it's tax plan to address this?

Thinking through these economic questions is a useful exercise in understanding trade and economic systems regardless of your political philosophy and party affiliation.


"I taught econ for a couple of years"

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