The Gambler’s Fallacy

The Gambler’s Fallacy

It should be known that I write these journal articles to slow down and better reflect on the mechanics of whatever topic I write about.  Today, it’s tariffs, Ukraine and the impact these current events have on the US economy.  My words reflect my thoughts and are not provided as guidance.  Like most people, I’m not exposed to every facet of information necessary to form a conclusion.  However, I’m within my right to reflect on cause, effect and the morality of an observation.

In 2017-2021, lumber prices increased significantly, reaching over $600 per thousand board feet in 2018. Steel prices rose following the imposition of a 25% tariff on imports, while domestic prices increased by approximately 2%.  Aluminum faced a 10% tariff on imports, leading to a 2% price increase in domestic markets with price gouging and supply constraints reaching as high as 300% for some manufacturers in 2021. Retaliatory tariffs, particularly from China, led to a substantial decline in U.S. agricultural exports. Notably, soybean exports to China decreased by 53% from $19.5 billion in 2017 to $9.1 billion in 2018. This downturn prompted the U.S. Department of Agriculture to provide approximately $23 billion in aid to affected farmers between 2018 and 2020. ​

The tariffs aimed to protect domestic industries but resulted in increased production costs for manufacturers reliant on imported materials. A Federal Reserve study indicated that these tariffs were associated with 0.6% fewer jobs in the U.S. manufacturing sector by mid-2019, equating to roughly 75,000 jobs lost. ​

Tariffs are currently in effect for Canada, Mexico and China with retaliation expected; while, US and European trade agreements are deteriorating.  It’s my belief, the US economy barely evaded economic disaster during President Trump’s first term because the pandemic allowed an opportunity for those feeling tariff related pressure to be reimbursed through PPP loans and stimulus, purely by coincidence

What I would argue American voters got wrong, is that they believe they are entitled to work less while simultaneously earning more without calculating for themselves.  They believe that immigration and government corruption is responsible for their stagnant success; all without realizing that the federal, state and local labor force is largely responsible for their prior success.  The government labor force comprises ~13.5% of the American population.  Furthermore, federal spending in 2023 represents 22.8% of US GDP.  This is ~$6.143 trillion that American companies collected from selling goods and services to pay wages, innovate products and pump back into the US economy.  This is money originating from taxes that we all pay to increase our standard of living.  From the quality of the foods we eat, the rates our employers pay us and the amenities that make us comfortable; all of it is provided by government organizations aimed at making our lives better.

Almost all American citizens are exposed to economics largely driven by the government because…. as an American, you represent and shape the government yourself.  You vote for it.  You pay into it.  It pays you back.  It’s the oil that allows your engine to run smoothly; yet, you re-elected a real estate mogul to do your oil change.

GDP largely increases if the United States is exporting product and tariff’s prevent this practice. Furthermore, the regulatory organizations responsible for ensuring quality and safety are losing critical staff. I would Challenge any American to read Out of this Furnace by Thomas Bell to fully understand the consequences of a world without government regulation.  Just a 10% reduction in government cash flow and a 10% increase in jobless claims, both of which are happening in real time all-together while tariffs on critical materials further constrict supplies are catastrophic when paired with a brash president without poise taking aim at our closest allies.  I don’t view our current leadership as tough negotiators.  They sound more like bullies demanding a refund to T-Mobile because their bill rose by $10, even though the contract they agreed to clearly defines the upcharge.

The gambler’s fallacy is the mistaken belief that past random events affect the probability of future independent events. This fallacy leads people to assume that a deviation from an expected statistical outcome must be “corrected” in the short term.  This is the exact approach Trump and Vance took in the oval office when speaking to Zelensky who is aiming to protect the sovereign nation of Ukraine against the ambitions of Putin.  Prior to February 28, 2025; it was the world against Putin.  Today, it’s Putin against a world where US leadership demonstrated a broken unity.

Vance: “For four years, the United States of America, we had a president who stood up at press conferences and talked tough about Vladimir Putin, and then Putin invaded Ukraine and destroyed a significant chunk of the country. The path to peace and the path to prosperity is, maybe, engaging in diplomacy. We tried the pathway of Joe Biden, of thumping our chest and pretending that the president of the United States’ words mattered more than the president of the United States’ actions. What makes America a good country is America engaging in diplomacy. That’s what President Trump is doing.”

Therein lies the fallacy.  I have had similar thoughts, that making peace with friend and foe could bring about a peacemaking solution.  However, what if it doesn’t?  What if this strategy only shows Russia that an alliance to protect democracy is broken and Putin seizes the opportunity to advance?  Trump has long cited Russia’s nuclear arsenal as the primary motivation for diplomatic solutions, but the status quo doesn’t change if the US does or does not have mining rights in Ukraine.  If anything, I would expect a US presence to incentivize nuclear threats from Russia.  Status quo only changes if the US breaks relationship with its allies, and that’s exactly what the US is doing.  Would a land rights deal to mineral deposits in Ukraine really force Russia to stand down, when Russia actively seeks to occupy the same land?  Have we just shown China, that Taiwan is free for the taking?  Does a deal with Taiwan Semiconductor really ensure Taiwan’s security?

These are questions we do not have answers to yet, but the writing is on the wall.  My companies do business with the USDA, USGS, NASA, Oil & Gas & Mining companies and tariffs made all my products and services 25% more expensive to my mining partners in Canada.  A $40k sale yesterday costs $50k today for no other reason than US leadership says so.  This happens while cost of goods sold increase by 25% across the board for the parts I need to build my systems.  Did I mention that Canada is the largest supplier of Aluminum for the US?  Yet somehow the strategy is for tariffs to bring back the “Made in the USA” label when the US workforce only demands higher wages to manufacture.  The US mentality is to profit and the path to profitability is to manufacture at the lowest cost possible, but American’s will not work for less. The math is lost on me.  I suspect it’s also lost on Trump, because the President only understands an economy that revolves around hospitality that is reminiscent of the 90’s video game The Sims.  In The Sims, players create and control virtual people (Sims), managing their lives, relationships, homes, careers, and day-to-day activities. The game simulates absolutely nothing about science and technology, and those disciplines are largely bundled under his use of the word “Democrat.”  As a Geologist from Pennsylvania, it’s absolute torture hearing our own President mispronounce rare earth “minerals” (it’s metals), the Permian basin and coal related initiatives, suggesting he knows little to nothing about them.

*** This space is reserved for my comments about digital assets and how Trump just advocated they be more widespread in the US.  This includes Ethereum, which originated in Russia and excludes Bitcoin, which is largely considered “democratized” but I’ve lost the energy. I only have the energy to state that these assets will evaporate if the economy is strained, and their high evaluations offer evidence to a bubble existing in the US stock market as they are purely speculative investments ***

In summary, if these actions are short-term negotiation tactics that somehow result in a reduction of the US national debt, increase US manufacturing and wages, reduce jobless claims and improve global political tensions….. then great.  I was wrong, something happened that I couldn’t see and I’m grateful for everything that happened. However, the formula is lost on me as a government shutdown looms and I am cautious.