The Rising Price of Trump’s Border Wall

Tijuana, Baja California, Mexico – February 2, 2017. View above the border fence Separating U.S. from Mexico, photographed in Tijuana, Mexico. – Editorial credit: goofyfoottaka / Shutterstock.com

Commentary from Project Syndicate

By Simon Johnson

WASHINGTON, DC – As a candidate, Donald Trump insisted on one signature issue above all: the United States will build a wall along its border with Mexico, and Mexico will pay for it. Seven months after taking office, however, Trump has made no progress on either front: political support for a new wall is diminishing, and the chance that Mexico will pay anything for it is essentially zero and seems to be off the agenda.

Now, Trump is doubling down – and threatening to shut down the government, or even default on the federal debt, unless Congress provides funding for a wall that he promised would cost US taxpayers nothing. If Trump escalates this confrontation, the costs for Americans – in terms of economic uncertainty and slower growth – are likely to pile up.

The amounts of money involved are not large relative to the overall size of the US government. In Trump’s first full-year budget, initial spending on the wall was put at $1.6 billion, with the president estimating that the total cost will be $12 billion (although other estimates are considerably higher). Compared to total US government spending of $3.9 trillion in 2016, that is a drop in the bucket. The argument here is about principles: what would a border wall really achieve from a practical standpoint, and what would it symbolize? But the precise rules about purse strings determine how this argument will play out.

The president does have some discretion on spending – and the Department of Homeland Security has already shifted funds from other programs to pay for the development of prototypes. But a fundamental principle of the US Constitution is that Congress controls the purse strings – meaning that discretionary spending, such as outlays for a border wall, is subject to the formal appropriations process. Building a border wall, or significantly extending what is already there, is not feasible without congressional approval.

The appropriations process is complex and not always transparent to outsiders. Regular appropriations are supposed to be enacted by October 1 (the beginning of the government’s fiscal year). But there is now a long tradition of “continuing resolutions,” which provide funding for just part of a year. And supplemental appropriations bills can provide additional funding at any time in response to particular situations – such as the aftermath of a major hurricane.

The Republicans control both the Senate and the House of Representatives. And the House already granted approval for exactly what Trump wanted on the wall – the $1.6 billion was included in a broader $788 billion spending package, so the wall did not have to be debated separately.

Under current rules, 60 votes would be needed in the 100-member Senate to fund the wall, and the Democrats, with 48 seats, already managed to exclude this item from the spending bill earlier this year, which funded the government through September 30.

Now Trump has issued an ultimatum: fund the wall, or face a shutdown of the federal government – meaning that he and the Republicans would refuse to conclude any appropriations deal by October 1. Or perhaps the wall will become part of a showdown over how the debt ceiling for the federal government should be raised, with the deadline for doing so also likely to come around the end of September.

Complicating the issue further, some congressional Republicans – such as Senator Paul Rand of Kentucky and Congressman Mark Meadows of North Carolina – seem not to oppose some form of partial default or other reneging on debt by the US government. And remember that John Boehner stepped down as Speaker of the House in 2015 in part over similar budget struggles with the right wing of his party.

The impact of a debt default would be cataclysmic, and it seems unlikely that Trump would be foolish enough to go so far. But Goldman Sachs, a politically well-connected bank, puts the odds of a government shutdown at 50/50 – up from around 30% in May.

Government shutdowns are costly, impacting services and potentially payments to suppliers and citizens. But politicians never know exactly who will be blamed, and how much, until the shutdown happens. Although this approach didn’t go well for Republicans in 1995-96 or in 2013, there are clearly some people in the party who would like to try it again.

The costs to the economy of a shutdown are definitely negative. But, whereas a debt default by the federal government would amount to falling off a cliff, the costs of a shutdown build more gradually over time. It seems entirely consistent with Trump’s personality and style that he would try such a maneuver and see how it plays with his (slowly dwindling) electoral base.

Of course, there are many wildcards – including the apparently bad relationshipbetween Trump and Mitch McConnell, the Republican leader in the Senate. The massive flooding in Texas – and the important helping role that the federal government can play – may also convince the White House that now is not the time for further disruption.

One thing is certain: Mexico is not going to pay for the border wall. What is less clear is how much Americans will be forced to pay – with uncertainty, disruption, and even a government shutdown – if Trump’s version of the wall is ever built.

About the Author:

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics, and co-founder of a leading economics blog, The Baseline Scenario. He is the co-author, with James Kwak, of White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.

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