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From War Bonds To Wall Bonds: How To Pay For The Great Wall Of America

27/01/2017 09:13
Jose Luis Gonzalez / Reuters

President Trump takes a hard stance on immigration. He has decided to build a wall across the south of the United States, in order to block access to those Mexicans who seek a better life in the north. This is a vision that clearly appeals to a lot of Americans, otherwise Mr Trump would not be sitting right now in the White House. The new President is committed to his building project and it is very likely that some version of it will start to materialize soon.

However, grand projects come with large bills. How is Mr Trump to pay for his Great Wall of America? Is this destined to be another white elephant infrastructure project, beloved of nationalistic leaders across the ages and around the world? The Mexican President certainly does not intend to share the estimated cost of $12-15billion dollars (on the calculation of Senate Leader Mitch McConnell) or around $9million per mile for the entire border length of 652 miles (as estimated on the basis of existing Homeland Security spend on border security fences). This is a lot of wall for a great deal of money.

After the Mexican refusal to contribute, Mr Trump called for a 20% tax on Mexican imports to pay for this grandiose construction project. But, there is a different way Mr Trump could pay for his wall that will appeal to him personally, avoid tension with Mexico, let Congress off the hook -at least temporarily- and allow his supporters to bring their money and their mouths together in jingoistic harmony. Mr Trump could ask the Treasury to issue special "Wall Bonds", using the memorable precedent of War Bonds launched to fund the war effort during the Second World War. Treating the fight against illegal migration as a war would certainly be consistent with Mr Trump's campaign rhetoric and would appeal to his vision of himself as the defender of an embattled America.

How could this be done? War Bonds leading up to and during WWII were an essential part of financing the war effort. They were also used during the American Civil War and WWI. They were effectively loans from private citizens to the government. They helped keep inflation in check by capturing excess liquidity in the American economy and avoided reliance on external borrowing, which was difficult at the time. They also became an iconic part of the home-front war effort through a series of propaganda posters issued by the War Advertising Council. They were promoted by highly recognizable Hollywood stars of the era, proclaiming "Ours ... to fight for. Freedom from fear." Similar tools were used in other allied countries, notably Britain during the same period. Buying these bonds was promoted as a patriotic act, a small sacrifice compared with that of men drafted to fight. In fact, they paid interest upon redemption.

The idea to use something like a War Bond to finance modern day government expenditure is not really that novel. It was even floated during Obama's expansion of military operations in Afghanistan in 2010. It was not adopted then, but it could work well for Mr Trump. As Mr Trump has promised to reduce taxes and lower American reliance on foreigners in general, some form of patriotic internal borrowing might just do the trick. Issuing bonds is within executive powers, and Congress could only try to control it by lowering (or refusing to increase) overall government debt ceilings. A Republican dominated legislature is unlikely to block financing for a project they already said they approve of. One can almost see Hulk Hogan and Dennis Rodman touring the country to advertise the bonds.

Sounds like a plan then, but what could be the drawbacks? It may sound like it from reading Mr Trump's Twitter feed, but America is not in fact at war. Precedents are not that good for these types of bonds during peacetime. A program by the Treasury Department to sell Patriot Bonds after 9/11 raised limited amounts. The cost of the Wall as described above is enormous. If Wall Bonds under-perform it could be an embarrassment for Mr Trump and could expose thinning support amongst the electorate. Indeed, one can imagine resistance to them to be emblematic for those who oppose him. Also, if successful, they would reduce consumer spending, eating into economic growth, as every dollar going into a Wall Bond would be a dollar less spent in a shopping mall. On the other hand, the one advantage of white elephants is that they create significant, albeit short-lived, employment opportunities.

What do you say Mr Trump? Is paying for the Wall worth a trade war with Mexico, or could the administration get creative?

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