Sunday, March 24, 2019

Build the Wall: A distraction from debt

“Build the Wall!” A distraction from debt

Edward Renner

The biggest threat to our national security is borrowing against the future, not the southern border. The Federal debt and the future economic security of the country should be the context for the debate over building the wall.

The current Federal debt is $22 trillion, and over the term of President Trump, expenses will exceed revenue by $866 billion per year based on current projections (see Box). The recently proposed 2019 budget would increase this amount to over $1 trillion per year.
An individual has no reference point for such amounts of money. So, let’s turn those amounts into a personal example which parallels the current debate about funding the wall.

Suppose your uncle – let’s call him Sam – has an income of $50,000 a year with a no cash reserves. He is due for a $500 raise at the end of year. His current debt is $52,000 (104% of his income). This means he has been borrowing money every year to cover several thousand dollars of excess living expenses. Now, he wants to borrow a relative small amount of additional money to purchase something that has no commercial value – say a portrait of himself.

Suppose further that, instead of the $500 raise, an anticipated market correction (10%) occurs, and his actual earnings drop to $45,000. When that happens, he will have to borrow $7,000 to stay even, for just for the first year. His total debt will jump to 120% of his reduced income.

Under these conditions, why would Sam want to buy the portrait in the first place, and why would anyone lend him any more money? Sam may soon need to default on his house mortgage, as did many people in 2008, and move back home to live with his parents.

 Borrowing money to build the wall is the same as Sam borrowing money for his portrait. Like Sam, the current Federal debt is 104% of the national income which is measured by the Gross Domestic Product (GDP). This debt will increase to 108% under the current budget of the US Government (see Figure).


 When the Federal debt exceeds the Gross Domestic Product (GDP) – which is now the case -- and interest rates are larger than economic growth – which is now possible – then the entire national debt becomes more expensive. This situation requires even greater borrowing and/or a reduction of government services. Both can restrict growth, widen the gap with the cost of borrowing, and trigger a downward spiral of accelerating debt and additional austerity measures. As a result the nation gets poorer each year.
But, the big catastrophe occurs when the next recession comes -- as many expect in near future. When the GDP drops, the nation is caught in the same trap as Sam when his income fell by 10 percent. That is what happened to Greece. No cash, big expenses and no way to borrow more, which would only have made the situation worse. The parallel, with Sam moving back home, is significant reductions in social programs, such as Medicare and Social Security, and other big budget areas, such as the Department of Defense. 

The economic stimulus required to reverse the recession of 2008, was possible only because the national debt had been reduced to manageable levels as a result of the “peace dividend” during the Clinton years. The stimulus spending over the Obama era produced a period of steady economic growth, but at the cost of a huge increase in the national debt (104% of GDP) to a level that is not sustainable.

The current projections are for economic growth to slow in the future. Without growth, similar to Sam’s anticipated $500 raise, the ratio of debt to GDP increases wildly, as it did over the G W Bush era as the result of annual budget deficits, the recession and reduced revenue from a tax cut. Any reoccurrence of these events, all of which are currently on the table, will crash the economy again. But, this time there is no capacity for additional borrowing by the Government to stimulate a recovery -- just as Sam has no capacity to come up with an extra $7,000 per year.

Building the wall doesn’t provide national security, it is not an immigration policy, and it does not serve the body politic. It only fulfills a campaign promise akin to Sam purchasing his portrait. Building the wall is a distraction, while a real storm, the growing national debt, is gathering on the political and economic horizon – a distraction that puts at risk everything that defines the American Way of Life.
The real Uncle Sam would never do this.

Data Sources: Congressional Budget Office, Office of Management and Budget, compiled at and See also

Thursday, January 17, 2019

Ransom for wall is bad government

An abridged version of this essay, “Ransom for wall is bad government,” was published in the Jan. 4, 2019 Tampa Bay Times, A08, in response to Trump’s 1/3/19 demand: “Wall money or else”

Let’s Just Be Reasonable

Edward Renner

President Trump is currently holding government workers hostage to get money for his wall. “I will not sign a temporary budget that does not include money for the wall.”

Maintaining a functioning civil service in time of political dysfunction is essential for national stability and international self-respect. Civil servants should not suffer because political leaders cannot find a way to set new spending priorities for the coming year.

For Congress to negotiate a payment for the wall as a condition for returning government workers to the payroll would undermine fundamental democratic principles of our country.

The two issues must be separated: First, by introducing a bill to extend the Federal Budget at existing levels of spending until an agreement can be reached on a final budget, and second, by introducing an independent bill for funding the wall. Each Bill should be decided on its own merits through established procedures: If passed by the Congress, either signed or vetoed by the President; and, if vetoed, either over-ridden by Congress or not. Those are the constitutional rules.

If the wall is to add $5 billion to the public debt the essential question is whether that amount of new spending is best spent on health and social security, or on boarder security. And, if the $5 billion is not to be added to the federal debit, then the then the question is what existing government functions are to be eliminated.

The budget is an important public debate to be resolved on its own terms.

The wall is an occasion for extensive civic give and take on at least the issue of whether a physical wall or legislative immigration reform is the proper solution. The wall is not something to be obtained by ransom.

The use of hostages as a demand for ransom has been rejected as public policy by the United States. In June of 2013, the US government signed an agreement with the other members of the G8 against paying ransom for hostages. The purpose was to take away the capacity for terrorists to use this mechanism. The logic was simple: If holding innocent people hostage was an effective way to get money, it would be used repeatedly.

The same logic applies to the current standoff. If the strategy works once, it will be used again. Holding anyone hostage to gain a financial concession is absolutely incompatible with democracy and has no place in the internal political process of the United States.

Let’s just be reasonable.

Edward Renner is a retired university professor. He blogs on current social issues at