A FUNDAMENTAL AND ECONOMIC ANALYSIS OF THE WALL

Austin Lucas
March 10, 2017
 ABSTRACT

In light of the growing amount of controversy arising from the lack of border control,
illegal migration into the United States, it seems necessary to analyze the economic benefits and
costs of these illegal immigrants to American tax-payers. When Donald Trump announced his
presidential campaign, he began by promising to voters that he would build a great wall and
enforce the United States immigration laws (Time 2015). The leftist media erupted by claiming
that Trumps fixes to immigration were racist. Specifically, the media singled out Trumps
statement regarding Mexican immigrants as rapists and criminals. Since then, Donald Trump has
become President (defying the medias numerous attempts to derail his presidential campaign).
Today, eleven million undocumented illegal immigrants are living in the United States (Jens
Manuel Krogstad, Jeffrey S. Passel, and DVera Cohn 2016). Economist Thomas Sowell states
that, immigrants bring both benefits and costs to the countries they enter, creating the classic
economic problem of trade-offs (Sowell 2009, 188). However, former President Barack Obama
disagrees with Sowell. In fact, former President Obama purported that the United States should
grant citizenship and offer government assistance to help these illegal immigrants gain human
capital and produce economic benefits for society. There are some issues which need answers if
the United States wishes to fix its immigration problem. What environment should the
government provide to ensure economic growth? What policies, in spite of their intentions,
hinder the poor and uneducated. How should governments view immigrants? Are the illegal
immigrants providing the United States economy a net benefit or a net loss? These, and many
other economic considerations to illegal immigration are analyzed and answered in the following
paper to determine whether building a wall on the border with Mexico will be economically
efficient for the United States economy.

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 INTRODUCTION

This paper will address many economic implications of reaffirming immigration laws and

building a wall on the southern border. These implications will be addressed in two parts: 1.) The

Necessity of Adhering to the Law, and; 2.) Analysis of the Costs and Benefits of Illegal

Immigrants in the United States.

THE NECESSITY OF ADHERING TO THE LAW

The following section will describe what type of economic atmosphere is most

economically viable for nations to set up and protect. Moreover, this section will be divided into

four subcategories: 1.) The Foundations of Law; 2.) Why Plunder is Not Economical; 3.) Why

Transfer Programs Do Not Work; And, 4.) Government Assistance Does Not Help the Poor and

Uneducated.

The Foundations of Law

While economic principles are important, economic actions take place within a

framework of laws and policies that are shaped by political principles (Sowell 2009, 1).

Therefore, it is necessary to understand what political principles are consistent with economic

principles if nations are to flourish economically. Frederic Bastiat brilliantly explains these ideal

principles in his book, The Law, Life, faculties, productionin other words, individuality,

liberty, propertythis is man. . . These three gifts from God precede all human legislation, and

are superior to it (Bastiat 2010, 7). The government must establish law and protect life, liberty,

and property. If the government does this, Bastiat believes that, Such a nation would have the

simplest, easy to accept, economical, limited, non oppressive, just, and enduring government

imaginable (Bastiat 2010, 10). Moreover, this government should, as Augustine described,

create laws which, . . .regard first and foremost the order to the common good (Brauch 2008,

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23). If a nation is to provide an order which promotes the common good, then it should establish

laws and policies which are economically efficient. The authors who wrote Common Sense

Economics identify this order as the governments protective function (Gwartney 2016, 111).

The protective function is crucially important for the smooth operation of markets, and, . . .

when the protective function is performed poorly, [economic] problems will abound (Ibid.).

One of the most extreme ways a government can fail to protect is when it uses its power to

plunder its citizens.

Why Plunder is Not Economical

Frdric Bastiat believed that politicians could use the law to redistribute wealth through

stupid greed and false philanthropy. (Bastiat 2010, 11). He summarized this adverse condition by

acknowledging that the fallenness of man explains why governments fail to provide a protective

order,

. . . the fatal tendency that exists in the heart of man to satisfy his wants with the the
possible effort, explains the almost universal perversion of the law. Thus it is easy to
understand how law, instead of checking injustice, becomes the invincible weapon of
injustice. . . This is done for the benefit of the person who makes the law. (Bastiat 2010,
13)

Bastiat describes politicians who steal from the people through taxation to reap their

political gain (perhaps providing illegal immigrants legal citizenship would benefit the individual

who makes the law). Plunder does not simply mean that politicians fill their pockets with

taxpayer dollars. In his book, Applied Economics, Thomas Sowell describes this deeper

understanding of plunder,

Elected officials top priority is usually getting re-elected, and their time horizon seldom
extends beyond the next election. Laws and policies that will produce politically
beneficial effects before the next elections are usually preferred to policies that will
produce even better results some time after the next election. (Sowell 2009, 4)

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 Plundering laws and policies are exemplified through price controls, rent controls, and

transfer programs. The consequences of these policies have been illuminated by examples of

market collapses caused by greedy political policies. Ludwig von Mises understood that

government intervention could never promote the common good, only socialism; and the

structure of socialism stands directly opposite the proper understanding of the law and basic

economics. After examining the mistakes of the Romans, Germans, British, and Americans,

Mises concluded that, The idea of government interference as a solution to economic

problems leads, in every country, to conditions which, at the least, are very unsatisfactory and

often quite chaotic. If the government does not stop in time, it will bring on socialism (Mises

1979, 52). Therefore, for a society to prosper, the nation must promote an environment which

promotes incentives for people to produce goods and services, not create adverse incentives

which lead to market and government failure (Gwartney 2016, 125). Therefore, not only do

transfer programs not work, but they also fail to assist the people they want to benefit.

Why Government Transfer Programs Do Not Work

Transfer programs leave intended beneficiaries worse off (Gwartney 2016, 145). An

economic analysis of the Homestead Act of 1862 describes this consequence,

Under this legislation, the federal government provided a land plot of 160 acres (later
expanded to up to 640 acres in parts of the West) for settlers who staked a claim, build a
house on the land, and stayed for five years. This option attracted many, but it was not
easy to survive in the early West, even with 160 acres. Thus, more than 60 percent of the
land claims were abandoned before the five years lapsed. In essence, this transfer
program encouraged people to settle the land before it was economical to do so, and
many of the homesteaders made a heavy sacrifice trying to qualify for this subsidy.
(Ibid.)

Another example is President Lyndon B. Johnsons War on Poverty, which purported

that if more people were willing to support the poor, the government could solve the problem of

poverty (Gwartney 2016, 146). Like the Homestead Act, Johnsons War on Poverty failed to

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recognize secondary effects because it solely focused on immediate benefits (Ibid., 147).

Moreover, like the Homestead Act, the consequences of Johnsons policies were startling

(Ibid.). Since the implementation of the War on Poverty, the poverty rate of families has

remained virtually the same, but before these policies were enacted the poverty rate decreased

from 32% in 1947 to 13.9% in 1968 (Ibid.). The Heritage Foundation summarizes the situation

perfectly, Five decades and $24 trillion later, the welfare system has failed the poor. Poverty

rates remain stagnant, and self-sufficiency languishes (Heritage Foundation 2016).

Government Assistance Does Not Help the Poor and Uneducated

Ideal government policies do not guarantee the desired outcome (Gwartney 2016, 147).

Therefore, the government should avoid policies that induce counter production into the poor and

uneducated which it intended to assist. In Common Sense Economics, the authors explain that

there are three unintended secondary effects that slow progress against poverty, this paper will

discuss two:

First, transfers reduce the incentive for poor individuals to earn and escape poverty.

Individuals are eligible to receive benefits under these programs as long as their income is at or

below a designated income level. The benefits from most [transfer] programs are scaled down

and eventually eliminated as the recipients earnings rise (Ibid., 148). As a result, some

individuals on assistance who make additional revenues may even reduce the beneficiaries net

income (Ibid.). Therefore, to a large degree, the transfer programs merely replace income that

would have otherwise been earned, and as a result, the net gains of the poor are smallfar less

than the transfer spending suggests (Ibid.).

Second, transfer programs take away the hardships of poverty by reducing the

opportunity cost of risky choices such as dropping out of school or the workforce, childbearing

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by teenagers and unmarried women, divorce, abandonment of children by fathers, and drug use

that often lead to poverty (Ibid.). Each recipient who falls into these traps becomes an economic

loss, not benefit, to the American tax-payer (Ibid., 148-149).

Transfer policies provide immigrants an incentive to move to the United States illegally.

This aspect of the discussion is consequential because a nations citizens and its government

should adhere to a correct understanding of the law. If the government encourages individuals

with the incentives of counter production rather than the production of his or her resources, it

will achieve government failure (Gwartney 2016, 125). Continuing to allow poor and uneducated

illegals into the country and provide them with assistance could lead to government failure.

We know from Thomas Sowell that, Many do something policies do in fact benefit

particular industries, groups, regions or other segments of the national economy. But that is very

different from saying that these policies produce a net benefit to the economy as a whole

(Sowell 2009, 13). Therefore, the proceeding section of this paper will apply these economic

foundations and considerations to illegal immigration and the wall.

ANALYSIS OF THE COSTS AND BENEFITS OF ILLEGAL IMMIGRANTS IN THE

UNITED STATES

The following section will analyze the economic implications of Donald Trumps

immigration policies to determine whether illegal immigrants are beneficial or detrimental to the

United States economy. Moreover, this section is divided into three subcategories: 1.) Shaking

Up the Immigration Policies; 2.) An Economic Analysis of Illegal Immigrants; And, 3.) The

Benefits of the Wall Exceed the Cost.

Shaking Up the Immigration Policies

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 Donald Trump believes that many of the immigration problems in the United States are

caused by a lack of border control and a lawless environment. In his Joint Address to Congress

on February 28, 2017, President Donald Trump announced,

By finally enforcing our immigration laws, we will raise wages, help the unemployed,
save billions and billions of dollars, and make our communities safer for everyone. We
want all Americans to succeed, but that cant happen in an environment of lawless chaos.
We must restore integrity and the rule of law at our borders.
For that reason, we will soon begin the construction of a great, great wall along our
southern border. (Trump 2017)

Donald Trumps approach to the governments role in the economy is consistent with the

economic principles this paper has described. First, Trump stated that he would provide an

environment which protects against lawless chaos by enforcing the United States immigration

laws and, therefore, perform its protective function by creating an environment which increases

economic growth (Gwartney 2016, 111). Moreover, Trumps notion is that the wall is necessary

if the United States wants to analyze the costs and benefits of illegal immigration. If the United

States does not protect the border and continues to allow people free entry, it will never be able

to examine illegal immigrants benefits and costs to society because it will never know who these

people are and how many of them are in the nation.

An Economic Analysis of Illegal Immigrants

Unlike President Trump, former President Barack Obama wanted to grant amnesty to

unlawful immigrants. Obama made a decree to shield illegals from deportation and make then

U.S. citizens. White House Press Secretary, Josh Earnest, stated that the Presidents goal was to

bring,

[illegal immigrants] out of the shadows, given them a work permit and under the
books, and giving them a Social Security number and making them taxpayers. And that
does not mean that theyre going to be filing their taxes on a regular basis and that does
mean that if they qualify for the child tax credit, for example, as a taxpayer that would be
something that they would benefit from. (Peralta 2014)

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 However, the aspiration ended by a 4-4 decision in the Supreme Court (Hennessey 2016).

In response to the defeat, Obama stated, Todays decision is frustrating to those who seek to

grow our economy and bring rationality to our immigration system . . . It is heartbreaking for the

millions of immigrants who have made their lives here (Liptak, Adam and Michael D. Shear

2016). Here, Obama is speaking about immigrants in the abstract; instead of understanding the

characteristics of the illegal immigrants he assumes that millions of immigrants who have made

their lives in the U.S. are seeking to grow our economy. While Obamas efforts had sincere

intentions, recall that government intentions do not always produce results (Gwartney 2016,

147). In contrast, Thomas Sowell stated that:

One of the things about the immigration debate is that they talk about immigrants in the
abstract. And there are no immigrants in the abstract as that passage indicates. And we
dont know who those people are, that are here. They may all be PhDs from the
University of Chicago, in which case they should all stay. Or they may be in fact be
people who majored in sociology at Berkley, at which case is get them all out of here as
soon as possible. But we dont know. Thats one of the problems of our immigration
policy, we dont have an immigration policy if we dont protect the border. It does not
matter what our immigration policy is, if anyone who wants to cross the border can cross,
then our policy is just words on paper. . . (Uncommon Knowledge 2014)

This approach to immigration is the antithesis of former President Barack Obamas

policies which viewed illegal immigrants in the abstract. When asked about whether immigrants

are automatically good for the United States and its economy, a theory shared by Obama and his

economists, Sowell responded,

No. . . . Any discussion of people in the abstract drives me crazy because there are no
abstract people. A hundred years ago people understood that. And so when there was a
debate about immigration a multivolume set of tones about the characteristics of the
immigrants from various countries. . . [The government] should find out: How are the
people we know about? How are their kids are doing in school? What is their crime rate?
What is their disease rate? All those things, that matters. (Ibid.)

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 Sowells suggestions, that the government should enforce its immigration policies by

protecting the border and that it should understand the characteristics of the eleven million illegal

immigrants, are economical and consistent with Trumps immigration policies. First, the

government should conduct its protective function to the best of its ability. By not controlling the

border, in fact, the United States has failed its perform its protective function. That is because

the United States has no idea who these people are and whether they are right or wrong for the

economy. Sowell disregards the notion that immigrants, in the abstract, are beneficial to the

economy. Just because immigrants are not all bad does not mean that they are good for the

economy. Not all immigrant groups are the same as others. Groups of immigrants come from

different societies and come with a variety of potentially good and bad characteristics (Sowell

2009, 171). Therefore, as Sowell suggests, the government must address the economic costs and

benefits of illegals by analyzing the characteristics of the illegal immigrants.

Economic Determinations of The Wall

Education level is a characteristic which is applied frequently in economics. The Center

for Immigration Studies (CIS) used education to analyze the costs of illegal immigrants to the

United States taxpayers in a report which concluded: Based on the Nation Academies of

Sciences, Engineering, and Medicine (NAS) data, illegal border-crossers create an average fiscal

burden of approximately $74,722 during their lifetimes (Camarota 2017). Moreover, the report

found that lack of education among illegals was the cause the net loss. There is agreement

among researchers that illegal immigrants overwhelmingly have modest levels of education

most have not completed high school or have only a high school education (Ibid.). Moreover,

There is also agreement that immigrants who come to America with modest levels of education

create significantly more in costs for government than they pay in taxes (Ibid.).

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 A Heritage Foundation reported found illegal immigrants are a fiscally dependent

population and that amnesty for unlawful immigrants can pose large fiscal costs for U.S. tax

payers including public education, welfare benefits, and other benefits and services (Richwine

and Rector 2013). In sum, the low wage level of unlawful immigrant workers is a direct result

of their low education levels (Ibid., 4). Moreover, the report explains the different ways in

which the government subsidizes illegals; through direct benefits, means-tested benefits, public

education, and population-based services (Ibid., 5-9, see Table 4 on pg. 9). To protect against the

economic burden of illegal immigration, as Trump and Sowell suggest, the United States should

protect the border and build the wall (Uncommon Knowledge 2016). The CIS report details that

the wall could save taxpayers money by protecting them from illegals who amount a net fiscal

burden of $74 thousand over the course of their lifetimes.

Newly released research by the Institute for Defense Analyses (IDA) done for the
Department of Homeland Security indicates that 170,000 illegal immigrants crossed the
border successfully without going through a port of entry in 2015. While a significant
decline in crossings from a decade ago, it still means that there may be 1.7 million
successful crossings in the next decade. If a wall stopped just 9 to 12 percent of these
crossings it would pay for itself. If a wall stopped half of those expected to successfully
enter illegally without going through a port of entry at the southern border over the next
10 years, it would save taxpayers nearly $64 billionseveral times the walls cost.
(Camarota 2017)

These findings provide evidence which suggests that Trumps ideas are economically

viable. Therefore, because the government should adhere to its protective function by enforcing

the law and steering clear of transfer programs, it can be concluded that Donald Trumps wall

will be economically efficient.

Unlike Obama, who wanted to provide assistance to illegals, Trumps policies do the

opposite. Trumps illegal immigration policies and, most significantly, the wall, will reduce the

net cost accumulated by illegals by halting the influx of immigrants. In turn, less poor and

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uneducated immigrants will consume American resources and, therefore, the United States will

achieve a net benefit by refusing these people into the society. To an extreme extent, if Trump

decides to deport all illegals and indeed enforce immigration laws, these studies indicate that he

would reduce the nations fiscal burden.

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