Friday, January 18, 2019

McConnell's Usefully Bad Argument About Investing in Border Security

by Neil H. Buchanan

At some point, Senate Republicans will have to become involved in efforts to reopen the federal government.  Their majority leader, Mitch McConnell, has thus far blocked the Senate from voting on any of the funding bills that the House has sent its way.  Worse, he has simply refused even to try to do anything positive, sitting idly by while Trump's temper tantrum endangers millions of Americans' lives, threatens their financial well-being, and puts our futures at risk.

What does capture McConnell's attention?  Today's Washington Post includes an op-ed with McConnell listed as the author, and it is actually easy to believe that he wrote it himself.  After all, it is all about McConnell's lifelong commitment to rigging elections, and it is certainly written in his voice, including his oh-so-snarky labeling of a House bill "the Democrat Politician Protection Act."  Yes, even now, McConnell insists on using "Democrat" instead of "Democratic," which has long been part of Republicans' version of political correctness.  (For some reason, they think it quite clever to call things "Democrat shutdowns," "Democrat intransigence," and so on.  Go figure.)

The larger problem is that McConnell and his colleagues have simply given up on the idea of governing, lapsing into old habits and burbling talking points rather than engaging honestly on any issues.  Although McConnell does not emphasize budgetary issues, his op-ed does provide an opportunity to talk about Donald Trump's border wall obsession in terms of objective economic costs and benefits.  Unsurprisingly, the analysis does not look good for Trump.

On the substance, such as it is, McConnell apparently wrote his op-ed because he is upset that Democrats are proposing to enforce and strengthen federal election laws.  He bizarrely casts this in states' rights terms, saying that after "united Republican government drained money and power from Washington and returned it to states, communities and families," Democrats now favor "far-left proposals to retighten Washington’s grip on the country."  Apparently, the idea is that when Republicans rig the rules for themselves, that is returning power to the people.  But when Democrats try to reverse those self-serving rules, it is a Washington power grab.  Got it?

McConnell, of course, has spent his entire career in the Senate doing everything he could to block campaign finance restrictions and suppress voting by poorer people.  Back in the 1990's, he once argued that low voter turnout is not an indication of a problem, because people who choose not to vote are expressing their satisfaction with the political status quo.  As strange as it sounds, McConnell has thus argued with a straight face that poor and minority voters are revealing their own satisfaction with their lives by not voting.

All of which means that McConnell was shamelessly dishonest long before he and his party stole a Supreme Court seat by saying that "the people" must decide who should fill an opening, not Barack Obama.  That shamelessness continued today, with McConnell blaming the shutdown on Democrats' "refusal to invest in border security," even though Democrats have voted for funding to improve border security and refused to waste money on a silly symbol -- Donald Trump's big, beautiful wall -- that would do nothing to improve border security.

Indeed, the arguments for a border wall do not even line up with Trump's claims regarding what constitutes a border crisis.  Drugs coming into the U.S., refugee problems, terror threats?  None of those will be improved even a little bit by building parts of a 2000-mile barrier for the next ten years.

But it is McConnell's use of the word "invest" that caught my attention.  The economics profession had a breakthrough moment earlier this month when one of its leading lights -- Olivier Blanchard -- devoted his address to the American Economic Association to the topic of conservatives' obsession with the debt.  This is huge news because Blanchard is one of the most widely respected figures in the economics profession, a longtime MIT professor whose work is technically unassailable and comfortably within the mainstream (indeed, it all but defines what is mainstream).  Even economic dissidents like me admit that the world would be a better place if all scholars could be more like an establishment figure like Blanchard.

New York Times columnist David Leonhardt offers a good description of Blanchard's argument (which I will analyze in greater detail in one or more upcoming columns), but for now, the important point is that Blanchard re-emphasizes the well established (and actually rather obvious) point that governments can borrow wisely if they spend the borrowed funds well.

Leonhardt puts it this way: "[D]ebt can bring enormous benefits, by allowing governments to invest in education, transportation, scientific research or other programs that often don’t yield much of a profit for private companies — but can substantially lift economic growth."  In other words, even though conservatives usually argue (disingenuously) that the government should be run like a private corporation, liberals have the better of that argument because we argue that the government should borrow to invest, just as private businesses do.

The analogy should not be pushed beyond that point, but the point itself is incredibly powerful.  Leonhardt quotes from an interview with Blanchard after his address: "You can use [government debt], if you use it wisely."  And that brings us back to McConnell's casual smear of Democrats' supposed "refusal to invest in border security."

I should note that, if we were currently in a recession, there would be a separate argument for increasing deficits, even if the money were to be spent on completely wasteful and pointless projects like a border wall.  Leave aside (if you can) the effects of the wall on the environment, private property rights, our international standing, and so on.  During a recession, building a wall (on the border, or even down the middle of Kentucky) would be a living example of John Maynard Keynes's fanciful and sarcastic suggestion that the government could bury tubes of money in the wilderness and allow unemployed people to go dig them up.

In that context, a wall would simply be a classic make-work project -- of the sort that Republicans have long decried.

Currently, however, unemployment is low and the Fed has been increasing interest rates in order to cool the economy.  Even so, it would be acceptable to borrow money to finance true public investments, but only if those investments actually paid dividends large enough to justify the borrowing costs.

To state the issue in that way, however, exposes just how absurd is the idea of a wall being an "investment" in border security.  Building something that has no positive effects is not an investment.  It is worse than that for McConnell (and Trump), however, because it is not enough simply to say that a dollar spent on a wall will have some minimal positive economic impact.  The rate of return has to exceed the borrowing costs.

Indeed, it is even worse than that, because even if building a wall were to have large-enough positive economic effects to exceed the costs, it would still only make sense to build a wall if those effects were greater than the economic benefits of other uses of those borrowed funds.  Even focusing solely on border security (and ignoring the unmet investment needs in, say, public education), there are much more cost-effective ways to spend money than building a wall.  That, in fact, is exactly what the Democrats have voted to fund: non-wall spending for surveillance, enforcement, and so on.

For Trump, then, this is even more of a vanity project than it has always obviously been.  No economically responsible analysis would conclude that federal funds (borrowed or otherwise) should ever be spent on the least effective method ever devised to "protect our borders."  McConnell is obviously not using the word "invest" in its technical sense, but that is the only sense in which it should be used.

Democrats should take McConnell up on his invitation.  Yes, they should say, let's talk about investment.  No private business would ever spend money so foolishly -- except maybe one run by Trump.  But it is our job to spend money wisely.  Throwing up steel slats in the desert is the opposite of that.

3 comments:

David Ricardo said...

Great post, containing things many of us have been saying for years about debt, investment and rates of return.

Republicans always say government should be run like a business, ignoring the reality that business borrows heavily to finance investments whose rate of return is greater than the cost of capital. But there is one more aspect of business that has been and continues to be ignored.

Business separates out its ordinary expenses from its capital budget. Government does not. So for government, an investment say, in an aircraft carrier with a life of 40 years is treated as though the entire cost is incurred in the first year even though the benefits are spread over 40 years. In business such a practice is rediculous, idiotic and stupid. Business allocates the cost of a project with benefits greater than one year over the life of the project. It is called depreciation. It is called Accounting 101.

If government did the same, it would have an operating budget which should be financed by taxes and a capital budget that should be financed by a combination of taxes and debt. The proportion of taxes to debt for capital projects would be determined by the amount of fiscal stimulus needed; the weaker the economy the more fiscal stimulus needed and the greater the percentage of capital projected financed by debt. If the economy is strong the opposite is true.

Such a structure would allow the nation to get a true picture of the federal deficit and allow the nation to correctly determine the appropriate fiscal policy for the current conditions. Really, it's that simple. Of course conservatives would hate such a system as it would probably show that government investment in things like education, alternative energy, health care and infrastructure pay for themselves over the long run. Can't have that, can we?

Joe said...

The value of productive debt was a thing for Alexander Hamilton while others like Jefferson (while being deep in debt) was more wary about use of public debt.

People like McConnell repeatedly don't argue in good faith so that has to be taken into consideration. On another blog, I repeatedly tried to used the arguments of someone me and Shag know against the person, but it was of limited value.

JS said...

I have this dream that someday I may chance upon Mitch McConnell when he is on fire. And though I will badly need to empty my bladder, I shall hold my water until a better target presents itself.