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Will Trump Start a War Against Cash?

Written By Geoffrey Pike

Posted April 11, 2016

tpmexicoDonald Trump continues to make headline news for better or for worse. His presidential campaign has thus far been an interesting one, to put it mildly.

One of his key policy proposals – if you want to call it that – has been to build a wall between the U.S. and Mexico in order to control immigration. This is far from being a unique proposal. What was unique is his claim that he will get Mexico to pay for the wall.

He has been challenged on this subject, particularly on how he could possibly get the Mexicans to pay for a wall that is designed to benefit the U.S. And now, we have finally been given a glimpse of his plan to do this.

Trump is considering a plan that would threaten to reduce the number of transactions (called remittances) of money transfers from the U.S. to Mexico.

It is estimated that there is about $24 billion per year in remittances transferred from the U.S. to Mexico. Most of this money is likely from U.S. residents going to relatives back in Mexico. The U.S. residents may or may not be citizens. They may or may not be legal residents. It is obviously a mix.

What would happen if the Mexican government denied Trump his plan to pay for a wall? Is Trump really prepared to go through with such a plan? It is not going to deny any money to the Mexican government. It would just hurt the poor people in Mexico who depend on friends and relatives in the U.S. for some money.

From an economic standpoint, there is absolutely nothing wrong with Mexicans or Americans sending money to Mexico or any other foreign country. It is actually slightly deflationary, which means lower prices, at least in the short run, for Americans.

And not only would this hurt poor people in Mexico, what about the companies that enable these transactions? Will they be taxed or threatened with prison if they do not obey the new rules?

Of course, if this policy were enacted, it should really be a law. It should require passed legislation from Congress. Unfortunately, this has not stopped presidents in the past, as they just pass executive orders and ignore any supposed limits of the Constitution.

When the government tries to enact a program, it almost seems inevitable that it will lead to unintended consequences that lead to further government actions. Why would this government program be any different?

If transactions going to Mexico were banned, is the Mexican government going to retaliate? Will we end up in a trade war? Will we end up with massive tariffs? I don’t really want to pay more for Mexican avocados than I already do.

Also, as with any government measure, we can count on a black market developing. There would likely be cash being smuggled across the border, with or without a wall. Is this going to lead Trump to step up the war against cash? And what about PayPal? Would Trump ban online banking that could be used to transfer money?

The American Welfare State Dream

The whole issue of immigration is a tough one, and I believe that reasonable people can disagree. One reality is that it would be almost impossible to deport 10 million or more people from the United States. We would have to basically allow the government to turn this into a complete police state to accomplish this. Do you want to be forced to carry your passport or birth certificate with you everywhere you go?

As far as a wall goes, it may or may not keep Mexicans out. It would probably make it more difficult to cross, but there are already underground tunnels to get across the border. People are resourceful. Where there is a will, there is a way.

If Trump becomes president and really wants to build a wall, then he can just do it on the U.S. taxpayer’s dime. Even if it costs $10 billion initially, that is a drop in the bucket in terms of the total federal budget. I’m not saying that it isn’t important, but it isn’t important to the politicians in DC who have no problem spending nearly $4 trillion per year.

I think Trump said he would make Mexico pay for the wall just to show toughness. His bold personality is often what turns people on to him, as well as turns people off to him. In this particular case, I’m just not sure that he can back up his claim without resorting to absolutely foolish policies.

Mexicans come here for different reasons. Most are looking for opportunities, but those opportunities can be different. Some are looking for honest work to make an honest living. You could say they are looking for the American dream.

Some do migrate to the U.S. for welfare, although I suspect this is not the prime reason for most of them.

What likely happens is that they come here looking for honest work, which they basically find, but then they find out that the American dream isn’t just about working and raising a family. It also includes public schooling, free medical care, and other handouts from the government. The American dream has become more of an American welfare state dream.

The solution to this is rather easy. Just get rid of the government welfare. If individuals and private charities want to voluntarily help those in need, that is not a problem.

The problem is that Americans are too in love with the welfare state and all of the entitlements. If you didn’t have massive government welfare, then immigration would become a much smaller problem. There would be fewer immigrants, and the people who do migrate would not be living off the taxpayer dime.

This isn’t to say it would solve all problems. But it would solve a large portion of it. And it doesn’t require any coercion or threats. In fact, it removes coercion, as U.S. taxpayers would no longer be forced to subsidize immigrants.

Instead, Trump is talking about prohibiting Mexican-Americans from sending money back to their poor relatives in Mexico.

I have enjoyed the Trump campaign immensely because he does not feel obliged to bow down to the forces of political correctness. He also has stood up to the establishment and is really scaring them. For this, I am appreciative of Trump.

But on the issue of building a wall and making Mexico pay for it, I think he is off base. His plan probably won’t go through, and if it does, it will be a disaster with many unintended consequences.