Walls. They build em, we fix em.

Smugglers since 10,000 B.C.


David Bier wrote an excellent article over at the Cato Institute about the impracticality and potential costs in actually trying to construct the Great Wall of Trump.[1]

Many have commented on the 20% tax on goods imported from Mexico, so I think it’s pertinent to work from there and then bolster Bier’s points with some black market analysis, assuming that despite the practicality issues the wall is even somehow constructed.

Austrian econz whizzes out there please correct me if I’m wrong but this is how I’m understanding it. The firms being hit with the 20% cannot just turn around and raise prices in an attempt to pass that cost off onto American consumers.

Assuming that these firms are already selling at the profit maximizing price, raising the price would cause demand to fall off…fewer units would be purchased at the higher price, and so the net revenues would be less than if they didn’t raise the price. If raising the price 20% would increase net revenues they would have already done it before the tax. They’re better off not raising the price after the tax because doing so would make the situation even worse for them.

What they will actually do is lower their production outputs and purchase fewer factors of production. The firms they purchase factors from will see a fall off in demand, and so this will work backwards through the structure of production until ultimately it hits the original factors.

What happens then is production costs are up, fewer goods are being produced, and the resultant decrease in supply will then be what causes prices to increase on the U.S. side. But there’s no knowing how much prices will increase. On top of all this, any firms which were on the margin may go out of business further exacerbating the problem.

If I’m understanding this right, Mexican laborers may have to seek new employment, which could possibly make wages in the U.S. suddenly seem more attractive, thus causing more illegal immigration.

Alternatively, they may also shift into the production of illicit drugs thanks to the lucrative narcotics market with its artificially high profit margins. The U.S. imports a great deal of agricultural goods, so many of those laborers are already performing jobs similar to working in cannabis or opium fields. Some of the land which was being used for agricultural imports may even be switched to growing illicit drugs.

And to top it all off, I don’t think El Chapo’s boys over at Sinaloa, or any of the other cartels, are nervous about paying the 20% tax, so they have a nice little advantage there over above-market producers, although they actually do still pay “taxes” in the form of palm greasers, which may be more accurately called artificial insurance costs. But, because insurance firms and actuaries can’t penetrate into black markets to cover drug bust risk over and above informal risk management through bribery, traffickers compensate by filling in the gaps with threats of someone’s head getting chopped off if something goes wrong.

At any rate, it’s ironic that the means employed to pay for the wall may actually stimulate both of the things it’s supposed to stop, narcotics and illegal immigration.

But it gets worse. Let’s say a miracle happens and God comes down from Heaven and builds the Wall. The issue then is that it’s not a lack of physical barriers which allows people or illicit drugs through.

While Mexican imports to the U.S. are valued at almost $300 billion annually,[2] the value of illicit drugs coming in every year is over $100 billion.[3] Over 25% of overall imports is drugs to begin with, realistically how the hell does all that get in?

Well, according to a report from El Universal who interviewed 100 drug-enforcement officers from both sides of the border, prisoners and their families, and experts, between 2000 and 2012 DEA agents met with the Sinaloa Cartel more than 50 times on Mexican territory to negotiate the trading of Sinaloa’s black market intelligence on rival cartels in exchange for protection which helped to guarantee the flow of billions of dollars of drugs into the U.S.[4]

Journalist Gary Webb broke the story in the mid 1990s of how during the 80s the CIA was facilitating air shipments of cocaine from Nicaragua into cities in the U.S. as part of Iran-Contra.[5]

This is just two examples of high level involvement in black market narcotics, and who knows how many border guards and others on the U.S. side are on the dole. And this makes perfect economic sense. Instead of thinking in terms of physical barriers we should be thinking in terms of black market bribe prices. And the monetary temptation in the form of bribes, or high level manipulation of the market, would be enormous. At the end of the day physical barriers don’t matter, human ones do. And the wall does nothing to address bribery.

The same would be true for two other black markets: human smuggling networks, called Coyotaje,[6] and black market forgeries in the form of fake green cards and other IDs.

As the Cato article makes clear, localizing enforcement in what’s considered to be a problem area for crossings simply causes the human smuggling networks to reroute. Even with a full blown wall it is entirely impractical to man 2,000 miles 24/7, and smugglers will simply target weak points in order to mitigate risk.[1] Bribery is still an option too if they can’t avoid it. Overall, according to Havocscope illegal immigrants were paying coyotes anywhere between $3,000 – $5,000 to be smuggled from Mexico to L.A.[7]

As for fake green cards, one report from Juarez stated everything from lookalike rentals to residency forgeries cost anywhere from a few hundred to one thousand dollars.[8] Apparently with printers these days, making convincing enough fakes is not too difficult. And there’s always the bribery option here as well.

As of 2004, 12,338 trucks crossed the border every day along with 660,000 crossings in personal vehicles, on foot, or on a bus.[9] The Juarez green card article was written in June of 2007, and stated that U.S. officials had confiscated 15,000 bogus documents that year, which translates into 75 per day. Using the 660,000 figure, that’s ~1.1 fakes caught per 10,000 crossings. How many fakes weren’t caught, especially with hundreds of thousands of crossings per day preventing thorough checks of everyone?

Now it’s easy to see how $100 billion in drugs and what was, in 2014, 5.8 million “illegal” Mexican immigrants being counted as already in the U.S.,[10] all got into the U.S. despite the border “security” that’s there.

It has *nothing* to do with whether there’s some wall and everything to do with the human aspect. From an economic perspective, government borders are more like arbitrary impediments to the flow of goods and people. When you expropriate taxes to pay people to basically just get in the way of the market you actually create the very incentive which thwarts your entire strategy from the get go.

Black markets will always emerge in order to break the law in an attempt to insure human smuggling and illicit goods shipments through bribery. While enforcement efforts will have a marginal effect on both, there’s really nothing that can be done to significantly impact prohibited flows. Physical walls are useless especially when there is already substantial economic activity across the semi-permeable membrane. And this doesn’t even factor in airborne, seafaring, and tunnel-based smuggling.

In short, the Great Wall of Trump will do nothing but harm both Mexican and American living standards, and it will likely stimulate the very problems it is trying to address. If, as the Cato article indicates, construction and funding would turn into a protracted affair lasting years and years, and any import tariffs would indeed shift some labor and investment into illicit drug production, and cause other workers to seek alternatives in U.S. gray labor markets, then the wall will for years exacerbate the very problems it’s attempting to solve while never promising to provide any return on investment in the form of tangible reductions in illicit drugs or illegal immigration.

Wall supporters of all stripes are actually better off arguing against the project because otherwise they seriously risk impeding their own stated goals. Personally, I have no issues with illegal immigration or illicit drug flows, except for wanting to end drug prohibition, welfare, and minimum wage, but rather than get into a long discussion of the issues brought up by wall supporters, or questions of strategy in terms of changing this or that law, I think wall supporters should consider changing game plans to something else which addresses root causes rather than symptoms. Unless of course all along the wall was  supposed to be purely symbolic. Even then it would most likely become a monument to its own embarrassing failure.