Tag: crony capitalism

Most U.S. Manufacturers Victimized by Ex-Im’s Hidden Costs

In an earlier post today, I described a reasonable methodology for estimating the hidden costs imposed on companies whose suppliers receive export subsidies from the Export-Import Bank. Ex-Im officials like to talk about how they “grow the economy” and create jobs by enticing foreign customers with low-rate financing to buy U.S. exports. As I described in that earlier post, when the cost to business of exporting is mitigated by subsidies, companies will likely export more. That may be good for them, but it’s not so good for their U.S. customers, whose foreign competition is now enjoying lower costs (courtesy of U.S. taxpayers). Delta Airlines’ complaint about subsidized Boeing sales to Air India having an adverse impact on Delta, who competes for passengers with Air India, is a fairly clear example of the problem.

As an approximation of the cost imposed on Downstream Industy A, (let’s call it the Delta Effect), I used the subsidies received by every industry whose output is used in Downstream Industy A’s production process, adjusted those subsidies by the importance of the input relative to the total of all intermediate goods inputs, and summed up the values.  I did this for every 6-digit NAICS manfuacturing code and presented tables of results in descending order from biggest victim to biggest beneficiary.  There were 236 industries – perhaps too much information, particularly for a blog post.

So for greater clarity, this table compiles the data at the broader, 3-digit NAIC industry level.  

As you can see, most aggregated 3-digit industries are victims of Ex-Im subsidies.  And most of the 6-digit industries within each broader 3-digit industry are victims, too. U.S. manufacturers of electrical equipment, appliances, furniture, food products, non-metallic metals, chemicals, computers, plastics, rubber, paper, primary metals, and many other goods should give Delta a call and get really busy during Congress’s August recess.

The Export-Import Bank and Its Victims: Which Industries Bear the Brunt

The Export-Import Bank of the United States is a government-run export credit agency, which provides access to favorable financing for the foreign customers of some U.S. companies.  For several months, Washington has been embroiled in a debate over whether to reauthorize the Bank’s charter, which will otherwise expire on September 30.  While Republican House leadership remains publicly committed to shutting down the Bank, a bipartisan group of eight senators introduced reauthorization legislation last night, setting the stage for a post-August recess showdown.

Reauthorization buffs contend that Ex-Im fills a void left by private sector lenders unwilling to provide financing for certain transactions and, by doing so, contributes importantly to U.S. export and job growth.  Rather than burdening taxpayers, the Bank generates profits for the U.S. Treasury, helps small businesses succeed abroad, encourages exports of green goods, contributes to development in sub-Saharan Africa, and helps “level the playing field” for U.S. companies competing in export markets with foreign companies benefitting from their own governments’ generous export financing programs.  Accordingly, failure to reauthorize the Bank’s charter would be akin to unilateral disarmament.

But those justifications – two rationalizations, really, and a few token appeals to liberal sensibilities intended to create the illusion of a bipartisan imperative for reauthorization – are unpersuasive or non-responsive to Ex-Im’s critics.  By effectively superseding the risk-based decision-making processes of legions of private-sector, profit-maximizing financial firms with the choices of a handful of bureaucrats using non-market benchmarks and pursuing often opaque, political objectives, Ex-Im risks taxpayer dollars.  That Ex-Im is currently self-sustaining and generating revenues is entirely beside the point and is no more reassuring than a drunk driver rationalizing that he made it home safely last night so there’s no danger in drunk driving tonight.

Frank Underwood Wants a Subsidy

House of Cards is a Netflix television series about a powerful, manipulative politician who gets what he wants with little regard for the public good. Here’s an example:

“House of Cards” star Kevin Spacey is booked to appear in Annapolis on Friday night as the fate of a tax credit that has benefited the production of his Netflix series hangs in the balance.

Gerard E. Evans, an Annapolis-based lobbyist for the show, has invited the entire Maryland General Assembly to a local wine bar to meet the two-time Academy Award winner who plays the scheming Vice President Frank Underwood in the series. An invitation describes the event as “an evening of Annapolis, D.C. and Hollywood.”…

The visit is scheduled just a few days after the Senate voted to increase the amount the state can spend next year, to $18.5 million, on a tax credit that rewards movie and television production companies that choose to film in Maryland. “House of Cards” has been the biggest beneficiary in recent years.

The House of Delegates has yet to act on the bill, with about two and a half weeks remaining in this year’s 90-day legislative session in Maryland. Evans said he has been encouraged by recent meetings with House Speaker Michael E. Busch (D-Anne Arundel) and other key delegates.

A few weeks before the second season of “House of Cards” debuted online, the show’s production company sent letters to Busch and Gov. Martin O’Malley (D) making clear they could film elsewhere if the debate over the tax credit didn’t end well.

It’s hard to imagine a better example of rent-seeking, crony capitalism, and conspiracy between the rich, the famous, and the powerful against the unorganized taxpayers. A perfect House of Cards story.

The Tax Foundation has been covering film tax credits in general and the House of Cards saga in particular. The Mackinac Center has been campaigning against Michigan’s film tax credits, and Gov. Rick Snyder has tried to rein in the program. But it’s hard to beat Frank Underwood.

 

Will Republicans Make a Principled Stand Against Ex-Im Reauthorization in 2014?

Jobs are good. Exports create jobs. We create exports. Renew our charter.

Such is the essence of the marketing pitch of the U.S. Export-Import Bank, whose officials have begun ramping up their lobbying efforts ahead of a 2014 vote concerning reauthorization of the Bank’s charter, which expires in September.  Last go around, in 2012, Ex-Im ran into some unexpected turbulence when free-market think tanks, government watchdog groups, and limited government Republicans in Congress raised some compelling – but ultimately ignored – objections to reauthorization.

The ostensible purpose of the Ex-Im Bank is to assist in financing the export of U.S. goods and services to international markets. Even if that were a legitimate role of government, the public must keep a watchful eye on how much and to whom loans are made – especially given the current administration’s tendency to bet big on particular industries and specific firms, and in light of its commitment to seeing U.S. exports reach $3.14 trillion in 2014.

From the U.S. Export-Import Bank’s 2013 Annual Report:

The Ex-Im Bank’s mission is to support American jobs by facilitating the export of U.S. goods and services. The Bank provides competitive export financing and ensures a level playing field for U.S. exporters competing for sales in the global marketplace. Ex-Im Bank does not compete with private-sector lenders but provides export financing that fill gaps in trade financing. The Bank assumes credit and country risks that the private sector is unable or unwilling to accept. It also helps to level the playing field for U.S. exporters by matching the financing that other governments provide to their exporters. The Bank’s charter requires that the transactions it authorizes demonstrate reasonable assurance of repayment.

The defensive tone of this mission statement anticipates Ex-Im critics’ objections, but it certainly doesn’t answer them. The objectives of filling gaps in trade financing passed over by the private sector and expecting a reasonable assurance of repayment are mutually exclusive – unless the threshold for “reasonable assurance” is more risk-permissive than the private-sector’s most risk-permissive financing entities.  Therefore, Ex-Im is either putting taxpayer resources at risk or it is competing directly with private-sector lenders for customers in need of finance. And if the latter, then as it seeks to create the proverbial “level playing field” for the U.S. companies whose customers it finances, Ex-Im is un-leveling the playing field for the finance industry, as well as for the U.S. firms in industries that compete globally with these U.S-taxpayer financed foreign companies.

Big Business Gets Yet Another Obamacare Delay That Individuals Don’t

“I didn’t simply choose to delay this on my own,” President Obama reassured the nation about his unilateral decision to delay Obamacare’s employer mandate. “This was in consultation with businesses all across the country,” he said, as if that made the situation better instead of worse. Obama threw his “consultants” another bone when he decided to delay the reporting requirements the law imposes on employers, also until 2015. The president’s generosity toward large corporations will be financed by the American taxpayer. The Congressional Budget Office projects these delays will cost taxpayers another $3 billion in new government spending and reduce federal revenues by $9 billion, for a total increase in the federal debt of $12 billion. Yet the president fails to show the same concern for individual taxpayers. When the House of Representatives, including dozens of Democrats, voted to extend the same break to individuals by delaying Obamacare’s individual mandate by one year, President Obama threatened to veto that bill. Bizarrely, he also threatened to veto another bill (approved by an even broader bipartisan majority) that would make legal his illegal delay of the employer mandate.

So perhaps we should not be too surprised now that the New York Times reveals yet another delay the president approved at the behest of big business:

In another setback for President Obama’s health care initiative, the administration has delayed until 2015 a significant consumer protection in the law that limits how much people may have to spend on their own health care.

The limit on out-of-pocket costs, including deductibles and co-payments, was not supposed to exceed $6,350 for an individual and $12,700 for a family. But under a little-noticed ruling, federal officials have granted a one-year grace period to some insurers, allowing them to set higher limits, or no limit at all on some costs, in 2014…

[F]ederal officials said that many insurers and employers needed more time to comply because they used separate companies to help administer major medical coverage and drug benefits, with separate limits on out-of-pocket costs…

A senior administration official, speaking on condition of anonymity to discuss internal deliberations, said: “We knew this was an important issue. We had to balance the interests of consumers with the concerns of health plan sponsors and carriers, which told us that their computer systems were not set up to aggregate all of a person’s out-of-pocket costs. They asked for more time to comply.”…

Theodore M. Thompson, a vice president of the National Multiple Sclerosis Society, said: “The promise of out-of-pocket limits was one of the main reasons we supported health care reform. So we are disappointed that some plans will be allowed to have multiple out-of-pocket limits in 2014.”

It is a sign of Obamacare’s complexity that the Obama administration felt it needed to issue this delay. It is a further sign of the law’s complexity that this delay was announced in February, yet is only coming to light now.

Milton Friedman on Business’s ‘Suicidal Impulse’

In a Wall Street Journal column titled “Silicon Valley’s ‘Suicide Impulse’” (Google the title if you can’t access it), Gordon Crovitz cites Milton Friedman’s speech to a Cato Institute conference in Silicon Valley in 1999:

In 1999, economist Milton Friedman issued a warning to technology executives at a Cato Institute conference: “Is it really in the self-interest of Silicon Valley to set the government on Microsoft? Your industry, the computer industry, moves so much more rapidly than the legal process that by the time this suit is over, who knows what the shape of the industry will be? Never mind the fact that the human energy and the money that will be spent in hiring my fellow economists, as well as in other ways, would be much more productively employed in improving your products. It’s a waste!”

He predicted: “You will rue the day when you called in the government. From now on, the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation. Antitrust very quickly becomes regulation. Here again is a case that seems to me to illustrate the suicide impulse of the business community.”

You can find the full text of Friedman’s talk here.

For more on business’s suicidal impulses, see “Why Silicon Valley Should Not Normalize Relations With Washington, D.C.” by entrepreneur T. J. Rodgers; “The Sad State of Cyber-Politics” by Adam Thierer; and my own “Apple: Too Big Not to Nail.”

French President Demands and Gets Firing of Opposition Editor

According to the New York Times, French Socialist president François Hollande demanded and received the dismissal of the editor of Le Figaro, the country’s leading conservative newspaper. If that sounds impossibly high-handed, consider the background, as reported in the Times:

The publisher, Serge Dassault, is a senator from [ousted President Nicolas] Sarkozy’s political party [and thus opposed to Hollande]. But Mr. Dassault also heads a major military contractor, and there was widespread speculation that [Figaro editor Étienne] Mougeotte’s ouster was meant to put the Dassault group in good stead with the new president.

For an American reader, it would be natural to turn the page with a murmur of thanks that such things don’t go on in our country. Don’t be so sure:

[Since-convicted Illinois Gov. Rod] Blagojevich, Harris and others are also alleged [in the federal indictment] to have withheld state assistance to the Tribune Company in connection with the sale of Wrigley Field. The statement says this was done to induce the firing of Chicago Tribune editorial board members who were critical of Blagojevich.

And in 1987, at the secret behest of the late Sen. Edward Kennedy (D-MA), Sen. Ernest Hollings (D-SC) inserted a legislative rider aimed at preventing Rupert Murdoch from simultaneously owning broadcast and newspaper properties in Boston and New York. The idea was to force him to sell the Boston Herald, the most persistent editorial voice criticizing Kennedy in his home state. Kennedy’s and Hollings’s actions drew criticism in places like the Harvard Crimson and from syndicated columnist R. Emmett Tyrrell, but no national furor developed.

One moral is that we cannot expect our First Amendment to do the whole job of protecting freedom of the press. Yes, it repels some kinds of incursions against press liberty, but it does not by its nature ward off the danger of entanglement between publishers and closely regulated industries, stadium operators, and others dependent on state sufferance. That’s one reason there’s such a difference in practice between a relatively free economy, where most lines of business do not require cultivating the good will of the state, and an economy deeply penetrated by government direction, in which nearly everyone is subject to (often implicit) pressure from the authorities. France has been unable to avoid the perils of the latter sort of economy. Can we?