Tag: export-import bank

PPI Considers Ex-Im Debate ‘Senseless’

What is the proper role of government in a free society? That is not an unreasonable question to debate in the public square – and to revisit with great frequency. Our era of $4 trillion federal budgets, debt-to-GDP ratios above 100 percent, and policymakers betting big on particular industries – even particular firms (check the WH visitor’s log) – renders that question all the more urgent.

Apparently, the Progressive Policy Institute disagrees. Last week, PPI’s managing director for policy and strategy condescendingly characterized the “protracted battle over the reauthorization of the Export-Import Bank” as “senseless,” as though the serious questions raised about Ex-Im’s operations, raison d’etre, costs, and externalities were simply unworthy.  

But on what grounds is it senseless to ask Ex-Im apologists to explain why that boondoggle is not corporate welfare that puts taxpayers and “unchosen” businesses at risk? Why is it senseless to force a debate on the merits of earmarking $140 billion for the benefit of a select few companies, when in the “mother of all budget battles” that transpired last year, only $38 billion was cut? Why is it not appropriate to raise questions about the sustainability of a subsidy race that effectively outsources U.S. policy to Beijing or Brussels?

Debate is illuminating.  It can be reinforcing and it can raise fresh doubts.  And it is essential to the eternal vigilance we must exercise to protect our liberties.  Unfortunately, at least one scholar at PPI is so convinced that the questions raised in the debate over Ex-Im are so irrelevant that she recommends a much longer reauthorization period (5, 10, or 15 years) to avoid debate in the future.  

Progressives tend to have an abiding faith in the goodness of government, but this proposal would make a dictator blush. 

Ex-Im Reauthorization Vote Expected Tomorrow

House legislators have reached a “compromise” deal to reauthorize the Export-Import Bank of the United States until 2014 and at an increased funding level ($120 billion, with a possible increase to $140 billion). The compromise builds on a bill crafted by Rep. Eric Cantor (R-VA) I blogged about in March, but seems to largely be a win for the pro-bank folks judging by the increased funding levels, with the “compromise” part being not much more than pathetic sops to those concerned about the bank’s mission, if not its very existence.

Inside U.S. Trade [$] has more details:

House Republican and Democratic leaders late last week announced that they had a reached a compromise deal to reauthorize the Export-Import Bank through fiscal year 2014 and immediately raise its lending cap to $120 billion, with the possibility of further increases to $140 billion during that period if default rates are kept low and other conditions are met. The House expects to consider the bill on Wednesday (May 9) under suspension of rules, a House GOP aide said.

The bill contains a longer reauthorization, and a higher lending cap, than what was included in an initial draft bill floated by Rep. Eric Cantor (R-VA) in March. That draft bill would have renewed the bank’s charter only through June 2013, and would have raised the lending cap to $113 billion, up from the current level of $100 billion.

At the same time, the compromise bill reflects some of the demands of Cantor and other Republicans who are wary of reauthorizing the activities of a bank they say puts taxpayer money at risk and distorts the free market.

For instance, it conditions further increases in the lending cap, to $140 billion for fiscal year 2014, on the bank maintaining a default rate on outstanding loans that is below two percent and submitting other required reports. It also includes language from Cantor’s draft instructing the president to enter into negotiations with other countries to substantially reduce official export financing in general and for aircraft in particular, with the goal of ultimately eliminating such financing altogether.

Under suspension of rules, which is a procedure typically reserved for non-controversial legislation, debate is limited to 40 minutes and the bill must garner a two-thirds majority to pass.

The article goes on to describe all of the ostensible brakes that the Republican leadership have insisted placing on Ex-Im, but they really amount to the usual Washington ways of pretending they are implementing real reform: calls for the bank to issue business plans, address GAO concerns, be more transparent, etc. Nothing, unfortunately, about changing the accounting rules under which the bank operates let alone setting a path to winding down the bank altogether.

In short, the “compromise” is just fiddling while Washington is awash in red ink, and the federal government encroaches more and more into what should be private markets.

More on the Ex-Im Bank

Last week I blogged about Sen. Dianne Feinstein’s (D-CA) proposal to devote $20 billion of the Export-Import Bank’s funds to promoting manufacturing exports, and why that was a bad idea.

But I realize that my recent call to “X Out the Ex-Im Bank” will be facing some very entrenched interests in Washington, and some well-funded lobby groups. The Bank has historically attracted bipartisan support, and a renewal of its charter sailed through the House Committee on Financial Services earlier this year. The Washington establishment loves this program.

My friend and long-time Ex-Im Bank supporter Gary Hufbauer of the Peterson Institute for International Economics published a critique a few weeks ago of my analysis, and calls for a doubling of Ex-Im’s authorization cap (from $100 billion to $200 billion). His piece is a fair characterization of my arguments, and at least Gary tries to counter them with actual facts and analysis (not always a given in an increasingly poisonous trade policy environment).  But it seems to me that Gary focuses his critique on my assessment of the effectiveness of the Bank. That’s fair enough, of course, but I tried in my paper to make the point that the efficiency or efficacy of the Ex-Im Bank’s activities is kind of irrelevant. The important point, which Gary did not address, is that it is simply not the proper role of the federal government to be in this business at all, even if they can operate “efficiently” (which I do not concede in any case). Where in the Constitution is the federal government authorized to be involved in the export credit business (a business, by the way, that benefits mainly large, profitable companies)?

My opposition to the Bank, in other words, is at a more fundamental level.  On an empirical level—and this is where Gary’s critique is focused—can markets work well enough in trade finance, and if not, can government intervention work better? Gary points to the Bank’s low default rate as evidence that private markets are missing good opportunities:

These figures suggest that the Ex-Im Bank plays a large role in facilitating exports to countries that encounter reluctance from private banks but nonetheless are not ‘bad risks.” Judging by its low default rate, the Ex-Im Bank’s risk assessment seems more correct than the private market.

But I would argue that its low default rate suggests the Ex-Im Bank’s backing is unnecessary. We don’t know that private credit wasn’t available to finance those exports. And even if it wasn’t, private credit not always being available on terms that the trading partners would like does not necessarily signify market failure. So a finance company missed an opportunity that may have paid out. So what? Maybe they had even better opportunities available to them that we (and bureaucratic Washington) don’t know about, or they simply wanted to hold on to their capital for future investment or to meet new reserve standards. The would-be exporter might miss out, but government intervention to direct that private capital (either through mandates, or siphoning it through the Ex-Im Bank) would come at another producer’s or bank shareholders’ expense.

Gary argues that:

Ex-Im’s capability should be strengthened so that the United States can respond when official finance offered by other countries violates the principles of fair competition…Successful multilateral negotiations…are certainly a superior option to tit-for-tat retaliation…[but]…without sufficient leverage…it is difficult to see what will bring China and India to the negotiating table.

But will China and India (and others) see higher Ex-Im funding as “leverage” to bring them to the table, or will it be seen as just the next step in the escalating arms race of subsidized export credit? I suspect, and fear, the latter.

Gary rejects my call to dismantle the Ex-Im Bank, and in fact suggests the government increase the scope of Ex-Im financing to cover 5 percent (rather than the current 2 percent) of total U.S.exports. That seems pretty arbitrary to me. Why stop at 5 percent? Heck, with the Ex-Im Bank being “self-financing” and all, why not go for 100 percent?

Lastly, Gary repudiates my “orthodox free-market reasoning” and the suggestion, attributed to me, that “… the dollar exchange rate alone determines the volume of U.S. exports or the size of the U.S. trade deficit.”  Exchange rates do not equilibrate to keep trade balances at zero, but to keep them in line with the savings and investment balance. The United States has been running persistent deficits because savings has fallen short of investment for many years.

Similarly, Gary takes issue with my analysis on the net effect of Ex-Im financing on jobs:

 …nor do we agree that free markets are sufficiently self- regulating to ensure a constant and low rate of unemployment…If [that proposition] described the American economy, the United States [unemployment would not be stuck at 9 percent-plus.

Here Gary seems to ignore the many interventions in labor markets that can keep unemployment high, no matter what the exchange rate. I’m certainly not under any illusions that the U.S. economy would be totally free market were it not for the existence of the Ex-Im Bank, and I don’t think my paper implied that, either.

Gary and I, not to mention others who study the Ex-Im Bank, will no doubt continue to debate these issues as the Ex-Im Bank’s charter expiry date comes closer.

Polls Show Voters Don’t Support Corporate Welfare

Two polls of likely voters released by Rasmussen Reports today indicate that the federal government’s corporate welfare programs should be prime targets for spending cuts.

The first poll found little support for the Small Business Administration’s lending programs:

  • A majority (58 percent) of likely voters said that the federal government shouldn’t guarantee loans issued by private lenders to small businesses. 23 percent said the government should back small business loans and 19 percent were unsure.
  • A majority (59 percent) of likely voters said that reducing government regulations and taxes would be more helpful to small businesses than the government providing loans to small businesses that can’t obtain financing on their own. 22 percent said the government loans were better and 18 percent were unsure.
  • Entrepreneurs particularly believed that reducing government regulations and taxes is preferable to government lending programs. 76 percent of entrepreneurs felt that way and 61 percent opposed government loans to small businesses that couldn’t obtain financing.

(See this new Cato essay on why the Small Business Administration should be terminated.)

Similarly, the second poll found little support for various federal corporate welfare programs:

  • Only 15 percent of likely voters said the federal government should continue to provide funding for foreign countries to buy military weapons from U.S. companies. 70 percent were opposed and the rest were undecided.
  • Only 29 percent of likely voters said the government should continue to provide loans and loan guarantees to help finance export sales for large corporations. 46 percent were opposed and the rest were undecided. (See Sallie James’ new Cato paper on why the Export-Import Bank should be terminated.)
  • Only 37 percent of likely voters said the federal government should continue providing farm subsidies. A plurality (46 percent) said farm subsidies should be abolished and 17 percent weren’t sure. (See this Cato essay for more on farm subsidies.)

Should There Be ‘Shared Sacrifice’?

At the Encyclopedia Britannica blog, I take on the argument made, for instance, by President Obama in his Friday news conference:

We should not be asking sacrifices from middle-class folks who are working hard every day, from the most vulnerable in our society – we should not be asking them to make sacrifices if we’re not asking the most fortunate in our society to make some sacrifices as well.

I call that a fundamentally flawed argument:

The main thing our government does these days, despite the lack of any constitutional authority for it, is tax some people and transfer money to other people. …But there is no moral equivalence in the two sides of the transfer system. On the one hand, the government takes money by force from people who have earned it. On the other hand, it gives some of that money to people who have not earned it. Taking yet more money that people have earned is simply not equivalent to reducing the size of a government transfer.

There is, however, one way that we could ask businesses and the rich to join in the deficit-reduction effort:

But here’s a way to satisfy both those who see spending as the problem and those who want the highest-taxed Americans to pay yet more: Start cutting subsidies to businesses and the rich. Let’s cut out the big-business subsidy machine, the Export-Import Bank. Let’s get rid of farm subsidies. Let’s tell affluent people who build houses in coastal flood areas to pay for their own flood insurance at market prices.

Read the whole thing.

Federal Government Subsidizes and Penalizes Boeing Co.

When an entity is as mammoth and undisciplined as the $3.8 trillion U.S. federal government, it’s inevitable that its programs will be working at cross purposes. Just ask the civil aircraft manufacturer Boeing Company.

Politicians love Boeing because it not only makes valuable products but it also exports billions of dollars worth around the globe. To give a boost to those exports and supposedly create more jobs in the United States, the federal government’s Export-Import Bank offers preferential loans to foreign governments and airlines to help them buy more Boeing aircraft.

As my Cato colleague Sallie James documents in a new study, “Time to X Out the Ex-Im Bank,”

the number-one user of the Ex-Im Bank is the Boeing Company. Of the 35 aircraft sales supported by Ex-Im in FY2010, 28 were Boeing products, and the Congressional Research Service estimates that more than 60 percent of the value of Ex-Im Bank loan guarantees supported Boeing aircraft sales in that year.

No wonder critics refer to the Ex-Im as “Boeing’s Bank.”

Yet the same federal government is making it more difficult for Boeing to manufacture its airliners cost-effectively in the United States. Under the sway of organized labor, the National Labor Relations Board is seeking to prevent Boeing from expanding its production in South Carolina, a right-to-work state where the company’s employees are non-unionized.

In a column at Bloomberg.com today, Harvard economist Edward L. Glaeser rightly worries that the NLRB action is undermining one of the most important advantages enjoyed by American-based companies—the freedom of labor, capital, and goods to move freely within the United States. As Glaeser notes:

The profound role that mobility has played in our country, enabling repeated reinvention, causes me to be deeply worried about the possibility that a National Labor Relations Board complaint will prevent Boeing Co. from moving plane production from [unionized] Washington state to South Carolina.

In the spirit of compromise, Congress should eliminate the Ex-Im Bank, while telling the NLRB to back off and let U.S. companies deploy their productive resources in whatever locations within the United States that make the most competitive sense.

The Week in Government Failure

Over at Downsizing Government, we focused on failures in the following departments and agencies this week:

Also, in addition to losing more money, Fannie Mae and Freddie Mac lose their inspector general.