export-import bank

Free Market Capitalists Should Celebrate Ex-Im’s Demise, But the “Eternal Vigilance” Thing

At midnight tonight, the gears of crony capitalism will grind to a halt at 811 Vermont Avenue, NW, Washington, D.C. After 81 years of funneling taxpayer dollars to favored companies, projects, and geopolitical outcomes under the guise of advancing some vague conception of the “U.S. economic interest,” the Export-Import Bank of the United States will end its financing operations at midnight tonight. No more subsidies to Fortune 100 businesses. No more siphoning revenues from unwitting U.S. firms and industries. No more loan guarantees to wealthy, autocratic foreign governments. No more crowding out of private lending. No more taxpayer exposure to a Fannie Mae-like fiasco. No more bribery and corruption scandals. No more collaboration and lending to China’s Export-Import Bank – you know, the entity whose support for Chinese companies is alleged to threaten U.S. exporters and jobs, and is the most frequently cited imperative for reauthorizing Ex-Im. No more of any of this…for now.

Champions of small government and market capitalism should savor this rare victory. It was won with solid arguments, including over 20 years of analyses from Cato Institute scholars including Ian Vasquez, Aaron Lukas, Steve Slivinsky, Chris Edwards, Doug Bandow, Sallie James, and – perhaps most comprehensively and tirelessly – Veronique de Rugy. 

It was won because of columnist/scholar Tim Carney’s persistence in focusing the public’s attention on the corruption bred of corporate welfare and because of the analytical contributions of Heritage’s Diane Katz, the Competitive Enterprise Institute’s Ryan Young, and others who continued to make compelling arguments for shuttering the Bank, despite steep odds against that outcome.

Free Market Ideologues at the Ex-Im Gate

Media have framed the debate over Export-Import Bank reauthorization as yet another battle in the war being waged by free market extremists to wrest control of the Republican Party from what they see as the infidels of the business establishment. That simplistic narrative, perpetuated by an irrepressible disdain for anything that whiffs of Tea Party ideology, has brought editorial boards and journalists from the Left to stand shoulder-to-shoulder with the multinational corporations they normally demonize in an effort to beat back a common foe.

But the compelling case against Ex-Im is less an ideological than a moral one.  It is not merely that Ex-Im puts taxpayer resources at risk or that the Bank’s operation encourages too close a relationship between big business and government or that resources are being used inefficiently.  Anyone concerned about economic fairness should see the virtue in terminating a program that benefits some companies at great expense to many, many others.  But the window to that view has been shuttered by a media that finds it more important to portray the reformers as childish idealists throwing tantrums.

Ex-Im is a government-run export credit agency that arranges special financing to facilitate sales between U.S. companies and foreign customers.  Barring congressional reauthorization, its charter will expire on September 30. Supporters claim that since exports are good for growth and job creation and since the Bank “creates” exports, failure to reauthorize will hurt the economy.  But that conclusion rests on the illusion of single-entry accounting.  It fails to consider the substantial, but more difficult to observe costs.

There are opportunity costs, representing the growth that would have occurred had Ex-Im’s resources been deployed more efficiently in the private sector. There are intra-industry costs – those incurred by the unsubsidized competitors of firms receiving Ex-Im subsidies.  And there are “downstream” industry costs borne by producers whose domestic suppliers receive export subsidies.  These downstream firms are hurt because crucial inputs become more expensive, while their foreign competition gets subsidies from U.S. taxpayers.

Washington Post Half-Heartedly Seeks Clarity About Export-Import Bank Jobs Claims

It was good of the Washington Post Editorial Board to raise questions yesterday about the veracity of the “jobs-created-by-Export-Import-Bank-policies” claims proffered by the Bank’s supporters. I just wonder whether the editorial pulled its punches where a reporter on assignment or a more inquisitive journalist would have delivered an unabashed blow to the credibility of the Bank’s primary reauthorization argument: that its termination will lead to a reduction in U.S. exports and jobs.

Kudos to the Post for raising an eyebrow at the Bank’s claims of “jobs created” or “jobs supported” by Ex-Im financing:  

[W]hen it comes to jobs, well, just how rigorous are [Ex-Im’s] estimates, really? Congress ordered a study of that very question when it last reauthorized Ex-Im in 2012. In May 2013, the Government Accountability Office (GAO) produced its verdict: Meh.”

“GAO noted that Ex-Im must speak vaguely of “jobs supported,” rather than concretely of jobs created, since its methodology cannot really distinguish between new employment and retained employment. To get a number for “jobs supported,” which includes both a given firm and that firm’s suppliers, Ex-Im multiplies the dollar amount of exports it finances in each industry by a “jobs ratio” (calculated by the Bureau of Labor Statistics).

Using that approach, Ex-Im estimates an average of 6,390 jobs are “supported” by every billion dollars of exports financed. The Post is right to note the GAO’s conclusion:

These figures do not differentiate between full-time and part-time work and, crucially, provide no information about what might have happened to employment at the firms in question, or others, if the resources marshaled by Ex-Im had flowed elsewhere in the economy.

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.

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.

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.

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