There’s never been a more opportune time to kill the Export-Import Bank. Recent years have seen populist movements emerge on both the left and right ready to challenge Washington’s time honored tradition of providing handouts for the politically connected. The Tea Party and the Occupy Movement disagree on how best to address the problem, among many other things, but both represent growing public disgust with political cronyism.
The Export-Import Bank is a holdout from the New Deal era, appealing to long debunked theories about economic growth to justify its corporate handouts. But on June 30 its charter will expire unless Congress acts to renew it. Letting it expire would be an easy win for Republicans, as it’s an opportunity to show they are serious about reining in government, and they don’t even have to do anything to make it happen.
The Export-Import Bank offers taxpayer backed loans, guarantees, and insurance to select U.S.-based exporters, creating exactly the sort of opportunities for private gain at the expense of public pain that led to the financial crisis. They claim to help the little guy compete, but in reality heavily favor politically connected big business. It’s not called “Boeing’s Bank” for nothing.
As economist Veronique de Rugy explains, “Ex-Im’s activities benefit large, politically connected companies. Indeed, over 65 percent of Ex-IM Bank’s loan guarantee program benefits aerospace giant Boeing, which currently has a market cap of $106 billion.” She further explains that there are “many unseen victims of the bank…Sadly, the privileges Ex-Im extends to the few come at the expense of countless American firms and their workers. Unsubsidized firms may see reduced revenues—and their employees may see their hours cut, their salaries stagnate, or their jobs simply vanish because their employers cannot compete on the uneven playing field created by the federal government.”
Not having the government picking winners and losers is supposed to be a core belief of the Republican party, and here’s a chance to do something about it. But if there’s one thing Republicans are good at, it’s snatching defeat from the jaws of victory. It’s thus no surprise that 58 Republicans have endorsed legislation to re-authorize Ex-Im with modest “reforms.”
They have fallen prey to the common but mistaken belief that mutual protectionism is preferable to unilateral free trade. Milton Friedman explained the folly in such thinking decades ago: “[An argument] that was made by Alexander Hamilton and continues to be repeated down to the present, is that free trade would be fine if all other countries practiced free trade but that, so long as they do not, the United States cannot afford to. This argument has no validity whatsoever, either in principle or in practice. Other countries that impose restrictions on international trade do hurt us. But they also hurt themselves…if we impose restrictions in turn, we simply add to the harm to ourselves and also harm them as well. Competition in masochism and sadism is hardly a prescription for sensible international economic policy!”
Arguments amounting to “other nations do it too” are simply not convincing, yet that’s essentially John Bolton’s recent case for not wanting to end Ex-Im without convincing other nations to first do likewise, even as he acknowledges that “critics have their economics entirely correct.”
“Whatever the bank’s flaws, and they are many,” he says, “U.S. businesses do not operate in a free-market world.” True, but irrelevant. He continues, “Outside our borders, mercantilism is rife, among both friends and adversaries. Undeterred by arguments that they are playing domestic favorites, redistributing wealth inequitably, or distorting job creation and capital investment, foreign governments use agencies like the Ex-Im Bank to make their own exports more attractive to international customers.”
The proper response to that argument is: so what? That other nations shoot themselves in the foot is no reason for us to do as well. And that is indeed what they are doing, because export subsidies don’t work. Sure, they benefit the particular companies that receive them, but not the economy as a whole. That’s the entire point of opposing Ex-Im at home! And Mr. Bolton has already conceded that point when he agreed with the economic arguments of Ex-Im critics.
Knowing that other nations are engaging in a policy that won’t increase their growth, why does Mr. Bolton feel a need for the U.S. to concern ourselves with whether they do it or not? Should we not just thank them for kindly taxing their own citizens in order to subsidize our consumption?
I don’t mean to pick on Mr. Bolton, as he’s more friend than foe on the issue. The general idea of using the end of a practice we want to get rid of anyway to leverage other nations into abandoning their own protectionism is not without merit. But the political capital required to succeed in such a task is high, and the strategy assumes we will maintain the political will to end Ex-Im at any time in the future. That’s just not the case. If it doesn’t happen now, it might be another 80 years before the stars align and it can again be dismantled.
I bring his arguments up instead to illustrate how pervasive are common misconceptions about exports and global trade. The source of his confusion is the belief that exports are an intrinsic good, which explains his concern that other nations might subsidize their export industries at the expense of our own.
Exports are not a benefit. Quite the opposite is true. Imports are a benefit, while exports are the cost we pay in order to receive that benefit.
Wealth is the value that we receive from the use of goods and services. It is not to be confused with the paper money – that we receive for exports – that only has value insofar as it represents future use of goods and services. Imports are beneficial because they provide cheaper access to certain goods and services than we would otherwise have access to domestically. In exchange for that benefit we must sell our goods and services where they provide a cheaper option to others. In turn we are all made better off. That’s how trade works.
This is not to say that we should go into debt to purchase imports. That’s confusing multiple issues, and introduces problems of its own. The point is simply that the less we have to produce and export in order to purchase a given quantity of imports, the better off we are. It thus makes no sense to tax the public in order to subsidize exports, which means we’re paying to make other nation’s consumers wealthy!
If you’re not yet convinced, consider two hypothetical scenarios. In one America imports an infinite supply of free goods from other nations, and in another we export an infinite supply of free goods to those other nations (they can’t be re-imported, no cheating!). Under which is America better off? Clearly it’s the former, where we have Utopian access to all the goods and services we desire.
I only bring this up because Ex-Im beneficiaries use confusion over the purpose of exports to lead astray those who should otherwise know better. And given the previously mentioned tendency of Republicans to get in their own way, that’s a serious concern.
Meanwhile, at the prospect of seeing their gravy train come to an end, Ex-Im beneficiaries have flocked to Washington to slink through Congressional office buildings and spin tales about how they aren’t just selfishly asking for handouts in their own interests, oh no, but in the public’s too, and – no doubt with a wink and a nod – in each Member’s as well. And given what we’ve learned about the Clinton Foundation, it’s little surprise given Hillary‘s unconditional support for Ex-Im to learn that it heavily subsidizes the companies that fund Clinton, Inc.
The frenzy of concentrated interests spooked at the prospect of actually losing their special benefit explains why Milton Friedman once said that “Nothing is so permanent as a temporary government program.” Ex-Im has survived since the days of FDR. Republicans have a once-in-a-lifetime chance to finally get rid of it. And all that they have to do is nothing.
Even Republicans can’t screw that up, right?
Brian Garst is an advocate for economic and individual liberty. He works as Director of Policy and Communications at the Center for Freedom & Prosperity, a free market think-tank dedicated to preserving tax competition. His writings have been published in major domestic and international papers, and he is a regular contributor for Cayman Financial Review. He also blogs at BrianGarst.com and you can find him on Twitter @BrianGarst.
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