It is great fun watching the establishment get so upset over the possibility that Boeings' the Export-Import Bank may not be reauthorized to issue more loans. Just to remind everyone, the Export-Import Bank issues the overwhelming majority of its loans and guarantees to benefit a small number of huge corporations. It is a straightforward subsidy to these companies, giving them loans at below market interest rates. (Yes, they are almost all paid back. This means that our financial wizards have discovered arbitrage -- the government borrows at a lower rate than anyone else so it can show a profit any time it lends to anyone else by splitting the difference in borrowing costs.)
Anyhow, today's fun is a column in the NYT (major media outlets have an open door policy to anyone who wants to argue to preserve the subsidies) by William Brock, a former senator and trade representative under President Reagan. Brock tackles head on the argument made by folks like me that only a small portion of our exports are subsidized by the bank:
"Opponents of the bank say that it supports just 2 percent of all exports. Still, 2 percent amounts to $37.4 billion of American products made by American workers in American plants. That translates into tens of thousands of jobs from every state in the country."
Wow, that's pretty compelling. But wait, suppose we ended the subsidies to Boeing. Would it never sell another plane abroad?
Fans of economics everywhere know that the end of the Ex-IM subsidies simply means that it would stand to make less money on each plane. For the most part this would be a story of lower profits, but there would be some reduction in exports, probably in the range of 10 to 30 percent of the amount being subsidized. That translates into $3.7 to $11.2 billion in exports that we would lose without the Ex-Im Bank.
Is that a big deal? We can compare this to another export number that has been in the news recently. A new study showed that because of the sanctions against Iran, the United States has lost $175.4 billion in exports since 1995, with the estimated losses coming to $15 billion in 2012, the latest year covered by the study. So the jobs at stake with the Ex-Im Bank are about 75 percent of the number that could be gained if we ended the sanctions against Iran. In other words, if we think the ending of loans from the EX-Im Bank would be a hit to the economy, then we must think the sanctions to Iran are an even bigger hit.
Of course as a practical matter, if we really wanted to boost exports we would go the free market route and push down the value of the dollar against other currencies. That is how economies with a trade deficit, like the United States, are supposed to adjust towards balanced trade in a system of floating exchange rates. However we don't see this adjustment because other governments buy up large amounts of dollars in order to prop up its value and preserve their export markets in the United States.
We could negotiate for a lower valued dollar, but that would hurt the profits of companies like Walmart that have arranged low cost supply chains in the developing world. It would also hurt major manufacturers like Boeing and GE who now do much of their manufacturing overseas.
So, we don't read much in the papers about reducing the value of the dollar. Instead we get an endless drumbeat of news stories and columns about the urgency of preserving the Ex-Im Bank. The public may lack the political power to stop the re-authorization, but we can at least enjoy the show.
Note: It is of course net exports that add jobs, not just exports. (We don't create jobs if we import a car from Mexico and export it to Canada.) In both the case of the Ex-Im Bank and the Iran sanctions there also is a question of imports, which is going unaddressed.