September 17, 2015
Dean Baker
Tribune News Service/The Island Packet, September 17, 2015
View article at original source.
The Washington elites have gone into near hysteria over the possibility that Congress will not renew funding for the Export-Import Bank.
Newspapers like The Washington Post, along with many top columnists, have spewed vitriol and resorted to name-calling against opponents of the Ex-Im Bank.
For example, New York Times columnist Joe Nocera repeatedly cited Senator Heidi Heitkamp, D-N.D., calling opposition to the bank “idiotic.”
The bank’s supporters insist that it reduces our trade deficit, increases jobs, and makes a profit. All of these claims are true in the same way that a tariff on imported steel would reduce our trade deficit, increase jobs and earn money for the federal government.
For some reason, the same people who would be appalled at the idea of a tariff to help the U.S. steel industry are huge cheerleaders when it comes to the subsidies to major corporations from the Ex-Im Bank. And they get really angry when opponents point out this contradiction.
The Export-Import Bank is about subsidizing the sales of some of the country’s largest companies. Fifteen large companies typically account for more than 85 percent of the loans issued or guaranteed by the bank, with Boeing alone often counting for more than half of the loans.
When telling us of the many jobs created by the bank’s loans, bank supporters effectively assume that Boeing would not sell any planes without subsidized loans.
That is not the world we live in. Boeing may sell somewhat fewer planes, just as General Electric and Caterpillar might also sell somewhat less abroad. And they would make somewhat smaller profits on each of their sales, but it is simply dishonest to imply that their exports would go to zero without subsidies from the bank.
The part about the government making a profit on these loans is also beside the point. The federal government is among the world’s lowest cost borrowers.
This means that it can almost always make money by borrowing and then lending to other borrowers at an interest rate between what the government pays and what the other borrower pays.
This may make a profit for the government, but it also means favoring some businesses at the expense of others. Those with access to Ex-Im Bank loans get lower cost credit, but because credit has been diverted to these favored customers, other borrowers will pay more.
That would be fine if we felt the government was doing a better job allocating credit than the market, but when Boeing gets more than half of the loans, that claim seems dubious.
The comparison to a steel tariff is useful, since the standard arguments that economists typically make against a tariff would also apply to the Ex-Im Bank. After all, a steel tariff will create jobs in the United States and generate revenue for the government, just as the government profits on the loans from the Ex-Im Bank.
The economist’s argument is that although a tariff would increase the number of jobs in the steel industry, it would reduce the number of jobs elsewhere by forcing people to pay higher prices for steel.
In the same vein, making subsidized loans available to favored companies through the Ex-Im Bank has the effect of raising the interest rate paid by other borrowers.
In addition, it’s not even clear that the bank will increase total exports. Since it gets foreigners to spend their dollars on Boeing planes and Caterpillar’s tractors, they have less money to buy the products produced by other companies.
The total impact on exports is likely to be negligible. The economic arguments come down pretty strongly against reauthorizing the Ex-Im Bank. But when it comes to name-calling, the proponents of the bank sure know how to push their case.
