October 25, 2015
I realize that this may come as a shock to the reporters and editors at the NYT, but companies are sometimes not truthful. That is why when G.E. announced that it was closing a factory in Wisconsin because it no longer had access to subsidized loans through the Export-Import Bank, the article should have said something to the effect of “G.E. claims to be closing factory because of lack of access to Export-Import Bank loans.” A serious newspaper would not take the assertion at face value and headline the article, “Ex-Im Bank Dispute Threatens G.E. Factory that Obama Praised.”
The New York Times has many outstanding reporters, but they don’t have any easy way of knowing if, for example, G.E. had plans to close this factory regardless of the fate of the Export-Import Bank. In that case, blaming the bank for the closure would be a convenient way to try to pressure Congress to renew funding.
If we try to guess the size of the subsidy that G.E. gets from the bank, if we assume that it might be $3 billion in loans or guarantees this year, with an average subsidy of 1.0 percentage point compared to the market interest rate, this comes to $30 million. By comparison, G.E. CEO Jeffrey Immelt received $37.2 million in compensation last year.
This would suggest that the subsidies that G.E. receives from the Ex-Im Bank are relatively small compared to the compensation of Mr. Immelt and other top executives. Cuts to their pay would be another possible route for keeping the Wisconsin plant operating.
Addendum:
It is worth noting that G.E.’s allegation is that the loss of a government subsidy is causing it to close a factory. It is not common for the NYT to highlight when a factory is closed due to the loss of a protective tariff. If the paper has a different attitude towards subsidies and tariffs it would be interesting to hear the basis for this position. Certainly it would not be justified in conventional economics.
Note: Typo corrected, thanks ltr and Robert Salzberg.
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