August 01, 2015
It really is amazing how the self-proclaimed intelligent people (in contrast to those who make “idiotic” arguments) are prepared to make arguments that are totally protectionist in their nature in support of the Export-Import Bank. Joe Nocera gives us a parade of greatest hits in his column today.
He starts by telling us that the Ex-Im “supports tens of thousands of good American jobs.” Guess what folks? If we had a tariff on imported cars, the tariff would also support tens of thousands of good American jobs.
But wait, Nocera goes on to tell readers:
“The Ex-Im Bank that in its last fiscal year generated enough in fees and interest to turn over $675 million to the Treasury. Why would anyone in their right mind want to put such a useful agency out of business?”
Let’s see, last time I looked tariffs also raise money. So Nocera convinced me, we should support tariffs on cars — of course that would only be true if he were intellectually consistent.
Actually, someone should explain to Nocera the idea of interest rate arbitrage so he will stop saying silly things about the Ex-Im Bank. The U.S. is the safest credit risk around, which means that we can borrow at a lower interest rate than anyone else. That means there will be an opportunity for profit by arbitraging the difference between the interest rate that other businesses have to pay and the interest rate that the U.S. government pays.
For example, if the government guarantees loans for Joe’s hotdog stand, it will allow Joe to borrow at pretty much the same interest rate as the federal government. It can then charge Joe a fee for this guarantee and make a profit. If we somehow think this guarantee makes sense because the government has made a profit, then we should be guaranteeing an awful lot more loans than we are in fact doing.
If we want to be serious about the issue, guaranteeing the loan to Joe’s hotdog stand means that the government is allocating capital to it. Joe’s hotdog stand will be able to get access to loans that it would not have been able to otherwise. On the other hand, other borrowers will find it more difficult to get loans because the money went to Joe’s hotdog stand.
If we think the government will in general be best at allocating capital then this would be a good thing. But if we think the process is rigged to hand money to companies like Boeing, General Electric, and the other 13 companies that account for the overwhelming majority of the Ex-Im Bank’s loans, then we may not think this allocation of capital is such a good thing.
Nocera’s argument gets better. He tells readers:
“Boeing, being the country’s largest exporter by dollar volume, has said that if its customers no longer have access to the Ex-Im Bank — export credit agencies are vital in aircraft deals — it might have to move some operations offshore to gain access to other countries’ export credit.”
Maybe someone should tell Nocera that companies are not always honest in expressing their need for government handouts. He later assures us that these companies are not bluffing. Sure Mr. Nocera, we’ll take your word that you know “how the world actually works.”
It would be great if Nocera spent a little less time insulting his opponents on this issue and instead learned a little economics. Any protectionist measure will increase jobs in the protected industry. The question is the aggregate impact on the economy, which Nocera has apparently not considered.
If we are in a world that the Fed thinks is near full employment (which apparently is the case since it’s planning to raise interest rates) then the jobs created by the Ex-Im Bank’s loans are coming at the expense of other jobs. Are these Ex-Im supported jobs better than the ones that would otherwise be there? If so, Nocera has not told us why.
If the point is to improve the country’s trade balance this can be done far more effectively by lowering the value of the dollar against other currencies. That would make U.S. goods and service more competitive internationally without having the government pick favorites. This could be done if the Obama administration made it a priority in its negotiations with other countries. (Obama did not even include anything on currency in the “massive” Trans-Pacific Partnership.)
These are the issues that the “idiotic” among us think about. Too bad NYT columnists writing on economic issues can’t be bothered to think about how the economy works.
Note:
Typos corrected, thanks to Robert Salzberg.
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