Whither the Ex-Im Bank?
By Scott Sumner
The Ex-Im Bank is often considered a near perfect example of crony capitalism. But the politics of Ex-Im are very messy, perhaps the most confusing and complicated of any issue:
1. Obama opposed Ex-Im as a candidate, and then supported it in office.
2. Trump opposed Ex-Im as a candidate, and has recently signaled that he will support it.
But that’s just the beginning. Is Ex-Im an example of special interest politics that almost all idealistic pundits oppose, like sugar subsidies? Is it a left/right issue? Is it a pragmatist/ideologue issue?
And if Trump does support Ex-Im, why does the budget his staff is preparing call for abolishing Ex-Im.
Matt Yglesias has an excellent article on Ex-Im, which looks at the issue from many different angles. (He does a good job explaining why Trump’s staff doesn’t agree with Trump.) But it’s such a complex issue that even he doesn’t really cover all the bases. For instance, Yglesias implies that support for Ex-Im is the “left” position on this particular issue. But he doesn’t really explain why the left would favor crony capitalism subsidies for big corporations like Boeing. Yes, jobs are one argument, but since when does the left believe in “trickle-down economics”?
Matt also suggests that Trump would be expected to support Ex-Im because he favors protectionist policies that favor a few special interests at the expense of the broader American public. That’s a good argument, but an equally strong argument can be made the other way. Protectionist policies tend to reduce the amount of international trade, both imports and exports. An export subsidy like Ex-Im tends to have exactly the opposite effect. It tends to boost both exports and imports, hurting American companies that compete against Mexican and Chinese exports. Does Trump know this? Trump also seems to oppose a stronger dollar, but Ex-Im makes the dollar stronger.
In the end I believe that the complexity of the Ex-Im issue is due to the fact that divisions occur on multiple fault lines:
1. Ideology: Interventionism vs. laissaz-faire
2. Ethics: General interest vs. special interests
3. Factual: Does Ex-Im create jobs, or not? Does it boost GDP?
4. Regional: About 40% of Ex-Im loans go to Boeing
I always find the factual debates to be the most interesting. It’s hard to know where the “left” should stand on this issue until one can resolve the factual issues surrounding things like job creation. The fact that some on the left support Ex-Im while opposing cuts in corporate tax rates suggests to me that they have a fairly primitive model of public finance. Some people on the left (and right) would benefit from reading Bastiat on “What is Seen and What is Not Seen”.
On the right, it exposes a division between the ideologues and the pragmatists. But it’s often hard to distinguish between normative and positive disagreements. It’s quite possible that these two groups within the GOP also differ on the key factual questions. I’ve noticed that even people who are not utilitarians (which is most people) often resort to utilitarian arguments to make their case. They seem to (implicitly) believe that it’s the only thing that will convince the other side.
As is often the case, I’m a pragmatist who ends up siding with the ideologues, and all because my view of the “factual” issues differs from the view held by the vast majority of people. And that’s because I pay more attention to the “unseen” than most other people. One thing that makes Yglesias’s post so good is that he’s one of the rare non-economists who actually do pay attention to the unseen:
A really poorly managed loan program could, of course, still make money. But a moderately competent one — and the Ex-Im Bank qualifies — turns a pretty steady profit.
But that doesn’t mean federal credit programs are costless. If they were, it would make sense to extend loan guarantees to everyone. But the way the American economy works is that the Federal Reserve essentially rations credit across the entire economy — raising interest rates to prevent inflation from getting out of control or cutting them to spur growth.
This means that in normal times (a boring caveat that will be important later), the cost of a federal loan guarantee is ultimately born in tiny increments by each and every American who doesn’t get a special loan. The guarantee can’t expand the total amount of credit in the country, just funnel it toward certain favored purposes.
PS. One other point. Like government subsidies to NPR, the Ex-Im bank is largely a symbolic issue. There are far worse examples of crony capitalism, such as agricultural subsidies. And it’s almost infinitely less important than the differential tax treatment of debt and equity.
Update: Daniel Klein directed me to a very interesting article looking at how liberal and conservative pundits reacted to (or ignored) the debate over the Ex-Im Bank.