Ex-Im Bank is a tiny but tempt­ing tar­get

The Pak Banker - - OPINION - Me­gan McArdle

In Washington, the high-stakes bat­tles of yes­ter­year have given way to a grim stale­mate, in which Obama doesn't try to do much of any­thing, and Repub­li­cans half-heart­edly try to stop him from do­ing not very much, and ev­ery­one tells re­porters how im­por­tant it all is.

In this ex­tended siege, the strangest skir­mish has been over the Ex­port-Im­port Bank. It's a tiny gov­ern­ment arm -- more of a pinky fin­ger, re­ally -- that pro­vides sub­si­dized loans to com­pa­nies selling abroad. Its im­por­tance can be mea­sured by the fact that you may well never have heard of it, or at best, learned of it for the first time when you heard that it was un­der at­tack by con­ser­va­tives. And yet, it arouses great pas­sion in colum­nists on both sides. Joe No­cera has fired the latest salvo over the wall. Rail­ing against the "con­ser­va­tive ide­o­logues" who have thus far kept it from be­ing reau­tho­rized, he writes: "With the Ex-Im Bank, the ex­treme right has drawn a line in the sand. Given the very real ben­e­fits it pro­vides ex­porters, the time has come for the rest of us to do the same."

I should prob­a­bly note at this junc­ture that I count sev­eral of the Ex-Im Bank's most for­mi­da­ble en­e­mies as good friends; one of them was a reader at my wed­ding. I have been per­son­ally chided by same for point­ing out that on the cos­mic scale of things, the Ex-Im Bank sim­ply doesn't mat­ter. Its im­pact on the U.S. econ­omy, for good or ill, is triv­ial. And yet, col­umns like Mr. No­cera's force me to add a cod­i­cil: "Nonethe­less, count me with the ide­o­logues." The Ex-Im Bank is fun­da­men­tally in­de­fen­si­ble. Mostly what it does is sub­si­dize pro­duc­tion for very large firms that are quite ca­pa­ble of get­ting fi­nance in the tra­di­tional way, by go­ing to peo­ple with money and ask­ing for it.

So ev­ery time the Ex-Im Bank gets in­volved in a deal, there are only two pos­si­bil­i­ties: The gov­ern­ment is need­lessly sub­si­diz­ing some­thing that would have hap­pened any­way, giv­ing away cheap money to a huge cor­po­ra­tion. Or else it's sub­si­diz­ing a deal that wouldn't have hap­pened any­way, in which case we are de­fend­ing the use of tax­payer dol­lars to sell cheap man­u­fac­tured goods to for­eign­ers. It's not even as if we're pick­ing out es­pe­cially needy for­eign­ers, who may re­quire a char­i­ta­ble con­tri­bu­tion from the pros­per­ous cit­i­zens of the United States; the sub­sidy is dis­trib­uted on the ba­sis of who is will­ing to, say, buy cut-rate U.S. air­frames. And guess who ben­e­fits? U.S. cor­po­ra­tions that ex­port a lot. This is not a good use of tax­payer dol­lars, and con­ser­va­tive ide­o­logues, bless their hearts, are quite right to want to get rid of it. Their pas­sion is a lit­tle out of pro­por­tion to the harm that this agency does, but even a small step in the right di­rec­tion is bet­ter than none. The bank's op­po­nents con­cede that. For them, the ap­peal of tak­ing on ExIm is that they might be able to take it down.

Against this im­pec­ca­ble eco­nomic and po­lit­i­cal logic, the bank's sup­port­ers mar­shal a few ar­gu­ments. First, they of­ten claim (as No­cera im­plies) that the Ex-Im Bank gen­er­ates a lot of money for the Trea­sury. Which is sort of true ... ex­cept. First of all, it doesn't ac­count for the op­por­tu­nity costs of the dis­tor­tion; re­sources are di­verted into pro­duc­tion of cer­tain goods, and away from oth­ers. And sec­ond of all, gov­ern­ment ac­count­ing for loans is rather weird. Ac­cord­ing to the Con­gres­sional Bud­get Of­fice, if we used a fair value ac­count­ing method, which would ac­count for the risk of chang­ing mar­ket con­di­tions, the Ex-Im Bank's six largest pro­grams would be gen­er­at­ing a deficit, not a sur­plus.

We are also told that Ex-Im is a vi­tal mat­ter of na­tional se­cu­rity. I'm go­ing out on a limb here, but I'm pretty sure that if the U.S. gov­ern­ment needs to find some money to give for­eign­ers as a vi­tal mat­ter of na­tional se­cu­rity, they will man­age to find it even if the Ex-Im Bank is shut­tered and its silent halls hold only the lin­ger­ing ghosts of de­parted ex­porters.

Sup­port­ers of Ex-Im will also say that the eco­nomic logic against it ap­plies only in a vac­uum. In re­al­ity, other coun­tries are of­fer­ing these kinds of sweet deals, so the U.S. feels pres­sure to do so too. Econ­o­mists at the Univer­sity of Tampa de­cided to ask them­selves whether this sort of "lev­el­ing the play­ing field" ac­tu­ally helps the U.S. Their con­clu­sion: This re­tal­i­a­tion makes the coun­try worse off, not bet­ter, in a world where ev­ery­one else is of­fer­ing sub­si­dies.

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