Why do we have the Export-Import Bank?

Great Debates
1

Last year President Obama signed into law an extension of the charter for the Export-Import Bank and an increase in the amount of money it’s authorized to deal with. Most Americans probably don’t know that the Export-Import Banks exists, much less what it does. It provides insurance, loans, and other subsidies to various foreign corporations and organizations that purchase stuff from the companies in the United States.

Here’s a video in which some guy calls the Export-Import Bank “little more than a fund for corporate welfare.” The facts would seem to back up that description:

Back in 1981, when he was fighting to get rid of the Ex-Im Bank, Stockman documented that it bestowed about two-thirds of its subsidies on a handful of giant, profitable manufacturers: Boeing, General Electric, Westinghouse, and the like. Little has changed since then, and what has changed has mostly been for the worse.

Ex-Im’s own data show that bank activity is highly concentrated in a few industries—primarily aviation, gas and oil exploration, and manufacturing. The aircraft industry alone benefited from $11.5 billion worth of loan guarantees in 2012.

Boeing was the recipient of almost 50 Ex-Im Bank deals worth $12.2 billion (including insurance, loans, and guarantees). This one company, with its army of lobbyists, brought in roughly 80 percent of Ex-Im’s loan guarantees.
…
Last September, the bank’s inspector general issued what should have been an eye-opening report about the institution’s poor management, lack of systematic portfolio risk measurement, and perilous overconcentration on the airline industry. The report recommended that the bank put itself through a stress test to weigh its exposure to risks and other market shocks, limit its loan concentration, and be subjected to more oversight by Congress to avoid exposing taxpayers to future bailouts. Returning president Hochberg has rejected these suggestions, illustrating his disregard for U.S. taxpayers.

It also supports activity that harms the environment, such as trying to increase coal exports, even when that means disregarding environmental law.

What’s the point of keeping the Export-Import Bank?

2

It finances export deals that are too risky for commercial banks. So, if you want to encourage US export, that’s probably a good thing. And it’s self-sustaining, that Reason magazine article aside, so it’s not really costing us anything.

3

Reviving this debate:

The charter of the ExIm Bank states is it’s purpose is to “contributes to the employment of U.S. workers through the provision of direct loans, loan guarantees, working capital guarantees, and export credit insurance to finance and promote U.S. exports abroad.”

Over the past decade or more, it’s operations have been used to primarily benefit one single company. Over 60% of the loan guarantees that the ExIm Bank has made each year have primarily been for the customers of Boeing. These guarantees have resulted in the increased pricing of planes sold by Boeing, which falls to their bottom line and further enriches their shareholders. With the availability of below market priced financing provided by the ExIm Bank to Boeing customers, the demand for their products go up and thus the prices for their products rise as well.

Sounds good right? Well of course it is for Boeing, but should the American tax payers be funding and supporting an operation that artificially props up the profits of one company in particular? Does Boeing need this type of corporate welfare? Apparently many members of Congress think so. The ExIm Bank should be defunded.

4

http://www.seattletimes.com/opinion/should-congress-reauthorize-the-export-import-bank/

5

Whether or not tax payers are funding it seems to depend on arcane accounting assumptions. I can’t claim to understanding who is right as to whether taxpayers are funding this, but given good arguments on both sides, my personal conclusions is that any funding is, by federal standards, tiny, and more than made up in taxes paid by Boeing workers.

I contrast this to the $20 billion a year Texas spends to steal companies away from, mostly, other states. That’s real money and real disruption to the lives of workers in other states. By contrast, I don’t see mass layoffs at Airbus, and other supposed harms (crowding out other loans in a low-interest-rate environment) seem to me extremely speculative.

What about the subsidies of baseball and football stadiums? Again, that’s real money. Compare it to the Ex-Im Bank situation where there’s a good case it earns its own keep and more.

6

The export-import bank is the reverse equivalent of a tariff: instead of subsidizing domestically produced goods by taxing imports, we subsidize domestically produced goods by indirectly subsidizing exports. It’s well established that unilateral removal of tariffs, although a net benefit to the world, is usually harmful to the country that reduces their tariffs. That’s why trade agreements (bipartisan tariff reduction) are so important. As such, the Ex-Im bank is economically beneficial for Americans as long as other countries maintain similar institutions, like the European Investment Bank. The long term solution should be a series of free trade agreements that remove these institutions.

And as for the claim that it’s “free money”: if exporters are going to the bank and not to commercial markets, that’s a sign that the bank is providing cheaper rates for capital. The government could give the money back to the people who could put it to use earning higher interest than what the Ex-Im bank earns. So the bank does, in fact, cost money.

7

How much would this increase the deficit?

According to the accounting used by opponents, the cost of the Ex-Im is $200 million a year*. Texas spends $20 billion a year – 100 times that – to grab jobs away from other states. And Republican states love that stuff:

As least when the jobs move within the KC metro area, workers aren’t harmed the way they are when Texas grabs a Pennsylvania job (or, less likely, visa versa).

During the GW Bush administration, Ex-Im Bank reauthorizations commonly passed overwhelming, sometimes by unanimous consent. So what happened? Did the GOP suddenly become opposed to deficit-reducing corporate welfare? Don’t think so. Instead, it seems more like something where if Obama is for it, they are against it.

There are sincere free market absolutists who, caring nothing about the political considerations, are against the Ex-Im Banks, and all the equivalents around the world, on principle, like this guy:

So most economists are for it, but lets ignore them because they are corrupt. Really?

  • Other anti-bank links mention $2 billion, but if you look at it carefully, you see that is the same $200 million taken out over ten years.
8

I’m glad this discussion was revived, given the recent attention. I’m sympathetic to the “this isn’t the government’s job” argument, but so far I’m having trouble seeing much harm.

9

In computing return to the government, you must also include the return from the jobs protected by the bank, The jobs and contracts going overseas now thanks to Republican obstructionism are not going to be generating tax revenue. I’d suspect that more than covers the difference in interest rates.

10

I suspect the silence of most economists has a lot to do with the cheapness of the program. I understand it adds funds to the treasury, but once you factor in risk it ends up costing something like your estimate above.
I’m somewhat skeptical about the export import bank, but I think it’s a very bad idea to attempt when you are in the midst of a middling recovery. Better to do this when the economy is roaring, like it was during the Clinton era and like it might be in a couple of years. Also, it’s far better to phase a program like this out, rather than pulling the rug out from under our large but also very small export powerhouses.
Finally, the market in planes tends to involve very larger purchasers with close ties to government. That the US government coordinates such deals with export guarantees paid out of fees from industry (as I understand it) doesn’t sound especially horrific. If opponents to the ExIm bank had a more sophisticated phase out plan or maybe cost cutting proposals, I’d have more respect for them. Because now it seems they are substituting cheap ideology for thought.

As it is, I wonder what Goldman Sachs or JP Morgan Chase would charge for the sorts of services that ExIm provides. I suspect there’s a report about that somewhere.

One could argue that this implies that we need smart reformers, as opposed to ones focused on television sound bites.

11

It’s not obstructionism. The Republicans control both chambers of Congress. They are under no obligation, whatsoever, to back the President’s or the Democrats’, agendas. To paraphrase one Barack Obama, “they won.”

12

You are picking at nits. (Hey that’s what we do here: high five!)

I agree that this is not obstructionism because as you say Republicans control both houses: I furthermore find the embrace of accountability to be refreshing. I’ll note that Boehner supports the Export Import bank but is unwilling to stand up to his conservative rump.

Going back to the substance of the issue, the Export Import Bank has provided $7 billion above its operating cost over the past 20 years: it’s been a win for the Treasury. I agree though that you need to assess the bank with risk-adjusted numbers. Even then though, the costs aren’t high.

Here’s an example of what ExIm does:
[QUOTe=Thomas J. Donohue, CEO of the Chamber of Commerce]
California-based Combustion Associates Inc. (CAI) knows this fact all too well. The firm spent three years closing a deal for a new power project in Nigeria that would generate $39 million in revenue and create 30 new American jobs.

But because CAI’s deal depends on financing and trade insurance from Ex-Im, that deal is on hold, along with two other projects that would’ve been worth nearly $50 million in revenue while creating more than 100 new jobs.
[/QUOTE]
Now there’s gotta be a way for the US’s fantastic capital markets to fill in the gap. But again, you need to phase something like this in. You shouldn’t just pass job-crushing policy because of ideology. You plan things out. That’s just good governance.

13

http://m.washingtontimes.com/news/2015/jun/29/veronique-de-rugy-shut-down-export-import-bank/?page=all
It’s really a simple case of Bastiat’s “What is seen, and what is not seen.” Mercantilist schemes are some of the oldest of the state’s tricks. Many still fall for them. It has been happening in the United States since at least Alexander Hamilton fell for the pronouncements of the paid pamphleteers working for privileged firms.

14

the economic literature around the subsidies has the strong conclusions about the direct subsidies to the firms from the state budgets. the opinion piece you linked to is very ideological and does not present the economic literature fairly. The conclusions about the support to export firms where there is the argument of the market gaps, like in supporting credit to trade with the markets that are perceived as high risk by the private banking sector - the emerging markets and the frontier markets is not at all very strong from the empirical perspective. It is only the strong ideologues who claim in this area.

but I have noted you are an ideological person who favors the gold standard so this not a surprise perhaps.

why the Americans would wish to unilaterally abolish their Exim bank when every other OECD country uses the Exim banks of their own country to very heavily to support exports puzzles me.

already the USA performs not very well in the per gdp comparison to other of the OECD in its exports to the non OECD markets, so it does not seem very evident that some how the American Exim bank has operated in an area where the American banks have any desire to operate, which is the standard economic analysis for when a government risk supporting mechanism is justified.

It seems to me this is likely something driven by a strong political ideological drive that has not much real foundation in the objective economic analysis, even a liberal trade one.

15

One of the things that tends to be ignored here is the fact that Ex-Im is a lender of last resort due to its interest rate. This actually makes it a lender of FIRST resort.

Each of the deals that the bank backs would be achievable elsewhere…they would just cost more through higher interest rates due to rational risk analysis on the part of the lender. Therefore why try when a firm can arrange a deal with Ex-Im at a more ‘reasonable’ rate?

I’m not opposed to the bank at all. But I’d be a big fan of reviewing the results of both a risk analysis and a stress test. I’d bet both show that such are far more extreme than that allowed for ordinary commercial banks.

16

I’m so out of touch I didn’t even notice that the Congressional GOP had scuttled the Export-Import Bank. Thank you for calling this to my attention, Mr. ITR champion.

[Hochberg was a political appointee of both recent Democratic Presidents, and was educated at the Kennedy School of Government at Harvard.]

Short answer: I don’t know. Exports are very good for the U.S., obviously, but one can raise a variety of secondary concerns. Others have pointed out the Bush-43 expanded Ex-Im programs in a big way. Note that Bush-41 was an even bigger boost. IIRC, Ex-Im suffers fewish loan losses.

There is of course the argument “What’s good for American businesses is good for America.” To me, it seems not-at-all unlikely that a profitable Boeing increases jobs and prosperity within the U.S.A. There’s lots of trade-offs and I am certainly not an expert – indeed as I mentioned, I’ve only heard of the Ex-Im scandal thanks to you. [joke]How should I find it? Google “Beghazi-gate Usama’s body-gate Obama’s Scandals more more MORE”?[/joke] Some idealogues could answer OP quicker than me: "Come on, a Harvard-educated appointee rehired from Clinton :eek: "

I remember Republicans used to brag they wanted to sabotage the economy under Obama. Is that what’s happening here?

Why am I posting if I don’t know the answer, and can’t be arsed to spend five hours studying on-line articles to come up to speed on details? *** The post struck me as high-class comedy!*** It sounds like pro-business Democrats under Obama are stealing from the taxpayers to enrich Boeing while spoiling the environment. This has been going on since The Great Socialist FDR, but conservatives are finally getting around to addressing it. Down with Obama!

Well done!

17

First of all there is no benefit to increasing benefits overall. The politically connected benefit while others, especially consumers, lose out.

There need not be anything especially “ideological” (as if your lazy utilitarianism is devoid of ideology) about a standard Bastiat-type analysis. There are benefits that are seen and easily measured by the statisticians you call economists. These data are repeated by secondhand dealers of ideas like you and the mainstream press, and this helps you to nourish your statist ideology. Bastat would look beyond what is easily seen and measured. He called this “that which is not seen”. This would include the things de Rugy lays out in the article, such as the increase in prices to consumers and the effects on capital allocation.

Yes this really was solved 150 years ago, and it pains you to hear it.

On another note, you often pretend to be some kind of gatekeeper on what the literature says, yet you never have actually backed that up with data.

18

funny reply. Gatekeeper? it is just a small message board and a single reply. your heatedness and ideological response is funny though.

19

is “ideological” the new “racist”, and do you actually believe your lazy utilitarian statism is not an ideology? If you are an undergrad at a public university that would explain both, as well as your entitled millennial disposition.

20

we have seen your ‘exchanges’ with Hellestal. it is clear enough not useful to bother.
and no I am not an american undergraduate and I very likely much older than you, since I am of the 1960s generation. and I am holding graduate degrees in economics

the name calling about empirical analysis says enough.