Wednesday, September 30, 2015

Huffing And Puffing Ideologically Over The Export-Import Bank

Tyler Cowen at Marginal  Revolution has sympathetically linked to an article in the latest issue of Econ Journal Watch by Veronique de Rugy, Ryan Daza, and Daniel B. Klein that argues that libertarian/conservative bloggers have been frequently and firmly critical of the supposedly awful Export-Import Bank, whose charter was renewed not too long ago, even while they admit that at least a few leftist bloggers have criticized it, most notably Dean Baker, who was all over its case today (perhaps in response to this article, although he made no mention of  it or Cowen's post).

While some commenters at MR attempt to criticize the methodology of the authors, it looks to me like they are basically correct.  Dean Baker is one of the lefty bloggers to post multiple times to criticize the Export-Import Bank as a protectionist subsidizer of big corporate interests, most notably Boeing and General  Electric.  OTOH, many righty bloggers have complained about its rechartering frequently, with Donald Boudreaux at Cafe Hayek leading the pack with 72 such posts, followed by Daniel Mitchell at International Liberty at 43. For the authors this apparently shows some kind of hypocrisy by statist protectionists on the left, even though the only blogger identified as supporting the Ex-Im Bank outright is Barry Ritholtz, a professional financial adviser whom I have not yet heard of presenting talks in URPE sessions at conferences.

For the record, I agree with Dean Baker about the Ex-Im Bank.  It does not deserve to exist, and it clearly exists solely to help out some big corporate interests, even if one wants to argue as some have that workers may be involved here as well (the heart of leftist protectionist arguments).  So, why have most lefty blogs been silent on this, and I am posting on this at least partly because this blog is listed in this article as being one that has never had a post about this issue, accurately as near as I can tell, so this is the first such post.  I cannot speak for others here, but why have I not personally so posted in the past on this wicked evil big government protectionist protector of giant corporations?

Well, I had not paid much attention to it, frankly, and the main reason is simply that I have never  thought it was much of a big deal.  I have sympathy with libertarians and conservatives when they point to  the many government programs that engage in questionable activities and that also cost taxpayers a lot of money, think agricultural price support programs (although conservative politicians from agricultural states will rush to support them, and even supposedly "clean" centrists and liberals, such as the late William Proxmire of Wisconsin who when asked why he was attacking wasteful programs but supporting dairy import quotas replied that, "After all, I am the senior senator from the state of Wisconsin").  But, not  only is Ex-Im not costing a lot of money, it is making a profit.  In this regard it looks like the much-derided TARP, which I also find myself having trouble getting too worked up about.  Maybe the financial system would have been just fine without TARP and we would not have fallen into another Great Depression, but even if it had no positive effect, at least it did not cost any money in the end.

Also, in the case of its biggest beneficiary, Boeing, we are not talking about a free market.  It is part of an effective duopoly with Airbus.  And the subsidies and support from governments that Airbus gets for trade support far exceed the penny ante amounts that having slightly lower interest rates for some of its borrowing provides for Boeing.  (General Electric arguably operates in a more competitive environment).  The amounts involved are piddling, in the millions, not billions, per year, although supposedly without Ex-Im Boeing might have lost a $1.1 billion deal with South Africa.

But there is a bigger  issue here that nobody has talked about, not the authors of the articles, and not even any of the conservative or libertarian critics of Ex-Im, and for that matter, not even Dean Baker or any of the leftier critics either.  That is that both Boeing and General Electric have received much greater subsidies that do come out of the taxpayers' pockets from another source in the US government, the DOD.  Boeing is the second largest defense contracter in the US, receiving on the order of  roughly $18 billion in contracts annually, with General Electric a good deal further behind, but also receiving several billions in contracts annually as well.  Now it may be that people ignore this because they are presumably providing services, even though we know such contracts have very nice profit margins padded into them.  Conservatives may love this, but good libertarians should be down on DOD subsidies as should good lefties like Dean Baker.  This is the real subsidy the US government gives these behemoths that helps them in trade wars, not the penny ante dribblings that they get from the money-making, if indefensible, Export-Import Bank. 

I shall take all these people getting all bent out over Ex-Im, both the bloggers and these authors, more seriously when they point out these massive subsidies from the DOD.  But, I am not going to hold my breath over this.

Barkley Rosser


Bruce Webb said...

Barkley absolutely.

I lived 20 years in Everett, Wa the home of the Boeing plant that made every 747 that ever flew and so a town that lived and died with every major sale of planes financed via the Ex-Im bank. So it is important.

But only idiots didn't understand that while the core business of Boeing was in selling jets that the bulk of the R&D and the fancy profits were coming over from the Space and Defense division. In so doing Boeing was tapping a flow of dollars that Airbus couldn't match with every sales subsidy in the world from Britain and France and Germany. The idea that there was some firewall between Boeing Space and Boeing Military and Boeing Commercial could be dispelled by 10 minutes reading Boeing financial statements.

"Cross subsidization" doesn't even get to the start of it.

Ken Houghton said...

Angry Bear (where Bruce posts and I may again, RSN) gets credited for one post dealing with the Ex-Im Bank. Here's the quote, coming in the summation to a long piece about Steve's critique of a Jared Bernstein paper:

"Tyler Cowen is a great example on the other side [of Bernstein]. His curious thoughtfulness on so many subjects is a remarkably effective camouflage for the Mercatus Center that he heads, even while Mercatus is broadcasting blizzards of tweets about Fox-News hobby-horses like the Export Import Bank – relatively unimportant but base-rabidizing topics that Tyler (sensibly) has little or no time for."

This is, per the authors, a "neutral judgment."

Of course, if I had written a post, I would have used Export-Import Bank, and therefore not be found by a search for "Ex-Im." By their codewords you shall know them, I guess.

And, for the record, I wouldn't have written a post anyway, since getting rid of the Export-Import Bank would have been a fine idea that should have no real impact on anything, as you noted above. It's the type of thing you do when you want to be seen doing something while ignoring the root cause.

marcel said...

(Warning: this is a minor point not at all on topic, and may justifiably be seen as pedantry)

"Also, in the case of its biggest beneficiary, Boeing, we are not talking about a free market. It is part of an effective duopoly with Airbus."

"Competitive market" is not equivalent to "Free market". The airframe industry (as I think it is called) is a duopoly, not a competitive market. There is no reason that it cannot also be a free market, although it happens not to be (the role of the Ex-Im Bank being merely the most easy-to-hand counter-example, quickly followed by factors listed in the same paragraph as the passage quoted above). The two ideas, competitive market and free market, are orthogonal to each other although they may be heavily correlated in real life (or would be if either existed in approximately pure form). said...

Thanks for comments that I fully agree with from Bruce and Ken. Let me note that one thing the authors have been criticized for even by commenters at MR has been that they really did not say which blogs were which, aside from labeling Beat the Press as left, and they gave no precise count. But, in fact I would agree that the blogs that did lots of posting on this matter tended to be like Cafe Hayek or International Liberty, mostly pretty clearly libertarian to some degree, if not totally.

Oh, and I have heard a rumor that Barry Ritholtz has been using a special ouija board to communicate with Karl Marx himself, although the League of Absolutely True and Pure Marxian Communists has been plotting to steal it from him, :-).

Pedantry point is acknowledged and accepted, marcel. Indeed, if there are economies of scale sufficiently large, then a free market will result in natural monopoly, and indeed we think the duopoly of Boeing and Airbus is substantially, if not totally, due to some significant economies of scale in this industry.

john c. halasz said...

Boeing owes its very existence to military subsidies. Originally, jet transport, a German invention, after the War, was led by the British, until a famous air crash stopped them cold, and Boeing, thanks to its plentiful military contracts which cross-subsidized the technical R&D leap-frogged ahead into a dominant position.

Haynes Goddard said...

Thanks to those commenters who actually discuss the economics rather than the ideology. The large airframe industry could never be a competitive market because of the scale economies involved. But there is more:

Applying first best rules in a second best environment is a prescription for reducing welfare. In this case, there is more than one second best argument to be made:

1. Other countries employ below market interest rate loans to exporters, so failing to counter them is a prescription for losing sales, as we have already seen, or a misallocation of resources. So “free trade” is definitely not called for.

2. The fact that the federal government can borrow more cheaply that the private sector is of course due to the lower risk that lenders to the federal government place on their loans. That is a real saving, and why not take advantage of it?

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