Category Archives: Economics

A vote on the Continuing Resolution, which includes the controversial Export-Import Bank reauthorization was originally scheduled for today, but has been pushed back to next week. So the combat continues over how long the Ex-Im reauthorization will last, and what other conditions might included as part of the deal. In today’s Washington Times, National Association of Manufacturers President Jay Timmons and I have dueling op-eds, with Timmons favoring reauthorizing Ex-Im, and me wanting to end it. The Wall Street Journal also weighed in with an editorial this morning, sharing my skepticism of Ex-Im.

Timmons makes three points in his piece that deserve a response. First, he argues that Ex-Im fills in gaps in private financing:

 Ex-Im Bank provides financing that is critical to fill gaps when private-sector financing for small and large manufacturers is not available.

If Ex-Im makes a profit, as Timmons argues it does, then surely private banks would welcome an opportunity to make money for themselves by lending to more exporting businesses and their customers. If Ex-Im loses money, as the Congressional Budget Office convincingly argues, then there is no financing gap to be filled, and Ex-Im is financing too many insolvent projects.

Second, Timmons commits the “but other governments do it, too” fallacy:

 Foreign competitors are stepping up their game. In fact, China provides at least five times the assistance that Ex-Im Bank does. If the United States fails to back up its exporters, our exporters and hundreds of thousands of jobs are at risk.

This is equivalent to saying the U.S. government should stop ripping off its citizens only when foreign governments stop ripping off their own citizens. Foreign Ex-Im Banks also cause a regressive income transfer: If we import artificially cheap goods, our consumers benefit at their taxpayers’ direct expense. For China and many other countries, this is literally a cash gift from the global poor to wealthier Americans. I oppose regressive wealth transfers, and I imagine Timmons does, too. But the solution is not to counter other governments’ policy mistakes with our own mistakes. It is for China and other countries to end their Ex-Im programs. This is one area where we can lead by example.

Third, Timmons argues that Ex-Im is a small businesses program at heart:

 Thousands of companies — the majority of them small ones — use Ex-Im Bank when they have no other options in terms of lending, guarantees and insurance.

For one, the federal government already has a Small Business Administration to subsidize small businesses. And according to data from Ex-Im’s own annual report, Ex-Im actually behaves more like a Big Business Administration. More than 80 percent of its financial products, measured in dollars, go to big firms. Moreover, this proportion is in direct violation of its charter, which requires at least 20 percent of its financial products to go to small businesses (having up to 1,500 employees, which is a pretty big definition of small).

Timmons and NAM do a lot of good work, including a just-released update of Nicole and Mark Crain’s estimate of federal regulatory costs, which Wayne Crews wrote about yesterday. But they have it wrong on Ex-Im. As I point out in my piece, Ex-Im is pro-business, not pro-market. The short-term help it gives to individual businesses causes long-term harm to the competitive market process that capitalism depends on, and gives companies an incentive to compete in Washington instead of the marketplace. I gave nine other reasons to oppose Ex-Im here. That makes ten; there are more.

It appears Congress will decide the Export-Import Bank’s short-term fate this week. There are several bills with different reauthorization terms, and Rep. Justin Amash and Sen. Mike Lee even have a bill that would shutter the bank altogether. None of the bills have made it out of the House Financial Services Committee, which is chaired by Rep. Jeb Hensarling, who opposes the bank. What will likely happen instead is that Ex-Im reauthorization will be included in a Continuing Resolution (CR), which Congress must pass by September 30 to avoid a government shutdown.

The current battle isn’t whether Ex-Im will be reauthorized, it is how long the reauthorization will last. There are two likely options. Ex-Im opponents would prefer a reauthorization through early 2015. Ex-Im opposition is bipartisan, but the GOP has been more vocal about it, and most political observers are expecting Republicans to gain seats this November. Depending on how the numbers play out, when the new Congress convenes in January, it might be possible for Congressional Republicans to either let Ex-Im’s charter expire, or pass a bill similar to Amash and Lee’s to actively kill the bank, even if they can’t get much Democratic support.

Ex-Im’s defenders would rather keep the shutdown card in their hand; Ex-Im opponents will not risk a shutdown over a program equivalent to less than one percent of the federal budget. That’s why they want Ex-Im’s reauthorization to be the same length of any Continuing Resolution that gets passed, however long that might be. Even though that would be a shorter-term reauthorization, they can continue to renew Ex-Im with each CR that must pass going forward, knowing that it will succeed.

We’ll find out in the next few days which side wins. In the meantime, enjoy the odd spectacle of left-wing populists advocating special favors for the same big businesses they usually rail against, and the GOP’s free-market wing, popularly perceived as stooges for big business, calling for an end to corporate welfare (Salon had a bit to say on that here).

Congress comes back from its annual August recess next week. One of the top items on its agenda is deciding the Export-Import Bank’s fate. Ex-Im subsidizes financing for U.S. exporters and their foreign customers. As I outlined here, Ex-Im subsidizes certain businesses at others’ expense. It is a pro-business policy, when what the economy needs are pro-market policies. Ex-Im will also be forced to shut its doors unless Congress reauthorizes its charter by the end of September, making for a golden reform opportunity for corporate welfare opponents.

The merits of the issue are clear enough, but politics is getting in the way. A bill to reauthorizes Ex-Im’s charter would likely pass the Senate, but would have trouble getting through the House. This would ordinarily mean that Ex-Im opponents would succeed in shuttering the agency, since Ex-Im’s expiration is automatic without reauthorization. That means Ex-Im supporters will probably pursue other means, such as tucking Ex-Im’s reauthorization into a must-pass appropriations bill. Ex-Im opponents would have no choice but to swallow that poison pill, or risk another politically costly government shutdown.

If the appropriations bill scenario is what comes to pass, reformers will likely gain some kind of concession, such as a very short reauthorization period. Ex-Im reauthorizations are typically good for four or five years; this reauthorization could last just a few months, forcing Congress to revisit Ex-Im as soon as January or February. This would remove Ex-Im as an election issue for reformers, but still leave them with a genuine chance of victory once the next Congress convenes. It would also give campaigning pro-Ex-Im incumbents a chance to tell voters they can bring home the bacon—especially in Washington State, which receives more than 40 percent of Ex-Im’s total financing, despite housing only 2 percent of the U.S. population.

There are a lot of possible fates for the Export-Import Bank. Whatever happens this month, reformers will have a good chance to end one of the federal government’s largest corporate welfare programs. Readers interested in more detail on the politics of the Ex-Im fight should read John Bresnahan and Jake Sherman’s piece in today’s Politico. For the merits of the issue, see my recent Ex-Im paper.