A Few More Thoughts on the Ex-Im Bank

July 2nd, 2014 at 9:27 am

I was out of the box early on the dust-up around the survival of the Export-Import Bank, but haven’t weighed in since it’s heated up, so allow me to briefly revisit.  (You’ll recall that the Ex-Im Bank provides government-backed guarantees to private loans made to other countries under the condition that they use the credit to buy our exports.)

Note the figure in the link above, showing a pretty remarkable drop in Boeing’s share price on the day of Rep. Cantor’s surprise loss to Dave Brat (Cantor’s a supporter of the bank, and Boeing depends on the bank to boost its international sales; Brat’s a strong opponent).  That blip says a lot: Brat had a point when he connected Cantor to Wall St., and Boeing is clearly dependent on the Ex-Im Bank.

Brat and the Tea Party are by no means alone in their opposition to the bank’s reauthorization.  From what I’ve seen in recent days, punditry opposition from left, right, and center is outpacing support by a wide margin.  At this point, I’m not sure if even Tim Howard could save the bank.

Not that the bank obviously needs saving, but neither is the case against it as slamdunkity as opponents claim.  For example, running through the critiques is the assertion that the subsidies which the bank provides to American exporters are wasted: they’d make the same sales without them.

That may be the case, but I’ve seen nothing but assertions and no analysis.  Keith Henessey, who doesn’t just want to end the bank—he wants to “Kill” it!—makes a point I’ve made as well: “Deep and liquid private credit markets exist today that did not exist when the Export-Import Bank was created in the 1930s.”

Certainly true.  The global supply of loanable funds is much greater and cheaper than it was in the past.  But neither he nor I nor anyone else knows if that means a developing economy can get an affordable loan of the magnitude needed to buy US-made airplanes.  The Ex-Im Bank exists to offset the premium associated with that credit risk and it has done so effectively, in the sense of pricing its loan guarantees to account for the risk (i.e., it has not, on net, lost money on defaults).

That doesn’t mean it’s efficient or even that it deserves to live on.  I join the opposition in their major critiques: it’s not clear why Boeing, GE, and other large American exporters need the subsidy, nor why rich countries need the USG to backstop their loans.

But assertion is not proof, and it would be better to test the international credit waters rather than do an experiment with full withdrawal, especially at a time when we very much need the labor demand generated by exports–and remember, we’re talking manufactured goods.  Phase-out is also a better strategy given the other main defense of the bank, which is that as long as our competitors for international sales keep their similar credit-providing institutions up and running, we’re at a disadvantage if we drop out of this market.  As one critic wrote, that’s not a principled defense, but I think it’s a pragmatic one.

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5 comments in reply to "A Few More Thoughts on the Ex-Im Bank"

  1. readerOfTeaLeaves says:

    It’s interesting what the drop in Boeing’s share price suggests about Wall Street’s over-reliance on DC, and on Cantor’s perceived value in the political-economy of the Beltway.

    But with respect to Boeing, it is worth noting that for years now, they have been moving jobs out of the Puget Sound region — to areas like the Carolinas that are ‘right to work’ states. Word in my neighborhood is that most production will be in low-wage states, and if we’re lucky the key engineering teams will remain in the Seattle area.

    Puget Sound (Seattle-Tacoma-Everett) traditionally had a very high proportion of Scandanavian immigrants (somewhat like the Dakotas and Minnesota, but with the benefit of Douglas Fir forests, plus fiords). Scandanavian immigrants, for a number of cultural, religious, and historical reasons, arrived here with fairly egalitarian, collectivist ideas. Those ideas included an emphasis on co-ops as business models, and a very strong Protestant emphasis on excellence in education (including public education).

    It is not mere accident that there are a higher percentage of co-op structured businesses in the Puget Sound region that have flourished, from health care to recreation to groceries:
    Puget Consumers Co-op: http://www.pccnaturalmarkets.com
    Group Health Cooperative: http://www.ghc.org
    Recreational Equipment Cooperative: http://www.rei.com

    I’m pretty certain none of those businesses is bought or sold on a financial exchange, and certainly not on Wall Street. (Each year, my household, along with other clan members, receive ‘rebates’ from our co-op memberships: depending on how much we’ve spent that year, the REI co-op returns a portion as a dividend. PCC gives ‘member discounts’ calculated at the checkout register. GH keeps its costs down by providing managed care and is legally structured as a non-profit co-op.)

    Boeing was never a co-op, but I can attest that plenty of its employees have shopped at, and belonged to, co-ops for health care, food, and outdoor equipment.

    I’d argue that Boeing has benefitted from these collectivist, egalitarian attitudes for generations. Boeing employees have traditionally been very generous in giving back to the community – in volunteer hours, financial resources, and expertise. When Boeing nearly went bust in the early 70s, this region invented the concept of Food Banks, which is a very collectivist solution to the problem of hunger.
    But all of that is possible for people making a living wage, protected by unions.

    There is something of a hullaballoo within my own social circle about Boeing moving jobs away from Puget Sound (with its history of union pay scales) off to regions where employees don’t have union protections. (For some of the youngsters, the word ‘union’ is synonymous with ‘lethargic’ or ‘greedy’; for some of the older folks, the current management of Boeing is disloyal, turning its back on the people who made it successful, and should be shunned. However, that doesn’t mean they’re selling their stock.)

    But to bring this comment back around to the Ex-Im Bank: are there any Ex-Im Bank protections for American employees, with respect to collective bargaining or union wages? I haven’t heard of any, and I can’t imagine that Cantor would ever have given the idea a passing thought.

    If funding by the Ex-Im Bank has no requirements for protection the US middle class, then why am I, as a tax payer, being asked to further subsidize corporations that deliberately move jobs to non-union, low-wage states*? Why is Congress continuing to incentivize this type of corporate welfare?

    If US taxpayers are underwriting the Ex-Im Bank so that our goods can be ‘competitive’, but that ‘competition’ is eroding the financial stability of the US middle class, then it seems like yet another self-defeating, let’s-all-shoot-ourselves-in-the-foot-while-yammering-about-markets-and-competition stupid, costly strategy.

    If our tax dollars are being used to further erode the viability of middle class jobs, then we should either insist: (1) that the Ex-Im Bank create processes that p-r-o-v-e the companies they underwrite are being fair to US workers, or else, (2) we should simply say, “The Ex-Im Bank is failing to meet our requirements for a decent bottom line in terms of community health and middle class viability. We can’t afford it any longer.”

    * The issues of outsourcing is more complicated. My understanding is that part of the reason for Boeing outsourcing many different aspects of production was to generate more stakeholders internationally. Simply trying to escape union wages in Puget Sound does not explain the full reasoning behind the offshoring movement in the case of Boeing. (Ditto Airbus.)

    • Jared Bernstein says:

      Good thoughts, RoTL–thnx! I’ve never heard of any Ex-Im US employee protections/standards, but I like that idea.

  2. markg8 says:

    “As one critic wrote, that’s not a principled defense, but I think it’s a pragmatic one.”

    It’s not an unprincipled defense unless you think giving away American manufacturing jobs is somehow principled.

  3. jeff says:

    This is just more insanity from Washington, creating a problem when there is none to satisfy a dogma or ideology that has failed over and over. The Import-Export bank costs nothing to the taxpayer. The idea the loans would magically materialize in some other sector is an extension of the Laffer curve or Say’s law. (i.e. free up money in one place and it will magically appear another). But loans don’t have to made and credit does not have to be extended, credit is flexible. This is especially obvious in a global marketplace.

    The US practiced heavy mercantilism until the early 20th century, during a period of rapid growth. China likewise practices mercantilism and industrial trade policy while growing 7-10 % a year. Nearly every country on earth has an official industrial policy and some concept of planning. Airbus will be happy to take Boeing’s orders by offering nearly risk-free loan guarantees.

    Washington just blissfully continues on with failed laissez-faire ideas at all levels of governance and wonders why nothing can get done, wonders why manufacturing and production continues to vanish.

  4. Richard Douglas says:

    As long as we’re on the subject of U.S. exports, we should also address brakes and obstacles like the Foreign Corrupt Practices Act. While we’re dismantling one side of the equation, we should not ignore the other.