The Corner

Judd Gregg’s Export-Import Bank Fantasy World

What world is Judd Gregg living in? It’s certainly not the “real world,” despite the title of his recent piece at the Hill in favor of the Export-Import Bank.

Gregg, a Republican who served as senator from and governor of New Hampshire, first claims that populist rhetoric from the left and the right is unfairly converging to attack the corporatist establishment. While it’s true that some principled progressives like Ralph Nader and Senator Bernie Sanders remain consistently opposed to Ex-Im’s corporate welfare, the vast majority of Democrats have abandoned their principles and are defending the Obama administration’s plans. Even the poster girl of the populist left, Senator Elizabeth Warren, was quick to carry water for big business when the opportunity arose.

But we rapidly see that Gregg does not intend to provide political context, but to craft wing-nut strawmen. He bizarrely brings up the Trilateral Commission, Harvard elitism, and a lack of social justice to explain the populist skepticism that’s rising against Ex-Im. What in the world?

It’s actually Gregg’s mental acumen that is questionable here. He writes:

The bank does not, in fact, aid foreign countries, governments or businesses. It plays precisely the opposite role.

By allowing American companies, mostly very large ones, to finance the products they want to sell to a foreign company or government at a reduced rate, the Ex-Im Bank in fact represents an American commercial threat to foreign companies. It is the antithesis of foreign assistance.

This is just flat out wrong. Gregg can stamp his feet, randomly bring up the Trilateral Commission, and claim whatever he wants about the Export-Import Bank, but he cannot change economic reality.

Basic trade economics tells us that when a government subsidizes exports, either by providing cheap working capital to domestic companies or cheap loans to foreign ones, it generally raises the cost of domestic consumption and lowers the cost of foreign consumption. While Ex-Im Bank subsidies do help the tiny number of domestic and foreign companies, many of whom are lucky enough to have friends in Washington (we will soon see that Gregg thinks that’s a good thing), they hurt the millions of U.S. consumers and unsubsidized firms who lack Ex-Im connections.

This is what Paul Krugman has to say about export credit subsidies in the 2008 edition of his international trade textbook:

It is difficult to come up with any situation in which export subsidies would serve the national interest. The use of export subsidies as a policy tool usually has more to do with the peculiarities of trade politics than with economic logic.

Was Krugman worked up about the Trilateral Commission too?

Moving on, Gregg then claims that these fairy-tale export credit subsidies that only benefit American companies help “our guys —  the guys who employ Americans” to have “a better chance to compete.” Is that so?

Gregg apparently thinks that the many employees of, say, American iron-ore-mining firms are figments of the imagination. Last year, the Export-Import Bank extended almost $700 million in export financing to an Australian mining company – which happens to be owned by Australia’s richest woman, heiress Gina Reinhart — so that they could purchase Caterpillar equipment. Gregg would say this is a great example of how Ex-Im helps “our guys” to employ Americans.

But wait! An iron-ore-mining company in Cleveland, Cliffs Natural Resources, objected to the deal, claiming that it would hurt its business and employees. In this case, the federal government, through the Export-Import Bank, was directly subsidizing an American company’s foreign competitor — and a competitor that would have no trouble finding private market finance, at that. (Cliff is the most vocal U.S. mining company on the issue, but the issue hurt others, too.)

But the real kicker comes next. Gregg:

More substantive is the right’s concern that the bank’s activities amount to the government picking winners and losers, and supporting the big boys with influence.  

To be fair, this is basically true.  But what is the real cost of such support?

At last, a moment of honesty! Gregg is one of the few Ex-Im defenders willing to bite the bullet and defend its corporatism.

Alas, Gregg thinks that Ex-Im cronyism is okay because it “returns a few billion dollars a year to U.S. taxpayers.” Hm . . . so the unfair treatment of some companies for the benefit of others, along with the market distortions the Bank creates, is just peachy as long as Uncle Sam gets richer on paper? And it’s only Ex-Im advocates like the Chamber of Commerce that claim Ex-Im really is a boon to taxpayers — the Congressional Budget Office projects the bank will yield billions in costs over the next decade.

Dean Baker has the best explanation of why this profitability claim shouldn’t be taken seriously. 

The other area for fun accounting is the claim that we make money on the bank. This is true in a literal sense, but not in a way that any economist/policy type would take seriously under other circumstances. The federal government is one of the lowest cost borrowers in the world. By splitting the difference between the cost of borrowing to the federal government and the cost to private companies, the government can virtually always guarantee itself a profit.

This is a simple and widely understood form of arbitrage. The government could also make money by lending billions of dollars to Dean Baker’s Brilliant Hedge Fund, which would invest in a broad stock index and pay the government an interest rate 0.25 percentage points more than its borrowing costs.

Needless to say, the Ex-Im supporters will not back loans to Dean Baker’s Brilliant Hedge Fund, even though the profit to the government would be as assured as with the Ex-Im Bank. The point is that it would be allocating capital in ways that serve no obvious economic purpose and likely are worse than the market allocation.

Besides, Ex-Im’s projections aren’t realistic — what you would the supposedly $1 billion profit do for taxpayers when a share, any share, of its $140 billion liability comes due in an economic downturn?

The whole piece is a mess. I didn’t think I’d read a worse Ex-Im defense than Joe Nocera’s, but Gregg has really taken the cake.

For some sanity on Ex-Im, read Tim Worstall’s piece on why Larry Summers’s pro-Ex-Im argument is nonsensical.


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