David R. Henderson  

Question for Jeff Zients on Ex-Im

Macroeconomics in small econom... The euro and the Greek blackma...

While surfing the web this morning, I came across a mention, by Cato Institute economist Dan Ikenson, of a White House conference call on the Export-Import Bank. I thought, what the heck, the call is during my lunch break; I'll try to get on. I signed in, playing it straight and listing my affiliation with the Hoover Institution, fully expecting that someone would look at that and reject me. Wrong. Given how quickly I got my ID number for the conference call, it was clear that this was automatic and there was essentially no screening. It also suggested--it turns out correctly--that there would be little giving away of strategy.

So I called in at the appointed 11:30 PDT. Sure enough, it started 20 minutes late but I missed the first few minutes because I was at Trader Joe's getting my lunch salad.

President Obama made some brief opening remarks and then turned it over to Jeff Zients, his director of the National Economic Council, for more detail. Zients gave the boilerplate case, the kind of mercantilist case that would cause the current Don Boudreaux and the 1990s Paul Krugman to blow a fuse: we need it to boost exports, jobs are at stake, we need it for our international competitiveness, there are beneficiaries in every single state, etc.

Because I thought there would be a chance for questions (although I knew the probability of my being picked was low), I thought of a question, the TANSTAAFL Bastiat's "what is not seen" question. Here would have been the question: "It's true that you can identify gainers in every state. But what about what is not seen--the losers in every state, people who don't get financing because Ex-Im has allocated lending to exporters rather than to them?"

But then Zients gave me an idea for an even better question by pitching a slow ball right across the plate. He argued that it was false that Ex-Im costs the taxpayer money because it actually makes money. If I recall his number, it was that in the last year the Ex-Im made $600 million. That led me to think of the obvious question that almost anyone trying to husband tax money would think of regardless of one's other political and economic views. And it was this:

Since Ex-Im makes money and you're saying that not only did it make money this year but also it makes money on average, why not let Ex-Im be self-financing with no government subsidy and no government sponsorship of any kind?

Unfortunately, Zients ended the call well before the scheduled time and took zero questions. But Dan Ikenson tells me that it's a good question.

Comments and Sharing

COMMENTS (9 to date)
Ostap writes:

Stated differently, if the Ex-Im Bank is profitable year after year, then why not shut it down and let the private sector make those very same profitable loans?

Thomas B writes:

That's exactly the question I was itching to ask an ExIm person who was presenting last week. Unfortunately, in my professional capacity and in that setting, it would have been inappropriate. Actually, I had a variation of it: "Since you have built up so much expertise over the years, as proven by your remarkably low loss ratio, and you're hampered so much by the need for Congressional reauthorizations, why not offer to raise private capital, privatize ExIm, and help American industry even more than you do, while getting rich in the process?"

Mico writes:

Sounds like you got on because it was a press release, not a conference call.

Harold Cockerill writes:

The hell with the dog and pony show from the White House, how was the salad?

David R. Henderson writes:

@Ostap and Thomas B,
That appears to be correct.
@Harold Cockerill,
The hell with the dog and pony show from the White House, how was the salad?
Better than the dog and pony show from the White House. :-) It was the $3.49 Caesar Salad. I forgot to check because I was in a hurry and wanted to grab the $3.99 Caesar Salad with chicken. It was excellent, evidence yet again of the superiority of the private for-profit sector. I love Trader Joe’s for lunch.

Alex writes:

Since the points you raise are so obvious to any economist, why does the director of National Economic Council make those obviously fallacious statements?

The end (income redistribution) justifies the means (lying)?

david writes:

Because a private entity cannot do what a public entity can, i.e., give the federal government a stake in an industry whose value-added depends largely on government policy defending its existence or consuming its output.

Developed countries are democratic and regularly change their governments; this is unavoidable. These projects take a long time to complete and a future government may see a large investment, supported by a past government, instead as a liability in the face of other priorities. If one exports large aircraft (as the United States does), a lot of diplomatic capital has to be continually spent to persuade other countries not to protect a prestige industry, continually lobbying against foreign nationalist resentment. Private investors must be given some reason to believe the USG will put up this effort, or the buyer may abruptly get cold feet.

This kind of incentivization scheme also squares with the observed stylized fact of regular Ex-Im profits.

RPLong writes:

Sounds like I should consider walking across the street to Trader Joe's for lunch some time.

I did a short stint at Export Development Canada, and I really couldn't figure it out. Some days it felt like EDC was competing with the financial industry for export credit business. Other days, it felt like a straight government-to-business subsidy program. On other days, it seemed like all that was really happening was that EDC was helping businesses side step existing trade barriers by covering the extra costs created by those barriers.

Perhaps it is a blend of all three things.

Radford Neal writes:

David: If I understand your point correctly, you're saying that US aircraft manufacturers won't invest in developing new aircraft if they aren't confident that the US government will strenuously oppose other countries using subsidies and import barriers to help their aircraft industries. Loans from Ex-Im make it more probable that the US government will keep doing that.

Why, however, should US citizens care whether US companies develop new aircraft?

Wouldn't you do better to allow, indeed encourage, other countries to subsidize their aircraft production, and then just buy their planes at below cost?

Comments for this entry have been closed
Return to top