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Another Perspective
The Export-Import Bank Should Be an Ex-Bank
There’s no economic reason to reauthorize this expensive mercantilist relic.
Among the nation’s failing financial institutions the Export-Import Bank has received little notice. Now, however, the House and Senate are considering whether to reauthorize the bank. They should not. It was a bad idea to begin with, and the market is currently developing better ways to meet its stated goals without putting taxpayer money at risk. It is time to do away with this outdated mercantilist institution.
Why do we have a bank to subsidize exports at all? This stems from a fundamental economic misunderstanding — that exports are good and imports are bad. In fact, both are beneficial to an economy. Essentially we export goods to pay for the goods we import. If we are wealthy enough to pay for the goods we import without exporting, we are still better off.
When we subsidize exports, we are paying to export things with money we could be using to import more things we actually want. To be competitive, imports need to be more affordable than home-grown goods. Therefore, imports lead to savings. That means that we free up wealth to use elsewhere in the economy, which is why the idea that we should subsidize exports to provide jobs is also a myth.
There is no economic case for the Export-Import Bank. Yet its supporters claim that it is solving a case of market failure by providing taxpayer money for risky ventures that are unable to attract conventional funding. Unfortunately for this line of argument, the Ex-Im Bank has a dual mandate — to subsidize these ventures but also to lend money only when there is a reasonable chance of repayment.
It is difficult to square that particular circle. If something has a reasonable chance of repayment, private sector funding should be available for it. If something is too risky for conventional funding, that is what venture capital is for. Using taxpayers’ money to finance the venture is the worst possible choice. As former Obama adviser Larry Summers acknowledged in comments about the Solyndra boondoggle, government makes a terrible venture capitalist (though he put it somewhat more crudely).
Moreover, today it is becoming easier than ever for investors to back projects they like. Many are familiar with “crowdfunding” methods like Kickstarter and Indiegogo, which raise capital for small start-ups and risky ventures that probably could not get conventional bank loan funding. It is quite conceivable that more sophisticated versions of these vehicles will evolve to back the sort of export ventures that the Bank funds, but at no risk to the taxpayer.
The government, in its wisdom, is blocking such an evolution. Arcane rules put in place supposedly to protect investors are in fact blocking willing investors from linking up with entrepreneurs. As a result, the number of Initial Public Offerings has fallen dramatically over recent years, and companies are becoming more and more dependent on debt financing, with all the risks that entails.
The bipartisan JOBS Act, which seeks to promote crowdfunding, is currently held up in the Senate as defenders of the status quo, like Senator Jack Reed of Rhode Island, seek to protect the Wall Street-centered fortress of securities regulation that was designed for an era long before the Internet. This intransigence is all the more perplexing in light of the fact that the JOBS Act is expressly designed to spread risk and stop the chance of anyone losing his shirt.
The efforts to reauthorize the Export-Import Bank are the other side of this intransigence — a defense by the Washington establishment of a system that uses taxpayer money to defend special interests. In this case, the proposal is to spend up to $160 billion of taxpayer money on risky projects that have a solid chance of repayment.
Of course, the Senate being the Senate, its leadership’s view of compromise is to attach these two contradictory approaches together under one bill. Thankfully, enough Republicans realized this that they have stopped the attempt to conflate the two issues, but that may make it more difficult for the JOBS Act — which even Maxine Waters voted for in the House — to pass the Senate.
There will also surely be another attempt to reauthorize the Export-Import Bank, but it remains a clear case of two wrongs not making a right. Either way you look at it, the Export-Import Bank math doesn’t add up.
About the Author
Iain Murray heads the Center for Economic Freedom at the Competitive Enterprise Institute and is the author of Stealing You Blind: How Government Fatcats Are Getting Rich Off of You.
Letter to the Editor View all comments (21) | Leave a comment
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Jack in Wi.| 3.21.12 @ 6:22AM
Welfare for the rich is hundreds of billions of subsidies for the connected and the unconnected get the shaft. How can either party justify all this nonsense? The corporate fatcats have to be cut back just like those in the government unions, education educrats, heathcare bloated overhead, and the military industrial complex. Then maybe we can attack the entitlement crisis.
One if by land...| 3.21.12 @ 11:14AM
It isn't the governments job to run private business! Have you EVER read the constitution???
Bob K.| 3.21.12 @ 8:16PM
The government has been running private businesses for the last half century.
The Bank is just another Bureaucratic Agency under another name. More evidence of the continuing passage of the United States from a Democratic Order to a Bureaucratic State.
EasTexan| 3.21.12 @ 8:09AM
Seems everyone is piling on ExIm, but I've a different story. Some 20 years ago I acquired a small business unit of a large Dallas company. And though we were very profitable from the outset, we were unable to obtain conventional working capital lines of credit because the production cycle was long, the product was sophisticated and expensive, and we were 100% export. The ExIm provided loan guarantees for local bank financing which permitted the company to grow into a multimillion dollar corporation while creating hundreds of jobs in the process. None of which would have been otherwise possible.
Ryan| 3.21.12 @ 8:49AM
Here's an interesting part though - had crowdsourcing or some similar vehicle been available, there may have been a more free-market measure available. You were also dealing with a time before you may have found some hedge fund money as well.
Regulations were in the way.
EasTexan| 3.21.12 @ 9:08AM
Thanks, Ryan, and I agree that it was a different time. But after trying every route; venture capital, private equity, and many banks (large and small), our last chance to build this company into what it became, was ExIm's help. And I shall be forever grateful for the assistance. And by the way, ExIm, and our local bank source were repaid generously and in full.
WillianInWien| 3.21.12 @ 8:23AM
The issue is not whether or not the EXIM Bank is productive or non-productive, the issue is whether or not the US economy can afford to maintain this organization along with so many other USG agencies that cost taxpayers billions every year?
One if by land...| 3.21.12 @ 11:19AM
Semi-agree. But again, it is not the place of the government to step in a run banks. If a bank is well managed and financially balanced it should make money. If not, th opposite. If the opposite should occur, then in comes a different bank. Defend our borders and regulate commerce, only!
Bob K.| 3.21.12 @ 10:22PM
George Will had an article in today's IBD commenting on Ex-Im Banks history of "mission creep" which is a tactic all bureaucracies use to extend their reach and power.
If we are going to have bureaucracies someone needs to control them and if we can't can't control them we need to get rid of them whether they are a bank or any other kind of government entity.
Martin Miller| 3.22.12 @ 12:00AM
WilliamInWien- I encourage you to get the facts. EXIM Bank doesn't cost the taxpayer a cent, and it has earned $5 billion for taxpayers since '92. It doesn't get any tax dollars, and if it was done away with it would actually increase the deficit because it transfers hundreds of millions of dollars to the Treasury every year above the cost of operations. If EXIM ceases to exist US companies will not be able to compete against government supported financing that's available to their competitors. Those countries won't stop supporting their companies just because the US decides not to maintain EXIM Bank.
Les| 3.21.12 @ 10:24AM
EasTexan-Great points. Some people simply are too kneejerk.
RJ| 3.21.12 @ 2:04PM
Government shouldn't be in the banking business, other than to maintain reasonable regulations of it. EX-IM Bank is largely a creature of crony capitalism and should be terminated. Frederic Bastiat's "That Which is Seen and That Which is Not Seen" provides the best short explanation as to why government ventures such as Ex-Im Bank should be avoided.
Dmitry Aleksandrovich| 3.21.12 @ 10:02PM
It is amazing to me that some people treat the "free market" as if it had been handed down from God to Moses on Mount Sinai. Unemployment is at 8-9% officially and 15-20% unofficially is that the case now? I don't know how we can defend free trade in a world where the other major players do not play by any rules other than economic nationalism. Economic nationalism should be the rules we play by as well. End NAFTA, end CAFTA, get us out of the WTO, slap tariffs on imports in industries that we've lost over the years to Asia and subsidize our own industries in those sectors to jump start domestic manufacturing.
Martin Miller| 3.22.12 @ 12:07AM
Mr. Murray, you obviously didn't have time to research your article. If you had you would know that the $160 billion figure that you use isn't taxpayer money, it's authority to incur obligations or exposure. Most of what EXIM finances is in the form of guaranteeing commercial loans... and you might be surprised to know that EXIM doesn't get any taxpayer money, earns a profit (almost $5 billion since 1992), has a loss rate since 1934 of less that 2 percent, and pays all of its claims from the loan loss reserves (which today total almost $5 billion). Those, sir, are the facts.
RJ| 3.22.12 @ 2:07AM
A similar argument was made for Freddie and Fannie. The expense to the taxpayer lies in the explicit or implicit governmental guarantee, otherwise, there would be no need for Ex-Im Bank as private financial institutions would handle these projects. It enough of a job to govern wisely. We shouldn't overburden government with business ventures which ultimately turns into favoring some and not others.
Tom| 3.22.12 @ 12:40AM
I don't think this guy knows what he's talking about. The ExIm as we use it won't guarantee a loan unless it is also guaranteed by an acceptable foreign country government. Risk of default is low.
All equipment must be US made.
The ExIm bank gives us a big advantage over our foreign competitors and creates lots of US jobs. This is one of the few programs worth keeping.
Dmitry Aleksandrovich| 3.22.12 @ 1:31AM
Tom I think Mr. Murray is a spokesman for the global corporations that have profited immensely from our country's adoption of global free trade as its official economic religion. It's worked well for the investment class, but its destroyed the American Middle Class who's well being has relied on a heavy manufacturing base.
POST American| 3.22.12 @ 4:08AM
"The Federal Reserve has pumped
so many BILLIONS into [--NAZI--}
Germany that they dare NOT name the total."
Rep Charles McFadden
1935
(the height of our 'Great Depression')
Fans of POST American already know all about
their latest unfolding nightmare from across
the Pacific ---underwritten and 'managed'
into existence ---by OUR tax money
and transferred economy. It took 4 carefully
and cunningly navigated decades ---but
there it is!
Unaccountable, capstone, Globalist USURY
creates deviant, and self-destructive economy
and carries the infinitely dark kharma of
enslavement from the days of old Sumeria
---and probably long before.
TAKE HEED
LATEST polls reveal over 90% of even our
dumbed down American public are NOW
aware the Federal Reserve is PRIVATE,
ANTI-Constitutional and are calling for its
AUDIT, prosecution and abolishment.
Someone should hand AS ----A CLUE.
REALLY
Aditya| 3.22.12 @ 7:59AM
Interesting article on the export-import bank and the proposal to reauthorize the bank.Read an informative whitepaper on exports and manufacturing with related information you may find useful @ https://bitly.com/z9CP2A
Ralph Novy| 3.24.12 @ 10:34PM
I think you might well be right, Mr. Murray.
Although the intentions seem to have been good, the results seem to have been largely in the favor of large companies -- especially Boeing -- which don't need such bolstering.
So.....yeah........either end this program or radically "reset" it such that it benefits the "small business" importers/exporters it was intended to.
Johncornor | 6.18.12 @ 8:37AM
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