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outdated mercantilist institution.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.
