The Export–Import Bank: The Government Subsidy “Free Traders” Love6th February 2019
I have long had fun with the folks who call themselves “free traders.” Essentially, these are people who argue it is a high moral principle to eliminate any barrier to trade that might support the income of working class people, but suddenly get really stupid and defensive when we talk about barriers that support the income of professionals and the wealthy.
This means that a 10 percent tariff on imported steel is an outrage against all that is good and decent in the world. But when it comes to protectionist restrictions that prevent highly qualified foreign doctors from practicing in the United States and bringing the pay of our doctors more in line with other rich countries, they suddenly have no idea what you’re talking about. (FWIW, we spend far more money on doctors than steel.)
The same story applies to patent and copyright protection. (Yes, that is “protection” as in protectionism.) These government-granted monopolies are treated as part of the world’s natural order. Instead of recognizing them as forms of protectionism, countries that don’t have patent and copyright rules as strong as in the U.S. are treated as being violators of free-trade.
In other words, “free trade” is a make it up as you go along rationale for ways to redistribute income upward. This is why I got a big kick out of seeing Charles Lane’s column today on the Export–Import Bank.
The Export–Import Bank is a mechanism for the United States to subsidize its exports by providing below-market interest rate loans and loan guarantees for exporters. There actually can be some argument for this sort of support in cases where small- and medium-sized firms are just getting into the export market. (It’s still a government subsidy.)
However, that was not the story with the Ex–Im Bank. The overwhelming majority of its loan money (in the neighborhood of 90 percent) went to a tiny number of multi-nationals like Boeing, Caterpillar, and GE. This is not a help-the-upstart story, this was a subsidy-to-politically-connected-corporate-giants story.
Incredibly, the vast majority of the self-proclaimed free traders were big advocates of the Ex–Im Bank. They would go along with the absurd games pushed by the hacks.
For example, they would tell people that some very high percentage of the loans went to small businesses. (Yes, this is in Econ Stupid Tricks 101 — a high percentage of the loans go to small businesses, a tiny percentage of the dollars go to small businesses.)
And, we got the story that some huge number of US jobs depending on the Ex–Im Bank. In this story, we assume that the US would lose all the exports supported by Ex–Im loans or guarantees, as opposed to some realistic number like 2–3 percent.
Anyhow, with pushing from the free traders, the Export–Import Bank was reauthorized by Congress. I had thought the free traders had won and got their government subsidies.
But as Lane points out, Republicans in Congress refused to approve new members for the bank’s board. This meant that the board lacked a quorum. And, without a quorum, the board could not approve loans of more than $10 million. This meant the bank was actually in the business of making loans to small- and medium-sized businesses, rather than subsidizing Boeing and Caterpillar.
It turns out the big companies were still able to export without the subsidy, although I’m sure they made somewhat less money. Anyhow, it’s a nice story. It shows how free trade can be better than “free trade.”
Read more about eu binary options trading and CFD brokers