Four Myths about the Export-Import Bank | Citizens Against Government Waste

Four Myths about the Export-Import Bank

The WasteWatcher

The Export-Import Bank of the United States (Ex-Im Bank) is an independent government agency founded in 1934 in an effort to encourage U.S. exports. In 2010, Ex-Im Bank provided $24.4 billion in taxpayer-backed direct loans, guarantees, and export-credit insurance to private firms and foreign governments. Whatever its original intent may have been, today Ex-Im Bank is an obvious example of corporate welfare. Denying Ex-Im Bank’s charter, which is up for renewal in 2011, would eradicate a regressive, wasteful institution whose time has passed.

Ex-Im Bank exists because of four hackneyed myths about its benefits to the American economy. Imports are cited as a grave threat to the nation’s prosperity and exports as a veritable economic bellows, stoking the fires of industry. As the economist Henry Hazlitt once wrote, “Logically … nothing could be more inconsistent.”

Myth Number One: Ex-Im Bank creates jobs. In its 2010 Annual Report, Ex-Im Bank claimed to have “supported $34.4 billion worth of American exports and an estimated 227,000 American jobs” in 2010, which would be delightful if it were possible to create jobs by subsidizing exports. It isn’t. By allowing those who borrow from Ex-Im Bank to do so more cheaply than they otherwise would, Ex-Im Bank undeniably creates jobs at specific exporting firms. However, Ex-Im Bank takes its money from taxpayers, thus reducing demand and employment by at least an equal amount in every other industry. James Jackson, specialist in international trade and finance for the Congressional Research Service, told Congress in 2007: “Promoting exports through subsidized financing … will not permanently raise the level of employment in the economy.”

Myth Number Two: Ex-Im Bank makes loans that will not be made by the private sector. Ex-Im Bank’s website claims that it “does not compete with private sector lenders,” but instead “assume[s] credit and country risks that the private sector is unable or unwilling to accept.” This credo should worry American taxpayers. Loans that the private sector is unwilling to make should be not be made at all. But Ex-Im Bank often records a profit, suggesting that it is making loans that could be made by the private sector. As George Mason University economist Don Boudreaux pointed out to CAGW, “private firms are greedy as hell and credit markets are extremely competitive. Either Ex-Im Bank is crowding out private investment, or it’s throwing money down the toilet.” Indeed, Ex-Im Bank routinely makes loans to highly profitable firms. It has been referred to as “Boeing’s Bank,” partly because Boeing received 65 percent of Ex-Im Bank’s $15.3 billion in 2010. Ex-Im Bank has also made loans to Halliburton, Dell, Caterpillar, Chevron, Emirates Airlines, and United Technologies, all of which borrow regularly from private lenders and are stable, highly profitable concerns.

Myth Number Three: Ex-Im Bank improves the balance of trade. Cheap credit from Ex-Im Bank causes demand for American exports to rise, but either foreign importers purchase American goods with dollars or the recipients of foreign currencies convert them to dollars. As a result, importers abroad bid up the dollar’s value, making business more difficult for all other exporters without the good fortune to receive Ex-Im Bank financing. Simultaneously, the stronger dollar makes imports more attractive to American consumers, nullifying any of Ex-Im Bank’s trade balancing effects. In short, government cannot affect the balance of trade, and it should stop trying. In the long run, exports must always equal imports. The United States currently runs a trade deficit with the rest of the world because many foreign exporters, upon receiving American dollars, choose to invest in American companies or to purchase American treasury bonds. As a result, the U.S. Capital-Account surplus, which measures net foreign investment in America, is the largest in the world.

Myth Number Four: Exports Good, Imports Bad. A love of exports and a fear of imports make up perhaps the most pervasive, bipartisan meme in public opinion throughout the world. This is the basis for mercantilism, the producer-friendly trade strategy which has been thoroughly disparaged by a vast majority of economists, starting with Adam Smith. Faith in mercantilism, the archaic dogma that has taught so many Americans to loathe China’s imports today and Japan’s in previous decades, is the foundation for the mission and charter of Ex-Im Bank. But Americans have nothing to gain from a policy that aims to make imports more expensive than exports. As Don Boudreaux explained, “Exports are the price we pay for imports. They are the price we pay for getting the things we want. In an ideal world, we would get all the imports and not have to pay for them. We would send pieces of paper with dead presidents on them and get valuable goods in return. To favor exports over imports is to favor paying costs over receiving benefits, which is rather bizarre.”

Because the most common justifications for Ex-Im Bank’s existence can be flatly disproven, all that remains is its convenience as a source of pork. It is perhaps the oldest in Washington’s long line of programs that reap private profits while taking public risks. To end Ex-Im Bank would be to take an essential step away from corporatism toward free markets.

-- Luke Gelber