Rare News Desk
One of my favorite economics jokes is the Tullock Economic Development Plan. Devised by the influential public choice economist Gordon Tullock, it involves taxing everyone who files an income tax return in the United States an extra dollar and paying the collected funds to Tullock, “whose economy would develop rapidly.”
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Sound silly? Yes, but it illustrates a serious point regarding the suddenly red-hot Export-Import Bank debate.
The Export-Import Bank, or Ex-Im for short, has become a contentious issue is because Congress has to reauthorize it every few years, or else it ceases to exist. The next reauthorization deadline is September 30, and the House and Senate could hold votes as soon as this week.
This is the best opportunity corporate welfare opponents have had to actually end a program in years, so they are making a full-court press to close the 80-year old Bank. The bank’s beneficiaries have billions of dollars at stake, so they are fighting just as hard to preserve Ex-Im.
Ex-Im arranges sweetheart financing terms for U.S. exporters and foreign companies that buy U.S. goods. As in the Tullock plan, the benefits are highly concentrated. In an average year, roughly half Ex-Im’s business benefits a single company, Boeing. Other major Ex-Im beneficiaries include Caterpillar, General Electric, and John Deere.
Ex-Im supporters tout the loans it gives to small businesses, but these comprise less than 20 percent of its book. And some of the supposedly small businesses helped by Ex-Im have as many as 1,500 employees.
Most of Ex-Im’s assistance is in the form of loan guarantees. That means that while Ex-Im does relatively little direct lending, it—and by extension, American taxpayers—are on the hook for guaranteed loans that aren’t repaid.
This isn’t chump change. Ex-Im’s total loan exposure is currently right around its statutory limit of $140 billion. In addition, Ex-Im, with about 400 employees who require salaries, benefits, and office space, has administrative costs of $64 million—a deadweight loss.
Ex-Im imposes other costs on the economy. Capital-needy startups have a harder time finding financing because Ex-Im uses up capital that could go to them instead. And established companies like Delta Airlines are harmed by Ex-Im’s subsidies to its foreign competitors.
But back to Tullock’s economic development plan. His point is that if government is going to dole out corporate welfare, the most efficient way to do it is to hand out cold, hard cash. Straight subsidies don’t distort international markets or invite corruption the way export subsidies do.
But most cash gifts to corporations are political non-starters. They’re a little too obvious. So companies and allied politicians need cover stories. The Export-Import Bank fits the bill.
An official logo, sophisticated-sounding economic rhetoric, and appeals to American jobs and patriotism are designed to make people feel good about the special favors Ex-Im performs for businesses.
The Aerospace Industry Association, which supports reauthorizing Ex-Im, even tried to court conservatives with a full-page advertisement in Politico featuring Ronald Reagan. The ad does not mention that Reagan spoke publicly against Ex-Im and shrank its lending cap in real terms during his presidency.
Ex-Im has other costs. One of them is corruption. On June 23, The Wall Street Journal reported that four Ex-Im employees have been removed or suspended in recent months, “amid investigations into allegations of gifts and kickbacks.”
In 2010, Bloomberg reported that Exxon Mobil Corp. paid for nearly $100,000 of travel expenses for Ex-Im employees to London, Tokyo, and the South Pacific. Exxon Mobil was seeking $3 billion in financing from Ex-Im at the time, and received it 11 months later. The Heritage Foundation’s Diane Katz found that 74 potential cases of fraud have occurred at Ex-Im since April 2009.
Government should not give preferential treatment to any business. In the end, Ex-Im is a more expensive version of the Tullock Economic Development Plan—with additional side effects such as distorted international trade markets, reduced access to capital for startups, millions of dollars of administrative expenses, and billions of dollars of liability exposure for taxpayers.
As Congress considers whether to continue or abolish the Export-Import Bank, lawmakers could use much more honesty on what the reauthorization debate is really about.
