End Ex-Im. Period.
Can what Rep. Jeb Hensarling (R., Texas) called the "poster child of the Washington insider economy and corporate welfare" be reformed?
Perhaps the better question is why anyone would want to reform such a government agency when it is set to expire in four months. American Action Forum's Andrew Winkler contends we must mend the U.S. Export-Import Bank, not end it, because the "ideal global marketplace" does not exist and foreign governments have similar "export credit agencies."
Winkler's argument is that absent the taxpayer subsidies provided by the Export-Import Bank, U.S. companies would be unable to compete in the global marketplace. Usually, this claim is accompanied by an assertion that, on net, jobs will be lost if Ex-Im expires: The U.S. Chamber of Commerce argues the bank is a "vital resource" for "job creation." The National Association of Manufacturers contends it is "crucial to American job growth." President Obama said the bank helps "create jobs here at home."
But Winkler -- both in his RealClearPolicy piece and in a longer report co-authored with AAF president Doug Holtz-Eakin -- makes no such claim. In fact, aside from noting that the bank "exists to increase exports and jobs," in his RealClearPolicy piece Winkler makes no mention of jobs whatsoever.
Why? The most obvious answer is that economists of all stripes have long understood federal credit programs don't result in net job creation. A 1981 Congressional Budget Office report explained: "Subsidized loans to exporters will increase employment in export industries, but this increase will occur at the expense of non-subsidized industries: the subsidy to one industry appears on other industries' books as increased costs and decreased profits."
Thirty years later, a Congressional Research Service report was equally blunt: "Subsidizing export financing merely shifts production among sectors within the economy, but does not add to the overall level of economic activity, and subsidizes foreign consumption at the expense of the domestic economy."
Interestingly, American Action Forum agreed with this sentiment in its own 2011 report, concluding, "Export financing merely redistributes jobs across the economy rather than create more overall jobs."
With that context, let's go back to Winkler's argument that absent Ex-Im, "U.S.-based companies would find it harder to compete and win in the global marketplace." American companies are winning in the global marketplace without the help of Ex-Im; in fact, 98 percent of exports occur without the help of Ex-Im, and only one-third of Ex-Im's business involves offsetting subsidies from foreign export credit agencies.
Although America may have slipped in recent years in the Heritage Foundation's annual ranking of economic freedom, it remains one of the best countries in the world to do business. It is that competitive advantage that will lead to success, not what Hensarling dubbed "a taxpayer-funded subsidy arms race."
If lawmakers and academics want to make the argument that distorting America's economy is acceptable because companies like Bechtel, Boeing, Caterpillar, Dow Chemical, Ford, General Electric, and John Deere need public support to compete, let's have that debate. Taxpayers undoubtedly would welcome an explanation as to why they are subsidizing industrial giants. (As Winkler notes, smaller businesses account for the bulk of Ex-Im's transactions, but the overall amount of the subsidies going to small business is under 20 percent.)
Winkler does acknowledge taxpayer exposure is "a very real concern" with Ex-Im and suggests "mandating fair-value estimates of the agency by the Congressional Budget Office." Fortunately, the CBO released that analysis last week. Using this rigorous, risk-based accounting method, the number crunchers found the taxpayers will lose $2 billion over the next decade to cover the Export-Import Bank's financial activities.
Unless AAF can show that Ex-Im creates jobs, there really is no argument at all for keeping it. The bank is simply putting taxpayers at risk and distorting the market to subsidize a handful of multi-billion dollar companies. There is nothing justifiable about any of that.
Dan Holler is the communications director for Heritage Action for America.