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December 15th, 2017

Insight

A bank with Congress in its pocket

George Will

By George Will

Published March 12, 2015

Fred Hochberg, chairman and president of the U.S. Export-Import Bank.

Conservatives' next disappointment will at least be a validation. The coming reauthorization of the Export-Import Bank will confirm their warnings about the difficulty of prying the government's tentacles off what should be society's private sphere.

The bank, which exists to allocate credit by criteria other than the market's preference for efficiency, mirrors the market-distorting policies of foreign governments. These policies favor those countries' exports that compete with America's. Much of what the bank does is supposedly to "level the playing field."

When Fred P. Hochberg, the bank's chairman and president, defends it, an old joke comes to mind: A pastor officiating at a man's funeral asks if anyone in the congregation would like to say something about the deceased. After a long, awkward silence, a voice shouts: "His brother was even worse." South Korea, Hochberg says, provides "more than three times more export support than we do." Thus does sound policy get defined down: Others are even worse, supposedly forcing us to emulate them.

The bank has been reauthorized 16 times since it was created in 1934 as a filigree on the New Deal program of politicizing the allocation of resources. The bank and its current authorization would expire in June, if Congress would just do, as it should learn to do, nothing. But the bank will be reauthorized because it has bought longevity.

Congress is controlled by Republicans rhetorically committed to clarifying the increasingly blurry boundary between the public and private sectors. But many Republicans have in their districts or states some businesses that benefit from the bank's loans, loan guarantees and insurance. Rep.Stephen Fincher (R-Tenn.) opposed the bank until it helped Tennessee firms such as the one that exports chemicals that make golf courses lush; then he became a supporter.

The bank makes nearly 90 percent of its transactions with such small U.S. firms in order to spread its largess across the country, like butter on bread. Many Democrats, too, have dependent constituents. Besides, progressives consider government permeation of the economy inherently good: Progressivism postulates what realism about government refutes — the congruence of the government's interests and the public's needs. Sen. Elizabeth Warren (D-Mass.) — rhetorical scourge of Wall Street, big banks, the 1 percent, etc. — supports Ex-Im, even though it helps to fatten seven- and eight-figure compensation packages for the leaders of some large U.S. firms, which get the lion's share of the bank's resources.

Ex-Im is called "Boeing's Bank"; America's largest airplane manufacturer last year was the beneficiary of nearly 70 percent of the bank's long-term loan guarantees, which lowers the cost of credit for foreign purchasers of Boeing aircraft. This, however, makes foreign airlines more competitive with U.S. international carriers such as Delta, which vigorously objects. Hochberg counters that Delta benefits from Ex-Im financing: The bank helps finance foreign airline engine overhaul services that Delta performs near Atlanta.

Hochberg notes that whereas Americans average more than two flights per year, air travel has barely begun for India's 1.2 billion people, and his bank can help Boeing compete for sales against Airbus there. But if, as he says, the bank makes low-risk loans, surely private banks would make them.

Rep. Jeb Hensarling (R-Tex.), chairman of the House Financial Services Committee, would like to terminate the bank but recognizes the law that governs government, what economists call the law of concentrated benefits and diffuse costs. The United States has 320 million sugar consumers and sugar import quotas: These mean unnoticed higher prices for everyone and a windfall for a few thousand grateful sugar producers. Similarly, Ex-Im's financial costs, seen (the cost of government borrowing) and unseen (opportunity costs — the benefits to the economy if the borrowed money instead were allocated by market criteria of productivity), are diffused. The benefits to the bank's client companies are concentrated.

Hensarling, who of necessity practices the politics of long-term incremental gains, suggests lowering the monetary cap on the bank's activities. And if, say, only one-third of Ex-Im's resources are used to directly counter other nations' export subsidies, the bank's other two-thirds should be eliminated.

The bank's costs are, however, more than financial. The bank takes a toll on the quality and equity of American life and politics by helping to make legitimate and routine the practice, which extends far beyond the bank, of allocating wealth to the politically well-connected. The inability of Republicans to end the bank by inaction illustrates the inertia of big government when buttressed by the clients it creates.

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