July 23, 2015
The NYT gave us a bit of the old “he said, she said” in an article reporting on the Obama administration’s latest push for reauthorizing the Export-Import Bank. It told readers:
“While opponents contend that most of the bank’s money benefits corporate giants like Boeing, General Electric and Caterpillar, the small-business owners invited to the White House underscored supporters’ counterargument that most of the bank’s beneficiaries are smaller companies. Mr. Obama’s guests included the owners of Love & Quiches Gourmet in New York, Ferra Coffee in Texas and Bob’s Red Mill in Oregon.”
Of course the opponents are right. The largest beneficiaries include companies like Boeing, Caterpillar and other huge companies. In a typical year the fifteen largest beneficiaries will get more than 85 percent of the bank’s loans or guarantees and often more than 95 percent.
If President Obama and other supporters of the bank were actually concerned about the smaller companies who are the bulk of the bank’s beneficiaries it could presumably propose that the bank be reauthorized with a cap of something like $10-20 million on loans per beneficiary. This would ensure that the small companies who were President Obama’s guests could still get their loans, without giving taxpayer handouts to some of the country’s biggest companies.
The article concludes by telling readers:
“‘The Export-Import Bank makes money for the U.S. government,’ Mr. Obama said, referring to the loan repayments and proceeds from borrowers. ‘This is not a situation in which taxpayers are subsidizing these companies.’
In a fully employed economy (i.e. one in which the Federal Reserve Board is raising interest rates to slow the pace of job creation and economic growth) a below market interest rate loan that is issued or guaranteed by the Export-Import Bank is pulling capital away from other uses. This means that companies not favored by the Export-Import Bank will pay higher interest rates on their loans because of the loans supported by the Export-Import Bank. This is in effect a tax on other borrowers to support the companies getting loans from the Export-Import Bank.
Every economist in the Obama administration knows this to be true. It would have been helpful to point this fact out to readers who might otherwise believe that the Export-Import Bank has free money as President Obama appears to be claiming.
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