A Moral Case Against the Ex-Im Bank, Once Called "a Fund for Corporate Welfare" by Obama

Over at National Review, Mercatus Center economist and Reason columnist Veronique de Rugy makes a moral case against the Export-Import Bank, a government program that subsidizes purchases of American goods by foreign countries. The Ex-Im Bank, whose largest beneficiary is aircraft maker Boeing, is pretty universally recognized as inefficient, unnecessary, and distorting to price signals. And there's this:

A major function of the Ex-Im Bank, practically speaking, is to coax foreign companies to buy Boeing airplanes. It’s often overlooked that many of the companies buying these planes are government-owned airlines in poor (or even very poor) countries.

Take Ethiopian Airlines, for instance. The airline is owned by the government of Ethiopia, a country where 78 percent of the population lives on an income below $2 a day, the average life expectancy was 59 years in 2011, and state health expenditures amount to a paltry $3 per person. 

And how does Ex-Im encourage Ethiopia to spend its meager public funds? Perhaps on education improvements, health services, or critical infrastructure? Don’t be silly. They sell them Boeing planes, of course! Bad credit, no credit? No problem! The Ex-Im Bank’s creative financing options will allow any country to put shiny new Boeing planes in their national airports — no matter how dire their fiscal position.

Whole piece here.

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • ||

    Our For The Children argument is better than your For The Children argument!

  • Saneman||

    Could someone address this point please? I am not trying to troll, just looking for an explanation. This from someone who is not versed in economics (at all).

    Over the course of the past 50 years the corporate tax rate (as a percentage of GDP) has decreased by around 4.5%. Over about that same time period, the top 10% wealthiest Americans have increased their wealth at a rate about 10 times that of the bottom 90% (their percentage of wealth has remained stagnant). Doesn't this suggest that tax freedom only leads to the wealthy continuing to exploit the lower classes? Someone please give me the 101 Econ explanation here in layman's terms.

  • Brett L||

    If the top 10% raised their wealth by 10x, and the bottom 90% still have 90% of the wealth than that would tell me that your facts that don't add up.

  • Saneman||

    Ok, I believe I stated this incorrectly. Not wealth, but income. This is the graph I was looking at.

    http://www.theatlantic.com/bus.....rs/262221/

  • Brett L||

    First: It appears to me that one sector is growing directly and the other exponentially. For myself, who has been in the same area since, say, 2005, it has mostly to do with inflation eating my dsiposable (let us say savable) income. The price of food and gas has doubled (although the cost of cell phone service is half what it was and delivers infinitely more data). So the "assets" that the bottom 90% acquire and own are becoming less valuable while the assets the top 10% have in addition to those bottom 90% are increasing radically in value. Although, I agree with tarran. Many stock valuations are objectively crazy. Who in the hell is paying $300/share for Amazon (sorry, $330, up 2% today)? There's way too much cash chasing too little value in the stock market. Some day, all of the bad paper is going to make a hard landing, as it should have in 2008, and its going to turn out that nobody's rich.

  • tarran||

    The corporate rate is tenuously connected with investment income growth.

    What is happening in the stock market is a inflationary bubble, fuelled by all the money the Fed has been 'printing' as part of the quantitative easing. All that newly 'printed' money ends up as demand deposits in banks. Most of that money sits in the banks' reserves to shore up their balance sheets. The fraction that does get loaned out or spent is used by the people who get their hands on it to buy stuff. Right now it looks like they are pouring that money into buying stocks, with prices going up as the people with the newly printed enter the competitive bidding process.

    The "income" of the top ten percent is generally the captial gains created by the rise in stock prices.

    Under the current economic regime, the politically connected (who skew rich) are exploiting everyone else. Lowering taxes makes it easier for people with less money to do more, but until spending is tackled it's like rearranging deck chairs on the Titanic.

    The reason being that much of the deficit spending is being 'funded' by central banks like the Fed buying US bonds. In effect, much of the debt is being paid for by money printing across the world. And for third world countries, this money printing to purchase U.S. bonds by their local central banks is making it very hard on the people in poverty. It was a major factor in the food price increases fueling the anger that led to the Arab Spring for instance.

  • Palin's Buttplug||

    Your rambling nonsense addressed exactly none of his question.

  • Saneman||

    Ok, so it seems to me like you are saying that a lower corporate rate won't actually help anyone but those who are helping to inflate the bubble, a bubble that just sucks the wealth from the middle class (under the guise of investment) only to be sold off when the connected decide it would be best for them.

    So, on a separate point, if anyone wants to hand out free financial advice, are libertarians more apt to suggest paying down debt vs investing (assuming the investor is a layman) because the market is just another bubble waiting to crash. Am I right to think that an 8% growth rate over the next 30 years is a pipe dream? Should I just play it safe and pay off my house? That was random I understand, but I just hear so many competing voices on this question, would be nice to hear an opinion here. Thanks

  • tarran||

    Interest rates are going to have to go up, and dramatically at some point in the future. Therefore, pay down your debts now, while the going is good.

    In theory, you could borrow a bunch of money, invest it in the stock market until the day before the interest rates go up, sell the securities, and retire the debt.

    But you'd need a time machine or access to the next 50 years of the Wall Street Journal, like some short story in Astounding Magazine during the Carpenter era. :)

  • tarran||

    Ok, so it seems to me like you are saying that a lower corporate rate won't actually help anyone but those who are helping to inflate the bubble, a bubble that just sucks the wealth from the middle class (under the guise of investment) only to be sold off when the connected decide it would be best for them.

    That's not what I am saying. A lower corporate rate makes a wider variety of enterprises and investments profitable enough to be worth trying (since the tax makes profitable enterprises less profitable).

    Thus, a lower corporate tax will lead to an uptick in the numebr of workers hired and business expansions expanded. It also will increase stock prices, since the earnings and capital value of businesses will increase by the amount they are not losing to taxes.

    I'm just arguing that the phenomenon you are describing is mostly due to runaway government spending and intervention in the economy, and has little or anything to do with corporate tax rates.

  • Saneman||

    Ok, this I understand, but what is the point of a corporate tax rate if the corporation can skirt the system anyways. I mean aren't these corporations paying little to no taxes anyways, or is this just not true (ie general electric). It seems like the tax system itself is so complex that it lends itself to being corrupted by anyone who either has high powered accountants/lawyers or who can pay the right people not to look in the wrong places. I mean wouldn't it be better to have a lower corporate rate whilst enforcing tax laws more aggressively, so that you are working within a more transparent and just system.

  • Sevo||

    One other point:
    Regardless of the corp tax rate, the actual taxes are paid by the customer. The corporations are merely the tax collectors here and it's an easy way for the politicos to raise taxes on the consumer behind the fantasy that the evil corporations are paying.

  • Palin's Buttplug||

    If taxes are paid by Joe Sixpack instead of those benefiting from capital gains that would prove his point, Sevo-Head.

  • Sevo||

    Palin's Buttplug|4.21.14 @ 4:18PM|#
    "If taxes are paid by Joe Sixpack instead of those benefiting from capital gains that would prove his point, Sevo-Head."

    If you had a point I'd be amazed, shitpile.
    If Joe Sixpack buys from that corporation, you fucking idiot, he's paying the tax bill.

  • Palin's Buttplug||

    If Joe Sixpack buys from that corporation, you fucking idiot, he's paying the tax bill.

    I am agreeing with you, dumbass. Joe Sixpack is a vessel for federal, state, alcohol, and local tax payments.

    And the shareholders at Budweiser reap the gains.

  • Sevo||

    Palin's Buttplug|4.21.14 @ 4:25PM|#
    ..."And the shareholders at Budweiser reap the gains."

    And if you raise the tax, the shareholders will get the same and Joe will have to dig deeper.
    No, I don't think you are agreeing, since I don't think you understand.

  • tarran||

    No, I don't think you are agreeing, since I don't think you understand.

    Of course it doesn't understand. It's not sentient. You're having a conversation with a pathetic creature that would lose a battle of wits with an earthworm.

  • Palin's Buttplug||

    Over the course of the past 50 years the corporate tax rate (as a percentage of GDP) has decreased by around 4.5%. Over about that same time period, the top 10% wealthiest Americans have increased their wealth at a rate about 10 times that of the bottom 90% (their percentage of wealth has remained stagnant).

    The effective US corporate tax rate is 12-13%. However profits are up well over 1000% since Reagan rightly cut capital gains.

    We tax profit from labor far more than from capital.

    Whether that is "exploitation" is subjective.

  • Sevo||

    "We tax profit from labor far more than from capital."

    Yeah, because "capital" fills out a tax form and mails in the payment.
    Fail. People pay taxes regardless of whether you pick their right pocket or their left.

  • Rasilio||

    The two things are completely unrelated. You are attempting to correlate 2 thing which happened at about the same time but share no other connections. Sort of like saying that over the last 40 years clothing standards have become more relaxed and during that time the earth has warmed so doesn't that mean that relaxed clothing standards are driving the increase in global temperature?

    The first problem with your question is that corporations do not pay taxes, they never have and they never will because the cost of those taxes are always bourne by individuals. Some combination of Stockholders, employees, customers, and possibly vendors is actually paying those taxes and according to economists who have looked into it about 80% of the cost is paid by workers in the form of lower wages, 15% by customers, and 5% by stockholders. So higher corporate taxes are actually a way to shift tax burden from the wealthy to the poor and middle class.

  • Saneman||

    Ok, this makes sense, but don't many of these individuals (the CEO's themselves) horde ridiculous amounts of money for themselves. I mean some of these fat cats living on Park Avenue are living in 50 million dollar homes, and that's just the beginning of it. I guess it just seems to an average Joe that these people are not earning wealth due to their own hard work or perspiration, but rather just because they have political connections and the ability to manipulate a corrupt system. I think this is the kind of thing that pisses people off--that the American dream is just a pissing contest and the odds are stacked against the guy with the little pecker. It's like trying to play Monopoly against someone who already owns the Boardwalk and you never get $200 when you pass go. I mean not that I understand a solution, but it just seems morally wrong for such few people to own such a vast amount of the resources. Maybe that doesn't bother some people, but I guess it just strikes me a unjust.

  • Rasilio||

    Research the difference between political capitalists and market capitalists.

    Yes some of the so called fat cats are using connections to get rich without ever producing anything of value. The overwhelming majority are not and don't think for 1 second that the job of a ceo is easy. It is not worth what some companies pay them in salaries but it is harder work than any joe sixpack out there would ever dream of doing.

  • Rasilio||

    The second problem is you miss the actual driving factors for wealth to be accumulating more to the rich than anyone else. Starting with Johnson's Great society programs there have been numerous (and continually growing numbers of) ways that the government has discouraged private savings in favor of current consumption. For the poor and middle class it is very easy to spend every dollar, for the rich they will always have investments. As the only ones investing for the last 50 years it stands to reason that they would be the only ones to see their wealth grow. Second money printing by the Fed on a massive scale since 1992 has been accumulating in the financial markets. To some level this is a good thing because it would have caused runaway inflation if all that money made it into the general market but it has essentially served to massively inflate the value of financial markets and who owns the majority of stocks/bonds/etc? The rich.

    What this means is that most of the growth in the wealth of the rich is illusury and caused solely by inflation and that when that inflation is inevitably wound down (as must eventually happen one way or another) their wealth will mostly return to balance with that of the average worker but it looks bad now.

  • Saneman||

    But it's not only the top 10% that is investing is it? Wouldn't it be more like the top 30-40%? My parents are middle, maybe upper middle class and they lost a huge chunk of their investments in the late 2000's.

    To me the numbers suggest that something has gone horribly wrong and you have a handful of people literally extracting massive amounts of wealth from people by playing a game of buy and sell, and when you know everyone else who owns everything, a few simple phone calls can help tip the scales in your favor every time.

  • Rasilio||

    There is some level of investment coming from all parts of the economic spectrum. Even some of the very poorest have some investments. Just not much.

    Your parents are upper middle class, ok how much did they loose? $50,000? Out of maybe $300k in investments/savings? (numbers which would put them well into the top half of upper middle class families for savings). Compare to Warren Buffet's ownership of something like $50 billion in financial products (stocks, bonds, etc.), if there is a general inflation of the price of financial assets of 10% Warren Buffet earns $5 billion, your folks earn $30k.

    The mistake you are making here is to assume that investors are somehow extracting wealth from everyone else. In theory they are not. They are earning a percentage of new wealth that gets created. Nothing is extracted from anyone becasuse the wealth they get never existed before. You also missed out on the part about a lot of that wealth being illusory. If stocks prices go up 10% as above but there is no corresponding economic growth Warren Buffet only appears to be $5 billion richer (and your folks only appear to be $30k richer) and some people may be lucky enough to convert that illusion into real wealth by selling it before the illusion is realized but eventually it will be and the value of the assets will return to where it should be

  • Rasilio||

    That said there is a way that the rich do extract wealth from everyone else, and it has to do with fed money printing. Because they are connected to the halls of power they are usually able to get their hands on the newly printed money first, use it to buy assets which they then sell to institutional investors and small time operators converting inflated money for hard assets and essentially stealing real wealth. And yes there is a problem with it the problem is a government which is too powerful and has too many hands in the economic system. Hands which the rich and well connected can use to pull levers for them

  • Notorious G.K.C.||

    OBAMA: "I didn't say 'fund for corporate welfare' like it was a *bad* thing!"

  • Brett L||

    Every time I read of someone citing Obama's words to criticize his policies I see: "You fucked up, you trusted me."

  • Rich||

    pretty universally recognized as inefficient, unnecessary, and distorting to price signals

    ***cough***FederalReserve***cough***

  • Sevo||

    ..."Once Called "a Fund for Corporate Welfare" by Obama"

    So he LOVES it!

GET REASON MAGAZINE

Get Reason's print or digital edition before it’s posted online

  • Video Game Nation: How gaming is making America freer – and more fun.
  • Matt Welch: How the left turned against free speech.
  • Nothing Left to Cut? Congress can’t live within their means.
  • And much more.

SUBSCRIBE

advertisement