By the way, about No. 4: only one reader ever figured out the actual identity of “the Atlas Shrugged guy” whose writings I quoted extensively back during the 2012 election cycle and who now lives in Alabama (and who never carried out his threat to close his company if Obama got a second term). But yesterday three people immediately wrote to say that they had figured out the real name and location of the profanity-bound West Point grad I quoted recently, prompting me to further vague-up the description of him in the post.
Two reader messages this time. The first is from an ExIm bank critic. He thinks, incorrectly in my view, that there has been no discussion of the substance of how the bank works. But let’s hear some specific criticisms from him:
I encourage you to read his note carefully, since it sums up many of the “serious” as opposed to splenetic critiques of the bank:
I find myself rather surprised that your examination of the ongoing debate regarding the Ex-Im Bank seems to merely focus on the opinions of those concerned regarding the Ex-Im Bank, rather than the mechanics of what the Bank actually does, and whether these functions should be undertaken by a government entity.
One of the chief functions of the Ex-Im Bank, as you are aware, is the insurance of payment to exporters. While this may seem like a relatively low-risk endeavor (only a 0.2% default rate!) the same sort of consideration was given to FHA loans not long ago. Obviously in hindsight we now realize that such insurance exposed the U.S. government to an enormous amount of risk, and now the government has absorbed many hundreds of billions of dollars in losses on defaulted loans.
This same thinking can be extrapolated to the Ex-Im Bank portfolio. [JF note: Yes, sure — if there were anything in its portfolio remotely comparable to the “securitized” but ridiculously valued sub-prime real estate of the early 2000s.] What would happen if just a single large customer of Boeing defaulted on loans totaling several billion dollars? Boeing would be made whole by the Ex-Im Bank at an enormous cost to taxpayers.
Meanwhile the secondary function of the Ex-Im Bank, the origination of loans to foreign purchasers of exports, is fraught with complications as well. While it may seem at first glance to be wholly beneficial to the U.S. economy for a government entity to issue loans to purchasers of exports, this has unintended consequences.
When a foreign airline receives a substantially below-market rate loan to purchase airplanes from Boeing, this is indeed beneficial for Boeing, but what is the effect on U.S. airlines, which directly compete with the foreign entity? As U.S. airlines are unable to access Ex-Im loan rates, their cost of capital is higher than that of the foreign entities, putting U.S. airlines at a competitive disadvantage, one that is solely attributable to the existence of the Ex-Im Bank. [JF note: see if you can find anyone working in the aircraft or airline industries who thinks this is a significant real-world problem. In the first installment, I mentioned the gap between economics-textbook situations and the operations of the real world.]
Aside from the anti-competitive aspects of the Ex-Im Bank and the accompanying market distortions, we are left puzzled as to why such loans could or would not be offered by private entities. General Electric, a massive international corporation, has an in-house financing arm, G.E. Capital, that amounts to more than half of the corporation's revenue, a sum of many billions of dollars. Yet G.E. Capital is apparently unable or unwilling to perform the financing and insurance functions of the Ex-Im Bank, despite the origination and guarantee of similar loans being a core, commonplace occurrence for the business, and such business being apparently quite profitable for the Ex-Im Bank.
Why would G.E. Capital not want to compete in such a lucrative, profitable field that would seemingly complement existing business? Obviously the answer is that the Ex-Im Bank's loans and guarantees are priced significantly below market rates, and that the Ex-Im Bank is willing to bear a much greater risk than private entities would be comfortable with at a given price point, given that the Ex-Im Bank has the ultimate backstop on defaults, which private entities do not have.
The conclusion to be drawn [JF note: the passive voice is our enemy. What the reader means is, “The conclusion I draw from this is...”] from this is that the Ex-Im Bank is performing a dangerous function for which the risks and market distorting effects have not been properly considered. The past performance of the Bank should not be considered predictive of future results, as the financial condition of foreign entities has become increasingly perilous in recent years.
The two entities most in favor of national trade finance agencies, the E.U. and China, now sit on far more precarious financial footing than in the past, and defaults have become increasingly likely. The time to end the Ex-Im Bank is before taxpayers are hit with crippling defaults, all for the purpose of ensuring that Boeing and General Electric bear no risk in exporting goods.
OK, that is a fair sample of the reasonable, non-ad-hominem criticism of the ExIm bank. Judge for yourself. On my side I am sounding a little judgmental, because I have considered such theoretical points for decades, since my own days as a graduate student in economics, and I don’t find them matching the actual world.
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But, you don’t have to listen to me. I give you Robert Rackleff, a former ExIm bank official (and a friend and colleague of mine from back in the Carter administration days). Two years ago he heard a very similar “horrors! this is mercantilism!” analysis from a Washington think tank. You can click here to read the whole thing. Two points of relevance to the preceding discussion:
Cost to taxpayers. How big a burden, really, is ExIm? Rackleff answers:
Ex-Im finances its operations from fees and interest from customers and receives no appropriations of taxpayer funds... Ex–Im borrows from the Treasury, paying the same interest rate that money center banks pay the Treasury when they borrow.
Ex-Im returns more to the Treasury than it borrows. It is a “negative subsidy program,” which the GAO defines as “those in which the present value of estimated collections is expected to exceed the present value of estimated payments.”
Ex-Im transferred $1.1 billion in excess earnings (also known as profits) to the Treasury in fiscal year 2012 and the first quarter of 2013.
Exposure to risks, of the sort the previous reader mentions:
[Another critic] raise alarms about risks of defaults on bad loans, but cites no evidence that this is bound to happen. She fails to acknowledge that Ex-Im’s very low default rates (0.26 percent as of July 2013) could be the result of prudent management by Ex-Im staff and directors.
This prudence is deeply imbedded in its policies and procedures, which include the following.
• Ex-Im authorizes financing only when there is a “reasonable assurance of repayment” determined by rigorous due diligence by a staff with a proven record of success.
• Ex-Im finances no more than 85 percent of a transaction, requires risk-based “exposure fees” and, when advised, additional collateral.
• Once they disburse the funds, staff update a transaction’s risk rating at least annually after assessing an obligor’s capacity to repay, the value of pledged collateral, ability to weather adverse market changes, and on-site visits....
• Fiscal year 2012’s default rate was only 0.34 percent of its active portfolio. (It was 0.26 percent in the most recent quarter ending June 30, 2013.) That reflects a steady decline of defaults in recent years, and was significantly less than 2006’s default rate of 1.6 percent.
Much more to read. We’ll see if any of this makes its way into the Congressional “debate.”
Thanks to our new threaded-notes feature, you should see all previous installments in this series below. The purpose of this one is to give some answer to the question “Why on Earth should I spend two seconds thinking about the Export-Import Bank??” for the 99% of the U.S. population that has never previously spent even a single second that way.
A Scot in unusual headwear, producing a distinctively keening bagpipe sound. Also shown: a bagpiper with kilt and sporran. (Hardee har!) Everything Donald Trump has said about immigration could, with equal “accuracy,” be applied to the Export-Import Bank. (2010 Reuters photo / David Moir)
Here’s why: you could think of it as a parallel to the immigration debates, or in different ways to the culture wars, or the impending struggle over shutting down the government, or other extremism-vs.-centrism pressures in national politics and within the GOP. In all these cases, we have real-world trends that indicate one thing, and fevered political rhetoric that indicates another.
In immigration, the real world trends are:
illegal immigration from Mexico has long been falling;
in a number of recent years more people have moved from the United States to Mexico than the other way;
immigrants (legal and illegal) have lower rates of criminality than native-born Americans; and
the process of assimilating outsiders, which has always been disruptive throughout U.S. history (involving German and Irish in the mid-19th century, Eastern Europeans after that, Chinese before and after, a broad sampling of the world’s people since the 1964 reforms that reduced the preference for white-European immigrants; Latinos through the southwest; refugees from the Soviet empire and Cuba and Vietnam and Somalia and elsewhere), has overall been a tremendous source of American economic and cultural success and vitality. There is no evidence that the assimilative process is proving less effective now than it was in the 1840s or the 1880s or at other high-inflow times.
But immigration as it appears in the GOP debates is a two-minutes-to-midnight threat to everything precious in the country. (“They’re sending rapists” etc.)
So too with ExIm! In reality it makes money for the federal government (let me repeat that: it pays money into the federal treasury, rather than drawing it out); it matches in much less intrusive ways what other governments do; it gives no evidence of causing serious distortions in market workings; and it has been part of the successful ecosystem both for some of America’s largest and most generally admired tech giants (Boeing, GE) and also the smaller-company supply chain they buy from. Presidents of both parties have supported it. Through the George W. Bush era funding measures passed the House and Senate by unanimous or overwhelming votes.
Yet in the political rhetoric that has succeeded in defunding the ExIm bank, the reality is the reverse. The bank wastes taxpayer money; it exposes the taxpayer to huge risks; it badly distorts markets; and stopping it is a step toward rolling back the over-extended crony-capitalist state.
For the most reasonable-sounding, University of Chicago version of this argument, please see the previous entry. That one also included a response from Robert Rackleff, a former Bank staffer (and longtime friend of mine), on the realities of how the bank operates. Now, a few more logs on the fire.
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Mike Lofgren was for many years a Congressional budget staffer, mainly working for Republicans. He has become well known through his book The Party Is Over, an essay on “The Deep State,” and an upcoming book on the deep-state theme. He writes:
Robert Rackleff is absolutely correct. The premiums and interest ExIm receives serve to reduce the federal deficit that conservatives and libertarians profess to be so horrified about, demonstrating that this is not about the functional competence of government (“the government can’t run a lemonade stand” is a perennial conservative dirge). It is, instead, about dogmatic theology operating in the minds of rigid ideologues.
When I was on the Hill, various Republicans made numerous runs against ExIm, but our empirical determination on the Budget Committee was that eliminating it increased the deficit, and that we would have to find savings elsewhere to offset the cost.
Another reader writes to ask about what he considered an un-addressed point in the anti-bank critique:
One point your Ex Im bank critic made that I don’t think you have addressed is that these are loans that could be made by private lenders (banks, etc.).
Now, it’s been my understanding that some of the loans or loan guarantees made by the Ex Im Bank are made because the foreign purchasing entity insists that the loan or guarantee come from a state entity rather than a private entity. Is this correct? If not, why shouldn’t the private sector fulfill this function?
That is, if this function really was so important, wouldn’t companies as big and credit-worthy as Boeing and GE find other sources for their financing? I turned the question back to Rackleff, who replied that during his time at ExIm:
… foreign buyers preferred, and sometimes required, that Exim be part of the financing -- even if its terms for borrowers could be somewhat more expensive than some private financing alternatives -- for several reasons:
1. Exim due diligence and underwriting standards are reasonable, but strict, in determining creditworthiness and market conditions, so participants know that the deal is financially sound.
2. With Exim participation, foreign governments and businesses like the idea that the U.S. government is involved and will be supportive and reliable. This gives them confidence that red tape can be cleared more easily. It also helps attract other investors.
3. Exim financing is predictable, compared to private lenders (who can precipitously call in loans), so there would be fewer ugly surprises.
4. Sometimes the borrowers simply want to diversify their array of lenders, so they add Exim to the mix.
In all the above cases, American workers win. Exim requires that at least 85 percent of a financed deal is domestic content, which means more American jobs
***
A Boomer-era reader in California writes to connect the tone of the immigration debate, with the anti-government fury, with the ExIm Bank controversy. He says:
The current Republican Party doesn't want to govern.
One evening during the last Presidential election I fell asleep watching C-SPAN while they were running election speeches. It must have been around 2 AM, as I was starting to wake up but still half asleep, I began to listen to the speech currently on the TV.
I was struck at how agreeable it sounded and wanted to know which politician it was. Turns out it wasn't a contemporary politician. C-SPAN had switched to showing historical speeches and what I was listening to was President Eisenhower's Republican Convention Nomination Acceptance speech in 1956.
If you want to see how far the Republicans have fallen just read that speech.
1950s-model GOP leader (Wikipedia)
Which I did! Quite a speech. A few passages of Ike’s, to match up with current rhetoric. Its heart was a presentation of five reasons why the GOP was the Party of the Future, not of the past. Here is one of them:
The Republican Party is the Party of the Future because it is the party that draws people together, not drives them apart.
Our Party detests the technique of pitting group against group for cheap political advantage. Republicans view as a central principle of conduct--not just as a phrase on nickels and dimes-that old motto of ours: "E pluribus unum"--"Out of many--One."
Our Party as far back as 1856 began establishing a record of bringing together,. as its largest element, the working people and small farmers, as well as the small businessmen. It attracted minority groups, scholars and writers, not to mention reformers of all kinds, Free-Soilers, Independent Democrats, Conscience Whigs, Barnburners, "soft Hunkers," teetotallers, vegetarians, and transcendentalists!
Not sure any national-level politician since then has referred to the Transcendentalists (well-regarded here at the Atlantic!), let alone the “soft Hunkers.” But how about that clarity of detests for the tactic of sectoral divisiveness. (“They’re sending rapists...”)
And one more reason why, according to Ike, the Republicans owned the future:
It is the Party which concentrates on the facts and issues of today and tomorrow, not the facts and issues of yesterday….
The present and the future are bringing new kinds of challenge to federal and local governments: water supply, highways, health, housing, power development, and peaceful uses of atomic energy.
With two-thirds of us living in big cities, questions of urban organization and redevelopment must be given high priority. Highest of all, perhaps, will be the priority of first-class education to meet the demands of our swiftly growing school-age population.
The Party of the young and of all ages says: Let us quit fighting the battles of the past, and let us all turn our attention to these problems of the present and future, on which the longterm well-being of our people so urgently depends.
This was the Eisenhower Republican tradition that I actually grew up in. This is a kind of reality-based resistance to hysteria we could certainly use more of. And what did Ike think about ExIm? He was a fan. Here is his message to its employees on its 25th anniversary, in 1959:
The record of this Bank is for fair dealing, for human understanding, and for acting in a businesslike, canny way--not only for the welfare of the United States but for other nations. Your record of repaid loans and repayable loans, your infinitesimal portion of written-off loans is one that I can do nothing except to say congratulations to your Directors, the President, and to all of you.
Here’s another challenge for the press — and members of the American public, and people in the rest of the world affected by U.S. debates — in reckoning with this moment in U.S. political history. It’s one that Paul Krugman, with whom I’ve sometimes disagreed about politics, mentions almost as a throwaway line in his column early today, as shown at right.
The United States still has two major parties. But one of them is no longer interested actually in governing. And we’re dealing with the consequences.
Running any government, in any country subject to any kind of non-Kim Jong Un-style checks and balances, involves compromises, tradeoffs, making the best of imperfect choices. As John Boehner put it yesterday (a phrase I didn’t imagine myself writing) in explaining his frustration with his fire-breathing caucus, “You know this is the part that I really don't understand. Our founders didn't want some parliamentary system where if you won the majority you got to do whatever you wanted to do. They wanted this long, slow process.”
That Republican party competition now is over positions — who can be more anti-Obama (and Obamacare), pro-Israel, anti-Planned Parenthood, anti-climate science and EPA — rather than over policies, which imply the tedious work of operating a government, is a familiar point. Here are two less familiar reminders than the momentum in the party is not about this or that policy detail but effectively against governance itself.
1) From Australia, the American security-policy veteran Aaron Connelly (now with my friends at the Lowy Institute in Sydney) writes about the damage that anti-governance paralysis in Congress has done to America’s position in Asia. You should read the whole essay, but here is his description of the key points:
There are three core arguments:
· First, while partisan gridlock in Congress has hindered the execution of US foreign policy overall, it has disproportionately affected US policy towards the Asia Pacific, because the region has had few champions in either house in recent years. See, for example, the unequal treatment of ambassadorial nominees for the Middle East and and East Asia during the GOP lockdown on appointments last year, which I address in the paper.
· To the extent individual members have focused on the region in recent years, it has often been in pursuit of narrow objectives focused on a single country or issue area, without reference to a broader strategy...
· Though there are signs of increased interest in the region among more junior members of the current Congress, the nature of that interest and whether it can be sustained will depend on how the White House and its partners in the region engage them. The problems of Congressional dysfunction, as you well know, aren’t going away soon. But we can cultivate leaders who better understand the stakes.
So when it comes to the region that contains the world’s most populous nations and its fastest-growing economies, and where long-term U.S. security interests are enormous in both a positive and a potentially negative sense, today’s posturing Congress cannot be bothered to do such things as confirming ambassadorial nominees.
***
2) From General Electric, an announcement that it is moving 350 jobs from the United States to Canada because of the ongoing Tea Party stand of blocking the Export-Import Bank.
Could this be posturing by GE to shift an American policy? Yeah, maybe. But if it were just about politics, would GE really care enough to put its own resources at risk? Far more convincing is this line from the WSJ account (emphasis added):
GE says that financing from an export credit agency such as Ex-Im is required for some $11 billion of projects for which it is preparing bids, including power turbines, generation equipment and aircraft engines….
GE says the Ex-Im fight is one of necessity because export financing is a condition to qualify for bidding on many projects, and other countries are willing to supply financing in exchange for GE shifting manufacturing work to their shores.
In the real world of big-ticket, high-stakes, often government-involved infrastructure and aerospace purchases, purchasers often require sovereign government backups, from the likes of ExIm or its counterparts, as a condition for a deal. But today’s party that doesn’t like government doesn’t care about destroying the governance on which real-world business depends.
***
When I began these ExIm chronicles ten days ago, I wrote the following, which for a moment I considered rash. Unfortunately I realize that it is not rash. It’s just plain accurate:
I could be polite about this, but I won’t. The people bringing down the Export-Import bank are zealots who care more about their theories than the completely foreseeable damage they are doing to American workers and companies.
We see nations with dysfunctional governments and call them “failed states.” This is not the announced destination of an anti-governance drive, but it is where it leads.
Most Americans have lived their lives in blissful ignorance of the Export-Import Bank, founded under Franklin Roosevelt and still based in Washington D.C.
But people in international commerce have relied upon its backstop and confidence-building role for decades. Customers making multi-year, multi-billion-dollar purchases have preferred the idea that governments are also standing behind the deal, even when the world’s biggest corporations are involved.
That all changed this summer, when a rump group of Tea Party Republicans plus some allies on the left (notably including, to his discredit, Bernie Sanders) succeeded in blocking the previously uncontroversial reauthorization of Exim. The notes collected on this page go into the ramifications of this move. The Exim bank can still administer its old loans but not issue any new ones. Here’s how its homepage looks now:
Why does this matter? To repeat the point, since it’s left out of so many public discussions, it’s because high-stakes, big-ticket international commerce often depends on governments backing or at least blessing the deals. We’re talking about the billion-dollar sales of large numbers of aircraft; about years-long programs to build power plants or transport systems; about deals that are enormously consequential from both the buyer’s and the seller’s perspective, and where they foreign purchases are often governments (or government-related) themselves.
The ExIm Bank actually makes money for the U.S. government, rather than costing money. For students in Ec 101, this might suggest that some private bank could just step in to fill the gap. But, again, in the real world, purchasers in Europe or China or Latin America or the Emirates want to know that the U.S. government is standing behind the transaction. That is How The World Works.
The ExIm’s opponents can’t be bothered with any of this, because they think that in theory companies “shouldn’t” need ExIm’s help. And they shouldn’t. But they do. Thus we have what I described yesterday as a drive toward the failed state, in which basic functions of governance are undone. Below are more real-world accounts of the damage such zealotry is doing.
From a reader with extensive, first-hand professional experience in the international aircraft business:
• The issue of subsidizing Boeing and GE had already been addressed in the Aircraft Sector Understanding at the OECD. Details here. There was concern that export credit was supporting [ie, subsidizing and thus distorting] OECD trade and it was felt that this was inappropriate, so minimum rates had been agreed and published with regular updates … to ensure that Boeing and Airbus and GE and Rolls Royce don’t use export credit as an unfair trade tool to developed countries.
The rates were already causing a fall off in export credit utilization. The countries that remained attractive were the lesser jurisdictions and credits. The Tea Party was solving a problem that was already solved.
• The periods when ExIm lending to aviation increased were after 9/11 and then during the financial crisis, two major events that Boeing and GE did not create but had to deal with anyway. After the market settled, lending went back to private markets.
To put this issue in perspective, the first 737 went into service in 1966, 49 years ago. When Boeing plans a model like the 787, they’re looking at 5 or so decades of production for investment return and given the current rate of financial crisis, this implies 2 or so funding market crises per decade, or perhaps 10 during the useful life of the factory. I think it only rational for Boeing and GE to look for help elsewhere given this strategic fact and their significant investment.
• The fact that ExIm has a low loss rate has a lot to do with strategic advantages the private sector cannot reproduce. Countries do not want to default on the US government, but they don’t give a damn about JPMorgan as they’ll just turn around and go to Deutsche Bank the next day. ExIm can also interfere with things like USAID and other bilateral negotiations if they have an outstanding balance. Again, an advantage that cannot be duplicated in the private sector.
• Curious, why aren’t the banks complaining? Are they not the ones who are losing the spread income because the government has crowded them out?
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I’ve been watching up close for 3 years. I’ve reviewed the portfolio at ExIm [in a professional role]. I’ve built several risk pricing models while at [a major manufacturer] for internal transfer pricing and I wrote the business case for [an international assessment of possible subsidies].
I’ve run [a very large] derivative hedge portfolio and have been pricing risk in one form or another for roughly 30 years. The upshot is, It’s stupid on several fronts to close it down, financially, strategically as a lender of last resort when markets fail, and strategically as a facilitator for marginal jurisdictions where individuals and corporations would get fleeced by the locals.
I have listened to the silly libertarian dogma since my undergrad days and find it as empty as Marxism and just as lethal.
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From someone not directly involved in these industries:
I grew up in Texas and was a Reagan Republican, but I've decided to never vote for any Republican that doesn't stand up to the Tea party idiots. Boehner made a start, calling them false prophets, but only after he quit….
As far as the Export-Import Bank, maybe there is a free market solution to the problem, but my wife works in a bank, with small business customers that import and export, and I'm told it's insane to just shut down the bank. We need to do this over a period of time, because it will harm the small businesses that use it.
Finally, from an American entrepreneur who several years ago started his own manufacturing and travel-related business:
Last month, in the midst of the very busiest part of our season we received a notice from the IRS that we owed a 10% penalty on our 2012 wages. (10% of our entire wages paid. Not 10% of the taxes owed, 10% of all 2013 wages).
The reason for the penalty had nothing to do with non-payment of any sort. The reason was that we had not filed the W-2s for our employees during an early construction phase of our project. This was supposed to have been done by our payroll service, but apparently was missed. Again, all associated taxes had been paid. Four slips of paper with figures accounted for in other tax documents had not been filed and the IRS did not notify us of our oversight for three years.
When we inquired why it took them till 2015 to get in touch with us for a 2012 tax issue the agents response was that with the various government shutdowns, sequesters and whatnot they did not have the staff to get to things in a timely fashion…
I suppose the "fire-breathing caucus" of the GOP would be happiest if we simply didn't have tax collection, or regulatory oversight of the design and construction of [vehicles in our business]. But in the meantime we do, and in the meantime not having enough government is making my life as a small businessman harder, not easier.
A new month; a new federal fiscal year; a last-second approval of a federal budget; but still no movement on getting the Export-Import Bank back into business.
As for why you should care about this seemingly beyond-boring topic, please see the previous messages collected on this page. On what it all means, a few more installments from readers — plus this headline just now from the Dallas Morning News, about complaints from businesses in Texas to one of the GOP hardliners opposing the bank.
From the Dallas Morning News: businesses in Texas are complaining about the ExIm standoff
Now let’s hear from the readers.
It’s all about infrastructure. A reader who had heretofore been spared thoughts about ExIm now says it connects to bigger governance questions:
I join the ranks of your readers who know next to nothing about the Ex-im Bank. I didn't even know there was a controversy before your first post, and had no clue what it does or why.
But from what I've gleaned from these posts, the Ex-im bank sounds like it plays the same role as infrastructure, and the argument against it seems to be consistent with arguments against rebuilding our highways, railroads, power grids and telecommunications systems.
Any rational being alive before Reagan and the Roberts Court would have understood that the government had a role in creating a viable structure within which commerce could function. (cf. Constitution Article 1 §8 "The Congress shall have the power to...provide for the...general welfare of the United states... to regulate Commerce with foreign Nations, and among the several States...")
And so the expansion of the railroads in the mid 1800's was made possible by bonds and land acquisition financed by the federal government. And the interstate highway system was built. And easements for power and telecommunications were underwritten and facilitated by federal authority. And air traffic controllers used to be entirely public employees.
The description of the Ex-im Bank in your posts seems to fall squarely into that category. Quoting the letter from the various governors: "The Ex-im Bank assumes the credit and country risks that private lenders are unable or unwilling to accept...." Opposing it would be akin to saying that unless private entities build our highways, build our rail systems, deliver our mail, fight our wars, or control our air traffic, we should go without.
All of those things would "distort the market," certainly, if there were, in fact a functioning, nationwide market in which private interests could compete without harm to the nation as a whole. And to argue against it on ideological grounds is to argue in favor of a nation more akin to the US under the Articles of Confederation.
If the Constitution had been interpreted from the beginning as the Right so zealously wants to interpret it now, this nation would never have gotten off the ground. There really was a serious, palpable reason that the Constitution was written, and it was that this nation needed a much more powerful, commercially involved, national government in order to participate in the world of nations.
James Madison, arguing for the Constitution before the Virginia ratification convention, speaking about a strong national assumption of public debt said, "A respectable government will not only entitle us to a participation of the advantages which are enjoyed by other nations, but will be a security against attacks and insults. The best way to avoid danger is to be in a capacity to withstand it."
I don't disagree with your initial label of "idiocy." I'd go further and label it "ignorance."
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How craven are our corporate chieftains? From a reader at a famous university:
I wonder whether an important aspect of what the Exim struggle tells us about the Tea Party and the GOP is being overlooked.
If the beneficiaries of government-guaranteed financing include as many large and influential corporations as you suggest, what is remarkable is that they have not made more of an effort to thwart an action that appears to be so contrary to their interests. The Bechtels and Boeings of the world have armies of lobbyists and lawyers in Washington. They have hardly been shy about using these tools in engagements with other adversaries, such as organized labor.
Perhaps they have been less vigorous in doing so to save EXIM because, at bottom, they recognize and appreciate the Tea Party as a dynamic and useful ally in battles for lower taxes, less regulation, and other aims that matter more to them. Better to let the Tea Party have this victory than risk a showdown and possible rupture.
In the same way, leaders of the big industrial firms in 1930s Germany put up with interference from the Nazis, whom they despised, because they welcomed Hitler’s ruthless effectiveness in crushing the left. Despite increasingly frequent divisions – e.g. over anti-gay measures in the states – the alliance between big business and the militantly conservative base remains a defining feature of the modern GOP.
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We’re all Tea Partiers now! From a reader on the East Coast:
Neither party is taking us anywhere; not even reauthorizing something as minor as the Ex-Im Bank, as you suggest, or "carried interest," as Megan Mcardle suggests.
Worse, Reps can't cut entitlements and Dems can't raise tax because the vast majority of Americans don't want to pay more and get less. For example, opposition to the “Cadillac tax.”
Simply put, we're all Tea Partiers now! What suggests otherwise?
A small South African airline flies some Boeing 737s and wants to buy more. Why the Tea Party’s crusade to eliminate the Export-Import Bank is now the main factor affecting this sale.
In the flurry of intra-Republican Party warfare last week, there was one clearly positive development. That was the decision by 40-plus House Republicans to break away from the Tea Partiers and “Freedom Caucus” members now blowing up the GOP, and instead join Democrats in backing a “discharge petition” that will force an up-or-down vote on reauthorizing the Export-Import Bank.
From the beginning of this standoff, all sides have understood that ExIm has strong majority support in the House, and probably greater than two-thirds support in the Senate. This is in keeping with its status as a mainstay element of U.S. foreign-economic policy from the FDR era onward, until the recent wave of intense minority opposition from libertarian purists and Tea Party anti-government groups. The goal for these opponents has been to keep its re-authorization from ever coming up for a vote (which they knew supporters would win). This, in turn, is why supporters finally resorted to the “discharge petition.”
Bi-partisan agreement on anything is novel enough these days that the discharge effect deserves mention on its own. In this case, the move also represents a small but significant step against anti-governance nihilism, in two ways.
Procedurally, it represents a triumph over the hostage-taking strategy that has become the Congressional right wing’s m.o. (Hostage taking as in, “Give us everything we want on our most polarizing issues, or we’ll refuse to pass a budget / honor the national debt / let the government operate / cooperate at all.”) And on the substance, it is a rebuff to the theory-driven, reality-blind ideological purism that conservatives used to mock liberals for. For an example, read on.
Early this month Michael Lindenberger of the Dallas Morning Newshad the story about leaders of several dozen Texas companies who sent a joint letter to Rep. Jeb Hensarling, a Tea Party Republican from Texas. They said that his crusade against the Export-Import Bank might sound like a blow against Big Government but actually was costing them sales and jobs and could put some out of business. It’s very similar in tone to the letter from more than half the nation’s governors—Jerry Brown to Nikki Haley, Kate Brown to Paul LePage—urging re-authorization of the bank. The headline on the story was “Texas businesses to Jeb Hensarling: You’re killing us.”
Last week Lindenberger had a fascinating letter from the CEO of a small South African airline called Comair. It gives a small but vivid illustration of the damage that purists from the Ayn Rand Debating Club can do.
The Comair company has signed a contract to buy 16 Boeing airliners and has taken delivery on 5. But it says it may have to cancel the rest unless ExIm comes back to life. The details are in the letter below, but they revolve around something obvious in the real world but ignored in the Ayn Rand theories. This is the role of government guarantees in allowing private commerce to proceed.
Short version of what’s in the letter: Because Comair’s revenues are all in South African Rand, it needs to arrange financing for new planes in Rands rather than U.S. dollars, so as not to expose itself to impossible currency risk. But precisely because of those currency risks, foreign banks won’t lend in Rands. Banks in South Africa can and will — but for reasons the letter spells out, the Rand-based local South African financial community is too small to finance the purchase itself without violating technical “Basel III” regulations for disproportionate exposure.
Much as the FDIC can prevent bank panics by guaranteeing to cover the losses should one occur, ExIm can allow sales to proceed by guaranteeing the financing — and in the real world, the loans it backs fail so rarely that, year in and year out, ExIm earns rather than loses money for the government. In that same real world, in companies like this one in South Africa can’t get ExIm financing, either they won’t buy planes from anyone, or they’ll cancel the Boeing contract and instead buy from Airbus, whose European credit agency is happy to back the sale.
I can actually remember back to a time when liberals were derided for knowing or caring so little about real-world practicalities that they came up with cockamamie schemes that screwed up real businesses, jobs, and lives. Somewhere around that same time conservatives prided themselves on a practical-minded attention to detail, and a hesitation about any grand, self-confident, revolutionary theorizing that was impatient with the complexities of the real economy.
Maybe some of those 40 GOP House members are starting to remember that time too.
Just three years ago, a strongly Republican-controlled House voted overwhelmingly to authorize the Export-Import bank. It’s been a whole different saga this time. (Graphic from govtrack.us)
From its creation 81 years ago as an early part of Franklin Roosevelt’s New Deal, through all the decades under Republican and Democratic administrations until about two years ago, the Export-Import Bank had been a presumptively necessary-and-beneficial part of U.S. economic and business strategy. Like the agencies that built highways or sponsored basic research, it was seen by both parties and all presidents as part of the public infrastructure that improved the conditions in which private businesses could operate. Its operating costs have been small and, by some calculations, it has been returning more money to the Treasury than it has cost.
Even in 2012, a House of Representatives already held by the GOP gave landslide approval to ExIm’s three-year reauthorization. That’s what you see in the chart at the top of this page. But since then, an alliance of libertarian-absolutist think-tank figures and anti-government absolutist figures from the Tea Party have kept re-authorization from coming up for a vote in the House (which they knew ExIm supporters would win). That’s what has made the impossibly boring-seeming ExIm showdown actually an illuminating proxy for debt-ceiling fights, government shutdowns, and all other struggles between the radical-change faction of the GOP and its “well, there’s an actual government to run” wing.
And all that, in turn, is why the House vote last night on a “discharge petition” that will force an up-or-down vote on the bank’s itself, and that expected vote today, are markers that parallel the (apparent) agreements on the debt-ceiling and the overall federal budget, as signs that the “governing” wing of the GOP may be reasserting itself.
The lineaments of the struggle are laid out in the preceding items you’ll find collected in this Thread. What I find interesting is the recent upsurge in pro-ExIm action by conservative, but not nihilist, Republican leaders. For instance, a recent Twitter stream by the plenty-conservative Republican Rep. Stephen Fincher of Tennessee:
Or an op-ed in the plenty-conservative Orange County Register in California by the plenty-conservative Republican Rep. Mimi Walters, saying that the ExIm standoff was costing real people real jobs.
Op-ed by Republican Rep. Mimi Walters in the Orange County Register
This paragraph from Rep. Walters’s op-ed gets to the heart of the whole dispute:
Some have argued that Ex-Im is unnecessary because the private market will step in to fulfill its role. This is simply a naïve view of export financing. Ex-Im functions in the areas where private financiers are unable to operate. For example, many large, foreign contracts require that the bidder have export credit agency support. Without Ex-Im reauthorization, U.S. companies will be excluded from competing for these contracts, to the detriment of U.S. jobs and economic growth.
That is: you’ve got your Ayn Rand purist theory, and you’ve got your Alexander Hamilton let’s-cut-the-B.S. real-world practicality. Over the ages the practicality has usually prevailed on such basic operating matters as funding the government, honoring the debt, and providing infrastructure for business through tools ranging from FDIC to ExIm. For the past few years, the absolutists have hijacked their party and with it, sometimes, the nation as a whole.
A story from Heritage, one of the think-tanks which has opposed ExIm, about the “governing” faction of the GOP working to save it.
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So all this is why the ExIm fight matters. It’s worth watching to see whether this one little triumph of the reality-based governing faction stands as an outlier or as the start of a trend.
Two visions of the role of the state: Ayn Rand, and Alexander Hamilton. They would have disagreed over ExIm, and he would have been right. (Wikipedia images)
This is a closing-the-loop note. After the travails of the past few months, as recorded in the other items in this Thread, the re-authorization of the Export-Import Bank finally made its way to the House floor. And when it did …
The final margin in the House was well over two-to-one in favor, 313 supporting and 118 opposed.
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The most intriguing part of the vote is not that all but one of the Democrats supported the bank, the exception being Alan Grayson of Florida. It was that most Republicans did too. In the end 127 Republicans voted Yes, or 52% of the GOP membership (along with 186 Democrats, or 99%). Only 117 Republicans, 48%, voted No.
The man who gave us the Hastert Rule, in happier times (Wikipedia)
What’s interesting about that? It demonstrates how the venerable “Hastert Rule,” already in need of a branding change because of its namesake’s legal problems, has been stretched to a newly dysfunctional conformation.
In its original form, the Hastert Rule was the idea that the Speaker would allow a vote on a bill only if it had majority support within the majority party. This was to prevent a unified minority, plus a little sliver of the majority, from sneaking a measure through. But even by that logic, the ExIm vote should have happened long ago! Most Republicans were for it! But just as the filibuster has been stretched from an in-extremis protection to a routine obstacle, so has the Hastert Rule been expanded to prohibit votes on measure that even a noisy fraction of the majority party dislikes.
The American Constitution was designed to protect minority rights while also allowing majority governance. More and more the “while also” part falls victim to changed norms: most obviously with the filibuster, but with the Hastert Rule as well. Maybe we should leave it with its now-tarnished name to reflect its fallen status.
