Monday, September 1, 2014

Larry Summers makes the case for the Ex-Im Bank

The Export-Import Bank has traditionally had lots of friends in congress but not much in the way of big intellectual defenses. But Larry Summers offers one this weekend in the Financial Times, essentially a foreign policy rationale:

At a time when authoritarian mercantilism has emerged as the principal alternative to democratic capitalism, the US Congress is flirting with eliminating the Export Import Bank that, at no cost to the government, enables US exporters to compete on a more level playing field with those of competitor nations, all of whom have similar vehicles. Only by maintaining a capacity to counter foreign subsidies can we hope to maintain a level global trading system and to avoid ceding ground to mercantilists. Eliminating the Export Import Bank without extracting any concessions from foreign governments would be the economic equivalent of unilateral disarmament.

This is a great example of how economics underdetermines public policy. Suppose you think the best world is one in which no major government is running a targeted program to subsidize politically favored exporters. Is the quickest route to that endpoint for the United States to unilaterally abolish its own export-subsidy program? Or is to maintain our export-subsidy program until such programs can be phased out on a multi-lateral basis?

Summers' argument has some plausibility. On the other hand, consider this. To Summers, the existence of foreign export-subsidy programs is a key reason to keep the Export-Import Bank. So if the European Union were to unilaterally abolish its export-subsidy programs, Summers would be more favorable to abolishing ours. In other words, "unilateral disarmament" by the EU might make US disarmament more likely. So maybe unilateral disarmament by the USA would make EU disarmament more likely? It's extremely hard to know which way the strategic argument cuts, but whatever you make of it this would all hinge on something well outside the bounds of normal economic thinking.

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