Tag Archives: Export Import

Would cutting Ex-Im’s ties to the U.S. Treasury amount to “unilateral disarmament”?

Before winning this year’s World Cup championship, Germany faced a dilemma during its qualifying match against the United States. Both teams could ensure their advancement in the tournament by colluding to do nothing. If they tied, both would advance. If one of them won, the other might not advance. However, neither could ensure that the other would cooperate. And as a result, they were both forced to compete.

This situation, known a “prisoner’s dilemma,” is one that manifests itself in all sorts of situations, frombusiness to politics to World Cup qualifying games.

It also helps explain where we find ourselves with the Export-Import Bank,or “Ex-Im,” a federal agency tasked with subsidizing U.S. exports. The bank’s charter is set to expire in a few months, and some are making the case that it should be reauthorized to help U.S. manufacturers “compete internationally” by“leveling the playing field.” This is simply another prisoner’s dilemma playing out in the real world.

That is my latest, coauthored with Chris Koopman, at US News.

Corporate Bailouts: the REAL Trickle-down Economics

Advocates of corporate welfare often claim that when governments privilege a handful of firms, the rest of the economy somehow benefits. This is how the Bush Administration sold the bank bailouts. It’s how the current Administration sold the auto bailouts. And it’s how the U.S. Chamber of Commerce is trying to sell the Export-Import Bank.

Mounting evidence, however, suggests the opposite is true: economies whose firms sink or swim based on political patronage grow slower and are less stable than those in which firm success depends on an ability to meet the market test.

That’s me, writing at Real Clear Markets. I’ve always thought that if there were any justice in the English language, “trickle-down economics” would not refer to general tax cuts, but would instead refer to any scheme to privilege particular firms or industries in hopes that their greater prosperity will somehow trickle down to the rest of the economy. I was glad that the editor took my suggestion for the title. Click here to read more.

The Real Public Choice Economics of Big Bird

In an informative post last week, Matt Yglesias pointed out that the few hundred million dollars a year that go to the Corporation for Public Broadcasting are in many ways the “least important” of Big Bird’s government-granted privileges. A far more important privilege is the spectrum on which Big Bird is broadcast. Public TV stations:

don’t have to bid at auction for access to the broadcast spectrum they use. It’s just been given away for free. The decision to allocate some of that spectrum to public TV stations is, at a fundamental level, why they exist.

Matt also points out that another important privilege—one which Tyler Cowen highlights in his book Good and Plenty—is the tax deduction for charitable contributions from viewers like you.

Matt’s post was titled “The Real Economics of Big Bird,” but I’d point out that it also provides a lesson in the real public choice economics of big bird. The President has eagerly mocked his rival’s interest in Big Bird, correctly pointing out that our trillion dollar deficit is not going to be solved by cutting a few hundred million dollars from Sesame Street. But this line of argument misses the public choice lesson.

First, Sesame Street is able to obtain so many government-granted privileges in part because these privileges are inconspicuous. This is known as “fiscal illusion,” and it is an idea which pervades James Buchanan’s research: when people are not clearly presented with the bill for government intervention, they will gladly accept more intervention.

In my research on government-granted privilege, I’ve noticed that the least-conspicuous forms of privilege are often the most popular among politicians. Farm subsidies are the exception, not the rule. Typically, privileges don’t appear as line items in the budget. More often, they are hidden. Think of the Export-Import bank which doesn’t subsidize Boeing, but instead subsidizes firms that buy planes from Boeing. Loan guarantees, tax credits, and favorable regulatory treatment are more-common still and each of these privileges is rather difficult to see.

Second, Sesame Street’s privileges are an illustration of the problem of concentrated benefits and diffused costs. Sesame Street’s direct (and even indirect) subsidy is tiny, especially when it is spread out among 311 million Americans. But it is precisely this characteristic of government spending which has allowed it to get out of hand. Too many government programs concentrate benefits on a comparatively small section of society and disperse the costs over the multitude of taxpayers and consumers. This means that those who benefit from a particular program have a strong incentive to get organized and lobby on its behalf. It is big money for them. But it also means that the millions who pay for the program have little incentive to get organized to oppose it. It’s just pennies to them.

This wouldn’t be so bad if the Corporation for Public Broadcasting were the only government program. But it’s not. Stealth bombers, bridges to nowhere, sugar subsidies, ethanol mandates, light bulb regulations, etc. all have this characteristic. They impose costs on multitudes and confer benefits on a handful. Add it all up and you have a government that spends $7 million every minute.

As the late Everett Dirksen put it, “A billion here, a billion there, and pretty soon you’re talking real money.”