Greg Mankiw is no “Tea Party crank,” — he’s the chairman of the economics department at Harvard University. He points out the obvious in a blog post today: the standard arguments in defense of Export-Import Bank are horribly weak.
1. It creates jobs. Of course it does! If the government were to put the names of all businesses into a hat, pull out a few randomly, and give those a per unit subsidy, those businesses would expand and hire more workers. That would not make it a good policy, however, because the wrong jobs would be created.
He concludes: “if this is the best advocates of the Bank can do, it shouldn’t be reauthorized.”
This puts Mankiw squarely in line with other economists. Some excerpts from a few other economists or economic policy experts:
Michael Strain, AEI:
“Some argue that the bank creates jobs by gaining more customers for export-based American firms. The case for this claim is weak. The trade deficit and export-based jobs are determined by the savings and investment behavior of American households, firms and the government, and not by trade policy in general, or export subsidies specifically.”
Economists Kyle Bagwell and Robert W. Staiger:
“[S]uch policies at best introduce costly domestic distortions into the economy and at worst cause a deterioration in the terms-of-trade as well.”
American Action Forum:
“Ex-Im’s financing may help create jobs in specific industries. However, for the economy as a whole export financing merely redistributes jobs across the economy rather than create more overall jobs.”
Keith Hennessey, director of the National Economic Council in George W. Bush’s second term:
“Kill the Export-Import Bank … There’s a difference between what’s good for America and what’s good for one firm in America.”
Congressional Research Service:
“Most economists doubt … that a nation can improve its welfare over the long run by subsidizing exports. Economic policies within individual countries are the prime factors which determine interest rates, capital flows, and exchange rates, which, in turn, largely determine the overall level of a nation’s exports. This means that, at the national level, subsidized export financing merely shifts production among sectors within the economy, rather than adding to the overall level of economic activity, and subsidizes foreign consumption at the expense of the domestic economy. This also means that promoting exports through subsidized financing or through government-backed insurance guarantees will not permanently raise the level of employment in the economy, but it will alter the composition of employment among the various sectors of the economy.”
Government Accountability Office:
“[Ex-Im Bank] programs cannot produce a substantial change in the U.S. trade balance.”
London School of Economics economists at the Royal Economic Society:
“Research by Fabrice Defever and Alejandro Riaño, presented at the Royal Economic Society’s 2013 annual conference claims that if China removed its export subsidies, consumers around the world would see their real income fall by 1% – but China’s national income would rise by 3%.”
“An export subsidy creates an incentive for producers to supply for export as opposed to domestic consumption. The withdrawal of supply from the domestic market causes domestic prices to rise.”
