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Home Publications Blogs Beat the Press Contrary to Neil Irwin, "We" Are Not All Crony Capitalists

Contrary to Neil Irwin, "We" Are Not All Crony Capitalists

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Thursday, 19 June 2014 13:48

Neil Irwin is trying to implicate the rest of us in his desire to subsidize Boeing and other big corporations through the Export-Import Bank. The Ex-Im Bank provides below market loans to select projects in order to help make sales in both directions. Irwin tells readers the debate over the bank provides:

"A fascinating case study in how modern economies really work, and the ways big business and big government are inevitably intertwined in ways that believers in free markets may not like — but may not be able to avoid. In short, we’re all crony capitalists, whether we like it or not."

Irwin argues that all foreign governments have similar sorts of subsidies for their businesses and that we would be operating at a serious disadvantage if we didn't subsidize our business deals.

There are two points worth noting on Irwin's argument. First, it goes directly against free trade 101. Remember how we call autoworkers and steelworkers Neanderthal protectionists if they support tariffs or quotas to keep their jobs? The argument that is the basis for dismissing these workers' efforts at protecting their livelihoods is the same argument that would be used against the Ex-Im Bank. (Other countries provide subsidies to their auto and steel industry also. In the standard trade models it doesn't matter.)

When Irwin tells us that we have to be crony capitalists "whether we like it or not," why don't we also have to be crony protectors of workers' livelihoods? It seems that there is a very fundamental inconsistency here. When it comes to business interests we are prepared to throw the economics textbook theory in the garbage, but when the question is worker's jobs, that textbook is the bible.

The other point worth noting in reference to Irwin's argument is the logic of the textbook story itself. The logic is that if we lose jobs in the steel or auto industry we will get jobs in other sectors that will offset these losses. This is not an absurd argument, although the new jobs are not likely to help the auto or steel workers. In the case of business as a whole, the argument would be that if we don't subsidize loans to favored businesses through the Ex-Im Bank, then we would sell less overseas. This would lead to a fall in the value of the dollar which would make our unsubsidized exports more competitive internationally and make our domestically produced goods cheaper relative to imports. In principle this market determination of winners and losers is more efficient than the government's designation through the Export-Import Bank.

People can come to different conclusions about the value of the Ex-Im Bank, but it is inconsistent to claim to be a free trader and to support the Bank. Anyone who supports the Bank is clearly willing to have the government subsidize certain businesses. If they claim support for free trade is the reason they don't care about losing auto or steel jobs to foreign competition, they are not being honest.

Comments (6)Add Comment
If Crony Capitalists Don't Stick Together, Everyone Will Lose
written by Last Mover, June 19, 2014 4:02

It's comparable to how corporations play states off against each other to give tax breaks for corporations to locate in their state to "create jobs".

Both sides will say it's a necessary evil to maintain a level playing field. If a particular state or corporation refuses to play the game it will lose out.

But the playing field itself is not competitive in terms of economic efficiency. It extracts money in the form of economic rent from state taxpayers and redistributes it to corporations which do not use the proceeds to lower prices to consumers nor raise wages of labor.

Below market loans by the Ex-Im Bank act similarly to create a one-way drain from government to corporations and the players will say it's necessary to keep the playing field level to keep them in business.

But as Dean Baker points out, exporting manufacturing jobs themselves conveniently escapes the logic that everyone must play to avoid losing out. When it comes to labor like steel and auto workers they're expected to face the full brunt of unsubsidized global price competition with no offsetting loans available to soften the blow.

Crony capitalists must stick together and endure the hypocrisy of socialist subsidies so everyone can win - except labor.
...
written by Vedicculture, June 19, 2014 4:18
The market doesn't determine crap, nor should it tell America what to do. The US was founded on subsidizing these industrialists and then protecting them through tariffs. That was the "American System".

The reason they are "crony" is, because they push for tariff reduction as they have become large and gone global.........while still taking the subsidies and scamming laborers.
The great unwashed "we" ...
written by John Puma, June 19, 2014 5:33
are NOT capitalists, crony or otherwise.

I'll spare you several thousand words of vituperation about that excellent manipulative hoax.
Confused
written by Larry Signor, June 19, 2014 8:14
"The logic is that if we lose jobs in the steel or auto industry we will get jobs in other sectors that will offset these losses."


I don't follow the logic. Every steel, auto, construction etc. worker who loses a job detracts from AD (the replacement jobs, if they materialize, are not likely to be of equal value), which does not seem to be a growth strategy. Devaluing the dollar is a job creator in a class of its own. That logic, I understand.
...
written by dax, June 20, 2014 8:07
+2 Dean.
not completely absurd, but mostly absurd
written by indiana patriot, June 20, 2014 12:24
Great comment -- the idea that eliminating auto jobs will lead to growth in other sectors is not (completely) absurd but mostly absurd.

What new sectors emerged in Detroit? How? What mechanism connects laid off auto workers to a booming cellphone industry? This just isn't happening.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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