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Home Publications Blogs Beat the Press More Fun with the Export-Import Bank: It's the Customers, Stupid

More Fun with the Export-Import Bank: It's the Customers, Stupid

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Tuesday, 15 July 2014 03:58

Wow, the pundit class is really worried about the Export-Import Bank reauthorization. Today's big shot comes from NYT columnist Joe Nocera.

Nocera is honest enough to acknowledge that big companies like Boeing and Caterpillar are the main recipients of support. The Export-Import bank supporters have been pushing the line that most loans go to small businesses. This is of course true, but most of the money goes to the Boeings and Caterpillars, and serious people care about the money, not the number of loans going out the bank's door.

Nocera's twist is that real beneficiaries are the customers of the big companies, not the companies:

"First, customers of these big companies get the bulk of the Ex-Im Bank’s assistance. ...

"Second, most of the arguments made against the Ex-Im Bank revolve around its help to the big companies, not the small ones. For instance, it is argued that big companies have their own means of helping customers finance deals. That’s true, but it’s the customers, not the companies, that are pushing for export credit guarantees. A Boeing source told me that it is hearing from customers and potential customers about the fate of the Ex-Im Bank. 'It’s a big deal,' my source said, especially in places like Africa, where conventional financing for aircraft is hard to come by."

Okay, this one should get be worth a big burst of laughter from a comedy show laugh track. Imagine that, a "Boeing source" told a New York Times columnist that the Export-Import Bank is really about helping the companies customers. Yeah, how could anyone question that. (This is like when companies oppose pollution regulations because they are worried about their workers' jobs.)

The story here is not very complicated for believers in economics. If there were no subsidies from the Bank, Boeing would have to accept somewhat lower profits on its deals. It would likely make up some, but not all, of the value of the Bank's subsidy. This means that the customers would be looking at slightly higher prices. Life's tough. (Let's get a list of the customers and see if they rank higher than veterans or inner city kids as beneficiaries of the taxpayers largesse.)

In some cases, the higher price will mean that Boeing will lose the deal to a competitor. That's known as capitalism, it happens all the time.

It speaks volumes that at the same time the establishment pundits are getting hysterical over the dire consequences of not reauthorizing the Ex-Im Bank, the WTO issued a ruling against the U.S. over tariffs against Chinese and Indian steel imports. This ruling is likely to cost more U.S. jobs than the shutting of the Ex-Im Bank, but odds are none of the pundits will speak against it. Draw your own conclusions.   

Of course the real free trade position is to lower the value of the dollar against other countries' currencies. That is how a trade deficit is supposed to be corrected in a world of floating exchange rates, like the one we are supposed to have. However the dollar does not fall to bring our deficit into balance because many countries, most notably China, buy up hundreds of billions of dollars to keep the dollar over-valued. The over-valued dollar makes our exports expensive (like taking away the subsidy from the Ex-Im Bank) and makes imports cheaper to people in the United States, crowding out domestically produced goods.

In an economy suffering from secular stagnation, we have no market mechanism to replace the $500 billion dollars in demand (3 percent of GDP) lost to the trade deficit. Adding in a multiplier effect, this deficit costs us around $750 billion in annual output or around 6 million jobs. Unlike the Ex-Im Bank, there is real money and real jobs at stake with the value of the dollar. It would be great for Joe Nocera to write about that.

Comments (18)Add Comment
...
written by George Hart, July 15, 2014 6:03
What would a lower dollar mean to the US economy in terms of oil imports? Would a less expensive dollar lead to higher energy prices, and how does that work its way into the jobs picture? Thanks!
Business Columnist
written by Dave, July 15, 2014 7:01
Years ago there was a big financial scandal. A guy I knew was interviewed by a journalist writing an article about it. My buddy asked the journalist about his background. The journalist had a degree in journalism; that's it. Since then I noticed that a lot of business journalists have similarly limited backgrounds. Many obtained their knowledge of economics and business from little more than reading bumper stickers and listening to politicians.

So the issue here is not about a short-sighted column written by a NYT columnist but a national and truth be told international problem of so-called business and economics journalists pretending to offer insight.
The WalMart Effect: In America, Little People Always Get a Part of the Action
written by Last Mover, July 15, 2014 7:10
The Export-Import bank supporters have been pushing the line that most loans go to small businesses. This is of course true, but most of the money goes to the Boeings and Caterpillars, and serious people care about the money, not the number of loans going out the bank's door.


Remember the sock puppet drumbeat on how a high percentage of Americans had a stake in the stock market and all the prosperity that implied? Never mind how small the share was. Never mind how the major players on a pillage and plunder binge to create the economic predator class were hitting their stride as they marched towards the Great Recession.

This was a key component of the broader message to monetize everything in sight by the predators as they privatize gains and socialize losses. It was and still is used in the attack on Social Security a la Pete Peterson who wants to hand SS over to Wall Street based on economically illiterate austerian claims about "unsustainable" debt combined with outright lies on comparable risk and rate of return.

See, all you little people out there are not just investors, you are customers as well aren't you. Why of course. How could we miss that one? All we have to do is give the predators a license to pillage and plunder under every fairy tale of free market job creation imaginable so we little people can scrape up some trickle down crumbs as customers.

Call it the WalMart Effect. As America's largest employer dependent on imports made cheap with a strong dollar - a much broader and deeper subsidy than that available from the Ex-Im Bank - its employees missed out on the investment gains didn't they. But hey, look what they gained as customers of their own output by WalMart. What a deal.

Support the Ex-Im Bank loan subsidies America and get a part of the action. Under the WalMart Effect it's win-win either way, as an investor or a customer of an investor.
weaker dollar
written by bakho, July 15, 2014 8:03
A weaker dollar would mean higher oil prices. The US imports around 3.5 billion barrels of oil per year. At $100/ barrel is $350 billion, a substantial chunk of the trade deficit. The trade deficit in oil was $327 billion. The trade deficit is less than $500 billion per year. Higher oil prices might lead to more conservation and substitution of domestic goods and services for foreign oil, but the tendency is to lower demand for domestic goods and services to absorb a rise in oil prices.

If BigOil did not have undue influence in the US, we could pursue a weaker dollar policy that greatly cut oil imports and consumption.
...
written by dax, July 15, 2014 8:12
Well, the biggest customer of the Ex-Im Bank has got to be Ryannair, and there is no sleazier company in the airline business. Why are Americans subsidizing it?
check it out -
written by pieceofcake, July 15, 2014 8:26
- the real free trade position is to lower the value of the dollar against other countries' currencies.'

That's what the Japanese thought and then they found out - that lowering the value of their currency helped to export more stuff - but not enough to balance what they lost in selling their stuff cheaper.

So - I would highly recommend to do 'the math' BEFORE - and anywhoo - isn't it embarrassing already how low the dollar stands compared to the Euro?

I mean:
How low
do you want to go?
millions of unemployed is far more embarrassing than a low dollar
written by Dean, July 15, 2014 8:44
Pieceofcake,

i can't see why anyone would be embarrassed by the value of their currency, but if you have thoughts in this direction you must have been positively humiliated back in 2008 when there were 1.6 dollars to the euro http://research.stlouisfed.org...es/DEXUSEU
Please Explain
written by Rolando Rocha, July 15, 2014 9:00
I'm no economist. So, could you or anyone please explain the term Secular Stagnation. Dr. Baker uses this term and I think I know but I would like to know exactly what he means by using that term.
Secular fun and games.
written by Ralph Musgrave, July 15, 2014 9:20

Rolando Rocha,

Secular stagnation is an important sounding phrase invented by professional economists to hide the fact they haven’t a clue what they’re talking about. All professions engage in that trick. Or as George Bernard-Shaw put it: “All professions are conspiracies against the laity”.

Or to be slightly less sarcastic, secular stagnation is the ludicrous idea that because investment is subdued and interest rates are near zero, investment cannot be raised by cutting interest rates, ergo we’re stuck in a recession with high unemployment.

That’s actually nonsense in that the state can perfectly well create new money and spend it, and/or cut taxes which would raise demand and cut unemployment. However the Neanderthals who dominate Washington DC and other capital cities can’t work that one out.

Even more hilarious is the fact that according to two recent studies there’s little relationship anyway between base interest rates and investment. See:

http://www.federalreserve.gov/pubs/feds/2014/201402/201402pap.pdf
and
http://nakedkeynesianism.blogspot.co.uk/2014/02/investment-interest-rates-and.html


...
written by skeptonomist, July 15, 2014 9:49
International trade is not free trade - most governments assist their industries to compete, and this is usually through supporting big companies. Japan's industry, for example, is dominated by the big conglomerates. This aspect was missing from Nocera's previous pieces, as I pointed out at the time. The latest piece corrects that, as well as taking up the big/small controversy. The fact that other countries do this is probably the main reason for the existence of the Ex-Im Bank. It's too bad that international trade works this way, but it's not going to be changed if the US withdraws unilaterally from competition. If the US doesn't support its companies, it will lose business.

Dean's answer is an appeal to the magical powers of monetary manipulation. Lowering the value of the dollar would help, but the evidence shows that currency valuations don't completely dominate international trade. The very large reduction in the dollar 2002-2006 did not turn the trade deficit around. Also other countries have something to say about currency valuation, just as they do about support through loans and other things. It is not obvious that a currency war would be won by the US, any more than a tariff war or a loan war.
...
written by skeptonomist, July 15, 2014 10:02
Again, Krugman and Baker seem to think that currency devaluation is the answer to every country's problems. Especially, they think it's great for Japan to lower the value of the yen as well as for the US to lower the value of the dollar. Aside from the fact that a substantial decrease in the yen in 2012 did not actually turn Japan's trade balance around, I don't think that two countries can actually devalue simultaneously.
totally agree -
written by pieceofcake, July 15, 2014 10:16
'millions of unemployed is far more embarrassing than a low dollar'

thats why I'm saying: Do the math - and perhaps the 'currency trick' doesn't work that well anymore? -(not only in Japan?) - and there are some new and better 'models' out there - like: Having very low unemployment by still producing a lot of stuff - and by exporting this stuff as expensive as can be -
Then you don't mind at all if your currency is a few percent higher or lower - AND I understand that you only can do that if you export stuff of the highest quality - but what's wrong about that? -
Or as a very funny (Italian) friend of mine likes to say; You have to sell a lot of junk to afford a Ferrari...
- or the more cynical (American) version: 'Money is NO object'! It all depends on working for the rich mans economy!

and about -
written by pieceofcake, July 15, 2014 10:31
'I can't see why anyone would be embarrassed by the value of their currency'

I know a few American Conservatives personally - who are pretty embarrassed about the value of their currency -(especially if they visit Paris) - or not understanding this type of embarrasment - might be (one) of the reasons why Americans had such a hard time understanding the Euro.

No Greek, Italian or Spaniard I know would voluntarely go back to his old 'Mickey Mpuse' currency!
No one has showed that demand curves slope up
written by Dean, July 15, 2014 10:46
Pieceofcake,

the impact of currency values on trade is not really in question -- it just relies on the fact that people buy less of a good when the price rises and more when it falls -- pretty solid evidence on that one.

In terms of producing high quality goods -- wonderful idea. I'm going to be the next World Cup MVP. That is not just something you decide to do. It would require decades of building up the proper infrastructure and institutional supports and even then there is no guarantee you get it right.

So, you want to tell all the unemployed and underemployed to just wait 20-30 years until we follow your plan to get top notch industry?
teh aggregate - teh aggregate -
written by pieceofcake, July 15, 2014 11:27
'it just relies on the fact that people buy less of a good when the price rises and more when it falls'

But not in the 'rich mans economy'- a cynical rich American might state - and as we all know - that has become kind of the (inequality) problem all around...

and I never wpuld want to tell all the unemployed and underemployed to just wait 20-30 years until we follow your plan to get top notch industry?

But the monetary tricks and the 'bubbling' -(especially the 'Housing Bubbles') have been sooo destructive - that this type of 'gambling' HAS to be retired.

I didn't work -(as you mentioned yourself numerous times)

So - what's about concentrating on _substance and sustainability - like some World Cup MVP if you want - and as Americans are much much more flexible -(and faster than Germans) it might not take ten years...?


...
written by liberal, July 15, 2014 12:55
Dave wrote,
The journalist had a degree in journalism; that's it. Since then I noticed that a lot of business journalists have similarly limited backgrounds.


It's true of all journalism.

By far the most important abilities for a journalism (here I'm speaking of "is", not "ought") are to be able to write on deadline, and to write really well.

You can be supersmart and have great analytical abilities, but if you don't rank with those two qualities, you're not going to hit the bigtime.
...
written by liberal, July 15, 2014 1:01
...meaning, journalism places a premium on those two qualities, at the expense of other ones.
A Lower Dollar and Losing Sparta
written by sherparick, July 16, 2014 8:11
A lower dollar would lead to more expensive prices on all imports, including oil, although there would also be a market response to that rising prices for gasoline and heating (less driving, buying more fuel efficient cars, substitution of natural gas for heating oil, and of course, encourage more domestic extraction of oil using fracking techniques). So ultimately, it would reduce America's dependence on foreign oil and the trade deficit in oi. Regarding services and industries, it would at least perhaps change the mind set of the finance and CEOs that outsourcing American production and services could carry an exchange rate risk that would hurt short term profits. Finally, it should be remembered that the externalities of outsourcing and plant closings have devastated much of the small and middle size cities of the Midwest and South are a burden that American taxpayers have to pick up. http://www.vqronline.org/repor...ing-sparta

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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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