Tea Party’s fun and cheap politics: let’s kill a moneymaking US government agency

Tea Party’s fun and cheap politics: let’s kill a moneymaking US government agency

One of Washington’s most obscure government agencies, and one the turns a profit, nogal, is the subject of a new Tea Party onslaught to kill off this offending office. This target? – Why it’s the Export-Import Bank. J. BROOKS SPECTOR takes a look at the newest Washington donnybrook.

Back in 1934, as one of the lesser-known parts of Franklin Roosevelt’s New Deal in the midst of the Great Depression, the US government established the Export-Import Bank. The basic idea behind this presumably innocuous government agency was that it would offer specialist support for American companies trying to reach foreign export markets. Its basic functions would be to make direct loans to foreign buyers of US products; to provide loan guarantees to banks that lend to foreign buyers; to offer insurance against losses made by US exporters and banks on loans to foreign buyers; and to provide loan guarantees to banks making “working capital” loans — for materials or salaries — to US exporters. That doesn’t sound too subversive, does it?

For nearly half a century this kind of thing has been pretty unexceptional for most people – if they ever actually thought about it, or even knew about the Ex-Im Bank. For most of the years since its establishment, Democrats, Republicans, business leaders and union officials have all have generally stood in support of it.

Way back in the depths of the Depression, the original idea that the government had found an innovative way to help business (and thereby job preservation and even job creation) to improve its exports stats has seemed pretty reasonable – and certainly in the broader national interest. Then, in more recent years, when the US faced growing international trade competition from Japan, the Asian little tigers, China, Europe and pretty much elsewhere over a growing range of products, supporting American exports as a sure-fire job creation path continued to make sense to most people.

Most astonishingly of all, this is one of the very few government agencies that actually turned – wait for it, now – a profit. Really. No fooling. As economics and business columnist Robert Samuelson (yup, the son of the redoubtable textbook writer, Paul Samuelson) pointed out the other day, “The central fact about the Ex-Im Bank is that, in the $3.5 trillion federal budget, it is a pygmy. It has about 400 employees. In 2013, its operating budget — its overhead — totalled $90 million, according to a report from the Congressional Research Service (CRS). But these expenses were fully paid by fees and interest from Ex-Im’s private customers. There was no direct drain on taxpayers. Indeed, the bank turned a profit in 2013 and paid $1.1 billion to the Treasury. [Italics added] If it were eliminated, future deficits would probably increase, albeit by small amounts.”

Given this abridged history, and its obvious pro-business, profit and loss, pointy-pencilled, green eye-shaded, hard-nosed approach, one would have thought that here would be a place where all Republicans could find common cause. One would certainly have expected to see them standing, four-square, in support of the Ex-Im Bank and defending its mandate, its budget and its actions to the death – if not beyond – because here was the poster boy for some really cost-efficient, cost-effective government that really stood up for the businessman, the backbone of the country’s economy, yadda, yadda, yadda…. But, you would be dead wrong, here. Instead, there is a battle going on inside the Republican Party over whether or not to defenestrate the Ex-Im Bank this year, stopping it right in its tracks.

As Michael Mewmoli reported in the Los Angeles Times, “The House Republican leadership shakeup has revived a conservative-led push to terminate the nation’s Export-Import Bank, testing the GOP’s traditional alliance with business groups. House Majority Leader Eric Cantor (R-Va.), who lost his seat earlier this month in a major primary upset, was a key backer of a 2012 compromise that staved off a push by his party’s small-government conservatives to block renewal of the bank’s charter. The current authorisation for the bank — which helps finance U.S. exports with government-backed loan guarantees — expires in September.”

CNBC has now reported, “add reports of an investigation into allegations of gifts, kickbacks and attempts to steer government contracts to favoured companies and this once-sleepy corner of the federal bureaucracy is getting more than its share of attention.” And the Wall Street Journal has added, “The U.S. Export-Import Bank has suspended or removed four officials in recent months amid investigations into allegations of gifts and kickbacks, as well as attempts to steer federal contracts to favoured companies, several people familiar with the matter said.”

And that paper, certainly no fan of the bloated, octopus-oid government story, has also explained, “If the Ex-Im Bank is wound down, the impact on the economy is uncertain. Supporters of the agency believe it would have a devastating impact, while opponents of the company believe it would be just the jolt of free-market capitalism that the economy needs to stand on its own two feet. Politically, this marks a big test for Democrats as well as Republicans. Will Democrats go to bat for an agency that supports a select pocket of companies? Will Republicans split into different camps?”

Hmm… That would apparently bring centrist Democrats supporting this help to big business together with those stereotypical country club, big business-loving Republicans – against congressional Tea Party supporters together with (presumably) the left wing of the Democratic Party. This should be great fun. In fact, Republican Speaker of the House John Boehner has “declined to commit to reauthorising the Export-Import Bank, saying instead Tuesday morning that he is trying find common ground between his members who want to end the bank and those who want to continue funding it,” according to the Capitol Hill daily, “Roll Call.” Given that awkward split among Republicans, the White House’s new press spokesman, Josh Earnest, told the AP, “the bank ‘helps American companies create and support jobs here at home at no cost to taxpayers’ and traditionally has enjoyed bipartisan support as a result.’ ”

What the heck is going on here? It turns out that the reauthorisation for the Ex-Im Bank’s charter – it needs to be periodically voted upon to be a continuing government activity – has become one of those metaphorical lines in the sand, a red line, a fiery hoop, a veritable “give me liberty or give me death” position for the Tea Party. And here, gentle readers, you have thought that the Tea Party was all about making government pay for itself, be pro-business, get the government out of the hair of honest, hard-working folks, and all that stuff. Forget about that one, it seems.

Tea Party-aligned congressmen have lined up opposed to extending the life of the Ex-Im Bank in a position that they have constructed out of several divergent ideas. The first of these is that the Ex-Im Bank is a form of pernicious corporate welfare (analogous to an equally disliked poor people’s welfare), a kind of crony capitalism that is an unfair benefit to big business that artificially privileges the big boys of the global corporate world. And that this is to the detriment of the little guys grubbing away on their metaphorical Main Street – versus that rather more tangible Wall Street, Gordon Gekko’s world.

A problem with this argument is that this Tea Party grandstanding twists the facts into something of a pretzel of a fact sheet. The Ex-Im is being portrayed as just one more of those government agencies heartlessly bleeding the poor, bedraggled taxpayer on behalf of the corporate crony capitalism of big business-linked with interests in government – and that their high-concept, principled opposition to the Ex-Im is part of a serious, conscientious effort to trim that supposed octopus-like government.

Consider, for example, the purple rhetoric of Texas Republican Congressman Jeb Hensarling, who just happens to be the Chairman of the House Financial Services Committee, the very committee that is debating Ex-Im’s charter. Hensarling poses the question: Where does the bank get its money? And his answer is a red-faced, arm-waving, “It is taxpayers’ money!” Those funds come from the “cashier at the corner grocery store, the cop on the beat, your children’s teachers.” Annnk! Wrong answer. The Congressional Research Service, the Congress’ own authoritative, in-house think tank, notes the Ex-Im has actually paid its own way since fiscal 2008. And then there was that little matter $1.1 billion payment to the Treasury a year ago, as noted above.

And as far as being an inefficient agency, last year the Ex-Im had authorised $27.3 billion in direct loans, loan guarantees and credit insurance. Loan guarantees were pegged at $14.9 billion, with direct loans at $6.9 billion and for the past eight years the bank says its default rate has been less than a per cent, on average. Not too shabby. Typical activities have included such reasonable sounding projects as a $155 million loan to Ghana for a hospital expansion that was undergirded by a group of American engineering and construction companies; a $1 billion-plus loan guarantee to an Indonesian airline to buy American-made Boeing jets; and a $694 million loan to a company in Australia to procure American-made mining and rail equipment from Caterpillar and General Electric.

Okay, maybe it is true that if the Ex-Im disappeared tomorrow, American exports to the rest of the world (remember that totals some $2.3 trillion annually) would not evaporate into thin air, since the bank only helps around two per cent or so of them in any real way. Smaller firms — around 90% of all Ex-Im clients – generally make use of those working capital guarantees, while most of the Ex-Im funds committed to trade deals are in support of those major efforts by really big companies like Boeing.

Economists can certainly make a reasonable argument this skew in spending represents an unfair, preferential credit window for those big firms. And that kind of thing probably shouldn’t be the way the US government really works in practice – and it gives fuel to the Tea Party argument the Ex-Im is being held in the palm of Wall Street, rather than helping Main Street (even if it doesn’t cost anyone else anything).

But there are two strong arguments for putting this snit fight on hold right now – regardless of the theoretical merits or demerits of the case. First of all, the country is still in the throes of a still-frail economic recovery, and now doesn’t seem like the time to do anything that would harm job creation – especially job creation that also directly helps generate foreign earnings. Perhaps it is special pleading, but the bank has estimated its programs helped support over 200,000 jobs last year. The second argument is that other big trading nations are also big in the game of providing export credit subsidies. This is the way the game is played and the US could use a tool that helps provide a counterweight to those other foreign efforts. In fact, two years earlier, by themselves, Chinese credit subsidies were almost 50 per cent more than the Ex-Im Bank’s were.

The real problem with the Tea Party’s current kabuki theatre approach to the Ex-Im is that some dramatic, not especially honest exaggeration going on. They are pretending their opposition to the bank represents a major assault on a bloated, overripe government, ready for the haircut. But by making their stand on the Ex-Im Bank, they are simply shrugging off confronting all those really hard choices on government spending – starting, for example, Social Security reform. These are programs that are largely untouchable by virtue of the fact that they are really, really large programs with vast support bases among the elderly, the near-elderly, and all of those who will eventually be elderly – and among the Tea Party of course.

Interestingly, if the Republicans are responsible for killing off the Ex-Im Bank, they would be serving up a really interesting argument to President Obama that Republicans are responsible for killing off programs that help support job creation and exports. This is going to be one really interesting congressional battle in the next few months. DM

Photo: A woman (C) holds a sign that reads ‘Freedom For America’ during a march and demonstration by thousands of people to protest health care reform proposed by US President Barack Obama in Washington DC, USA, 12 September 2009.  EPA/MICHAEL REYNOLDS

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