crony capitalism

Export-Import Bank represents crony capitalism

The Export-Import Bank is up for renewal. Its charter expires on September 30. In my opinion, it should be dumped because it does not help American business in general, only a few favored cronies.

The Heritage Foundation has an in-depth article on the Export-Import Bank. You can read the entire essay here. The abstract says:

“The primary activity of the Export-Import Bank of the United States is to provide export subsidies to buyers and sellers of U.S. exports. Its goal is to shift global market share to U.S.-based corporations and away from corporations headquartered in other countries. However, ample research by academic economists found that in most cases, export subsidies reduce the total income of the country paying the subsidies. In all cases, export subsidies reduce global income, and benefits accrue only to those who are subsidized—at the expense of other exporters and taxpayers. Most of the arguments in favor of the Export-Import Bank recast the bank as having a primary function other than providing export subsidies—such as small-business lending or global diplomacy. But theory and practical reality both show that the bank does not, and should not, engage in other activities. Since the bank’s main function is harmful to the U.S. economy, and it is not designed to carry out other functions, its charter should not be renewed.”

On Monday, the Arizona Daily Star ran a pro-con pair of articles on the editorial page of the print edition. Strangely enough, the “con” article did not appear online (except in the e-newspaper replica). I’ve emailed the Star editor asking why that is, but have not received a reply so far. However, the “con” article appeared online on Tuesday afternoon after I asked why it was missing Monday. I will summarize the competing articles just in case you don’t read the Star anymore.

On the pro side is an article by Thomas J. Donohue of the U.S. Chamber of Commerce. This article claims:

“In 2013, the Ex-Im Bank provided financing or guarantees for more than $37.4 billion in
exports by 3,400 U.S. companies. These sales in turn support more than 200,000 American jobs.”

And:

“The bank’s support is especially important to small- and medium-size businesses, which account for nearly 90 percent of its transactions.”

On the con side is an article by Veronique de Rugy of the Mercatus Center of George Mason University.

She suggests we follow the money to find the truth: “…economists have repeatedly shown that export subsidies never boost the net level of exports. Rather, these subsidies redistribute sales away from unsubsidized exporters and toward those who curry favor with the right bureaucrats. In the case of Ex-Im Bank, the winners are obvious. While the bank backs only 1.9 percent of all U.S. exports, a stunning 76 percent of Ex-Im Bank’s portfolio directly benefits fewer than 10 massive multinational corporations, including Boeing, General Electric and Caterpillar. Indeed, the bank earned its D.C. nickname: ‘Boeing’s Bank.’”

Rugy goes on the write: “Corporate Ex-Im Bank supporters warn that millions of American jobs could be destroyed. The bank itself claims to have supported 1.2 million jobs over the past five years. Yet it’s worth noting that the federal government’s nonpartisan Government Accountability Office disputes this figure and the sloppy methodology that produced it. But even if one assumes that Ex-Im Bank’s questionable figure is accurate, this amounts only to some 2 percent of all export-related employment and a measly 0.01 percent of all U.S. jobs. Most of these jobs come from the largest corporate beneficiaries like Boeing and Caterpillar…Data from the U.S. Census Bureau show that Ex-Im Bank backs less than 0.3 percent of all small-business jobs and less than 0.04 percent of all small-business establishments.”

She concludes: “The justifications for extending the Export- Import Bank’s charter keep changing, but the winners and losers remain the same. Ex-Im Bank is a corporate welfare program that benefits manufacturing conglomerates involved with fewer than 2 percent of exports at the cost of everyone involved with the other 98 percent.”

I agree with her conclusion. This is similar to the extensive subsidies necessary to sustain solar and wind power projects, many of which would not exist without government subsidies. Let the free market reign.

Additional resource CATO report here

Sandy Scam and cliff notes

The proposed aid package to help people mitigate damage from hurricane Sandy is a good illustration of why the government can’t decrease spending. Instead of just dealing with storm damage, Obama’s $60.4 billion request for hurricane Sandy relief, which was passed by the 112th Senate but not the House, has morphed into a pork-laden give-away to special interests. The 113th Congress has passed an interim $9.7 billion aid bill leaving the remainder in limbo.

According to the New York Post, the hurricane Sandy aide package included: $8 million to buy cars and equipment for the Homeland Security and Justice departments; $150 million for the National Oceanic and Atmospheric Administration to dole out to fisheries in Alaska; $2 million for the Smithsonian Institution to repair museum roofs in DC; $13 billion for”mitigation” projects to prepare for future storms; $207 million for the VA Manhattan Medical Center; $41 million to fix up eight military bases along the storm’s path, including Guantanamo Bay, Cuba; $4 million for repairs at Kennedy Space Center in Florida; $3.3 million for the Plum Island Animal Disease Center and $1.1 million to repair national cemeteries.

The legislation dealing with the “fiscal cliff” was also laden with pork, mainly to help crony capitalists in the renewable energy sector. According to the Heritage Foundation:

“The fiscal cliff deal is not only preventing certain politically motivated energy tax policies from falling off the cliff, but it’s also resurrecting ones that have been dead and buried for a year.

“Lumped into the 157-page fiscal cliff bill are extensions of energy handouts that were originally scheduled to retire, as well as retroactively rewarded tax breaks for renewable energy that expired at the end of 2011. The inclusion of these targeted tax breaks is a clear indication that Congress is not serious about (1) reducing spending, (2) ending the government’s meddling in the energy sector, or (3) standing up against political interests.

“The extension and resurrection of the targeted tax credits will reduce revenue by $18 billion over 10 years. Production tax credits for wind (totaling $12 billion) were renewed for another year and made even more generous. Thanks to the new bill, wind and other renewable energy projects can receive the tax credit simply by starting construction by 2013, rather than once they begin generating electricity, as the law originally specified.

“Further, the fiscal cliff deal retroactively rewards a production tax credit for biofuel and biodiesel production, which expired in 2011, and extends it through 2013. Tax credit extensions also go out to electric motorcycles, alternative fueling stations, coal facilities on Indian lands, cellulosic ethanol, and energy efficient windows, appliances, and new homes.”

This situation reminds me of a quote attributed to former British Prime Minister Margaret Thatcher: “The problem with socialism is that eventually you run out of other people’s money.” Congress has yet to acknowledge that caveat. Apparently, nothing in Washington, D.C. can be straight forward.  Instead, almost everything is laden with pork-packed proposals for pet projects.

Obama’s Electric car experiment a failure so far

The administration’s rosy hope: If we build it, they will sell, hasn’t panned out. Sales of GM’s hybrid Volt and Nissan’s Leaf are much below expectations in spite of heavy U.S. government subsidies. In fact, GM is temporarily suspending Volt production – again. Even the liberal Washington Post is disenchanted:

“No matter how you slice it, the American taxpayer has gotten precious little for the administration’s investment in battery-powered vehicles, in terms of permanent jobs or lower carbon dioxide emissions. There is no market, or not much of one, for vehicles that are less convenient and cost thousands of dollars more than similar-sized gas-powered alternatives — but do not save enough fuel to compensate. The basic theory of the Obama push for electric vehicles — if you build them, customers will come — was a myth. And an expensive one, at that.”

Part of the problem is that electric cars are impractical due to their limited range given the current state of battery technology. We knew that 100 years ago. The vehicle in the photo is the 1911 Baker Electric which could go 50 miles on one battery charge. The GM Volt can go 40 miles on a charge. The Nissan Leaf claims 100 miles on a charge, but that varies from 47 to 138 miles depending on conditions. By the way, hybrid vehicles, first developed in 1916, just make automobiles unnecessarily complex.

Emphasizing the impracticality of electric cars, a story last year about driving a Leaf from San Diego, California, to Tucson, Arizona, found that what is normally an 8-hour drive took a week in a Leaf.

GM is losing money on each Volt they make. They are selling the Volt for about $40,000 (much more expensive than comparable gasoline-power models), but it costs GM $89,000 to manufacture the vehicle according to Reuters.

Sales of the Volt have been weak even though federal agencies (i.e. taxpayers) have been buying or plan to buy them.

Another, related issue is The EPA’s Electric Vehicle Mileage Fraud. The EPA calculates a miles-per-gallon equivalent (MPGe) for electric cars that estimates the amount of fossil fuels which must be burned to create the electricity to charge the batteries of an electric car. In a Forbes article, Warren Meyers shows that “The EPA’s methodology is flawed because it assumes perfect conversion of the potential energy in fossil fuels to electricity, an assumption that violates the second law of thermodynamics. The Department of Energy has a better methodology that computes electric vehicle equivalent mileage based on real world power plant efficiencies and fuel mixes, while also taking into account energy used for refining gasoline for traditional cars. Using this better DOE methodology, we get MPGe’s for electric cars that are barely 1/3 of the EPA figures.”

It seems that the great green hype is more hope than reality. This exercise in crony capitalism and green dreaming demonstrates the incompetence of government in the marketplace.

See also:

Does the Chevy Volt produce more CO2 from its battery than from its gasoline engine

Tax Dollars to Build Charging Stations for Electric Vehicles

The Chevy Volt, just the latest expensive toy

Which Vehicles Are Most Energy Efficient?

Federal corporate welfare reached $100 billion in 2012

Do you wonder where your tax money goes? One place is corporate welfare. According to the Cato Institute, corporate welfare totaled $100 billion in fiscal 2012 (see full report here).

The executive summary of the report:

Rising federal spending and huge deficits are pushing the nation toward a financial and economic crisis. Policymakers should find and eliminate wasteful, damaging, and unneeded programs in the federal budget. One good way to save money would be to cut subsidies to businesses. Corporate welfare in the federal budget costs taxpayers almost $100 billion a year.

Policymakers claim that business subsidies are needed to fix alleged market failures or to help American companies better compete in the global economy. However, corporate welfare often subsidizes failing and mismanaged businesses and induces firms to spend more time on lobbying rather than on making better products. Instead of correcting market failures, federal subsidies misallocate resources and introduce government failures into the marketplace.

While corporate welfare may be popular with policymakers who want to aid home-state businesses, it undermines the broader economy and transfers wealth from average taxpaying households to favored firms. Corporate welfare also creates strong ties between politicians and business leaders, and these ties are often the source of corruption scandals in Washington. Americans are sick and tired of “crony capitalism,” and the way to solve the problem is to eliminate business subsidy programs.

Corporate welfare doesn’t aid economic growth and it is an affront to America’s constitutional principles of limited government and equality under the law. Policymakers should therefore scour the budget for business subsidies to eliminate. Budget experts and policymakers may differ on exactly which programs represent unjustified corporate welfare, but this study provides a menu of about $100 billion in programs to terminate.

See also:

Renewables receive bulk of tax preference subsidies

Occupying the Wrong Place

The Occupy Wall Street movement consists of demonstrations in many cities protesting some hazy dissatisfaction with the way things are.  The movement claims participants are “The 99% that will no longer tolerate the greed and corruption of the 1%.” Based on news videos of the protesters, they seem to be the 1% of mostly incoherent and inarticulate young people who do not know what is going on.

 I can sympathize with part of the demonstrators’ dissatisfaction, but they are demonstrating against the wrong perceived perpetrators.  They should be occupying Washington, D.C. and the halls of Congress.

The blame for the current financial crisis lies squarely with Congress, with its practice of crony capitalism and with its machinations for “social justice” .

The proximal cause of our financial state lies squarely with Congress who encouraged, even mandated, that banks lend money to unqualified real estate buyers in the name of social justice.  The banks probably realized the folly, so they repackaged the mortgages in a variety of derivatives and sold them far and wide.  When, not surprisingly, it turned out that the unqualified borrowers could not repay the loans, the whole thing collapsed.

And what is social justice?  “Social justice is the complete economic equality of all members of society. While this may sound like a lofty objective, what it really means is that wealth should be collected by the government and evenly distributed to everyone. In short, social justice is communism. It is rooted in the Marxist idea that the money people make and the property they own do not rightfully belong to the people who make the money and own the property.” – Jayme Sellards  in the American Thinker.

The occupiers rage against big corporations, and they are not entirely wrong, just unfocused.  Certain corporations, large and small, court special privilege from Congress in the form of subsidies, tariffs, and bailouts.  Again it is the fault of Congress for succumbing to these pleadings.  This is crony capitalism not the free market.  The free market provides equal opportunity but does not guarantee equal outcomes.

“Free market capitalism is unforgiving. Producers please customers, in a cost-minimizing fashion, and make a profit, or they face losses or go bankrupt.” – Walter Williams

“I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need to be employed in dissuading them from it.” – Adam Smith, The Wealth of Nations

“I am for doing good to the poor, but I differ in opinion of the means. I think the best way of doing good to the poor, is not making them easy in poverty, but leading or driving them out of it.” –Benjamin Franklin

So what should be done?  The protesters and we should demand of our senators and congressmen that the federal government get back to strictly Constitutionally authorized management rather than trying to be social engineers, energy dictators, automobile manufacturers, and micro-managers of everything. The feds should eliminate all subsidies to all businesses and let the market determine who fails and who succeeds.  For every dollar the federal government spends, that is a dollar denied to private businesses and individuals.  It is a dollar of lost opportunity in the free market.  Congress should repeal unnecessary restrictive regulations that hamper or deny our ability to produce the things we want and need. Let the great engine of the free market work.

See also:

Capitalism is not a zero sum game

Dereliction of Duty by Congress and Obama

The economy, the deficit, and the blame game