Henry Hazlitt and the Ex-Im Bank

Henry Hazlitt is most famous for his book Economics in One Lesson. Export-Import Bank supporters have consistently ignored a very important part of Hazlitt’s simple lesson: don’t just look at how a policy affects some people; look at how it affects all people. Ex-Im subsidizes loans that benefit a number of businesses. But supporters’ case-making usually begins and ends with those businesses, systematically ignoring almost everyone else. As Hazlitt points out, this is a basic analytical mistake.

There is much more to the story. For example, if a company benefits from Ex-Im financing, any of its competitors who don’t also use Ex-Im are put at an artificial disadvantage, through no fault of their own. This is hardly fair play.

There is another cost to competitors: Ex-Im is in a powerful position, able to pick winners and losers. This is an open invitation to corruption—an area where cheaters have a distinct advantage over honest companies. At least 74 potential corruption cases involving Ex-Im became public between 2009 and 2014. This is a genuinely impressive feat for an agency with only 400 employees. Part of Ex-Im’s costs to all of us can be put in terms of ethics and virtue, not just dollars.

Beneficiaries’ direct competitors are not Ex-Im’s only victims. Ex-Im harms other domestic businesses in a number of ways. As I’ve noted before, Delta Airlines has complained that Ex-Im’s Boeing-related subsidies to foreign airlines has caused it direct harm. Ex-Im has made deals with airlines all over the world, including countries such as Australia, China, and India (for a full list, see pp. 45-49 of Ex-Im’s 2014 annual report). Many Ex-Im subsidized airlines directly compete with U.S.-based airlines.

One last “affects everyone” point is there is only so much capital to go around. If an Ex-Im loan guarantee to a foreign company persuades a bank to make a billion-dollar loan that Ex-Im client, that’s a billion dollars that cannot go to other companies that might be able to create more value for consumers, whether here or abroad. Every time Ex-Im makes a financing decision, it potentially hurts global innovation. The same argument holds for Ex-Im’s many foreign counterparts.

Ex-Im has had an easy time building its reauthorization case because the benefits it creates for specific companies are easy to see. But as Hazlitt reminds, a full picture of Ex-Im’s merits requires looking not just at its favored few beneficiaries, but at how the bank affects everyone, even when those costs are hard to see. Adding up the merits and demerits on a more complete ledger leaves one with no choice but to favor an end to Ex-Im and its favoritism.