June 9, 2015 7:10 AM
At this point, it looks like Congress will let the Export-Import Bank’s charter expire on June 30. This is not a big deal in grand scheme of things. Ex-Im would continue to service its existing loan guarantees and other financial products, and Ex-Im employees would also review applications for new loans and loan guarantees, though they would not be able to act on them. But suppose Ex-Im does have to shut down operations for good. What other options do export-oriented policymakers have?
Tyler Cowen brings up one option: mess with the price system.
Even a slight depreciation likely would offset the effects of Ex-Im expiration by more than a factor of one hundred, perhaps by more than a factor of one thousand. Ex-Im is a relatively small program and it has nothing to do with more than 98 percent of American exports. Many of its foreign beneficiaries, such as Pemex and Chinese state-owned enterprises, don’t need the subsidy to fund their imports. Boeing is still reporting a robust demand for its planes.
If the goal is to increase exports, a weak dollar is far more effective than any Ex-Im project could ever hope to be. As Cowen says, Ex-Im is involved with less than 2 percent of U.S. exports. Altering the price system itself would affect 100 percent of transactions, exports or not.
Renewing Ex-Im’s charter is a bad idea. Weakening the dollar is a worse idea by at least a factor of 50, even ignoring imports and purely domestic transactions. Every export made cheaper equals an import made more expensive. Every business helped means another one hurt. There is no net benefit.
June 8, 2015 2:49 PM
The following is an abridged and revised version of my keynote address to the FinTech Global Expo at the San Diego Convention Center on May 29, 2015. I was introduced by conference organizer Andrea Downs, President and CEO of Coastal Shows.
In startup investment, there have almost as many important developments in the past three years as there have been in the past 30. Let me take you on a very short trip on my time machine back to the days just before the passage of the Jumpstart Our Business Startups—or JOBS Act in 2012
In those days—during the reign of the 80-year-old ban of general solicitation of private stock offerings that the JOBS Act repealed—it wasn’t even clear that you could have a conference, trade show, or expo like this one. That was a concern among angel investors I had spoken to interested in holding a trade show, but uncertain of the legality.
Maybe we can remember the time in which if you were an entrepreneur and weren’t networked in, and you wanted to find an accredited investor, you had to whisper to someone on the street corner: “Hey, are you rich? Want to invest in my company?”
And it’s amazing that since the JOBS Act—really since 2013, when the SEC implemented Title II and repealed the general solicitation ban—we’re seeing all these platforms like OurCrowd.com and the others being discussed. It’s amazing to see how much that has grown and is getting capital to entrepreneurs.
We’ve come a long way, yet we have a long way to go. The SEC still hasn’t implemented Title III, so we still don’t have crowdfunded investment for ordinary investors. So ordinary folks can’t share in the dream quite yet.
But we’re getting there. So much is happening in state legislatures. The Illinois House of Representatives and Senate just passed an equity crowdfunding bill for all in-state residents that’s awaiting the new governor’s signature. Michigan, Texas, Georgia and other states have already enacted similar statutes for their residents.
One of the reasons I’m so optimistic is that I view the grassroots push to legalize crowdfunded investing for everyone as a freedom movement. Even though the JOBS Act, deregulation, and lifting financial red tape are often associated with Republicans and conservatives, I see this as a broad general freedom movement, similar to the movement for the right to smoke marijuana and to marry your partner of choice.
My organization, the Competitive Enterprise Institute, looks at Dodd-Frank, Sarbanes-Oxley, and all regulations as a burden to personal rights. After all, what could be more personal than how you invest your money? If you can now choose who your domestic partner is, why in hell shouldn’t you be able to choose who your investment partner is?!
June 8, 2015 2:44 PM
New regulations last week covered everything from growing cherries to airport security fees to preventing collisions at sea.
On to the data:
- Last week, 65 new final regulations were published in the Federal Register, after 70 the previous week.
- That’s the equivalent of a new regulation every two hours and 35 minutes.
- So far in 2015, 1,301 final regulations have been published in the Federal Register. At that pace, there will be a total of exactly 3,012 new regulations this year, which would be several hundred fewer rules than the usual total of 3,500-plus.
- Last week, 1,344 new pages were added to the Federal Register, after 980 pages the previous week.
- Currently at 32,143 pages, the 2015 Federal Register is on pace for 74,406 pages.
- Rules are called “economically significant” if they have costs of $100 million or more in a given year. Nine such rules have been published so far this year, none in the past week.
- The total estimated compliance cost of 2015’s economically significant regulations ranges from $1.36 billion to $1.44 billion for the current year.
- 109 final rules meeting the broader definition of “significant” have been published so far this year.
- So far in 2015, 220 new rules affect small businesses; 33 of them are classified as significant.
June 5, 2015 3:30 PM
Rep. Jeb Hensarling (R-Texas) chairs the House Financial Services Committee. The Export-Import Bank’s reauthorization falls under his jurisdiction, and he has been one of the bank’s most consistent critics. He also called for closing Ex-Im in a recent Wall Street Journal op-ed, making a number of well-reasoned arguments. But his closing clarion call is rather narrow for my taste:
If Republicans can’t stand up to corporate interests in this skirmish, how will we ever stand up to the myriad special interests warring against adoption of a simplified, pro-growth tax code? How will we earn the moral authority to reform the social welfare state unless we first reform the corporate welfare state? Let the Democrats own corporate welfare by themselves.
I prefer a more ecumenical approach. Opposing corporate welfare is something on which both parties should agree—and outside the Beltway, they often already do. People favoring a level economic playing field should put pressure on Republicans and Democrats alike to end their cronyist habits, not just the GOP. After all, Ex-Im’s traditional critics come from the left, not the right. The two sides’ role reversal is a recent, and puzzling phenomenon.
Hensarling is doing some impressive yeoman’s work in getting his party on the right side of the Ex-Im issue, but that’s only half the battle—or slightly more than half, given the House’s current composition. Still, progressives are natural allies in the fight against Ex-Im, and for several decades they were the free market’s only allies in that battle. They should not be ignored.
June 4, 2015 1:48 PM
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.
June 4, 2015 12:27 PM
It happens to be the case that, in terms of overall counts of rules and regulations published in the Federal Register as final rules, the George W. Bush administration tops that of Barack Obama.
In its first six years, The Bush administration issued 24,241 rules; an average of 4,040 annually.
The Obama Administration, in its first six years, issued 21,804, for an average so far of 3,634 each year.
That Republicans are heavy regulators is no surprise. Books have been written about business as usual under the GOP once it gains power. News reports today in fact illustrate that Republicans will extend Obamacare subsidies in the event of a Supreme Court decision finding them illegal in the dozens of states that didn’t set up their own health care exchanges.
That means future Republicans candidates in the America of tomorrow are likely to defend positive rights to Obamacare funded by others either with or without a Supreme Court victory this month, just as they now do with respect to programs like Medicare and Social Security spawned by their progressive nominal opponents. (Alternatively, rising insurance rates could lead to insurance company demonization sufficient enough to effect the transformation to a single-payer system that some planners preferred in the first place; if that happens, Republicans will ultimately defend that too.)
June 4, 2015 11:45 AM
Environmental scientist Dana Nuccittelli accuses University of Alabama in Huntsville (UAH) atmospheric scientist John Christy of “manufacturing doubt about the accuracy of climate models” at a May 13 hearing before the House Natural Resources Committee. Nuccitelli claims Christy’s testimony “played rather fast and loose with the facts.” Those allegations are incorrect.
Christy offered a scientific perspective on the Obama administration’s “guidelines” (i.e. directive) for incorporating “climate change effects” in agency environmental reviews of proposed projects in National Environmental Policy Act (NEPA) proceedings.
Christy’s testimony argues that the state-of-the-art models informing agency analyses of climate change “have a strong tendency to over-warm the atmosphere relative to actual observations.” To illustrate the point, Christy provides a chart comparing 102 climate model simulations of temperature change in the global mid-troposphere to observations from two independent satellite datasets and four independent weather balloon data sets.
Christy reasonably concludes the models are not accurate enough to inform policymaking:
On average the models warm the global atmosphere at a rate three times that of the real world. Using the scientific method we would conclude that the models do not accurately represent at least some of the important processes that impact the climate because they were unable to “predict” what has occurred. In other words, these models failed at the simple test of telling us “what” has already happened, and thus would not be in a position to give us a confident answer to “what” may happen in the future and “why.” As such they would be of highly questionable value in determining policy that should depend on a very confident understanding of how the climate system works.
June 3, 2015 3:38 PM
WTO's new video, titled “Trade matters to me,” captures the consumer value of trade on an everyday basis, from pants to fuselage. Reminiscent of CEI’s “I, Pencil,” the video shows how pieces of everything we wear and use are made available through international trade. And developing countries are a vibrant part of those activities, as shown by jeans that are sewn in Mauritius, leather from Morocco for shoes, or lychees from Madagascar.
Even defenders of free trade sometimes get caught up defending only the need to improve our export base and forget the benefits that imports provide. Imports expand consumer choice—providing consumers with a greater variety of products and services at various quality levels and at varying prices. Imports can also spur innovation and competition as companies respond to consumer demand and try to keep pace with outside competitors and improve their own products.
What’s often overlooked too is the fact that most U.S. imports are not finished goods. Domestic companies heavily depend on imports for the raw materials, machinery, parts, and other inputs they use to produce products in the U.S. In fact, data from the Bureau of Economic Affairs and analyzed by AEI scholar Mark Perry showed that over half of U.S. imports—55 percent—were used as inputs by companies in their domestic production.
It’s worth reminding policymakers about the value of free trade—both exports and imports—as the House of Representatives ponders legislation on trade promotion authority (TPA), H.R. 1314, which would give the President “fast-track” authority so that implementing legislation for trade agreements can be voted up or down without amendment. TPA will be critical in considering the Trans-Pacific Partnership Agreement, still being negotiated.
June 2, 2015 2:20 PM
In most years, nearly half of the Export-Import Bank’s business is for Boeing’s benefit. The relationship between the two is so cozy that Ex-Im’s informal nickname around Washington is the “Bank of Boeing.” Yet, in an interview with Politico, Ex-Im president and chairman Fred Hochberg said, “We don’t lend a single penny to Boeing.”
Oddly enough, both assertions are true—Boeing really is by far Ex-Im’s biggest beneficiary, despite no direct loans. That’s why Hochberg’s statement is misleading. Ex-Im does make loans, but most of its business is in guaranteeing loans made by other banks. As Hochberg puts it, Ex-Im does this “so that Egyptian Airways can choose a Boeing plane over an Airbus plane. That way they can make their choice on the basis of the product, not because somebody’s offered cut-rate financing on one side of the deal and the other one is cash only. That would make it a very un-level playing field.”
In other words, even if Ex-Im doesn’t give Boeing direct loans, Ex-Im still gives the company an artificial assist. Contrary to Hochberg’s claim about preventing an un-level playing field, this creates one.
Of course, the counterargument Ex-Im defenders make is that other countries do their own un-levelling with their export agencies, so the U.S. needs to fight back. If other countries want to distort their capital markets and redirect billions of dollars of scarce capital to politically connected companies, that’s their business. But just because other countries make mistakes doesn’t mean, therefore, the U.S. should make the same mistake.
June 2, 2015 11:18 AM
Following the script of the U.S. Department of Labor Wage and Hour Administrator David Weil in his book The Fissured Workplace, the National Labor Relations Board is pushing big businesses to hire people in-house rather than utilize small, specialized businesses, which would suffer. Weil’s theory is that bigger businesses are more sensitive about brand reputation and thus more susceptible to pressure from unions and trial lawyers. Using a line of cases concerning joint employment, the NLRB has specifically targeted such industries as franchising, trucking, contracting, temping, and outsourcing.
If the NLRB were to get its way, job creation would falter for several reasons. First, franchising itself could be imperiled, and franchising creates jobs faster than other businesses do. Second, small business efficiency and innovation tailored to consumer tastes would be curtailed. Third, the NLRB states that it wants to make the “economic weapons” of pickets and strikes more available to unions—certain to impair commerce. And finally, trial lawyers would be able to sue an additional group of businesses, foisting more risk and cost on job creation. Job opportunities would surely suffer.
One observed aspect of the loss of job opportunity is at the beginning of a career. In their new book Disinherited, Diana Furchgott-Roth and Jared Meyer point out, “[Y]oung people often use minimum-wage jobs as stepping stones to better careers. … If people cannot get their first job, they cannot get their second or their third.” The International Monetary Fund explains the scarring effect of early unemployment, “The earnings penalty can be as high as 20 percent compared with their peers who find employment early, and the earnings deficit can persist as long as 20 years.” For the young, obtaining that essential first job has huge financial ramifications for careers.
The National Bureau of Economic Research expounds that the effect is toughest for the lowest rungs on the employment ladder: “[T]he bottom of the wage-and-ability distribution experience larger and more persistent losses.” The low-skilled and most needful are at greatest risk.
Who else could be hurt by the NLRB? New American immigrants who are pursuing their first job in their new country.