Here’s a letter to correspondent Ron Lester:
You’re correct that Export-Import Bank supporters insist that this Bank is a good deal for Americans because most of the loans that it makes to foreign buyers of American exports are repaid with interest to the U.S. government.
Alas, this repayment record does not mean that Americans are enriched by the Ex-Im Bank.
To begin, the CBO found that if the Bank were to use more accurate accounting practices its vaunted financial wizardry would disappear. But put this point, centered as it is on complex accounting methodology, to the side. Let’s instead do a simple mental experiment.
Suppose that you, Suzy, and I, while not members of the same family, share a house. Every month I seize from you $100 that I then lend to my friends across the river who, in turn, use these funds to buy brownies that Suzy bakes and sells for a living. After 12 months, my friends return to me $110 as repayment for the $100 that I loaned to them a year earlier and that they used to buy Suzy’s brownies. This practice occurs each and every month and my friends always repay in full, with interest, and in a timely fashion.
But you nevertheless complain about my monthly taking of your money against your will. I reply, with a combination of self-righteousness and feigned hurt feelings: “Why are you complaining, Ron? The loans that I make with your money are all repaid to me with interest! And given that you and I and Suzy are housemates, the total wealth of our household rises every month because of my loan program: Suzy profits by selling more brownies, and my bank account increases when my friends repay these loans. You should thank Suzy and me rather than berate us for our doing this good deed for our household – and for our doing it with such impressive business acumen.”
Are you persuaded by my justification? Do you feel wealthier? Are you wealthier? And does my loan program’s ‘success’ justify my forcible extraction from you of the funds that I use in my and Suzy’s little business venture?
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030