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Rent-Seekers Taking Advantage of Vagueness

Here’s a letter to the Washington Post:

Eloquently explaining the baleful consequences of corporate welfare dispensed by the Export-Import Bank, George Will notes that this ‘bank’ is the product of an “understandable urge to counter the subsidies that foreign governments give to companies competing with U.S. companies” (“Boeing’s Bank,” March 18).

Distinguishing illegitimate government subsidies from legitimate government expenditures, however, is far more difficult than politicians’ mercantilist bombast suggests.  Cash grants from government to private firms clearly are subsidies.  But what about government expenditures on infrastructure? Governments in the U.S. are estimated to spend on infrastructure in 2012 about 40 percent more per capita than will be spent by the government in Beijing.*  Does this reality give the Chinese government grounds to complain that any resulting fall in transportation and communication costs for American firms is a subsidy that unfairly ’tilts’ the playing field in favor of American producers?  Are U.S. Government guarantees of student loans for engineering students at schools such as MIT and Stanford unfair subsidies to U.S. producers who, in consequence, have access to a larger pool of educated workers?  Does Uncle Sam’s provision of history’s most powerful navy and coast guard constitute an unfair subsidy to American exporters who might otherwise incur larger losses to piracy and other dangers at sea?

As the debate over continuing the Ex-Im Bank reveals, this absence of a bright line separating “subsidies” from “legitimate expenditures” is exploited by duplicitous politicians desperate for excuses to pick the pockets of the many to inflate the portfolios of the few.

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

* This estimate is assembled from data found here, here, and here.  Assuming that infrastructure spending by all levels of government in the U.S. continues to be, in total, around 2.4 percent of GDP, this spending will be about $367 billion in 2012 (which is 2.4% of U.S. GDP of $15.32 trillion).  On a per-capita basis, that’s 2012 infrastructure spending in the U.S. of about $1,184.  With Chinese infrastructure spending for 2012 estimated to be about $1 trillion, that amounts to per-capita infrastructure spending this year in China of about $833.  $1,184 is 42 percent larger than $833.