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Bloody Corporate Welfare

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Here’s a letter to a long-time friend, a gentleman who largely supports free markets.

Mr. Gordon J___________

Dear Gordon:

Thanks for your note in defense of the Export-Import Bank.

I’ll not respond to each of your arguments (especially because Vero has addressed these claims [2] in her many well-researched and reasoned writings on this matter).  I’ll simply, and with respect, say that you forget Bastiat’s greatest lesson: look beyond the seen to the unseen.

No government can make some firms within its jurisdiction artificially more competitive in foreign markets without simultaneously making other firms within its jurisdiction artificially less competitive.  The reason is that resources transferred by government to favored firms must come from somewhere; they are not free.  The resources enjoyed by favored firms either come directly from other, unfavored firms whose taxes are raised to support the favored firms, or these resources come indirectly from other, unfavored firms who lose consumer patronage because now higher-taxed consumers have less money to spend in support of these other firms.

A foreign government that subsidies some of its firms is like a physician who routinely forces thousands of unseen and powerless people to transfuse excessive amounts of their blood to a handful of prominent and powerful patients.  The blood received by the powerful patients is taken from others.  (This fact remains true even if these powerful patients unfailingly pay in full the physician’s fee.)  And  just as it would be mistaken to conclude that any resulting increased vigor of the powerful patients means that society at large is made healthier by coerced blood transfusions, it is mistaken to conclude that any resulting increased vigor of subsidized firms means that the economy at large is made stronger by coerced resource transfusions.  In both cases, quite opposite is true: the forced transfers weaken, rather than strengthen, the larger group.

If other governments weaken their economies by forcing their citizens to make such resource transfusions, that’s no good reason for Uncle Sam to weaken the American economy by forcing American citizens to make such resource transfusions.

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