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It’s Always In the Black (Except When It’s In the Red)

Here’s a letter to Forbes:

Making a case for Uncle Sam to reauthorize the Export-Import Bank, John Brinkley insists that the Bank “is self-funded.  It receives no money from taxpayers.  In fact, it gives them money” (“Ex-Im Bank’s Closure Is Sending Jobs Overseas, Hurting Small Firms,” Sept. 16).

So I’ve a question: why does Ex-Im need government reauthorization?  If it receives no money from taxpayers – indeed, if it turns such a profit that it “gives them money” – surely private investors will eagerly seize the opportunity to serve the profitable markets that Ex-Im has abandoned.

Mr. Brinkley answers that markets served by Ex-Im are too risky for private banks.  But this answer makes no sense if Mr. Brinkley is correct in asserting that Ex-Im receives no money from taxpayers.  Loan portfolios that are so risky that they require taxpayer backing are by their nature loan portfolios that over time are not profitable; they are loan portfolios that do not repay lenders adequate returns on their loans.  The very need for taxpayer backing of such loans implies that taxpayers are destined to cover losses on, rather than to reap profits from, these loans.

In short, Mr. Brinkley’s case for reauthorizing Ex-Im is a hopelessly illogical muddle, for it asserts that Ex-Im is simultaneously profitable and unprofitable.  A government agency that must be defended by such twisted thinking is surely one that ought to be shuttered permanently.

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