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Quotation of the Day…

… is from page 77 of the late William Niskanen’s May 2000 paper “Should the Ex-Im Bank Be Retired?” which is reprinted as chapter 7 of the 2008 collection of some of Niskanen’s best writings, Reflections of a Political Economist:

I regard the market-failure rationale for Ex-Im as wholly spurious, and the activities based on this rationale are best described as “Aid to Dependent Corporations.”

DBx: Those who use the market-failure rationale to justify subsidies doled out by the U.S. Export-Import Bank allege that private investors, investing their own money or money voluntarily entrusted to them, routinely fail to see the future profitability of the activities of firms that operate in international markets. To remedy this asserted ‘failure’ of private markets, the U.S. government hires bureaucrats to invest other people’s money – money coercively extracted from taxpayers – in these activities that private investors allegedly miss on a routine basis.

As Niskanen noted, this rationale is wholly spurious. For it not to be spurious would require that in reality government officials investing other people’s money be generally better at identifying profit opportunities than are private investors investing their own money. Yet nothing in history or theory suggests the existence of any such superior acumen among government bureaucrats. Quite the opposite.

At best, a subsidy racket such as Ex-Im results in pretentiously justified wastes of money: resources are directed toward inefficient activities and, hence, away from efficient ones. In reality, all such rackets not only waste money – that is, result in massive misuses of resources – they also incubate cronyism and corruption. And what is true for relatively small-scale industrial policies carried out by Ex-Im and other so-called “export credit agencies” is true also – but on a scale larger and, thus, more destructive – of more-comprehensive industrial policies.