Ex-Im’s mandate in financing American exports has been reconducted by Congress with the blessing of President Donald Trump, who first appeared to be against but changed his mind because, apparently, exports are important and cannot be left to the market. The law’s instigators won by “tucking it into a large must-pass spending package,” to use the terms of the Wall Street Journal, making sure that it would not be debated by the glorious representatives of the people. Here is a simple case against Ex-Im.
If Ex-Im increases American exports and if that is good, why not boost the agency’s subsidies enough for exports to increase until the whole American GDP is exported? (Whatever Americans needed for subsistence or more would be imported.) If the answer to this question is that subsidizing exports is only good up to a certain point, the question becomes: How are politicians and government bureaucrats as central planners capable of determining that nirvana threshold, as opposed to just laissez-faire the interplay of the decentralized actions of producers and consumers? Can Nancy Pelosi or Mitch McConnell find the nirvana threshold?
The real-world answer comes from what economists call the logic of collective action. Concentrated special interests, represented by the cronies who get the subsidies, win the political competition against the diffuse interests of taxpayers and consumers. Some call that “the swamp.” The government will subsidize cronies’ exports as much as the market will bear, that is, as long as taxpayers will not revolt and the mechanics of politics and bureaucracy will permit.
The opposite approach lies in the Marquis d’Argenson’s interjection: “Laissez faire, morbleu! Laissez faire!” (“Morbleu” is a French swear word, derived from “death of God.”)
READER COMMENTS
Phil H
Jan 20 2020 at 9:54pm
That is a terrible argument, though. I don’t think economists should ever use it. There are literally no economic trends which, if carried to the absolute extreme, would be good for people. But that doesn’t mean nothing about the economy should ever change!
Libertarianism is an obvious example: Libs think there should be less regulation. But if carried to the extreme, there would be no regulation at all, or the state of nature. That’s been tried. It was rubbish.
If I work a few more hours, I can make money. Oh, but if you worked 24 hours a day, you’d get no sleep, and then you’d die! Therefore you shouldn’t work a few more hours…
I don’t actually disagree with the analysis in your third paragraph. But this particular reductio is genuinely silly. Find the good arguments.
Jon Murphy
Jan 21 2020 at 9:09am
The point of a reductio is to be silly. That’s why it’s a “reduction to the absurd.”
Pierre Lemieux
Jan 21 2020 at 12:32am
Reductio ad absurdum is a method of proof that has been used in all sciences and all organized thinking. Without it, our understanding of the physical and social world would be impossible. It may be what John Stuart Mill meant when he wrote that “unless the reasons are good for an extreme case, they are not good for any case.”
Against Mill, one may argue that nearly everything is a matter of degree (if this is what you mean). However, I don’t think this new principle can be used to oppose the reductio ad absurdum of an (absurd) principle or generalization like “exports are good.” If you correct it by saying that exports are good up to a certain point, you must have logical and institutional reasons to explain where this point is and how it can be reached.
Finally, your regulation example muddles your reasoning even more. If you say that there is no regulation in the state of nature, you must be clear as to what you mean by “regulation” (and by “state of nature”). There is a lot of (non-state) regulation in the state of nature as usually defined; see my review of de Jasay’s last book on this point: “The Valium of the People,” Regulation, Spring 2016.
Dylan
Jan 21 2020 at 8:38am
I’m with Phil that this doesn’t seem like a great argument, primarily because I think the people you need to convince, (i.e. almost everyone) are deeply skeptical that the laissez-faire option will get closer to that nirvana threshold than will competent central planners.
I’m with you, that free markets are by far the best way to figure out what should be imported and exported, so of course I accept your conclusion. But, as long as that remains a minority view, your argument amounts to preaching to the choir.
Jon Murphy
Jan 21 2020 at 8:48am
As a purely practical matter, I have found it to be a great question to ask. It forces people to consider their biases. For example, my very Republican neighbor suddenly becomes very skeptical of government intervention whenever I point out that Nancy Pelosi (or Chuck Schumer) would be making such decisions (and vice versa for my very Democrat neighbor).
That, then, opens up the line of questioning on why Schumer, Pelosi, Trump, whoever is so much more superior than everyone else.
Will it convince the most ideological? Of course not. But what it does show is that the oft-repeated idea that “free trade is in the minority” isn’t true in and of itself.
Dylan
Jan 21 2020 at 4:06pm
You are probably more convincing than I am, but I’ve not found that line of argumentation very effective the few times I’ve tried it. Usually goes something along the lines of, “Isn’t that thing X that Trump did horrible?” Agree that it is, and then maybe suggest that it would be better if presidents didn’t have the power to do that kind of thing…and they totally agree, presidents, should not have the power to do that bad thing that I don’t like…but they definitely need the power to do the equivalent good thing. So, it is very important that we elect the right people, and never the bad ones.
Jon Murphy
Jan 21 2020 at 5:11pm
That’s typically when I lead the discussion toward the fact that leaving such a thing up to chance (ie “electing the right people”) is not likely going to achieve the outcome one wants.
But you may very well be right: for those who are not already convinced, the argument may not get very far. I like to use it to open the door to my Public Choice/UCLA/GMU style arguments rather than as a “closer”
john hare
Jan 21 2020 at 7:07pm
I don’t know if this sound bite will help, though sometimes it seems to get through.
“The opposite of free trade is the slave trade”.
Paul A Sand
Jan 22 2020 at 10:54am
I think you mean Mitch McConnell.
Pierre Lemieux
Jan 23 2020 at 12:50am
Yes, thanks, Paul. I’ll correct this typo now.
Thaomas
Jan 22 2020 at 2:40pm
Of all the economically silly policies — silly as measured by (size of the distortion) * (transactions occurring across the distortion) — ExIM Bank seems to get disproportionate attention from GMU economists. [Minimum wages instead of wage subsidies is another that gets too much attention, but is at least somewhat important.] I realize that the failure to have a revenue neutral carbon tax, occupational licensing, and land use restrictions can’t take up the entire Libertarian blogosphere, but still, de minimis non curat oeconomica.
If I had to guess why — usually a bad idea to examine the motives of people you disagree with — I’d guess that ExIm is an example of a libertarian position that does not even look regressive.
Pierre Lemieux
Jan 23 2020 at 12:57am
It is perhaps an easy target, but it is also a good illustration of mercantilism, which is a big and important topic.
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