Getting the Export-Import Bank to Pay Dividends

>

The Export-Import Bank is one of those issues like the TARP, the 2008 bank bailout. The big money types really want it, and they are going to keep pressing Congress until it gets it right and reauthorizes the bank.

Those of us who don't think it's the best use of government money to give subsidized loans to some of the largest companies in the world have to recognize political reality. With enough campaign contributions on the table, Congress will eventually vote to approve the money. But there is no reason that we can't look to have some fun in the process.

Of course, it already has been fun. We have people who are ostensibly tough-minded advocates of the market and market discipline telling us that if we don't give government subsidies to huge companies it will cost us hundreds of thousands of jobs and increase our trade deficit. We've even had people like New York Times columnist Joe Nocera and North Dakota Senator Heidi Heitkamp call opposition to the bank "idiotic." It's hard to disagree with such compelling arguments.

But if we can step back from the name-calling and get to the substance, the basic points are very simple. The Ex-Im Bank allows large companies to benefit by getting loans at below-market interest rates by taking advantage of the federal government's solid gold credit rating. The economic cost of these loans is the money being diverted from other potential borrowers. Because the Ex-Im Bank allows General Electric and Boeing to borrow more money there is less money available for other companies and new startups.

In terms of exports and trade deficits, the way economists would ordinarily tell the story is that the exports from Boeing and General Electric are crowding out other exports. If the Ex-Im Bank didn't subsidize their exports, there would be less foreign demand for dollars. This would lead to a lower valued dollar. The lower dollar makes our goods and services cheaper to foreigners, allowing other companies to export more to our trading partners.

But Congress and the supporters of the Ex-Im Bank are not listening to economic arguments. They are responding to the power of the small number of companies who always account for the overwhelming majority of the money lent or guaranteed by the Ex-Im Bank. So let's work with them, recognizing their limitations.

Suppose as a condition of Ex-Im Bank subsidies we put a limit on CEO pay. A generous figure might be $4 million a year, ten times what the president makes, and roughly 100 times the pay of a typical worker. The idea would be that this would be an absolute cap on the compensation of a CEO or any other employee of a company getting loans or guarantees through the Ex-Im Bank. Compensation includes not just straight pay, but benefits, options, and all the various "performance-related" compensation pay given out to top executives.

Since the bank's supporters have assured us that renewal of the bank is about jobs for American workers, it shouldn't be too much to ask the top executives of these bank companies to get by on just 10 times what the president earns in order to save tens of thousands of jobs. It might even be "idiotic" if they couldn't accept that sacrifice.

When we look at the money at issue in this sort of trade-off, the numbers become even more striking. Jeffery Immelt, the CEO at General Electric made $37.2 million last year. If we capped his compensation at $4 million it would have saved the company $33.2 million. The savings would undoubtedly be considerably more if we lowered the pay of other top executives to $4 million.

Suppose that GE gets $3 billion in loans or guarantees from the Ex-Im Bank. If we assume that the subsidy saves the company roughly 1.0 percentage point compared to the market interest rate, then it comes to $30 million a year. This means that the difference between Mr. Immelt's current salary and the $4 million cap proposed here actually exceeds the subsidy provided by the Ex-Im Bank. The 350 GE workers in Wisconsin, who are facing the loss of their jobs, ostensibly because GE can't get subsidies from the Ex-Im Bank, may want to think about this arithmetic.

Anyhow, if we have to give handouts to big corporations it seems reasonable to put some conditions on the cash. After all, we put all sorts of conditions on TANF benefits of $500 a month, it seems reasonable to ask something of the companies that get tens of millions of loan subsidies through the Ex-Im Bank. This should be a great opportunity to see where people really stand.