July 21, 2014

The Crony Capitalism Machine

Veronique de Rugy

George Gibbs Chair in Political Economy
Summary

At their worst, Ex-Im loan programs introduce political incentives into business decisions, creating the conditions for companies to seek financial rewards by pleasing political interests rather than customers. The economic costs this cronyism imposes are real and inexcusable.

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This article appears in the August/September edition of Reason Magazine

Congress will soon debate the fate of the U.S. Export-Import Bank, an outfit that doles out money to favored corporations and foreign governments. For 80 years, the bank and the crony capitalists it supports have defeated every attempt to shut it down.

But that may slowly be changing. In recent months a few Republican lawmakers-including Reps. Jeb Hensarling of Texas, Tom McClintock of California, Scott Garrett of New Jersey, Mick Mulvaney of South Carolina, and Justin Amash of Michigan, along with Sens. Mike Lee of Utah and Ted Cruz of Texas-have been working to put an end to the boondoggle.

Back in the 1980s, then-Budget Director David Stockman tried but ultimately failed to abolish the Ex-Im Bank. He did manage to cut the institution's lending budget from $7 billion in 1981 to $3.2 billion in 1986, but that victory was short-lived: By 1989, lending had grown back to $12.5 billion, and taxpayer exposure rose to roughly $58 billion.

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