The Export-Import (Ex-Im) Bank is a taxpayer sourced fund with the ostensible purpose to give the federal executive power to improve the trading prospects of selected US companies in respect to their foreign competition. The benefit to the taxpayer is then supposed to be a return on investment through localizing the creation of the exported wealth (keeping that economic activity local) while focusing the receipt of the trade for that export into a discrete stream of foreign currency which can be attributed directly to that trade.
The benefit of subsidizing free trade for local economic benefit is nonsense on its face. We can consider the fallacy of the benefit of the transaction using the ideas of conservation of mass (price) and the efficiency of the information streams.
1. Subsidizing a trade is a reduction of price of the traded good below the actual market price. By itself, the subsidy transmits economic inefficiencies to the supposed beneficiaries of the trade and sets up structures within the local creation of the traded wealth which result in an apparent price below the market price. This difference in wealth is dissipated through inefficient consumption (e.g. an extra yacht for the CEO of Boeing that he lets rot in the bay through lack of use together with the idea that the extra unused yacht is a good thing). In short, it makes the US in actuality less competitive. This is the free trade principle in conservation of mass (price) terms.
2. However, there is an argument that if a central authority can direct a game against a foreign competitor, he may be able to direct the transactions so as to win market share and increase the leverage of the local (although necessarily inefficient) company by an effective monopoly. Therefore the immediate inefficiency would be worthwhile in order to create a subsequent greater net positive increase in wealth once the foreign competition is weakened through lack of capital investment. The best example of this is a technical efficiency in the production of a high tech asset such as an aircraft that the foreign competition cannot match through economies of scale, (e.g. the US can build planes with fiber composites at less per airframe in actuality than the foreign competitor because of the US investment in the process).
Unfortunately, in this game there can be no long term winner. If either side gains a monetized technological advantage, then the monetary value of that edge will induce that player to maximize profits at the expense of technological advancement. Eventually, that player will become technologically stagnant as focus on the measurable good (money) attributed directly to the trade dominates the allocation of its resources. Meanwhile, because technology is interconnected and nonlinear in its advacement, other players may discover the means by which to nullify the measured technological edge of the leading player by happenstance if not by design. With this undisclosed technological revolution, a trailing player may take the lead.
For the leading player to reliably maintain the position advantage, it must continue to innovate in necessarily unprofitable ways at a rate that entirely swamps the innovation rate of its competitors. Thus, technological gains are ephemeral since this cost is usually exorbitant and cannot me rationalized for the discrete benefits of the trade. The transitory cost of these gains together with the indirect benefits of the transaction that is subsidized minus the inefficiencies of the subsidy is the equilibrium price difference of the transaction which ultimately goes against the subsidy.
In short, even in the best case, the subsidy reinforces measurable failure at the expense of immeasurable innovations and gains in other areas of the economy. The best strategy is one that is naive in the directed allocation of profits as it is that strategy that maximizes innovation across all areas of the economy. The paradox is that in the face of technological innovation, long term investment in the future should be divorced from the optimization of short term gains.
Thus I am against the use of taxpayer funds in the Ex-Im bank except for the case of preserving a strategic defense capability.
The benefit of subsidizing free trade for local economic benefit is nonsense on its face. We can consider the fallacy of the benefit of the transaction using the ideas of conservation of mass (price) and the efficiency of the information streams.
1. Subsidizing a trade is a reduction of price of the traded good below the actual market price. By itself, the subsidy transmits economic inefficiencies to the supposed beneficiaries of the trade and sets up structures within the local creation of the traded wealth which result in an apparent price below the market price. This difference in wealth is dissipated through inefficient consumption (e.g. an extra yacht for the CEO of Boeing that he lets rot in the bay through lack of use together with the idea that the extra unused yacht is a good thing). In short, it makes the US in actuality less competitive. This is the free trade principle in conservation of mass (price) terms.
2. However, there is an argument that if a central authority can direct a game against a foreign competitor, he may be able to direct the transactions so as to win market share and increase the leverage of the local (although necessarily inefficient) company by an effective monopoly. Therefore the immediate inefficiency would be worthwhile in order to create a subsequent greater net positive increase in wealth once the foreign competition is weakened through lack of capital investment. The best example of this is a technical efficiency in the production of a high tech asset such as an aircraft that the foreign competition cannot match through economies of scale, (e.g. the US can build planes with fiber composites at less per airframe in actuality than the foreign competitor because of the US investment in the process).
Unfortunately, in this game there can be no long term winner. If either side gains a monetized technological advantage, then the monetary value of that edge will induce that player to maximize profits at the expense of technological advancement. Eventually, that player will become technologically stagnant as focus on the measurable good (money) attributed directly to the trade dominates the allocation of its resources. Meanwhile, because technology is interconnected and nonlinear in its advacement, other players may discover the means by which to nullify the measured technological edge of the leading player by happenstance if not by design. With this undisclosed technological revolution, a trailing player may take the lead.
For the leading player to reliably maintain the position advantage, it must continue to innovate in necessarily unprofitable ways at a rate that entirely swamps the innovation rate of its competitors. Thus, technological gains are ephemeral since this cost is usually exorbitant and cannot me rationalized for the discrete benefits of the trade. The transitory cost of these gains together with the indirect benefits of the transaction that is subsidized minus the inefficiencies of the subsidy is the equilibrium price difference of the transaction which ultimately goes against the subsidy.
In short, even in the best case, the subsidy reinforces measurable failure at the expense of immeasurable innovations and gains in other areas of the economy. The best strategy is one that is naive in the directed allocation of profits as it is that strategy that maximizes innovation across all areas of the economy. The paradox is that in the face of technological innovation, long term investment in the future should be divorced from the optimization of short term gains.
Thus I am against the use of taxpayer funds in the Ex-Im bank except for the case of preserving a strategic defense capability.
