Business Insider: Economy Needs Crony Capitalism - FACTOIDS
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Business Insider: Economy Needs Crony Capitalism

Now that there are major warning signs that the dismal economic “recovery” under President Obama is faltering, Business Insider, which has seized on obscure data points to cheerlead for an economic “breakout,” appears to be looking for scapegoats.

A new article from Joe Wiesenthal warns Congress could “screw up” the economy over the Export-Import Bank and over highway funding just as government spending is set to bottom out.

The Export-Import Bank (Ex-Im), a product of Roosevelt's New Deal, is set to expire at the end of September. With political stars aligning against renewing the bank, Wall Street and mega-corporations are scrambling to convince the public that ending the corporate welfare would hurt the economy.

The Ex-Im bank subsidizes foreign companies to purchase goods made by American companies. The taxpayer-funded boost, though, is concentrated on just a few highly-connected corporations. Around 60% of the subsidy benefits just 10 huge companies.

Proponents argue these companies are in competition with overseas firms that benefit from their own government-subsidized loans. The most notable instance is The Boeing Company, which competes with European Airbus, which unsurprisingly receives government subsidies.

Critics note that helping one American company often puts other American companies at a disadvantage in another sector. In the case of Boeing, subsidizing overseas plane purchases helps foreign air carriers and hurts domestic ones. Delta, whose foreign, often state-owned, competitors benefit from the US government subsidy, calculates that the disadvantage has cost the domestic airline around 2,500 jobs.

Critics also question whether the special terms are necessary in an era of near-zero or even negative interest rates. There is an abundance of private liquidity to finance productive investments; 98% of all US exports are financed without Ex-Im financing. 

Wiesenthal warns that conflict over the issue could lead to a government shutdown, although the idea that it would prompt one largely exists only in the minds of liberal pundits at this point.

The real howler in BI's "warning" about the economy comes in its hand-wringing over the federal highway trust fund and infrastructure spending. Weisenthal writes:

State and local spending on infrastructure got decimated during the economic crisis, and it still hasn't recovered. This has represented an ongoing drag on the economy.

According to the numbers, though, that's not true.

In the last fiscal year, state spending on transportation and infrastructure increased 6%. This follows increases of 4.5% and 3.7% in the previous years. Since 2011, total infrastructure spending, including state and federal funds, as increased more than 10%. Overall, spending is 30% higher than it was prior to the recession. Only in BI's Wall-Street-tinted glasses could this increase be viewed as a "drag" on the economy.

Leaving aside questions of math, Weisenthal's belief that all existing federal spending and programs should always expand is especially daft with respect to the federal highway trust fund. Starting in the 1950s, federal gas tax revenues were centralized in Washington and appropriated to the states to support construction of the federal interstate highway system. That highway system has long been completed, yet Washington continues to duplicate state transportation departments and allocate funding as it sees fit.

One doesn't have to be well-versed in public choice theory to anticipate the inefficiencies and political gamesmanship that arise from this arrangement. More than half the states, 28, receive less in federal funding than its citizens contribute to the fund. Moreover, federal regulations and political gifts to labor unions drive up the costs of infrastructure projects by more than 30%.

The current federal law guiding federal infrastructure spending is called the SAFETEA-LU Act. The "LU" was added by the law's chief author, AK GOP Rep. Don Young, in honor of his wife, Lu. She is a fixture in the congressman's office, often handing out cookies to lobbyists during negotiations over the law several years ago. Naming the federal highway law after a congressman's wife is the first and last data point one needs to understand how out of whack Washington has become.

The existing federal highway trust fund is in jeopardy. Greater fuel efficiencies and government gas-mileage mandates have resulted in lower tax collections relative to miles driven. Monies in the fund are also increasingly diverted to public transit systems and quaint projects like bike lanes. Rather than try to preserve a system that was created when color TVs were an aspirational dream for most Americans, it is time to reform how infrastructure is funded. Devolving everything but maintenance of the existing interstate system to the states would probably boost overall infrastructure construction and increase productivity. 

Such change, though, is scary for Wall Street banks, who have built their business around the existing way of doing things. It is also scary for Washington politicians, who relish the power to pick winners and losers in the marketplace and among the states.

.... Read More

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