Business Insider

Peter Crabb: Export-Import Bank aid for Idaho ag exports hurts economy

Peter Crabb
Peter Crabb

Welfare is a hot topic among policymakers at both the national and state levels. The question is: Whose welfare is of most concern to these policymakers?

Many Republican leaders are calling for large-scale reform of individual welfare programs such as food stamps and Medicaid. Such reforms are not often coupled with an equally necessary reform of corporate welfare.

Corporate welfare is defined as any government support or subsidy of private business, such as a tax incentive. Numerous industries and business groups receive some form of assistance from either federal or state government programs. For many corporations it is perfectly sensible to spend a portion of their annual operating budget on lobbyists and campaign contributions just to keep these preferences going.

Economic theory and evidence show this is tremendous waste for society.

The branch of economic study known as welfare economics shows how tax incentives, subsidies and other industry preferences result in an overall loss to the economy. To understand this problem, consider first a competitive market.

In a market where there are many buyers and sellers with the freedom to come or go as they please, the equilibrium price will make everyone as well off as possible. Buyers who want the product at that price make the purchase. Those who do not, don't. This free market directs a good or service to the buyers who value it most highly, as measured by their willingness to pay.

Similarly, sellers in competitive markets are those who can produce the product at a cost below the going price. Those firms that can't will not be in the market. Thus, the free market allocates the going demand for any good or service only to those businesses that can produce it at the lowest cost.

Corporate welfare messes this all up.

Tax incentives, subsidies or preferential treatment keep inefficient firms afloat, and/or increase the return to capital in an industry where it is not needed. This second problem, capital flowing to only certain industries, can slow economic growth. Capital that could be going to new, innovative industries is tied up in a lower return product or service.

To reduce corporate welfare, policy makers in Washington and here in Idaho should start with the Export-Import Bank of the United States. In 2008, Barack Obama called this government program "little more than a fund for corporate welfare."

The Congressional Budget Office estimates that the Export-Import Bank costs taxpayers about $200 million a year even though it earns interest on the loans it makes to various corporations. What the CBO analysis does not account for is the possibility of misdirected capital - capital that could be going to new, innovative industries is tied up lower-return businesses.

According to the Export-Import Bank's data, since 2007 Idaho has received more than $172 million in corporate subsidies. More than half of this money goes through George F. Brocke & Sons Inc. of Kendrick to subsidize our agricultural exports.

Aren't our potatoes and other commodities good enough?

If we don't want the government meddling in our other affairs, like land management, we shouldn't ask for their help selling our stuff.

True reform starts at home. Idahoans should end all corporate welfare.