Greenspan: Kill the Ex-Im Bank

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Add Alan Greenspan to the list of Export-Import Bank opponents.

Asked in an interview with the Hill whether he supports renewing the bank’s authorization — its charter expires Sept. 30 — the former Federal Reserve chairman said simply, “As an economist, no.”

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“But if I were a politician running for office, I suspect I might,” he added.

Conservative lawmakers, such as House Financial Services Committee Chairman Jeb Hensarling (R-Texas) oppose the bank on the grounds that it is little more than “corporate welfare” that props up big businesses like Boeing.

Echoing the arguments of free-market advocates on the right, Greenspan argued that the world would be better off without governments providing subsidies to businesses.

“The Export-Import Bank is fundamentally a subsidy for American exporters,” Greenspan said. “But the other question you have to ask is, ‘Does international competition and global economic activity do better if no country subsidizes its exports?’ My answer is yes.”

Supporters argue that the bank should be reauthorized because it helps keep U.S. businesses competitive in emerging markets. They note that other countries, such as China, have government financing options similar to the ones offered by the Ex-Im Bank, which means that nixing the bank would simply boost America’s competitors.

Greenspan said the global economy would be improved if countries didn’t subsidize their exports at all, but said politics often get in the way of good policy.

“There is just no doubt that, from a political perspective, all that is visible is the immediate subsidy advantage,” Greenspan said. “Foreign competition’s response is never considered. In politics, it’s the short term that regrettably sets policy, and that is what accounts for an overwhelming backing of the Export-Import Bank.”

Asked whether the economy would be hurt if the bank disappeared, Greenspan said it would “in the short term, probably — but not over the long term.”

“If no country artificially boosted their exports, the global economy would function better,” he said. “In the end, it’s a zero-sum game. To be sure, in the short run, those offered export subsidies gain an advantage until foreign competitors counter the subsidy.”

Despite conservative opposition, House Republicans included a short-term extension of the bank’s charter in a stopgap funding bill that passed on Wednesday, punting the debate about the bank’s fate until next summer.

It remains unclear whether Senate Democrats will accept the short-term extension or seek to change the bill so that the bank is reauthorized for a longer period of time.

Outside of the reauthorization issue, Greenspan was tight-lipped about whether it is time for the Federal Reserve he once led to raise interest rates.

On Wednesday, the Federal Open Market Committee (FOMC) pledged to keep interest rates near zero for a “considerable time” after its economic stimulus bond purchases likely end next month.

Federal Reserve Chairwoman Janet Yellen said during a press conference that the central bank would continue to shrink its bond-buying program with an eye toward eliminating it in October.

Greenspan said it’s not his place to second-guess Yellen’s decisions.

“Ever since I’ve left the Fed, I’ve adhered to an unspoken agreement among Federal Reserve chairmen,” he said. “We don’t talk about specific FOMC policies of our successors. We know how tough that decision-making is.”

Greenspan, whose 2013 book, The Map and the Territory, is out in paperback next month, did downplay emphasis on the national unemployment rate, which continues to hover above 6 percent: The most recent August estimate was 6.1 percent.

He noted that in 2000, the unemployment rate fell below 4 percent, and there was no inflation.

“The trade-off between unemployment slack and inflation is not a simple relationship,” Greenspan said. “I don’t put too much emphasis on the unemployment rate because it’s very fragile.” 

Greenspan was cautious when asked whether he thought the economy was in another bubble.

“You’ve got to be careful in how a bubble is defined,” he said. “Are there bubble indications? Yes and no. Stock prices overall are on the edge, but equity premiums are not that far out of line.”

He said that, even though stock prices have surged since 2009, it’s not necessarily an indication of a bubble.

“Given the huge rise in stocks since early 2009, some adjustment is on the horizon,” he said. “I don’t foresee it as a collapse in prices.” 

Yellen drew comparisons to Greenspan earlier this summer, when she said in submitted testimony to Congress that stock prices for biotechnology and social media firms appeared “substantially stretched.”

Fed watchers grew concerned that Yellen was predicting a bubble. Many compared her comment to Greenspan’s December 1996 speech when the then-Fed chairman questioned the soaring stock market’s “irrational exuberance.” 

“We are not in a period of ‘irrational exuberance,’” Greenspan told The Hill. “It’s a period of extreme uncertainty.”

Greenspan has been outspoken in his criticism of the 2010 Wall Street reform law, commonly referred to as Dodd-Frank. 

“The difficulty with Dodd-Frank is that its underlying implicit conceptual structure is faulty. This is reflected in the fact that, four years after its official signing, much, if not most, has not been effectively implemented,” Greenspan said.

“The one area where Dodd-Frank moves in the right direction is in its raising of capital requirements,” he said.

Economists who support more stringent capital requirements for financial institutions argue they help reduce the risk of banks needing a taxpayer bailout, such as what happened during the 2008 crisis.

“On the contrary, despite Dodd-Frank’s mandate, we have not eliminated ‘Too Big To Fail,’” Greenspan said. 

“Regulators are having considerable difficulty in finding ways to meet the statute’s goals,” he said. “It will be difficult to significantly alter Dodd-Frank because we now have so many constituencies that have been built up in support of the act’s provisions.”