There were several letters in today’s Wall Street Journal commenting on my recent op-ed with my son Joe on second best arguments for various forms of crony capitalism.
Overall, these articles are critical of our position, but I do not disagree with them. Our original article was at best a weak defense, with terms like “may be” and “a second-best world is messy” and “there may be better ways.” The letters are basically amplifying these caveats, and I do not disagree that the second best alternatives Joe and I proposed were flawed. Clearly, as the letter writers indicate, a first best world with no inefficient regulation would be better. Would that we could get there.
But it does seem odd to pick on the Export-Import Bank as the major effort to reduce crony capitalism. The Bank makes money in an accounting sense, but loses in terms of the risk-adjusted cost of capital. The cost is estimated as $2 billion. The ethanol program or the import-restriction policies of the Commerce Department and the International Trade Commission are much more costly, and would make better targets for deregulation.
There is another political point. Those of us in favor of free markets are fond of pointing out that being pro-market is not the same as being pro-business, and may point to opposition to the Ex-Im Bank as an example. But while being pro-market is not the same as being pro-business, it is also true that business is one of the major forces generally advocating freer markets and decreased regulation. There is a cost to antagonizing a major ally in the fight against inefficient rules.