Over the last couple of weeks, there has been discussion as to whether the funding for the Export-Import Bank should be allowed to expire. While the Chamber of Commerce and other pro-business (and Republican leaning) groups are pushing to renew funding arguing that the bank promotes exports and American jobs, others are arguing that the bank is simply funding transactions for big companies, as well as funding jobs and transactions that would happen anyway, as well as putting taxpayers on the hook should the bank have to take losses.

The fact is that roughly 60% of the bank’s funding goes to 10 big corporations, including such familiar names as Boeing, General Electric, Caterpillar, and Bechtel. Only 20% of its loans go to what it defines as “small” businesses, namely those with 500 to 1500 employees. These numbers contradict the idea that the bank promotes business, but rather confirms the idea that it is a slush fund to promote big (i.e. politically well-connected) business. It is also worth noting the definition of “small” business that Ex-Im Bank uses is somewhat at odds with the definition that the Small Business Administration (SBA) uses, which is that a small business is defined as having less than 500 employees.  As of 2010, the SBA stated small businesses make up 99.7% of all businesses (as of 2010). To put it another way, virtually all of Ex-Im’s funding goes to a category of businesses that make up .3% of all U.S. businesses. That is to say that the bank doesn’t exist to promote exports and American jobs, it exists to promote the business model of large businesses. While a government certainly may want to promote its own businesses, and the U.S. faces competition from countries that do just that, there is a strong case to be made that such actions promote corruption. The fact that 60% of the bank’s funding goes to 10 businesses makes it highly unlikely that the political pressure (i.e. the use of political connections) was not involved.

The second problem is the assertion that taxpayers won’t be on the hook for loans for losses that the bank takes. Firstly, it should be noted that any normal bank that had 60% of its loan portfolio tied up in 10 clients would likely find federal bank regulators possibly moving to have it sold to a larger, more diversified institution. Given that a typical bank only has an equity cushion of 8% to 10%, a loan portfolio with concentrations such as this would likely be in the position that the bankruptcy of any 2 of the 10 clients would put it out of business. While the Ex-Im Bank operates on a different funding model than your local bank that is using Grandma Jones’ life savings, the assertion that taxpayers would never have to cover losses is highly questionable. While one might respond with the fact that Boeing, General Electric, and Caterpillar are big, well-run companies that are not likely to go bankrupt, nobody saw the General Motors bankruptcy coming, nor any of the airline bankruptcies that have occurred, nor any of the banks that were ultimately bailed out, etc. etc. Does anyone really believe that if Boeing, General Electric, etc were to be headed towards bankruptcy that they wouldn’t also be the beneficiary of a taxpayer bailout?

The Ex-Im Bank is clearly one example of crony capitalism that has disgusted large swaths of the American electorate with Washington on both the left and the right. For those on the right who champion free markets, this bank is an example of corporate welfare. For those on the left who denounce greedy capitalist, the bank is an example of the influence of corporate money in Washington that buys favors. In the Wall Street vs. Main Street narrative that has arisen over the last few years, this bank is one more example of how Washington benefits Wall Street at the expense of Main Street.

Certain politicians are arguing that the funding for the bank should not be renewed this year. They should get their way.

Although it could still be revised upward, recent data showing that GDP contracted by a small amount in the first quarter has some questioning whether the U.S. is heading into another recession. While optimists will point to an increasing stock market to assert that business leaders don’t think that a recession is in the near future, pessimists will retort that central bank activities in the stock market mean that it is not as a good a barometer for economic sentiment as it was in the past. In fact, believe in bad economic news can actually be good for the market as traders believe that the Fed will keep interest rates low.

That the U.S. should be close to another recession when more than half of Americans still believe that the U.S. is still in a recession (it officially ended in 2009) is an extremely uncomfortable fact. While it is difficult to predict how long it should be between recessions based on historical data (the postwar period has seen gaps of 1 to 10 years between recessions), usually the majority of the country has recognized that the prior recession was over before a new one was entered into. The fact that more than half (a January, 2014 poll put the number as high as 74%) believe us still to be in a recession means more than that most people don’t keep up with financial news. It means that most people are seeing the benefits of the economic expansion. It used to be said that a rising tide lifts all boats. While that is still true in the natural world, it no longer seems to be true in economic world.

Another recession right now is precisely NOT what this country needs (not that there is really ever a good time for a recession). Another actual recession with its economic pain would further entrench a pessimistic streak that seems to have taken hold, namely that the American Dream is out of reach. One of the characteristics of Americans has historically been that we are optimistic about the future. This optimism has historically fueled the drive to do great things, to build things that were never thought of (the internet), to go places no one had gone before (the moon), and create more wealth and a higher standard of living for more people than anywhere else. A pessimistic America, an America that has less faith in the future, is an America that will be less prosperous and less of a force on the world stage. And that is ultimately not good for anyone.

For a generation, perhaps longer, one of the major political parties in the U.S. has had “cutting regulations” as a standard campaign promise, while the other major political party has touted the benefits of regulation. However, many of those who are making the “we have too much regulation” argument are not really explaining why that is a problem, as if they consider it to be self-evident. Their lack of willingness to explain themselves means that what most voters hear is that too much regulation is something that business owners, not people like themselves, should be concerned about. In other words, most voters don’t necessarily connect excessive regulation with economic stagnation.

So how does excessive regulation rob a country of economic dynamism and result in economic stagnation? While history is littered with such examples, this is not a good explanation as it does not explain HOW the process works. The way regulations impact economic growth (and through this living standards) starts with what a regulation actually is. A regulation is a command for someone (or some entity) to do something that they would not do of their own free will. This means taking time, energy, effort and money to accomplish some task that is being done under duress. Because this regulation is mandating an action that is not being produced on its own in the market, the resources being expended are not necessarily being used in an “economically productive” manner. While it is certainly possible that the regulation in question is actually correcting a market failure (i.e. accomplishing an economically productive task that the unique market conditions at a specific place and time are hindering), the fact that regulations are being imposed and administered by people with neither the information (markets are way too complex and contain way too much information to be managed efficiently by humans), expertise, or often interest to manage markets means that it is not likely that most regulations that are proposed and administered are going to be of the market correcting sort.

The second problem with regulations is that they often create a situation in which people who spend their lives doing certain tasks are being overseen by people who have no experience doing the tasks that are being micromanaged.  It is hard to imagine a worse way to organize an economy than one in which those who know are forced to, in a sense, answer to those who don’t know. Furthermore, the people who are paid to manage the regulations (including people who are employed by private companies to ensure that those companies are in compliance with the regulations) are engaging, in most cases, economically unproductive activity (except in those cases in which they are managing regulations that are correcting a market failure).

Take the IRS as an example. The purpose of the IRS is to move money from Point A (taxpayers) to Point B (government). Every year, Americans spend over $100 billion dollars complying with the tax code. It would be possible, with elimination of income tax and its replacement with a national sales tax, to move the same amount of money to the government, with relatively little cost. In other words, the IRS and the armies of accountants, tax preparers, tax lawyers, etc. etc. are engaged in the economic equivalent of digging a hole and then filling it in. They add no additional tangible products to the market. They are effectively involved in a large federal jobs program. We would have the same level of economic production (industrial products, agricultural products, standard of living, etc) if they all went home and had their checks paid by the people who are actually engaged in economically productive activities. Economically, they are no different than welfare recipients, which certain segments of the political culture tend to disparage.

In short, as more and more regulations are created, more and more economic resources and workers are pulled into economic unproductive activities, which creates a drag on economic dynamism that slows (and in extreme cases stops and/or reverses) the growth of living standards. While there can be disagreement at which point one can say that there is “too much regulation”, there can be no serious disputing that this point exists. The sluggish economic growth of the last 5 years, when compared with economic recoveries of a generation ago, indicates that we are likely operating in a “too much regulation” environment.

Globalization isn’t a choice. It’s a reality-Thomas Friedman

About a decade ago, the author and New York Times columnist Thomas Friedman wrote a book called The World Is Flat in which he argued that globalization was upon us, driven by technology, and was not even something that we could choose any longer. Although Friedman was correct in that globalization is here to stay in the same way that indoor plumbing and electricity are here to stay (i.e. the technology that makes globalization possible isn’t going anywhere), he is likely incorrect in his implication that people won’t have anything to say about it.

In the last decades, trade has become freer and goods have flowed across borders raising living standards around the world (just as economic theory predicted). The rise in living standards had, for a time, muted concerns about the disruptive effects of globalization. While there were always losers in globalization (think manufacturing workers whose jobs were outsourced, or low skill labor that saw immigrants (legal and illegal) driving down wages), those losers were dwarfed by the number of people who saw their living standards increase. Consequently, societies in the West were willing to go along with the elites whose views were that what is good business (free trade & globalization) is good for society as a whole. That was the case that was being made, and for most Western societies, their rise in living standards seemed to confirm that.

However, since the financial crisis, the case that free trade and globalization is good for everyone doesn’t seem as obvious as it used to. Economic growth is sluggish, and unemployment, while falling, doesn’t seem to be falling fast enough for people to believe that we really are out of a recession. And given that it has been 5 years since the recession officially ended, the likelihood that we will see another one before too long is increasing. In Europe, the thing that European voters were promised when they signed on the EU, namely that it wouldn’t simply be a mechanism for Northern Europeans to subsidize Southern Europeans, appears not to have been the case. In elections, populist parties of the right and left are gaining ground as the ranks of those marginalized by globalization grows. At some point, the pressure for the elites to embrace policies that reverse some of the free trade and engage in some form of economic nationalism will become too great, and some of the economic gains that have been achieved will likely be given up.

This is not to say that we won’t still live in a globalized world when compared to say, the 1950’s & 60’s. However, many of the policies that have been adopted have disrupted the lives of ordinary people. Whether the National Front in France, Party for Freedom in the Netherlands, The UK Independence Party in England, or the Tea Party in America, people who feel marginalized by globalization are finding their voice and impacting their societies in ways that will in some way change the trajectories of those societies. While they likely won’t reverse the general economic direction of their societies, they will insure that the globalization of the future will be a modified sort relative to what we have seen up until now. The “Golden Age” of globalization may be coming to an end.