Victims of government financing | VICTIMS OF CRONYISM

Tim Carney: The US government subsidizes businessesin all sorts of ways, including grants, tax breaks, protectionism, and regulation.

A favorite way to subsidize businesses, though, is through loans and loanguarantees.

But when the government acts like an investment bank to help somebusinesses, it harms other businesses and places taxpayers at risk.

Many federalagencies loan out money or guarantee loans.

The businesses that receive thisfinancing benefit, as do their customers, but, of course, this puts taxpayer moneyat risk.

The US government finances billions ofdollars in aircraft purchases.

That allows airlines to better afford thejets.

But what happens if the customer goes bankrupt? Well, the taxpayer picks upthe tab.

Something just like this happened after the Energy Department in2009 guaranteed a large loan to a solar company in California.

Joe Biden: I'm really happy,along with the secretary, to announce today that we've closed a 535 milliondollar loan guarantee for Solyndra, more than half a billion dollars.

Tim Carney: Things soonturned south, and Solyndra went bankrupt, leaving taxpayers with the tab.

Similarly,when government-sponsored housing financiersFannie Mae and Freddie Macwent under in 2008 taxpayers, bailed them out.

Defenders of these programs, though,argue that government can absorb these costs, and that most of these taxpayer-backed finance programs, quote, "turn a profit.

" Fred Hochberg: Ex-Im makes money for taxpayers.

That's not corporate welfare.

Tim Carney: But even when they're not sticking taxpayers with the tab, government creates other victims when it acts as a bank or a venturecapital firm.

Most obviously, when government subsidizes a company, it'shurting that company's competitors.

Delta Airlines, for instance, was harmed whenthe US Export-Import bank financed foreign airlines.

Ex-Im does this in orderto help the airlines buy Boeing jets and General Electric engines.

Richard B.

Hirst: Ex-Im's support ofBoeing means that it supports our competitors.

Ex-Im's support for Emirates provides them with a subsidy of about 20 milliondollars in aircraft, and that kind of subsidy — that level of impact — has animpact on Delta's ability to compete with Emirates.

Tim Carney: And that's not the onlyway the Export-Import Bank creates victims.

When Ex-Im subsidizes foreignbuyers, that increases demand for what they're buying.

Increased demand means increased prices for the US buyers who don't get the samesubsidy.

This is a matter of basic economics.

As trade economist StephenSaran of it writes: "When a large exporting country implements an exportsubsidy, it will cause an increase in the price of the good on the domestic marketand a decrease in the price in the rest of the world.

Sometimes, instead of makingdirect loans, government gives guarantees to the loans made by regular banks.

Inthat case, the government is choosing who gets the loan.

This creates anothervictim — the borrower who would have gotten the loan if Uncle Sam hadn'tpropped up its own favored borrower with a guarantee.

This is why economists agreethat such government financing, quote, "merely shifts production among sectorswithin the economy, but does not add to the overall level of economic activity.

"The final victim is the entire US economy.

When the government is a lender,or is directing lenders through guarantees, money goes to the politicallyfavored businesses instead of the most economically promising.

That harmseconomic efficiency, especially because politicians aren't exactly the best atfiguring out where economic promise lies.

Steven Chu: As you can see if you build a bettersolar panel the world will beat a path to your door.

Building a smarter solarpanel is exactly what Solyndra has done.

Tim Carney: So while government financing helps somelenders, manufacturers, and foreign buyers, it creates many victims.

US taxpayersbear the risk for this lending.

American companies who compete against subsidizedcompanies become at a disadvantage.

US consumers suffer as subsidized buyersbid up the price of goods.

And US businessmen who don't have access toUncle Sam's backing find it harder to get financing.

And the US economy as awhole suffers as politicians instead of market playersallocate financing around the economy.

It's just one more example: Every timethe government tries to pick an economic winner, it creates economic losers.

Theseare the victims of cronyism.

Source: Youtube