Paul Rubin is an economic thinker I respect tremendously, but I am not sure I agree with him here. I do agree with live in the 2nd best (at best) world and thus it is a mistake to use 1st best theoretical ideas to guide practical affairs of public policy. I prefer instead to think of institutional robustness, rather than ideal welfare economics.* So I am not without sympathy with the idea that what at first might look like inefficiency, might upon further examination be revealed to be the best of the relevant alternatives. To use a line from Pete Leeson in a different context --- perhaps cronyism is better than you think.
On the other hand, in this particular situation I tend to agree with my former student and now Mercatus colleague Veronique de Rugy in her testimony.
During the early period of the transition from socialism, I often argued against the ugly reality of the transition period that 'I'd rather live under crony capitalism than crony socialism.' As scholars like Enrico Colombatto pointed out, under many real world political economy scenarios corruption and cronyism are prefered to the official regime of public policy for economic growth and development. And I am inclined to argue that this paper by John Wallis on systemic versus venal corruption is one of the most important on the subject in general. Ultimately, the debate turns on whether you see institutions such as the Export-Import Bank as cronyism born of systemic corruption, or of mere venal corruption. Rubin in some sense is claiming it is venal corruption we are witnessing, whereas de Rugy is arguing this is another example of the systemic corruption that is destroying American capitalism.
I am going to side with Veronique de Rugy on this one. Part of my reasoning is that while I still believe my rather flippant quip from the transition period, I now am more alert to the question of legitimacy than I was then and the potential for a legitimation crisis to undermine institutional reforms and to thus result in a retrenchment of systemic corruption as the status quo. Veronique is asking us to challenge the status quo of politicized capitalism and get back to a robust institutional structure that favors a truly free market.
Two other Mercatus Center publications might be very much worth studying in-depth as we consider these issues --- Russ Roberts's "Gambling with Other People's Money," (2010) and Randall Holcombe and Andrea Castillo's Liberalism and Cronyism (2013).
Classical liberalism is a political order that exhibits neither discrimination nor dominion; a society of free and responsible individuals, who have the opportunity to participate and prosper in a market economy based on proift and loss, and who live in (and can be actively engaged with) caring communities. In such a political order, institutions such as the Export-Import Bank as currently constituted would not exist. In the nth best world we live in, it does. But I would argue that chipping away at politicized capitalism isn't commiting the nirvania fallacy, but instead acting on the basis of economic science and with strong convinction at a constitutional moment. I am, for one, extremely thankful that we have sound thinking public intellectual entrepreneurs such as Veronique de Rugy to fight this fight on Capitol Hill.
*In my Public Choice review of Mark Pennington's Robust Political Economy, I distinguish between "institutional robustness" and "intellectual robustness".