Home > Uncategorized > Steel tariffs and doctors: a teachable moment?

Steel tariffs and doctors: a teachable moment?

from Dean Baker

Donald Trump’s tariffs on steel have elicited near universal condemnation. In addition to issuing warnings from retaliation by our trading partners, the media have also been giving us economics lessons on how steel tariffs will mean higher prices for consumers.

If we pay 10 percent more for our steel, then the price of cars and other items that use large amounts of steel can be expected to rise. This will reduce demand for these products and might cause consumers to buy more foreign cars and fewer US made cars, possibly leading to a loss of jobs in the auto industry.

This economics lesson can be useful, but perhaps we can extend this teaching moment to other areas. The basic point economists have been making is that large segments of the population benefit from having access to lower cost imported steel even if it means fewer jobs and lower pay for US steelworkers.

Over the last four decades our trade policy had been quite explicitly designed to put steelworkers and other manufacturing workers in direct competition with low-paid workers in the developing world. Trade deals made it as easy as possible for US corporations to locate factories in Mexico and other developing countries and import their production back into the United States.

We can take the same approach to trade of highly paid services, specifically the services provided by doctors, our highest paid professionals. Doctors in the United States earn on average more than $250,000 a year. That’s more than twice the average for their counterparts in other wealthy countries. 

With more than 900,000 practicing physicians in the country, we could potentially save $100,000 billion a year by paying our doctors the same as doctors earn in other wealthy countries. The potential savings come to roughly $700 per household or 10-times as much as what’s at stake with the steel tariffs.

A major reason that our doctors are able to earn twice as much as their foreign counterparts is that they are explicitly protected from international competition. Foreign-trained doctors must complete a US residency program before they are allowed to practice in the United States. This means that even a well-established physician in a country like Germany or the Netherlands would get arrested if they came to the United States and tried to compete with our doctors.

While it is reasonable to have high standards to ensure that the people who practice medicine are competent, it is absurd to imagine that the only way a person can become a competent doctor is by completing a US residency program. There is a considerable amount of research showing that other wealthy countries have comparable outcomes, indicating that their training is as good as ours, at least from the standpoint of treating patients.

Our trade negotiators could be focused on setting clear standards that foreign physicians could meet and then practice medicine in the United States with the same freedom as a US-born and -trained physician. We could do the same with dentists and other highly paid professionals.

The potential gains from this sort of trade liberalization dwarf the gains from ending tariffs and other barriers to trade in manufactured goods. And, unlike our prior efforts at trade liberalization, removing the barriers that protect highly paid professionals would reduce, rather than increase, inequality.

Don’t bet on an anti-tariff drive to lead to a reduction in barriers that protect highly paid professionals. Very few of the people complaining about the steel tariffs actually are committed to free trade. They are committed to a trade agenda that redistributes income upwards. When that means removing tariff barriers on steel or other items, they will push for “free trade.”

But when freer trade can jeopardize the income of those at the top, these same people are perfectly fine with protectionism. This point is perhaps even clearer in the case of patent and copyright protection, where an explicit goal in both domestic and international policy over the last four decades has been longer and stronger protection (yes, as in “protectionism.”)

We will spend more than $450 billion this year on prescription drugs that would cost us less than $80 billion in a free market. The difference of $370 billion is more than 30-times the amount at stake with the steel tariffs.

So let’s agree with our “free trader” friends, the steel tariffs are bad news and will impose unnecessary costs on consumers. And let’s ask them to join us in beating back the much more costly forms of protectionism that benefit doctors and other highly paid professionals, as well as drug companies, and the entertainment and software industries. You will see the commitment to free trade vanish very quickly.

See article on original site

  1. Rob Reno
    March 14, 2018 at 2:36 am

    Those young pre-med and current medical students are being massively burdened with debt here in the US to become doctors. Decks and ilk like her would refuse to allow such debt burden to be forgiven for say, public service like practicing in a rural area where there is a lack of doctors. The huge debt such students must take on is not their fault, but simply because they are unfortunate enough to be citizens in the US instead of another country that makes education more affordable. You make schemes like above Dean, but thoughtlessly don’t seem to think through the costs to those whom may come out of school and suddenly find themselves struggling to afford massive student debt because cheap imported professional labor under its their earning potential relative to the massive debt they ae required to take on. There are always transition costs and I grow weary and frankly disgusted at the facile solutions like yours above when you don’t give a wit about those caught and harmed by such H1-B like import cheap labor abuse.

    Why is that you cannot think big enough to somehow devise a win-win solution rather than a win-lose solution Dean, or are just like mainstream economists who callously assume those harmed are just transitional costs necessary to get from one imaginary equilibrium to another?

    • Rob Reno
      March 14, 2018 at 2:37 am

      Decks = DeVos

    • Rob Reno
      March 14, 2018 at 2:56 am

      It seems you want to do to doctors what the big tech companies have already done to the software engineering field. It is a sick race to the bottom that make precarious workers out of everyone.

      • robert locke
        March 14, 2018 at 11:46 am

        Rob, the doctors are the most highly paid profession in America. I’m a retired college professor and never dreamed of such an income. And I worked at teaching, research, and writing seriously. As for teachers…..

        The problem isn’t so bad here in Germany where in my border town doctors educated in Poland are regularly employed in German hospitals. They’re cheaper. But the surgeon who worked on me in Poland a few months ago was a Hindu, educated in a Polish medical school. He was great, because I could talk to him in English.

      • Rob Reno
        March 15, 2018 at 4:41 pm

        Robert, I am not arguing that the high salary is the way it should be, only that there are two sides to the equation and when a young student (or their parents) must take on between $250K to $500K to get them through medical school because of the broken high priced education system (it has been turned into a commodity in the US like everything else under market fundamentalism) then the high salary is required or they end up debt-slaves for having even considered going into medicine. Many young people don’t go into medicine to get rich but because they want to serve their fellows and would willingly do so in rural areas or underserved communities. But in the US the high cost of getting that education drives many to go into specialties that command a high salary out of fear that if they become, for example, family practitioners, they will never be able to pay back their loans.

        My point is the entire system is broken. That is why we are telling our children go to Germany and learn to speak German and get your medical degree; or Canada, or any other country that hasn’t sold its soul to market fundamentalism.

  2. Rob Reno
    March 14, 2018 at 2:53 am

    You are also simply wrong Dean that it is the Doctors that are the major cost driver in healthcare costs. I can pull out a recent medical bill for when we had to take our daughter to the emergency room. The largest cost was not the doctor services but a hospital facility cost 3-4 times more expensive than the doctor. You seem to ignore the role of insurance companies; or big pharma; why is that? These are far more responsible for driving up the cost of healthcare than doctors. Netflix just did a documentary on big pharma and now they are taking (purchasing rights to) old generic drugs and then raising the price thereby profiteering at the expense of the public. Why not address that issue Dean? I grow increasing suspect of your real understanding of the true underlying drivers of healthcare Dean when you ignore major drivers while focusing only on doctor salaries.

    • Rob Reno
      March 14, 2018 at 3:09 am

      Or take our daughter’s migraine medicine. The same medicine we have to purchase in Canada is tenfold more expensive here in the US.

  3. Stefan Voss
    March 14, 2018 at 5:51 am

    Due to the fact that US prices for medicine are the highest in the world pharmaceutical companies have the ability to finance its high developing costs for new pharmaceuticals. If prices for medicine in the US would be on the same level as in Europe, pharmaceutical companies would be unable to develop new drugs.

    • Rob Reno
      March 14, 2018 at 3:09 pm

      Are you listening? Philidor. Netflix’s documentary Dirty Money (S1:E3) Drug Short: https://www.netflix.com/title/80118100

    • Rob Reno
      March 14, 2018 at 3:34 pm

      The evidence proves you wrong, dead wrong, unfortunately dead wrong for Americans.

    • Rob Reno
      March 15, 2018 at 4:34 pm

      The claim that the high prices of drugs makes financing the development of new drugs is not born out by the data upon deeper investigation. Such facile assumptions are based upon little or no evidence, and rather more stereotyped beliefs than fact. Today in the US the trend is not in a healthy direction and many of the underlying shifts in practice are detrimental to the health and wellbeing of the American people.

      Contrary to public opinion, the research productivity of U.S. pharmaceutical companies has fallen behind European competition, says Donald Light, visiting professor in human biology and international health policy at Stanford. Light’s latest study on the topic, which will be published in Health Affairs, also shows that new drugs often lack clinical advantage over existing ones.

      “While it’s widely believed that most new drugs are discovered and developed in the United States and that American researchers have far outstripped their European competitors, on a level playing field of dollar for dollar, European researchers actually have been more innovative since 1982,” Light said.(Stanford News Service, 8/21/2009)

      Many of the new drugs (aka “me too” drug clones) are merely slightly tweaked old drugs that offer little or no added benefit for patients. Rather the drugs are tweaked so the patent system can be gamed by extending the patent on an existing drug where it would have ran out allowing generic drugs to be manufactured. In this way the company can continue to reap exorbitant patent protected profits while really making little or no investment in inventing new drugs. In addition, far more is spent on marketing (2.5+) than R&D for new drugs because they can then boost sales (anyone in the US is barraged with drug commercials telling the public “Go tell you doctor to prescribe X” followed by a speed-talking endless list of side-affects including death. Now, these drug commercials are followed by lawyers (with appropriate lag-time for the deaths and destruction to occur of marketing poorly tested drugs on the public) with class action lawsuits for those harmed by such predatory practices.

      Far to many ignorant Americans exhibit such knee-jerk America does it best attitudes while the real underlying data is showing a very different and in the long-term harmful trend for the American public.

  4. rddulin
    March 14, 2018 at 10:39 am

    There are a lot of things not not considered in this view. Particularly the balance of trade . Money is created in the US as a loan. When it is sent outside the borders faster than it comes back in, more money has to be borrowed domestically every day at interest to service yesterdays loans. The cost of this borrowing is included in the price of all US products. In the rest of the world the money circulates debt free with the US paying the interest.

  5. patrick newman
    March 14, 2018 at 11:47 am

    How sensitive are car prices to a modest increase in steel costs? Better employment in the steel industry. The big but is the knock-on effect of retaliation. The need is for international planning and fair trade. Trade wars are almost always unhelpful!

    • March 15, 2018 at 2:26 am

      “The big but is the knock-on effect of retaliation.”

      No, the big but is that multinationals located in tax-free areas would have to pay the same taxes their smaller competitors pay. Trade wars are a made-up boogieman designed to build a moat around multinationals.

  6. Rob Reno
    March 14, 2018 at 2:39 pm

    Generic drugs are almost always cheap — patent protection makes drugs expensive. The cancer and hepatitis drugs that sell for tens or hundreds of thousands of dollars a year would sell for a few hundred dollars in a free market. Cheap drugs would be more widely available had the developed world not forced TRIPS on the developing world. Of course, we have to pay for the research to develop new drugs or any innovation. (Baker, Dean. Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer (p. 5). Center for Economic and Policy Research. Kindle Edition.)

    The assumption in the statement above is that the ‘free market’ is solution to cheaper drugs and patient protection is the cause of more expensive drugs. But a recent Netflix’s documentary Dirty Money (S1:E3) Drug Short exposes the way companies like Valeant Pharmaceuticals use the ‘free market’ (i.e., deregulation qua predatory capitalism) to drive the cost of generic drugs up without ever engaging in research & development of new drugs that society and the world needs. Instead they used M&A to consolidate and vertically integrate smaller pharmaceutical companies (hedge funds ‘rolling up’ the pharma industries for predatory profiteering) so they could then drive up share prices. Rather than develop new drugs via research they boosted profits by driving generic drug prices through the ceiling. Nothing ventured (risked) but everything gained. By trashing R&D and consolidating the operational side (e.g., accounting, etc.) they could sell themselves to Wall Street investors yet in reality be screwing the public and killing people. They increased drug prices exponentially, which of course resulted in lower actual sales as people could not afford them. Ever wonder why we started hearing all those drug commercials ending with, “You can’t afford your medications we MAY have co-pay assistance?” That is a scam — a fraud — few if any ever get help or assistance. This is fraud (a rigged market profiteering off the literal lives of those who need the drugs to survive) perpetrated against their own patients.

    Phishing for Phools: The Economics of Manipulation and Deception by George A. Akerlof et al. (http://a.co/5aTpzTA) describe the real way the so-called ‘free market’ really works.

    [F]ree markets do not just deliver this cornucopia that people want. They also create an economic equilibrium that is highly suitable for economic enterprises that manipulate or distort our judgment, using business practices that are analogous to biological cancers that make their home in the normal equilibrium of the human body. (Akerlof and Shiller 2015, x)

    People are taking a life saving drug paying $360 a year out-of-pocket one day find they are required to pay $20,000 for the same drug (48:17) and the price just continued to go up and up from there reaching $200,00K per year out-of-pocket. Clearly the couple they interviewed who found themselves in this predicament were very wealthy; they not-so-wealthy are just screwed — literally to death.

    Entire industries can be ‘rolled up’ like this because of the power wielded by vast wealth in the form of hedge funds investors that back, wittingly or unwittingly, such predatory profiteering schemes such as Valeant Pharmaceuticals engaged in. This too is the fruits of the so-called ‘free market.’

    Some will say this is rare, but that is bullshit. The schemes may take different forms, such as the predatory global supply chain of transnational high-tech body-shops (aka sweat-shops) that collude with Facebook, Amazon, and Microsoft and other corporations seeking to use “contingent” workers as a means of driving down wage costs (see David Weil’s The Fissured Workplace) with devastating consequences for family wage earners (from janitorial to software engineering, from legal to healthcare) who find themselves victims of corporate “shedding” of employees and turned into precarious workers.

    • Rob Reno
      March 14, 2018 at 2:44 pm

      patient protection = patent protection. Let me e clear, I’m not arguing that abuse of the patent system is not a problem. It certainly is being gamed and abused. Just that knee-jerk solutions that the ‘free market’ is the solution fail to take into account that in reality all markets are rugged to one degree or another, the only question being by whom and for whom and with what degree of transparency, for lack of transparency inevitable breeds opportunism.

    • Rob Reno
      March 14, 2018 at 2:52 pm

      Those who are not wealthy but need such life saving drugs are forced into bankruptcy or death. So when I see knee-jerk platitudes that the ‘free market’ solves all problems, I find it disgusting coming from purportedly educated economists. The world is not so black and white. A drug sold for a $1 a tablet goes to $300,000 year, because of the ‘free market’ something is terribly wrong with those who keep saying it is the solution to every economic problem while being blind to the manipulation and deception therein.

    • Rob Reno
      March 14, 2018 at 3:01 pm

      Netflix’s documentary Dirty Money (S1:E3) Drug Short: https://www.netflix.com/title/80118100

  7. Jeff Z
    March 14, 2018 at 3:32 pm

    Rob, everything you say about the medical, health insurance, and drug industries is true. But Dean’s main point is the hypocrisy of those who oppose tariffs for one sector, and refuse to look at another where the savings are much larger. I can understand how you could get the impression that Dean is truly advocating a ‘free market’ solution, but he does not.

    You do not mention the problem of potential ‘brain drain’ from countries we might import doctors from. Dean has recognized this in other writings (such as Loser Liberalism), where he discusses the idea of an appropriate tax which could be used to finance training of doctors in those countries at much lower cost than if they go to the industrialized world.

    The shame is that are very many people who recognize this, and yet are frustrated by the very forces you describe. Even a fair number of ‘orthodox’ economist recognize that health care is a big case of what economists call ‘market failure,’ because of the positive spillover effects that health care causes. Many economists do in fact call for a wholesale reorganization of the system. If you pressed Dean on this, I am pretty sure he, you and I would share a lot of common ground on this issue.

    But again, the main is about the hypocrisy of ‘free-trade’ advocates, and I am not sure that it is valid inference here to take Dean’s rhetorical example, and conclude that he is advocating ‘free trade’

    • Rob Reno
      March 14, 2018 at 4:30 pm

      Your right Jeff, I’m not in complete disagreement with his points. You bring up good points yourself, such as brain drain. Nuance is difficult to do in a blog. You are right when you say, we are most likely in agreement on many things.

      The idea of importing doctors from Germany or the Netherlands raises legitimate questions about social justice. Mind you I’m well aware that doctors in other countries frequently don’t command as high of salaries as their counterparts here in the states. Our family lived in the Netherlands when our corporation had overseas contracts with a major Japanese corporation pioneering smart phone technology. Even now, we have friends from Japan, Germany, and the Netherlands. There are systemic social reasons they don’t command such salaries; their educations are subsidized and their lower salaries are fair given the generous support for educational opportunities. Same with the Canadian doctor friends we discuss these issues with. There are two sides in this equation and a socio-cultural and political will to view it holistically. That is not the case here in the US. We know because we are funding our daughters medical education, and we are increasingly thinking they (and our grandchildren) will be better off emigrating to Canada, Netherlands, etc. rather than staying in the US. Even our Canadian doctor friend who is now in the states (my daughter works with him) is heading back to Canada for the writing is on the wall that healthcare in the US is in deep trouble. So, my point is that suggesting the fix is go open the floodgates to H-1B style visa for doctors by lowering requirements may drive down one aspect of cost, it harms US medical students whom must take on huge debt with no help from society. All I’m saying we need a holistic solution not a half-way one. And that requires a combined political, social, and cultural shift not just an economic one. And that is what I mean by think bigger and think win-win.

      To be honest under Trumpism I hold out little hope for such holistic policies and therefore we are preparing to immigrate. Our daughters and grandchildren will be better off making less but living in a society that isn’t suffering from market fundamentalism myopia. Canada is one option.

      Everyone should watch the documentary. My career started out in corporate accounting (I took a special interest in forensic accounting) and became intimately familiar with the myriad of ways shennegins are used to engage in manipulation and deception and fraud (sometimes made legal!) within the so-called ‘free market.’ Then I moved into software engineering and had a insider view of the partnership forged between one high-company and one of the Big Five accounting firms. The goal was to develop enterprise systems for major ERP consulting services. What some thought was great eventually lead to Enron.

    • Rob Reno
      March 14, 2018 at 6:30 pm

      I appreciate your comments greatly Jeff, and no doubt, once I complete Dean’s book I will find much I agree with. I just think we must get outside the box and seriously Rethink Economics (http://a.co/hZ4yjae) and get inside the Doughnut (http://a.co/6wlQiEJ) of holistic thinking and sustainability.

      I am well aware that the ideal doesn’t happen overnight, but we here in the US (and I would argue this is global) are in serious trouble culturally, socially, and economically (rosy numbers don’t reveal the social capital being ripped to shreds). Transitory polls don’t reveal the underlying social disruption caused by the rise of right-wing Trumpism and its culture war undermining women’s reproductive rights, environmental health, denial of an epidemic of gun violence (hell, these right-wing NRA sycophants pass laws denying doctors in the CDC from gathering epidemiological data on gun violence and pass laws stopping the government from using computers to track background checks), full-throttle neoliberal hybridized economic nationalism wedded to white nationalism, racism, xenophobia, and we have not even gotten to the total takeover of government by a despotic demagogue whose entire family are engaged in nepotism.

      I find it ludicrous to talk about ‘market solutions’ (fiddling while Rome burns) while Trump purges any semblance of sanity from his administration filling it with fawning sycophants with similar extremist agendas (e.g., Tillerson gone and Pompeo in, who is slobbering at the mouth to take the US to war with Iran, or a water-boarding fan for a CIA director) or is stacking the federal courts with right-wing extremists. Does anyone really think this descent of the US into such insanity won’t have eventually in the long run, regardless of how rosy the short term facile econometrics looks, have negative impact on the economy? How about a world war? What if Trump cucks up North Korea and we end up at war with them?

      In the end culture trumps economics and it seems economics needs to stop treating so much that has a very serious impact upon a nations economic wellbeing as a mere “externality.”

  8. Tom Welsh
    March 14, 2018 at 5:34 pm

    It’s not a good advertisement for the the economics profession when errors of three orders of magnitude are carelessly overlooked. Numbers DO matter.

    “With more than 900,000 practicing physicians in the country, we could potentially save $100,000 billion a year by paying our doctors the same as doctors earn in other wealthy countries”.

    That should be “$100 billion”.

  9. Rob Reno
    March 14, 2018 at 6:47 pm

    This should turn out well, don’t you think? http://www.bbc.com/news/business-43406052

  10. March 15, 2018 at 2:50 am

    I agree with the accusations of hypocrisy, but I wanted to make it more clear that a doctor earning $250k a year is absolutely not the kind of inequality that has caused our slowdown in GDP growth. Every penny of that $250k is potentially available for consumption if someone can only come up with a good or product that is compelling enough. Meanwhile, you and I have a better chance of winning the Mega-Millions lottery than one of Charles Koch’s dollars has of being used for his morning coffee or bagel. We are in a severe demand shortage and cutting the income of dollars (with presumably the ultra wealthy finding a way to capture the a fraction of the difference) would make the problem worse rather than better.

    • Rob Reno
      March 15, 2018 at 3:59 pm

      Pushed the Like, UpVote, Outstanding button, if there was one.

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