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Home Publications Blogs Beat the Press Robert Samuelson Thinks We Don't Give Trade Enough Credit

Robert Samuelson Thinks We Don't Give Trade Enough Credit

Monday, 01 April 2013 03:47

Following in the footsteps of his colleague at the Post, Dylan Matthews, Robert Samuelson devoted a column to a new book on trade by Robert Lawrence, complaining that we don't give enough credit to trade. I won't rehash the basic points that Samuelson gets wrong. However it is probably worth going through the basic story as to how trade can lead to overall gains to the economy and yet hurt large groups of workers.

Suppose that we diverted 6 percent of the current flow of immigrants so that instead of being farmworkers and custodians they were doctors trained to U.S. standards. After a decade we would have an additional 800,000 doctors, roughly doubling the current supply. Let's imagine that this cut their (service adjusted) average pay in half to $125,000 a year.

In this story, we would save $100 billion a year in what we pay doctors. This would imply an enormous benefit to the economy in the form of lower health care costs.

Even doctors would benefit from having to pay less for health care for themselves and their families. Of course their savings on health care costs would be swamped in its impact on their living standards by their reduction in pay. (Maybe we could get some economists and economic columnists to tell the doctors that they are stupid for opposing trade agreements because of the huge savings they see on health care, just as they tell manufacturing workers that they are stupid for not appreciating the benefits of low cost imported manufactured goods.)

Anyhow, this is the basic story on trade in the U.S. over the last three decades. It has been designed to put non-college educated workers in direct competition with their counterparts in the developing world, while largely protecting the most highly educated workers. The predicted and actual result from this structure of trade is to reduce their wages, redistributing income to corporate profits and highly educated professionals.


Comments (17)Add Comment
Most people get it
written by Jennifer, April 01, 2013 5:56
At least he started with some encouraging news, that 63% of the population considered trade "bad" because it "results in the loss of jobs and lower wages."
Of course the way the "trade" agreements have been constructed, this is exactly right. He explicitly describes the transfer of wealth when he states that lower manufacturing prices "frees up money" to "spend on services", and how this savings comes to about "$1000 for each American."
He's actually telling us that (low-skilled labor) manufacturing costs can be brought down, for the purpose of putting money towards (high-skilled labor) services such as health care, education, which apparently cannot be brought down. Guess he's not going to be suggesting importing doctors anytime soon.
$1000 must be an average because I am sure some people have made WAY more from "trade" then this but even if it's accurate this number is not much. $1000 is nothing compared to the massive job loss of that sector, which in turn has destroyed communities, and increased people's dependency on government aid-this has hurt far more people then it as helped. Of course the people it HAS helped are the people who had money to begin with.
Not exactly related but good news for people in India, where they only started granting drug patents in 2005 due to international trade agreements, Novartis lost its bogus patent case.
Doctor pay
written by Paul Roszko, April 01, 2013 7:02
This sounds all good and great - lower doctor pay to make the field more competitive and lower health care costs in the US. Except doctors by and large nowadays aren't wealthy. They come out of 4 years of college, usually 1-2 years of work, 4 years of medical school, 3-6 years of residency training, then up to three years of fellowship training, before they start earning their "overpaid" salary, which can be as little as $125,000 if you go into primary care (FP, IM, peds). So they start earning a living well past the age of 35, when they're contemporaries have already been working over 10 years out of college. If you compare that to a lawyer, that's ten years less of accumulated wealth, or compared to someone with a BS or MS degree, up to $250K in tuition (with a minimum of 6.8% interest, often more). You can't just look at a full trained physician's salary to make decisions here. How are you ever going to fill the primary care physician shortage if you don't fix how much tuition and loans cost? Physicians are amongst the hardest working and best trained persons in the world. They deserve every opportunity to be able to pay off their loans and save for a retirement and care for their families. Part of the necessity of higher salaries is so physicians can pay off their loans (which takes close to 10 years to pay off) and make up for lost earning years with their 10+ years of training dedicated to medical school, residency, and fellowship.
written by Josh, April 01, 2013 7:26
Here is the most important sentence in the linked Bivens EPI article: "However, even if the dollar eventually reaches a sustainable level and trade deficits close, globalization will continue to impose a drag on the wages of most American workers." Currency isn't the root of the problem, which is that trade with developing countries will inevitably lead to race to the bottom unless it is carefully managed to benefit "ourselves and our posterity."

Instead of importing over a million people a year and diverting 6% of that flow into doctors, how about just bringing in the doctors? A complementary strategy would be to just build more medical schools, which in the current environment would be have the side benefit of being a form of stimulus. There are already more applicants than the current system wants to admit, and due to affirmative action placing such a large thumb on the admissions scale, many American would-be-doctors who the medical establishment excludes to keep their salaries high are probably sufficiently qualified.
The many years of physician training, is it economically worthwhile?
written by John Wright, April 01, 2013 7:51
re: physicians "They come out of 4 years of college, usually 1-2 years of work, 4 years of medical school, 3-6 years of residency training, then up to three years of fellowship training"

Have there been any studies indicating this training regimen is worth the economic investment as far as improving patient outcomes?

Perhaps a shorter and less costly physician training program would be even more effective for the American population purchasing health care?

Do we have information from other countries?

How Tiny is the Mind of Robert Samuelson on Trade?
written by Last Mover, April 01, 2013 7:55
Samuelson wants to give more credit to trade and he doesn't even understand the difference between comparative advantage and absolute advantage as the whole point of trade.

Although one country may produce only a thousand widgets while another produces a million widgets, it still may be advantageous to both countries for the one that produces a thousand with much higher productivity, to trade them to the other country for its goods and services other than widgets.

As Baker explains, whether both countries are better off from higher real income received for producing or higher real value received when consuming shouldn't matter.

But in America it does matter because the trading game is rigged against the middle and lower class on the production-seller side.

The rich operate behind protectionist barriers that block trade and make the goods and services they produce cost more through inefficiency for everyone, yet the rich can still pay for them because they're part of the trade ineffiency loop that overrewards them - as a country - for producing more at higher cost than necessary in the first place.*[1]

For propaganda purposes, it doesn't take much for tiny minds like Samuelson to twist absolute advantage into false comparative advantage. In the analogy above for white collar professional goods and services, America is the country overproducing a million widgets at far higher cost than necessary when it should be buying them from other countries.

For sectors like manufacturing where trade could have made both countries better off (absent sweat shops and the like), the Catch-22 is in America, cheaper goods from abroad can't make the middle and lower class better off because their labor income was lost as well when the manufacturing left.*[2]

Most important, Samuelson et al make the same essential case based on trade against the middle and lower class that Dean Baker makes against the upper class.

The key difference is that Samuelson invokes excessive entitlements, taxes and debt in one direction as suppressing trade on behalf of the middle and lower class while Dean Baker invokes the exact argument - in the other direction - on the behalf of the rich as suppressing trade.

And to think that Samuelson may have the ear of the President on matters of trade ... Well, one tiny mind deserves another when it comes to keeping the middle and lower class in its place.

*[1] Don't confuse this with monopoly pricing at the micro level that produces less at higher prices, which happens at the same time.

*[2] Blue collar labor could not just conveniently jump into a white collar profession. Also, the housing bubble did act to replace lost wage income as a teaser before the bottom dropped out of labor income, not to mention the long term decline of real wages already seperated from productivity gains.
Medical education
written by Jennifer, April 01, 2013 8:18
I believe we do have the longest education overall for doctors. In general most health professional fields in the US have a longer training period compared to other countries in part because of the BS emphasis. In other countries health care training is treated more like a trade. There is not any evidence this gives us better doctors and in fact there is a movement to shorten med school to 3 years, a drop in the bucket but it is something.
Nothing trumps supply and demand
written by RRaccoon, April 01, 2013 8:36
The reason doctors receive so much in pay is not because the cost of their education is so high. It is because of the scarcity of competition.

Allowing more doctors to practice here and others (nurse practitioners etc) to perform some of their jobs will bring a decrease in the cost of the service they are performing.

It seems the doctors a for a free market until the free market would allow for a dent in their practical monopoly.
written by Kat, April 01, 2013 9:26
Here is the "black is white" WSJ's take on the ruling:
Where and Who Will Train Doctors
written by AlanInAz, April 01, 2013 9:46
I think Dean should be a bit more specific as to who will train these immigrant doctors to US standards. If it is in the developing world then it is a case of the rich robbing the poor. If it is in the developed world then we will have a hard time attracting them given the severe reduction in US compensation. My sister-in-law practices medicine in Europe and her education was entirely funded by the government. She has no interest in coming to the States even with today's compensation.

Assuming Dean could entice all the doctors he thinks will come then the assumed savings of $100 billion is a small percentage of the total health care spending. Today about 17% of the economy is health care. In a $16 trillion economy this comes to $2.7 trillion. The total savings from this massive influx of doctors would reduce health care spending by only 3.7%.

I think our energies are better spent fighting for more significant savings in what is a huge economic structure. We will spend huge political capital with a very modest gain. Countries that have their health costs under better control do not rely on market mechanisms but rather government regulation.
written by Bumticker, April 01, 2013 11:17
So currently there are 800,00 doctors in the United States making an average of $250,000 per year.
You are proposing having 1,600,000 doctors making an average of $125,000 per year.
Where is the savings?
I take your point but not your example.
If Doctors Work for Half Pay, We Will See Savings
written by Dean, April 01, 2013 12:07

In response to your question, you have to note the magic phrase "service adjusted." In other words, I'm saying that the pay would fall from $250k a year to $125k a year assuming that they put in the same number of hours. Since the average hours would almost certainly fall considerably, and some doctors might retire and stop working altogether, we would almost certainly spend much less on doctors. Of course at lower fees, some people may be able to afford doctors who could not previously.
Hope that's helpful.
written by John Emerson, April 01, 2013 2:28
As I remember, Baker also advocates subsidized medical education. The present system drives MDs into the arms of for-profit HMOs.
written by watermelonpunch, April 02, 2013 11:23
Everyone's focusing on the doctor immigrant angle. But I see it just as a demonstration.
I GET IT!! :o)

(Maybe we could get some economists and economic columnists to tell the doctors that they are stupid for opposing trade agreements because of the huge savings they see on health care, just as they tell manufacturing workers that they are stupid for not appreciating the benefits of low cost imported manufactured goods.)

I've been saying this for ages!!! They keep saying "but people get things so cheap because of overseas labour"... and I keep saying...
Paying half price for a toaster oven or a plastic trash bin means nearly NOTHING to someone who has to pay 50% of their income to their landlord!!!!!!!!

doctors are doing just fine
written by Alex, April 03, 2013 11:06
Responding to Paul upthread: I grew up in a community with lots of doctors. I've seen how they live. I go back there frequently and my dad works with doctors and I see how they're still living.

They're not starving dude. Far from it.

Also, why are your doctors starting work at 35? Sure they might like to travel or try to become a musician in their 20's and then go to med school, but they don't have to. Average years of training (including college, which doesn't have to take 4 years) for a doctor is 11 years, according to the BLS. That means fully trained by their late 20's, and earning a LOT more than a lawyer ($125K right out of college is pretty sweet, and that number grows).

Yes there are better ways to fund training, and that goes for all skilled professions. We're not going to try those, tho, for a variety of political reasons. In the meantime, we can take advantage of the more efficient educational systems in other countries. And maybe if doctors made less med schools would have to lower their tuition prices.
written by Alex, April 03, 2013 11:14
Alan - Then your sister-in-law is forgoing extra income because she wants to stay where she is. That's fine! But that doesn't mean that US doctors aren't overpaid:


My sister-in-law is a German nurse. It took her 2 years to jump through all the hoops required to get a job in the US. I don't see any problem with doctors from developing countries coming to the US - "developing economy" doesn't mean "everyone who lives there is genetically inferior." If we require doctors from developing countries to pass a test or a certification to practice in the US, then what's the problem? We'll know they're qualified the same way we know every other doctor is qualified.
written by Alex, April 03, 2013 11:22
John Wright: Those numbers are on the high end (there's no reason for 2 years of work between UG and med school, for example, and over 3 years of residency is only required for certain specialties that more than make up for the additional training in increased income), but, yeah, I wonder the same thing.

The clinic I go to has sometimes delegated me to a nurse practitioner instead of letting me see a GP, and frankly the result is the same: I ask for the dosage of my meds that I think I need, the doctor/nurse tries to talk me out of it, I explain the research I did in the topic, they realize they don't know as much about what I have as I do, and then they cave and give me what I need. I don't see the need for 11 years of training for them to participate in that process.
written by AlanInAz, April 04, 2013 12:12

You miss the point about developing countries. Those countries are subsidizing the training of their doctors from a very resources. We are rich, they are poor - we can afford to spend the money to train our own doctors. I am not against increasing the supply of doctors but I am against trying to get them at the expense of less wealthy societies. Sorry if that isn't self interested enough for you.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.