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Home Publications Blogs Beat the Press They are Just Trade Agreements, not "Free-Trade" Agreements

They are Just Trade Agreements, not "Free-Trade" Agreements

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Tuesday, 01 March 2011 06:43

A NYT article on President Obama's trade agenda repeatedly referred to "free-trade" agreements. This is a term that politicians who back these pacts use to garner public support, however, it is not accurate. The deals generally do little or nothing to reduce barriers to trade in highly paid professional services, like physician and lawyer services. They also increase protectionism in some areas, most notably by strengthening copyright and patent protections.

It is understandable that the proponents of these trade pacts would want to dub them "free-trade" pacts to make them more politically appealing. However, the media should not be using such inaccurate terminology.

Comments (8)Add Comment
For Free-Trade you need no agreements
written by Floccina, March 01, 2011 8:30
For free trade you need no agreements, you just allow your people to trade freely with whomever they want.
Irony - free trade needs rules
written by Jeff Z, March 01, 2011 9:06
Floccina,

Actually, for trade of any kind all the parties that participate need to have a shared understanding of the rules. That means a shared understanding of property rights, a shared understanding of what constitutes an agreement or contract, and a shared understanding about what enforcement mechanism will be used if one of the parties is unable to meet the terms of the contract.

These rules will inevitably favor either the buyer or seller, or one industry over another. That means politics is involved from the outset, and a fair amount of institutional inertia handed to us through history. Policy decisions mean politics, politics means the exercise of power, power means the ability to shape the rules to favor yourself over your negotiating partner.

Since contracts can't specify what the sanctions or rewards will be for every possibility, there are other mechanisms that are used to enforce agreements besides government. For capital/credit and labor markets, the two most important capitalist markets, the mechanism is contingent renewal. You paid your loan, or you met the job requirements. The contract is renewed, so you keep your job or you get another loan simply because you managed to satisfactorily fulfill the terms of the previous contract. Even though employers and banks try to figure out the quality of the laborer or borrower, they simply do not know everything.
Dean...
written by Brett, March 01, 2011 9:25
Question: if the U.S. was to reduce the protections for highly paid professions like lawyers or doctors, would we see a corresponding reduction in the cost of their education? In other words, does it cost $200k+ to go to law school simply because they think they can charge that given what lawyers tend to earn after graduation?
Market power can still keep physican prices too high
written by Rachel, March 01, 2011 10:36

Here in northern California, there's a non-profit ACO, an emormous one, that seems to be staffed predominantly by imported yuppie physicians. It also seems that once they get a little experience, they move on, and are replaced by new imported yuppie physicians.

But has this "free trade" helped keep medical prices down? It doesn't seem that way. We're suffered from serious medical inflation in the last decade, since the wave of hospital conglomerations hit.

It looks as if will take more than free trade in professionals to diminish the health care waste and unfairness in this part of the country.
To answer Brett's question
written by LSTB, March 01, 2011 11:17
Actually, plenty of menial legal work is already being outsourced to India, making legal services cheaper for corporate clients.

As for lawyers' wages, the evidence isn't very clear. The BLS says "employed" lawyers make good money. http://www.bls.gov/oes/current/oes231011.htm. However, this excludes equity lawyers, which can range from solo practitioners (of which there are *many*) who can barely afford their malpractice insurance to the handful of BigLaw partners making an average of $1.5 million per year. The BLS data also miss the point on the value of legal education. There are about 1.5 million juris doctor-holders of working age in the country, excluding all the ones from non-ABA-accredited law schools. Somewhere between 600,000 and 1 million are employed as lawyers or judges. As for the BLS's "employed" attorneys, we don't know how many are really temp workers who will never actually practice law in a meaningful way. Moreover, there are vast numbers of unemployed recent grads both because of the depression and because the legal profession simply does not need 45,000+ law grads per year.

As for legal education costs. These are increasing rapidly because students can finance law degrees wholly by federal debt (Direct Loans + Grad PLUS loans) and law schools are competing with one another over their U.S. News rankings. Because the law schools make no equity investment in their graduates (such as human capital contracts), they can charge whatever they want since they're assuming no risk whatsoever. Fortunately for recent grads, they can all go on income-based repayment, allowing the taxpayer to pick up the tab for a bloated legal education system.

I would very much like to know Dr. Baker's thoughts on the near $1 trillion in non-dischargeable student debt and the 17 million Americans who have college degrees but are working in jobs that don't require them.
@LSTB
written by Brett, March 01, 2011 1:33
Interesting. I've always wondered what exactly happens if the barriers are lifted. One thing, if law schools and medical schools drop in price, the professors employed at those institutions most likely also have to take a cut in pay. But it doesn't seem feasible to say that we can just increase competition between overseas doctors and doctors here in America yet still expect people taught in America to dole out enormous sums for their education. If there isn't a return on that investment then people aren't likely to enter that profession.

But I agree -- costs to education are going through the roof. But I suppose that could be fixed by changing policy at the state and federal level, inserting more control over tuition costs and increasing subsidies to education and students. Seems like our entire education policy is out of whack.

Also, you say that the law profession doesn't need 45,000+ law grads per year. Well if it's already over saturated, and we made moves to reduce barriers, wouldn't that in theory increase the number of people entering the field? What would you have to do to reduce the number of people in the field? Would we have to introduce quotas that limit the number of new-enrollees into national programs?
Queen
written by Elizabeth Berry, March 01, 2011 6:52
Free trade--yes, free for the rich in the USA and free for the rich in whatever country that the trade agreement is being negotiated, BUT CERTAINLY NOT "FREE" FOR EITHER THE MAJORITY IN THE USA OR THE MAJORITY IN THE EMERGING NATION [usually the only ones that the USA leaders are interested in carving out a "free" trade agreement with. It is ANYTHING but free after the IMF gets through pulling down the panties of the emerging nation with their "structural readjustment". By the way, many Americans don't know this but taxpayers of our nation and other European nations fund IMF so it can do its dirty work. This funding is slipped into other legislation so that we don't notice.
@Brett
written by LSTB, March 02, 2011 8:37
Law faculty are among the best paid in the country, often six-figure salaries for teaching only three classes per year. Deans often make a quarter million. The tuition increases go to more faculty, salaries, and grounds (ex. Thomas Jefferson School of Law (CA) created a new building with a 50’s style diner on the top floor), so whether there’s foreign competition or not, prices are going to drop sharply in the next few years. I wasn’t kidding when I titled my blog The Law School Tuition Bubble.

But it doesn't seem feasible to say that we can just increase competition between overseas doctors and [lawyers] here in America yet still expect people taught in America to dole out enormous sums for their education. If there isn't a return on that investment then people aren't likely to enter that profession.


That’s partly what the “scamblogging” movement is causing. In October and December, the number of people who took the LSAT dropped, and the LSAC reports that applications are declining too. This is unprecedented during a time of high youth unemployment. As it continues, law schools will start closing. Unfortunately, the value proposition of a law degree at all but the cheapest schools (like resident tuition at the University of D.C.) requires a break-even starting salary well into six-figures. (http://papers.ssrn.com/sol3/pa...id=1497044). In reality, most graduates who actually get law jobs (19,000 or so out of 45,000 last year reported salary data to the National Association of Legal Professionals) make between 30k-60k.

The problem according to transparency advocates is that the law schools are juking their employment stats, claiming that the handful of graduates who bothered returning their employment surveys to their law schools nine months after graduation with salary data are the norm. So it looks like the median is $160,000 per year when there’s actually mass unemployment. *Whether prospective law students know this is a major theme in the legal education reform movement, with some law school deans believing everyone’s fully informed and scambloggers calling them “lemmings.”*

f it's already over saturated, and we made moves to reduce barriers, wouldn't that in theory increase the number of people entering the field? What would you have to do to reduce the number of people in the field? Would we have to introduce quotas that limit the number of new-enrollees into national programs?


The issue isn’t the number of people entering the field but the ROI of the law degree. If a entry only cost $4,000 with an eight-week certification course (not my solution), and people didn’t mind only practicing law one day a week due to the lack of work and working at the local Taco Bell to supplement their income, I don’t care. I just want them to know that that’s as much of the profession as they’ll get. Once people are informed, they’ll make the rational decision to keep their night shift jobs at Wal-Mart rather than go to law school. As for the oversupply, they’ll find jobs doing something else.

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About Beat the Press

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.

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