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Home Publications Blogs Beat the Press Will Protectionist Policies Maintain Inequality Throughout the Decade?

Will Protectionist Policies Maintain Inequality Throughout the Decade?

Thursday, 25 October 2012 04:41

Adam Davidson's NYT magazine piece featured the views of a number of economists as to what the U.S. economy will look like at the time of the next presidential election in 2016. Two of the experts seem to be describing a world in which the United States has become increasingly protectionist:

"by 2016, Frieden and Bremmer noted  [Jeffrey Frieden, a professor at Harvard and Ian Bremmer, president of the Eurasia Group], the U.S. will be adjusting to an economy in which inequality is a structural fixture. There will be millions who are unable to get work, and tens of millions more who will have to adapt to lower income. Meanwhile, those with college and advanced degrees will experience a country that has rebounded. Their incomes will grow."

Of course the main reason that workers at the top of the income distribution have seen their wages rise is that they continue to be largely protected from international competition. Our doctors are paid roughly twice as much as their counterparts in wealthy countries like Canada and Germany and several times as much as doctors in India, China and elsewhere in the developing world. Doctors from these countries would be happy to train to U.S. standards and work for half the pay that U.S. doctors receive, but are prevented from competing with our doctors by professional barriers. If protectionists did not dominate economic policy, the country could save hundreds of billions of dollars each year in health care costs and in the cost of other highly paid professional services. Frieden and Bremmer may well be right that protectionists will continue to control policy due to their outsized political power, but it is worth noting that this is political outcome, not a result driven by economics. (It is worth noting that rising wages for college grads would be a change. They have seen stagnant or declining wages over the last decade.)

It is also worth noting that the growth story in this piece might not prove accurate. It points to foreign pharmaceutical sales as a major growth sector for the U.S. economy, noting that the domestic market is likely to diminish in importance. This is very questionable. Drugs are actually very cheap. There are few drugs that would sell for more than $10 in a free market. The reason that drugs are expensive is because of patent protection and other restrictions on competition such as data exclusivity.

The United States has been able to get other countries to accept these extremely costly forms of protection as a quid pro quo for gaining access to the U.S. domestic market. However if the U.S. domestic market is no longer seen as a big prize internationally (a main thesis of the piece), then other countries are unlikely to go along with paying U.S. drug companies patent protected prices. There would be no offsetting gain to compensate for this huge drain on foreign economies.

It is also worth noting that the main reason that we have a dispute over currency values with China is because they want to be able to sell their goods at a low cost in the U.S. market. If China no longer cares about the U.S. market as a main export destination for their goods, it will presumably have no objection to the value of the dollar dropping against the yuan. This should be a boon for the manufacturing sector in the United States since it will mean that our goods are far more competitive in the world economy.

The piece also says that China will probably not surpass the size of the U.S. economy until the 2020s. The latest projections from the I.M.F. show China's economy exceeding the size of the U.S. economy on a purchasing power parity basis by 2017.

Comments (6)Add Comment
Not so sure about foreign doctors
written by Rich, October 25, 2012 12:35
I think foreign doctors lack the cultural competence to do very well practicing medicine in the U.S. As attention increasingly turns in medicine toward a less mechanistic practicing style, paying attention to patient behavior, foreign doctors are not well equipped to handle it. Your point about the labor market in the field is well taken, and I think opening more procedures up to allied professions such as medical assistants is the way to go. The U.S. also needs more medical schools! That would have been a nice initiative with some of the stimulus dollars. Thank you for a thoughtful approach with many of these issues.
Dealing With Inequality: The Mourdock-Akin Effect
written by Last Mover, October 25, 2012 12:44
Inequality maintained by protectionism rather than genuine differences in earning capability is known in economics as the Mourdock-Akin Effect.

When the middle and lower class is economically raped by the upper class to the point of losing jobs on the employment side and unable to consume exploitive priced goods and services on the consumption side, life is sacred and still goes on as God's will would deem it. Rape begats character and character begats bootstraps. That's the Mourdock component.

When God created women in his image he included hormones designed to render economic rape incapable of impregnating women with unemployment and taking their income and wealth. That's the Akin component.

While it appears contradictory, the Mourdock-Akin Effect is actually consistent. God certaintly doesn't want economic rape to happen, but even it does and results in new life, He provided inequality insurance that guarantees survival against a tilted playing field filled with economic rapists.
Really? Cultural competence?
written by David M, October 25, 2012 1:36
@Rich, I agree with you on the need to open up the medical field in more ways than just adding doctors, but...foreign doctors lack cultural competence? Are the Canadians or Germans that Dean mentions so different from US patients? I'm sure many Latino, Black, Asian American, and other minority patients wouldn't have a problem with a doctor trained (to US standards) in Latin America, Africa, or China. "Cultural competence" is what you make of it. How close is the culture of a $300K/yr. doctor to that of a $30K/yr. patient, anyway?

And I certainly haven't seen any evidence that medicine has gotten less mechanized and more patient based, other than in the rhetoric of hospital administrators.
anybody been to the doctor lately?
written by pete, October 25, 2012 3:38
There is plenty of immigration to our medical professions. I have an Indian neurolosurgeon,an Iranian neruologist, another Indian as a primary care. And of course the nurses and associated tech support, mostly non U.S. origin. My mother had a great Peruvian cardiologist. Most of these are trained here. It is not the immigration that is an issue, it is the limited training available at med schools and limited internships. The natural tendency is for associations and unions to exert monopoly power, i.e., such as the AMA and the SEIU. This keeps our medical professional pay far above Europe, let alone China and India.
written by jerry, October 25, 2012 3:44
AMA & the SEIU
written by RL, October 25, 2012 5:25
"The natural tendency is for associations and unions to exert monopoly power, i.e., such as the AMA and the SEIU."

I, too, hate the way janitors and waitresses cynically exploit their monopoly power, squeezing monopoly rents out of the rest of us to fuel their luxurious life style. Something has to be done. I'm glad Pete is on top of this issue. It takes a special kind of commitment to social justice to stand up to the fearsome power of the janitorial elite.

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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.