How to Gain Support for Trade: Stop Rigging It to Redistribute Upward

The NYT had an article presenting the comments of several people genuflecting over the lack of public support for current trade policy (wrongly referred to as "free trade"). The obvious reason for this lack of support, which is overlooked by those cited in the article, is that the intention and the outcome of trade policy has been to redistribute income upward.

The point of making it as easy as possible to move a factory to Mexico, and then import the output back to the United States, is to get access to low cost labor. The predicted and actual effect of this policy is to reduce the number of jobs available to manufacturing workers in the United States. This puts downward pressure on their wages, as fans of Econ 101 everywhere know. And, since manufacturing is a traditional source of high-wage employment for workers without college degrees, the loss of manufacturing jobs to Mexico and other developing countries puts downward pressure on the wages of non-college educated workers more generally.

For some reason, the NYT and other news outlets never point out that the "free traders" seem to have no problem with protectionist measures that benefit highly-educated professionals. For example, foreign doctors are prohibited from practicing medicine in the United States unless they complete a U.S. residency program. As a result, our doctors are paid twice as much as doctors in other wealthy countries (more than $250,000 a year on average, net of malpractice insurance and other expenses). This costs the country almost $100 billion a year in higher health care costs (@ $700 per family, per year).

We prohibit dentists from practicing in the United States unless they graduate from a U.S. dental school. (Since 2011, graduates of Canadian schools are also allowed to practice here.) These and other protectionist measures inflate the pay of highly educated professionals at great cost to the economy. However, these protectionist barriers never seem to be on the agenda of free traders.

(As many people have pointed out to me, if we simplified the rules so that more foreign professionals could practice in the United States we would get more professionals from developing countries. This could lead to a serious problem of "brain drain" as these countries lose their brightest and most educated people. As I have pointed out many times, we do know how to compensate for this flow of professionals. We could pay the countries from which these people came, so that they would be able to train two or three doctors or other professionals for every one that comes to the U.S. As I have also pointed out, we already get a substantial number of professionals from these countries and provide zero compensation, so it is striking that this concern only arises in the context of a proposal that jeopardizes the pay of high-end professionals.)

It is also important to note that stronger and longer patent and copyright and related protections have been a central part of recent trade deals. These protections are protectionism, the opposite of free trade. They are enormously costly and redistribute income upward. In the case of prescription drugs alone, patent and related protections raise the amount we pay for drugs by around $350 billion annually (@ $2,500 per family, per year) compared with the free market price. Patent monopolies do support research, but there are other more efficient mechanisms for financing research. (Get the full story in my book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. It's free.)

Anyhow, it is touching to see that elite types are discovering that much of the country is unhappy with policies that were designed to redistribute from them to elite-types. The question we all must ask is, "are our elites learning?"