February 25, 2015
Better yet, would economists say they had benefited? The reason for the question is that this is essentially the question that the University of Chicago’s Initiative on Global Markets (IGM) asked its group of elite economists about trade with China. It asked:
“Trade with China makes most Americans better off because, among other advantages, they can buy goods that are made or assembled more cheaply in China.”
This question could be taken to be saying that most Americans are better off because they can get cheaper goods from China. It’s a bit difficult to imagine how that could not be true, taken in isolation. In other words, are we better off because we have the opportunity to buy some goods at lower prices?
Other things equal, we certainly would be better off. Hence the question about having the country flooded with foreign educated doctors so that their pay is cut in half. With around 900,000 doctors in the country averaging paychecks of well over $200k a year, this would save the country more than $90 billion a year on health care costs (@ $700 per household per year — how does that compare to your tax cut?). If we asked our elite economists whether doctors were benefited by lower cost health care, how would they answer? Aren’t doctors benefited by paying less rather than more for their health care?
If this seems like a strange question it would not be the first time that IGM stumped the experts. It previously posed a question on whether Piketty’s views on growing inequality were correct. The overwhelming majority answered “no,” so did Thomas Piketty.
It actually should not have been difficult to pose this question in a way that would elicit a clear answer. The economists could have simply been asked whether they agreed that “trade with China has on net benefited most Americans.” I don’t know what their answers would have been, but at least we would know what question they had been asked.
All of this matters because Eduardo Porter picked up on the IGM poll in a piece on globalization’s winners and losers. Porter tells readers:
“Ask pretty much any mainstream economist and you will hear that most Americans benefited, too.”
The piece then turns away from trade and reasonably argues for stronger welfare state protections for workers comparable to those in Europe. While such protections would be desirable it is important to pay a bit more attention to the issue of trade.
Contrary to what is implied in the Porter piece, there was nothing inevitable about the development of trade patterns over the last three decades. We structured trade rules to quite deliberately put U.S. manufacturing workers in direct competition with low paid workers in the developing world.
We could have instead structured our trade deals to put our doctors, dentists, lawyers and other highly paid professionals in direct competition with their counterparts in the developing world. There are tens of millions of very bright people in the developing world who would be happy to learn English (if they don’t already know it) and train to our standards and come to work in these professions in the United States.
We could have structured our trade deals to facilitate this process. This would have saved U.S. consumers hundreds of billions annually in lower payments for health care and other services. It is the exact same argument about benefiting from lower cost manufactured goods from China. (We could even design transfers to developing countries that sent over professionals to ensure they benefit as well. Economists are smart enough to figure this one out.)
However we didn’t subject our most highly paid professionals to international competition in the same way as manufacturing workers. In fact in some ways we increased their protection. This matters because the inequality resulting from globalization was by design, not an accidental outcome. This is important both in assessing past and future trade policy as well as the appropriate response. We may feel a greater need to compensate the losers from globalization when we recognize that the losses were the result of what we did, rather than something that just happened.
Comments