July 01, 2016
David Brooks apparently thinks he has things down. The major divide isn’t between supporters of big government and small government, it’s a debate between supporters of an open economy that looks to increase trade and a closed economy that looks to protectionism. This is the theme of his column that tells us about “the coming political realignment.”
To make his case, he gets a lot of things wrong. For example, he seriously misrepresents research on the impact of trade liberalization. Brooks refers to a study by the Peterson Institute that “found that past trade liberalization laws added between $7,100 to 12,900 in additional income to the average household.” The vast majority of the gains estimated from liberalization by this study occurred before 1980, a point at which trade was largely non-controversial. The gains estimated from the trade deals of the last quarter century (post-NAFTA) have been far more limited.
Brooks then notes a study from the Peterson Institute for International Economics which projects that the Trans-Pacific Partnership (TPP) would increase national income by $131 billion. It would have been useful to point out that this gain is projected for 2030, a point at which it would be equal to 0.5 percent of GDP. This means that if the study projections are correct, we will as wealthy on January 1, 2030 with the TPP as we would be in mid-March of 2030 without the TPP.
It is also worth noting the Peterson Institute’s projection of gains from the TPP assumes the economy is at full employment. It also does not calculate any costs associated with the increased protections in the TPP as a result of stronger and longer patent and copyright protections. This increased protectionism could easily offset the projected gains from the modest tariff reductions in the TPP. It is also worth noting that the non-partisan International Trade Commission projected gains that were less than half as large (roughly one month’s growth) also while assuming full employment and not counting any negative impact from the increased protections in the TPP.
Even more important than Brooks’ misrepresentation of the research findings is his misrepresentation of the meaning of being open and closed. While our trade policy has been quite explicitly designed to put manufacturing workers in direct competition with low-paid workers in the developing world, which has had the effect of lowering the wages of large segments of the U.S. workforce, it has maintained and/or increased protections that benefit more educated workers and the wealthy.
In spite of the the comittment to “openness,” in order to practice medicine in the United States it is necessary to go through a residency program in the United States. Does anyone really believe that a person cannot be a competent doctor without going through a U.S. residency program? Doctors in the U.S. earn on average more than $250,000 a year. If they earned a comparable amount to doctors in other wealthy countries it would save us around $100 billion a year on our health care spending. There is a similar story for dentists (they must graduate from a U.S. dental school or, just recently, a Canadian one) and other highly paid professions. Brooks is apparently fine with protectionism (closed) for these highly paid workers who apparently would have difficulty competing on a level playing field in the global economy.
We also have quite explicitly increased patent and copyright protection. The argument is that these protections are necessary to provide incentives for innovation and creative work. In fact these protections are incredibly costly and have the effect of redistributing income upward. In the case of prescription drugs alone we spend close to $430 billion a year from drugs that would likely cost around $40 billion a year in a free market. (Drugs are cheap; patent monopolies make them expensive.) There are more efficient mechanisms for financing research. Patent protection leads to the same sort of distortions and corruption that economic theory would predict from tariffs that raise the price of a product by a factor of ten or a hundred.
Brooks doesn’t want people to even think about the protections that slow growth and redistribute income upward. He would rather just call the people who disagree with him names. Welcome to elite debates on trade in the United States.
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