I blogged yesterday on how “Davos Man,” the world’s super-rich, is very supportive of all sorts of protectionist measures in spite of his reputation as a free trader. I pointed out that Davos Man is fond of items like ever stronger and longer patent and copyright protections and measures that protect doctors, dentists, and other highly paid professionals. Davos Man only dislikes protectionism when it might benefit folks like autoworkers or textile workers.
I thought it was worth pointing out that the protectionism supported by the Davos set is real money. The chart below shows the additional amount we pay for prescription drugs each year as a result of patent and related protections, the additional amount we pay for physicians as a result of excluding qualified foreign doctors, and the total annual wage income for the bottom 50 percent of wage earners. (I added 5 percent to the 2015 wage numbers to incorporate wage growth in the last year.)
Source: Baker 2016 and Social Security Administration.
As can be seen, the extra amount we pay for doctors as a result of excluding foreign competition is more than 7 percent of the total wage bill for the bottom half of all wage earners. The extra amount we pay for drugs as a result of patent protection is roughly one third of the total wage bill for the bottom half of wage earners. Of course, we would have to pay for the research through another mechanism, but we also pay higher prices for medical equipment, software, and a wide variety of other products as a result of patent and copyright protections. In other words, there is real money here.
Davos Man isn’t interested in nickel and dime protectionism, he wants to rake in the big bucks. And, the whole time he will run around saying he is a free trader (and get most of the media to believe him).
Note: This is corrected from an earlier version which used a much lower figure for the wage bill for the bottom half of the workforce. Thanks to Nate Fritz for calling this to my attention.
I blogged yesterday on how “Davos Man,” the world’s super-rich, is very supportive of all sorts of protectionist measures in spite of his reputation as a free trader. I pointed out that Davos Man is fond of items like ever stronger and longer patent and copyright protections and measures that protect doctors, dentists, and other highly paid professionals. Davos Man only dislikes protectionism when it might benefit folks like autoworkers or textile workers.
I thought it was worth pointing out that the protectionism supported by the Davos set is real money. The chart below shows the additional amount we pay for prescription drugs each year as a result of patent and related protections, the additional amount we pay for physicians as a result of excluding qualified foreign doctors, and the total annual wage income for the bottom 50 percent of wage earners. (I added 5 percent to the 2015 wage numbers to incorporate wage growth in the last year.)
Source: Baker 2016 and Social Security Administration.
As can be seen, the extra amount we pay for doctors as a result of excluding foreign competition is more than 7 percent of the total wage bill for the bottom half of all wage earners. The extra amount we pay for drugs as a result of patent protection is roughly one third of the total wage bill for the bottom half of wage earners. Of course, we would have to pay for the research through another mechanism, but we also pay higher prices for medical equipment, software, and a wide variety of other products as a result of patent and copyright protections. In other words, there is real money here.
Davos Man isn’t interested in nickel and dime protectionism, he wants to rake in the big bucks. And, the whole time he will run around saying he is a free trader (and get most of the media to believe him).
Note: This is corrected from an earlier version which used a much lower figure for the wage bill for the bottom half of the workforce. Thanks to Nate Fritz for calling this to my attention.
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The NYT decided to tout the risks that higher tariffs could cause serious damage to industry in the UK following Brexit:
“For Mr. Magal [the CEO of an engineering company that makes parts for the car industry], the threat of trade tariffs is forcing him to rethink the structure of his business. The company assembles thermostatic control units for car manufacturers, including Jaguar Land Rover in Britain and Daimler in Germany.
“Tariffs could add anything up to 10 percent to the price of some of his products, an increase he can neither afford to absorb nor pass on. ‘We don’t make 10 percent profit — that’s for sure,’ he said, adding, ‘We won’t be able to increase the price, because the customer will say, “We will buy from the competition.'”
The problem with this story, as conveyed by Mr. Magal, is that the British pound has already fallen by close to 10 percent against the euro since Brexit. This means that even if the EU places a 10 percent tariff on goods from the UK (the highest allowable under the WTO), his company will be in roughly the same position as it was before Brexit. It is also worth noting that the pound rose by roughly 10 percent against the euro over the couse of 2015. This should have seriously hurt Mr. Magal’s business in the UK if it is as sensitive to relative prices as he claims.
It is likely that Brexit will be harmful to the UK economy if it does occur, but many of the claims made before the vote were wrong, most notably there was not an immediate recession. It seems many of the claims being made now are also false.
The NYT decided to tout the risks that higher tariffs could cause serious damage to industry in the UK following Brexit:
“For Mr. Magal [the CEO of an engineering company that makes parts for the car industry], the threat of trade tariffs is forcing him to rethink the structure of his business. The company assembles thermostatic control units for car manufacturers, including Jaguar Land Rover in Britain and Daimler in Germany.
“Tariffs could add anything up to 10 percent to the price of some of his products, an increase he can neither afford to absorb nor pass on. ‘We don’t make 10 percent profit — that’s for sure,’ he said, adding, ‘We won’t be able to increase the price, because the customer will say, “We will buy from the competition.'”
The problem with this story, as conveyed by Mr. Magal, is that the British pound has already fallen by close to 10 percent against the euro since Brexit. This means that even if the EU places a 10 percent tariff on goods from the UK (the highest allowable under the WTO), his company will be in roughly the same position as it was before Brexit. It is also worth noting that the pound rose by roughly 10 percent against the euro over the couse of 2015. This should have seriously hurt Mr. Magal’s business in the UK if it is as sensitive to relative prices as he claims.
It is likely that Brexit will be harmful to the UK economy if it does occur, but many of the claims made before the vote were wrong, most notably there was not an immediate recession. It seems many of the claims being made now are also false.
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The NYT had an article on the annual meeting of the world’s super-rich at Davos, Switzerland. It refers to Davos Man as “an economic elite who built unheard-of fortunes on the seemingly high-minded notions of free trade, low taxes and low regulation that they championed.” While “Davos Man” may like to be described this way, it is not an accurate description.
Davos Man is actually totally supportive of protectionism that redistributes income upward. In particular, Davos Man supports stronger and longer patent and copyright protection. These forms of protection raise the price of protected items by factors of tens or hundreds, making them equivalent to tariffs of several thousand percent or even tens of thousands of percent. In the case of prescription drugs, these protections force us to spend more than $430 billion a year (2.3 percent of GDP) on drugs that would likely cost one tenth of this amount if they were sold in a free market. (Yes, we need alternative mechanisms to finance the development of new drugs. These are discussed in my free book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
Davos Man is also just fine with protectionist barriers that raise the cost of physicians services as well as pay of other highly educated professionals. For example, Davos Man has never been known to object to the ban on foreign doctors practicing in the United States unless they complete a U.S. residency program or the ban on foreign dentists who did not complete a U.S. dental school (or recently a Canadian school). Davos Man is only bothered by protectionist barriers that raise the incomes of autoworkers, textile workers, or other non-college educated workers.
Davos Man is also fine with government regulations that reduce the bargaining power of ordinary workers. For example, Davos Man has not objected to central bank rules that target low inflation even at the cost of raising unemployment. Nor has Davos Man objected to meaningless caps on budget deficits, like those in the European Union, that have kept millions of workers from getting jobs.
Davos Man also strongly supported the bank bailouts in which governments provided trillions of dollars in loans and guarantees to the world’s largest banks in order to protect them from the market. This kept too big to fail banks in business and protected the huge salaries received by their top executives.
In short, Davos Man has no particular interest in a free market or unregulated economic system. They only object to interventions that reduce their income. Of course, Davos Man is happy to have the New York Times and other news outlets describe him as a devotee of the free market, as opposed to simply getting incredibly rich.
The NYT had an article on the annual meeting of the world’s super-rich at Davos, Switzerland. It refers to Davos Man as “an economic elite who built unheard-of fortunes on the seemingly high-minded notions of free trade, low taxes and low regulation that they championed.” While “Davos Man” may like to be described this way, it is not an accurate description.
Davos Man is actually totally supportive of protectionism that redistributes income upward. In particular, Davos Man supports stronger and longer patent and copyright protection. These forms of protection raise the price of protected items by factors of tens or hundreds, making them equivalent to tariffs of several thousand percent or even tens of thousands of percent. In the case of prescription drugs, these protections force us to spend more than $430 billion a year (2.3 percent of GDP) on drugs that would likely cost one tenth of this amount if they were sold in a free market. (Yes, we need alternative mechanisms to finance the development of new drugs. These are discussed in my free book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
Davos Man is also just fine with protectionist barriers that raise the cost of physicians services as well as pay of other highly educated professionals. For example, Davos Man has never been known to object to the ban on foreign doctors practicing in the United States unless they complete a U.S. residency program or the ban on foreign dentists who did not complete a U.S. dental school (or recently a Canadian school). Davos Man is only bothered by protectionist barriers that raise the incomes of autoworkers, textile workers, or other non-college educated workers.
Davos Man is also fine with government regulations that reduce the bargaining power of ordinary workers. For example, Davos Man has not objected to central bank rules that target low inflation even at the cost of raising unemployment. Nor has Davos Man objected to meaningless caps on budget deficits, like those in the European Union, that have kept millions of workers from getting jobs.
Davos Man also strongly supported the bank bailouts in which governments provided trillions of dollars in loans and guarantees to the world’s largest banks in order to protect them from the market. This kept too big to fail banks in business and protected the huge salaries received by their top executives.
In short, Davos Man has no particular interest in a free market or unregulated economic system. They only object to interventions that reduce their income. Of course, Davos Man is happy to have the New York Times and other news outlets describe him as a devotee of the free market, as opposed to simply getting incredibly rich.
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Folks looking at the NYT charts comparing the nation’s performance by various measures under President Bush and President Obama may be misled by the health care chart. The chart shows health care spending as a share of GDP rising from 14.0 percent in 2001 to 16.3 percent in 2008, which it describes as the “Bush years.” It shows a further increase to 18.1 percent in 2016, which are the “Obama years.” By this measure we see a modest slowing of health care cost growth as a share of GDP, with a rise of 2.3 percentage points in the Bush years compared with 1.8 percentage points in the Obama years.
The problem here is that the chart puts the end of the Bush years at 2008. Note that the start of the Bush years in 2001, which is of course when he actually took office. If we go out eight years, that puts us at 2009. In that year health care costs were 17.3 percent of GDP. Using this as an endpoint, costs grew by 3.3 percentage points of GDP in the eight years of the Bush administration. They grew by just 0.8 percentage points in the first seven years of the Obama administration. We will need data for 2017 before we can draw the full picture, but we will almost certainly still see a sharp slowing of health care costs under President Obama. Of course, we can argue about the extent to which the Obama administration deserves credit for this slowing of cost growth, but the fact it took place is not disputable.
Folks looking at the NYT charts comparing the nation’s performance by various measures under President Bush and President Obama may be misled by the health care chart. The chart shows health care spending as a share of GDP rising from 14.0 percent in 2001 to 16.3 percent in 2008, which it describes as the “Bush years.” It shows a further increase to 18.1 percent in 2016, which are the “Obama years.” By this measure we see a modest slowing of health care cost growth as a share of GDP, with a rise of 2.3 percentage points in the Bush years compared with 1.8 percentage points in the Obama years.
The problem here is that the chart puts the end of the Bush years at 2008. Note that the start of the Bush years in 2001, which is of course when he actually took office. If we go out eight years, that puts us at 2009. In that year health care costs were 17.3 percent of GDP. Using this as an endpoint, costs grew by 3.3 percentage points of GDP in the eight years of the Bush administration. They grew by just 0.8 percentage points in the first seven years of the Obama administration. We will need data for 2017 before we can draw the full picture, but we will almost certainly still see a sharp slowing of health care costs under President Obama. Of course, we can argue about the extent to which the Obama administration deserves credit for this slowing of cost growth, but the fact it took place is not disputable.
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This is what the NYT article and the underlying study both concluded. While families on food stamps did spend a somewhat larger share of their food budget on soft drinks and other unhealthy foods, there was not a big difference in their behavior compared with families not receiving food stamps. The headline likely gave readers the opposite impression, telling readers:
“In the shopping cart of a food stamp household: lots of soda.”
Come on folks, try to have your headlines reflect what the article says.
This is what the NYT article and the underlying study both concluded. While families on food stamps did spend a somewhat larger share of their food budget on soft drinks and other unhealthy foods, there was not a big difference in their behavior compared with families not receiving food stamps. The headline likely gave readers the opposite impression, telling readers:
“In the shopping cart of a food stamp household: lots of soda.”
Come on folks, try to have your headlines reflect what the article says.
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As the protectionist supporters of the Trans-Pacific Partnership (TPP) desperately try to regroup, it’s entertaining to see how they think that China-bashing is their best hope for success. (Yes, supporters of the TPP are protectionist. A major thrust of the deal is to impose longer and stronger patent and copyright and related protections on the member countries. These are by definition forms of protectionism, even if economists and reporters tend to like them.)
Anyhow, we got an example of the China bashing of a TPP supporter in a Washington Post column by Fareed Zakaria, in which he warned readers that China would be the main beneficiary from a decision by Donald Trump not to pursue the TPP as president. The economists at the Peterson Institute for International Economics are also among those making the argument for the TPP as an obstacle to China’s growing political strength in the region. Many of these same people argued vociferously for allowing China to enter the WTO in 2000 without imposing conditions like respect for human rights or labor rights, which may have fundamentally altered China’s path of political development. It is striking that they now think the U.S. public should now be concerned about the growing power of a country with little respect for these rights.
As the protectionist supporters of the Trans-Pacific Partnership (TPP) desperately try to regroup, it’s entertaining to see how they think that China-bashing is their best hope for success. (Yes, supporters of the TPP are protectionist. A major thrust of the deal is to impose longer and stronger patent and copyright and related protections on the member countries. These are by definition forms of protectionism, even if economists and reporters tend to like them.)
Anyhow, we got an example of the China bashing of a TPP supporter in a Washington Post column by Fareed Zakaria, in which he warned readers that China would be the main beneficiary from a decision by Donald Trump not to pursue the TPP as president. The economists at the Peterson Institute for International Economics are also among those making the argument for the TPP as an obstacle to China’s growing political strength in the region. Many of these same people argued vociferously for allowing China to enter the WTO in 2000 without imposing conditions like respect for human rights or labor rights, which may have fundamentally altered China’s path of political development. It is striking that they now think the U.S. public should now be concerned about the growing power of a country with little respect for these rights.
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An NYT article on Robert Lighthizer, Donald Trump’s pick to be trade representative, left out some important background information. It notes that Lighthizer wants to reduce the size of the U.S. trade deficit with China. It then told readers that this could lead to major conflicts with China:
“Exports are important for China. It consistently sells $4 worth of goods to the United States for each $1 of imports. That mismatch has produced a bilateral trade surplus for China equal to about 3 percent of the country’s entire economy, creating tens of millions of jobs.
“The benefits to China from that surplus have been increasing rapidly in the past few years.”
It is worth noting that China has actually sharply reduced its trade surplus in prior years. According to the I.M.F. it peaked at 9.9 percent of GDP in 2007. It then declined sharply to just 1.8 percent of GDP in 2011. It has since edged slightly higher, but it is still less than 3.0 percent of GDP.
Ordinarily, we would expect that a fast growing developing country like China would be running a trade deficit, as capital flows into the country to take advantage of higher returns. This has not happened in China’s case as the government has offset inflows of private capital by buying up trillions of dollars of foreign assets. It now holds more than $3 trillion in reserves in addition to another $1.5 trillion in foreign assets in the form of sovereign wealth funds.
Reportedly China has recently been trying to raise the value of its currency. This would suggest an obvious path of agreement between the U.S. and China under which the two countries could act jointly to raise the value of China’s currency against the dollar, thereby putting downward pressure on the trade deficit.
The piece also notes Lighthizer’s advocacy of the efforts of the Reagan administration to pressure Japanese manufacturers to “voluntarily” limit their exports to the United States. It would have been worth mentioning that these restrictions on exports led the Japanese manufacturers to begin to set up factories in the United States. Today, most of the cars that Japanese auto companies sell in the United States are assembled here, although they still do include a substantial amount of foreign content.
This piece seriously misrepresents a proposal for corporate tax reform advocated by Republicans in Congress as a route to tax imports. In fact, the tax has been developed by economists who are very much conventional free traders. The purpose is to simplify the tax code and eliminate the enormous waste associated with the gaming of our current system. The treatment of imports and exports is intended to make the tax symmetric with the treatment of value-added taxes in many U.S. trading partners. It is not intended as a protectionist measure to reduce the trade deficit.
An NYT article on Robert Lighthizer, Donald Trump’s pick to be trade representative, left out some important background information. It notes that Lighthizer wants to reduce the size of the U.S. trade deficit with China. It then told readers that this could lead to major conflicts with China:
“Exports are important for China. It consistently sells $4 worth of goods to the United States for each $1 of imports. That mismatch has produced a bilateral trade surplus for China equal to about 3 percent of the country’s entire economy, creating tens of millions of jobs.
“The benefits to China from that surplus have been increasing rapidly in the past few years.”
It is worth noting that China has actually sharply reduced its trade surplus in prior years. According to the I.M.F. it peaked at 9.9 percent of GDP in 2007. It then declined sharply to just 1.8 percent of GDP in 2011. It has since edged slightly higher, but it is still less than 3.0 percent of GDP.
Ordinarily, we would expect that a fast growing developing country like China would be running a trade deficit, as capital flows into the country to take advantage of higher returns. This has not happened in China’s case as the government has offset inflows of private capital by buying up trillions of dollars of foreign assets. It now holds more than $3 trillion in reserves in addition to another $1.5 trillion in foreign assets in the form of sovereign wealth funds.
Reportedly China has recently been trying to raise the value of its currency. This would suggest an obvious path of agreement between the U.S. and China under which the two countries could act jointly to raise the value of China’s currency against the dollar, thereby putting downward pressure on the trade deficit.
The piece also notes Lighthizer’s advocacy of the efforts of the Reagan administration to pressure Japanese manufacturers to “voluntarily” limit their exports to the United States. It would have been worth mentioning that these restrictions on exports led the Japanese manufacturers to begin to set up factories in the United States. Today, most of the cars that Japanese auto companies sell in the United States are assembled here, although they still do include a substantial amount of foreign content.
This piece seriously misrepresents a proposal for corporate tax reform advocated by Republicans in Congress as a route to tax imports. In fact, the tax has been developed by economists who are very much conventional free traders. The purpose is to simplify the tax code and eliminate the enormous waste associated with the gaming of our current system. The treatment of imports and exports is intended to make the tax symmetric with the treatment of value-added taxes in many U.S. trading partners. It is not intended as a protectionist measure to reduce the trade deficit.
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The NYT devoted an article to Amazon’s plans for building out its warehouse network and managed to completely avoid any reference to Amazon’s efforts to avoid having to collect sales tax. For years, Amazon pursued a strategy of trying not to maintain a physical presence in states so that it could argue that it did not have to collect sales tax. This effectively gave Amazon an enormous taxpayer subsidy at the expense of conventional retailers.
Jeff Bezos has effectively been handed millions of years worth of food stamps by government regulations that allowed him to avoid collecting sales tax. The savings from not having to collect sales tax almost certainly exceeds Amazon’s cumulative profits since it was founded.
The NYT devoted an article to Amazon’s plans for building out its warehouse network and managed to completely avoid any reference to Amazon’s efforts to avoid having to collect sales tax. For years, Amazon pursued a strategy of trying not to maintain a physical presence in states so that it could argue that it did not have to collect sales tax. This effectively gave Amazon an enormous taxpayer subsidy at the expense of conventional retailers.
Jeff Bezos has effectively been handed millions of years worth of food stamps by government regulations that allowed him to avoid collecting sales tax. The savings from not having to collect sales tax almost certainly exceeds Amazon’s cumulative profits since it was founded.
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