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The Great Bipartisan War on Free Trade

Like most economists, I am strongly inclined toward free trade. I cringe to see the way free trade is under attack, from both parties, during this primary season.

The two populist candidates are the worst offenders. Bernie Sanders, whom I support on many other issues [1] [2] [3], goes off the rails when it comes to trade. Donald Trump, whose policy views are sometimes too vague to pin down, has made clear-cut opposition to “horrible trade deals” a centerpiece of his campaign.

Nor is the pushback from the rest of the field as strong as one might hope. Hillary Clinton has changed her position on the Trans-Pacific Partnership (TPP), which she supported as Secretary of State, and runs away from her previous support for the North American Free Trade Agreement (NAFTA), which she liked well enough when her husband signed it into law. On the Republican side, Ted Cruz, Marco Rubio, and John Kasich all profess to favor free trade in principle, but when pushed, as they were during last week’s Republican debate in Miami, they quickly go on defense, hedging their support for trade with numerous “ifs” and “buts”.

Let’s take a look at some of the candidates’ least defensible arguments against free trade, starting with Trump and moving on to Sanders.

Money spent on imports is “lost”

One of the main targets of Adam Smith’s Wealth of Nations, published in 1776, was the doctrine of mercantilism. Among other things, mercantilists argued that if your country brought in more gold than you paid out, you were a winner; if more went out than came in, you were a loser.

Trump is a heartfelt mercantilist. In his words:

Well, you know, I don’t mind trade wars when we’re losing $58 billion a year [to Mexico], you want to know the truth. We’re losing so much. (APPLAUSE)

We’re losing so much with Mexico and China — with China, we’re losing $500 billion a year. And then people say, “don’t we want to trade?” I don’t mind trading, but I don’t want to lose $500 billion. I don’t want to lose $58 billion.

The numbers Trump gives here are trade deficits—the difference between what Mexico or China spends on goods exported from the US and what America spends on goods from those countries. But that money is not “lost” in any normal sense of the word, because US consumers get something in return—cars, computers, toys for their kids. It makes sense to say, “I lost $50 at poker last night at the Elks Club,” but unless you dropped your wallet somewhere in the produce aisle, you wouldn’t say “I lost $50 at the supermarket this morning.”

When we run a trade deficit with China, we are not losing something, we are making a choice. Two choices, in fact.

One choice is what kinds of goods to buy and whom to buy them from. If I buy a pair of made-in China boots, it is because I like the price, the quality, or both. If you tell me, “No, you can’t buy those boots, you have to buy those others,” I would protest. That would be a real loss—being forced to buy boots that (in my opinion) give less value for the money.

The other choice reflected in a trade deficit is more subtle. When we run a trade deficit with China, we are, implicitly, making a choice between the present and the future. Right now, running a trade deficit allows us to consume more than we are producing, and in return, the Chinese get some money they can use to buy goods from us. But, instead of doing so immediately (in which case, trade in goods would balance), they take some our money and invest it in Treasury bills, which they can cash in to buy things from us in the future.

Is it good for Americans, collectively, to consume more than they produce each year? There are credible American economists who think it is not, just as there are Chinese economists who doubt that it is good for China to churn out goods for others, while holding living standards down in order to amass mountains of Treasury bills. One thing is certain, though. We cannot boost the chronic low saving rates of our households and government by starting a trade war with China.

Blame it all on currency manipulation

Another of Trump’s favorite themes is to emphasize currency manipulation as a source of trade imbalances. His website tells us,

In a system of truly free trade and floating exchange rates like a Trump administration would support, America’s massive trade deficit with China would not persist. On day one of the Trump administration, the U.S. Treasury Department will designate China as a currency manipulator.

It sounds tough, but the charge that China’s policy holds the yuan at an artificially low value is badly out of date. As we see from the following chart, based on data from the Bank for International Settlements, since 2010, China’s currency has appreciated by 30 percent, double the rate of appreciation of the dollar, and more than Hong Kong, Singapore, Korea or Taiwan.

P160111-1

For conclusive proof that China is not holding its currency at an artificially low value to gain a trade advantage, all we have to do is look at the behavior of its foreign currency reserves. A country that purposely undervalues its currency does so by buying up foreign currency in exchange for its own. In the bad old days, when China’s foreign reserves were soaring, the charge of currency manipulation had some credibility. However, since early 2014, China’s currency reserves have plunged. They are now more than 20 percent below their peak, and falling fast. (You can find a chart with the latest data here.) The fact is that China is now doing everything it its power to prevent the yuan from depreciating. To the degree it is manipulating at all, it is manipulating its currency upward.

Do imports really kill jobs?

It is time to bring Sanders into the conversation. Like Trump, he has made the claim that trade kills jobs a standard part of his campaign rhetoric. Trade with Mexico, he says, has cost 800,000 jobs and trade with China, millions more. Commentators, drawing on exit polls, have attributed much of Sanders’ appeal, including his surprise win in Michigan, to his antitrade stance.

Politifact has examined the 800,000 job claim and ruled it to be “mostly false. That is hardly surprising, since standard economic theory predicts that trade should have no effect on total employment. In the long run, averaging out business cycle effects, the number of people at work is determined almost entirely by demographic factors, such as population growth and age structure, and social trends, such as the changing role of women in the labor force.

The following chart, which shows job trends over the past thirty years, is consistent with that orthodox conclusion. The red bars show effective dates for NAFTA and normalization of trade with China. As we see, the US economy has added about 50 million jobs since 1985. The pattern of job growth is irregular—the number of jobs falls during recessions and grows during recoveries—but as of 2015, the total number of jobs is right where the long-term trend indicates that it ought to be. There are no visible breaks at the red lines. On the contrary, NAFTA came into force near the beginning of one of the greatest job booms in US history.

P160310-1

What standard economic theory does predict is that trade can affect the structure of employment. Countries export things in which they have a comparative advantage and import things in which their trading partners have the advantage. The US has a comparative advantage in aircraft, financial services, farm products, and many other goods. American exporters, on the whole, have been hugely successful. Exports as a share of US GDP have grown from 4 percent in 1960 to more than 15 percent today. At the same time, China and Mexico have a comparative advantage in manufactured goods that require low to moderate levels of skill, and their exports to us have grown, too.

The tendency of trade to draw labor and capital in each country into the production of the things it makes best is the fundamental source of its benefits. Yet, although everyone shares in those benefits through lower prices, some workers lose their jobs and some companies lose their customers to competition from imports. We can see that from the next chart, which shows that US manufacturing employment has declined by a third since its peak in 1979.

P160310-2

Even in this chart, NAFTA has no visible effect. The downward trend in manufacturing jobs was already underway in the 1980s. Although factory jobs increased a bit during the dot-com boom of the 1990s, they fell during the housing boom of the early 2000s, and they have recovered only partially as the economy has shaken off the worst effects of the Great Recession.

We should remember, though, that trade has not been the only cause of declining manufacturing employment. Rising productivity has also played a role. For example, if we narrow our focus to the auto industry, we see that after a big dip during the recession, US auto output has recovered to its pre-NAFTA level. Yet, because productivity has risen, the number of automotive jobs remains 40 percent below the 1994 level.

P160310-3Presumably, productivity would have grown even faster if competition from imports had not put downward pressure on autoworkers’ wages, easing the pressure for ever-greater automation.

In short, there is a story here about trade and jobs, but it is more nuanced than the one Sanders and Trump tell. Politicians may promise that erecting barriers to trade will bring back both the factory wages and the jobs of the past, but that is fantasy. Protectionism might raise the share of manufacturing in US GDP, but in many cases, the beneficiaries would be robots, not flesh and blood workers. And in the process, the three-quarters of the labor force that would remain in the service sector, many of them working for low pay, would find their standard of living further eroded by higher import prices.

Free trade and the world’s poor

There is one more thing that bothers me about the war on free trade, especially, as it waged by the political left. Bernie Sanders is a progressive. “The issue of wealth and income inequality,” he writes, “is the great moral issue of our time; it is the great economic issue of our time; and it is the great political issue of our time.” But there is one aspect of inequality Sanders talks less about—the global inequality between rich and poor nations.

At a rally that I attended in Traverse City, Michigan, Sanders told a story of a visit to a Mexican auto factory sometime in the early 1990s. The factory was shiny and modern, he said, but the workers were making just 25 cents an hour. When he asked to see their homes, he found that they were living in cardboard shacks. (See the Michigan news website MLive.com for a similar version of the story.)

But Sanders leaves out an important part of the story. What do Mexican autoworkers earn today? Reuters reports that they earn $8 to $10 per hour, including benefits. It seems that NAFTA has helped to raise the wages of Mexican autoworkers by as much as forty-fold over twenty years.

What can a progressive not love about that? Surely, when Sanders opposes NAFTA, he does not really mean that he wants to send Mexican workers back to their cardboard shacks.

Conservatives, too, ought to welcome Mexico’s growing prosperity. GOP candidates, Trump foremost among them, talk endlessly about border security. They all agree that something has to be done about the northward flow of immigrants.

But just who is crossing our southern border these days? It turns out that under NAFTA, illegal border crossings by Mexicans have slowed dramatically. A 2014 study from the Pew Research Center shows that as wages and working conditions have improved, the number of border aprehensions of Mexicans illegally entering the US has fallen from a million and a half per year in the 1990s to about a quarter million. Honduras, Guatemala, and El Salvador are now the sources of a majority of illegal immigrants. Another Pew study shows that more Mexicans, legal and illegal, are now returning to their home country from the US each year than are making the trip northward.

What can a Conservative not love about a more prosperous southern neighbor?

The bottom line

The bottom line is that I am disappointed in Sanders’ stand on trade. I can understand his sympathy with those who have been displaced from good jobs that they thought were secure. But, if we are going to help them, tariffs and other broad protectionist measures are not the way to go. In case after case, economists have found that the costs of such measures are simply too great.

For example, one study found that a tariff imposed on Chinese tires in 2009 saved 1,200 American jobs, but did so at a cost to $1.1 billion in higher prices to American consumers. That comes to more than $800,000 per tire worker’s job. And it does not even try to account for the fact that consumers, after paying more for tires, had less to spend on other goods, meaning that American jobs in other sectors were threatened.

It would be far more reasonable to employ direct forms of aid. Retraining, adjustment assistance to workers or employers, income support, or wage subsidies are some of the possible remedies. None would come close to costing $800,000 per job.

I am less surprised by Trump’s support for high tariffs, since, in other cases, too, he has proposed policies that are superficially plausible, but do not stand up to scrutiny—a wall to keep out Mexicans who are now headed south, rather than north; a blanket ban on visas for Muslims as a tool for combatting terrorism, and so on.

Some commentators tell us not to get excited. Presidential candidates go protectionist in every election season, they say, and then support free trade once they are elected. They point out that President Obama, who imposed the tire tariffs and bragged about them in the 2012 election year, later negotiated the TPP and saw the Korea-US Free Trade Agreement (first signed by George W. Bush) through its implementation phase.

Let’s hope that, whoever is elected, those optimists are right.

 

 

 

 

31 Responses to “The Great Bipartisan War on Free Trade”

disabilitynormMarch 14th, 2016 at 11:13 am

Your words would carry more weight if there was any chance at all that you could lose your career or your family could lose its access to university education because of free trade. What's Taleb's phrase? If you don't have skin in the game, then your opinion represents nothing more that what you believe will support your personal interests regardless of the impact that opinion has on other lives.

windrivenMarch 14th, 2016 at 12:05 pm

" In the long run, averaging out business cycle effects, the number of people at work is determined almost entirely by demographic factors, such as population growth and age structure, and social trends, such as the changing role of women in the labor force."

Um-kay. Those first 4 words are the important ones for the political part of this discussion. Anyone who has taken a couple of university level Econ courses understands the positives of free trade. But for Americans losing relatively high-paying manufacturing jobs with few alternatives to replace them at similar pay scales, it is a disaster. Why do you imagine these messages from Trump and Sanders resonate so strongly?

Sometimes economists seem to lose sight of the reality that economics is a tool, not an end in itself. We live in a society where the top 1% control, depending on whose numbers you believe, 33-42% of the nation's wealth. But, excepting the political 'speech' that wealth can buy, the 1% also has only 1% of the votes that the rest of the citizenry has. As the prospects for the working and middle classes decline, political pressure to improve their condition will increase. They can be bought off for a time with cheaper goods but the reality that they are losing ground does not escape them.

Moreover, a country that loses its ability to control the production of its defense materiel loses its ability to defend itself. The entry of the US in WWII was a game changer not so much because of the additional troops but because of the industrial might. China threw its soldiers into the Korean War, some of them literally armed with sticks. Fifty years later, thanks to massive technology transfers (and a not insignificant bit of espionage) China was able with a single missile to take down a weather satellite in a decaying orbit; not an insignificant technical achievement.

So yeah, let's do free trade. But let's not oil its wheels with our middle class and let's be a little smart about it.

Ed Dolan EdDolanMarch 14th, 2016 at 12:22 pm

But I DO have skin in the game. If the protectionists get their way, my cost of living will go up. Since I am currently largely living on savings, that will not be offset by the chance that a job will open up in some import-competing industry.

In fact, as I try to say in the post, the vast majority of Americans have skin in the game this way.

So, you see, for the people who are on the protectionist side, it is also personal interest only that matters. To the vast majority of people who would suffer from more protectionist policies, the say, "well, MY personal interest is what matters, so the rest of you just suck it up and shut up."

Ed Dolan EdDolanMarch 14th, 2016 at 12:40 pm

You touch on several complex questions here. Let me try to give some short responses.

1. You say, "Why do you imagine these messages from Trump and Sanders resonate so strongly?"

Good question. I thought about dealing with it in the post, but it was getting sort of long. Briefly, I think there are several reasons why protectionist measures get votes, even though the vast majority of voters are harmed by them (as in the tire example). One reason is that the gains from trade are large but widely dispersed (everyone buys tires, but it is a small part of any one individual's budget) whereas the losses are far smaller in total, but highly concentrated. A second reason is that people at large have no idea that manufacturing is such a small part of the US economy, just 6 percent of the labor force. Even doubling employment in that sector would mean that very few people would get or save jobs. Third, there is a risk aversion effect; trade does not cost very many jobs, but many people fear that their job might be one of the ones lost. Fourth, there is the "seen and unseen" problem: Jobs lost to trade are more visible than jobs gained from trade (e.g., in import sectors or in sectors that grow because people are spending less on imports and so have more for other things). BTW, the tire study said that when you took "unseen" jobs into account, protecting tires did not create any NET jobs even though it saved 1200 "seen" jobs in that industry. I guess I could write a whole post just answering your question, maybe I will.

2. You talk about the 1%. I agree, inequality is a problem, but part of my point is that protection makes inequality worse. The 1% don't really care if the cost of tires go up, but for a family in a low-paying service job, a higher price for tires, and a million other things, can have quite an impact. Notice, also, that protectionist always talk about saving "good paying manufacturing jobs." That is, they are pandering to an upper tier of the working class, at the expense of the lower tier of the working class. (On the whole, mfg jobs earn 25% more than service jobs, even though service includes some of those 1% bond traders and hedge fund guys). So, if you are concerned about equality, then for heavens sake, don't go protectionist on me.

3. Defense goods are a special case. I think most of the key goods are either made in US or by close allies, or someone has thought about how to get them. Or I hope so, anyway. The Chinese rare earth monopoly was a real scare, we are producing our own rare earths now, as I understand.

Bryan WillmanMarch 14th, 2016 at 2:19 pm

I suggest a #4 that is a mirror to #1 and #2.

Just as individuals don't feel the effects of free trade in say tires strongly enough to realize how much it helps them and the economy, they ALSO don't feel the effects of anti-free-trade cronyist measures strongly enough to realize how much those hurt them and the economy.

And so people aren't all that aware that, for example, the tarrifs that protect sugar producers are (a) costing them money and (b) causing a shift from sugar to HFCS in products they consume.

All that said, I think people have had and are having a harder time adjusting to change (regardless of the source) in the political economy, and regardless of what else is done this "stuckness" is a source of pain, lost well being, and even some inequality. Improving labor adapatability should be a topic of serious effort.

meroMarch 14th, 2016 at 3:04 pm

I could not of said it better. Went through MBA program at Carlson, UofM and worked for 3M. They were no better than any other multinational company. Cheap labor at all levels. Soon do they (corporations) forget who made them, engineers and scientists. Greed, greed, greed is what makes them function.

windrivenMarch 14th, 2016 at 3:05 pm

" the losses are far smaller in total, but highly concentrated."

And leaving those losses under-addressed is becoming politically untenable.

"manufacturing is such a small part of the US economy, just 6 percent of the labor force."

Yes. Today it is 6%. Fifty years ago if was 25%. The question is: where are the jobs that require relatively modest skills but pay as manufacturing jobs once did?

"So, if you are concerned about equality, then for heavens sake, don't go protectionist on me."

I'm not. But I do expect the political establishment to recognize that the long term gains of free trade come with short term pain and often to those least able to react – and do something about it. Poverty and instability bring with them a cascade of social ills. Preventing or mitigating that should be part of the political and economic calculus of free trade agreements.

windrivenMarch 14th, 2016 at 3:44 pm

Greed has its place, mero. I'm not much of a greed head myself but I understand its utility in the general economy.

Teeing off on a Tragedy of the Commons setup, cattle need lush green pastures and clean water and abundant space to produce at their best. But you have to remember that the point is to maximize milk production, not to make a few morbidly obese cows.

Ed Dolan EdDolanMarch 14th, 2016 at 3:51 pm

OK, we can agree, we should address the losses, but not with protectionist measures. Requires a new post. Not all measures (like retraining) are easy to implement, but yes, we need to try.

In 1950, manufacturing was 1/3 of nonfarm employment. Good old days? Not really. A lot of those jobs were in southern textile mills, New England shoe factories, etc. Low paid, unhealthy working conditions, make a modern hamburger flipper's job look like paradise. Don't over glamorize manufacturing jobs. They were not all UAW jobs, not all a gateway to the middle class, like you would think listening to Bernie or The Donald.

windrivenMarch 14th, 2016 at 4:56 pm

Dr. Dolan, I'm not now nor have I ever been a protectionist or advocated protectionist policies. I am at heart a utilitarian and I tend to judge policies by how they might be expected to impact our society in general and lower socio-economic cohorts in particular.

So yeah, we agree on far more than we disagree.

"In 1950…"

I chose the 60s for a reason. Unions were pretty strong, manufacturing fairly broad-based, and people generally had positive expectations for their futures and their children's futures. The 1950s were still pretty dark ages for labor but change was afoot.

efcMarch 15th, 2016 at 11:16 am

Compared to the workers who have lost their jobs or been affected by the "change in composition of employment" (i.e. now work at McDs for 7.25 an hour) you have a skin cell in the game while they have their entire epidermis on the line.

Jim StoneMarch 15th, 2016 at 4:31 pm

If we could keep the profits and/or capital at home to be taxed, and, if we had a basic income, we'd all be better off with free trade, even if it cost jobs, because we could all share in the fruits of economic growth.

Local disruption can hurt quite a bit, though, and, if the top 1% sees most of the gains, it's tough for those who lose their jobs to take solace in the fact that free trade increases growth for all involved countries.

I am for free trade. I just wish there were a better way to insure against local disruptions.

Bernie says he's not against trade, just trade deals that are written by Corps to further the interests of Corps. I would love to see him lay out some details about what kind of trade deal would past muster with him.

William MeyerMarch 15th, 2016 at 5:21 pm

Mr. Dolan,

I have noticed that the very significant decline in the growth rate of the U.S. Economy occurred in the late 1990s — just about the time NAFTA and China's entry into the WTO began to be felt. Since that time the economy has been in low gear or reverse. The per capita CAGR of the economy since 2000 has been pathetic measured against the 1940s, the 1950s, the 1960s, the 1970s, or the 1980s. Is it possible that persistent trade deficits, which I understand, perhaps wrongly, to subtract directly off of GDP, are a factor in this? Is it possible that "balanced" trade (imports=exports) would be a wiser policy than "free" trade?

Also, I think you are not being intellectually fair to describe the world's current trade situation with the term "free trade". What we have would be more accurately described as "managed" trade. Many pieces around the Internet have popped up to note that current trade agreements have little to do with eliminating tariffs and have much to do with enshrining rent collection IP schemes for favored industries (pharmaceuticals being one such industry.) A free trade agreement could be written on one sheet of paper but NAFTA and subsequent documents are hundreds of pages long. It handle does justice to all that small print to describe the result as "free" trade.

Ed Dolan EdDolanMarch 15th, 2016 at 7:38 pm

You say: "I chose the 60s for a reason. Unions were pretty strong "

Not sure what you mean–do you view strong unions as a good thing or bad? They definitely helped their members, but wasn't that at the expense of nonmembers, who were crowded into lower-paying nonunion jobs? Or do you think otherwise?

Ed Dolan EdDolanMarch 15th, 2016 at 7:41 pm

A UBI could play a positive role, IMO.

"Bernie says he's not against trade, just trade deals that are written by Corps. "

Yes, that is what he says, but in practice, almost all trade fits that. Can you name specific examples of trade Bernie approves of? I am not being sarcastic, I just never hear him give examples of "good" trade to contrast with "bad" trade, so I'm not sure what he thinks.

Ed Dolan EdDolanMarch 15th, 2016 at 7:45 pm

I don't see the break in the late 1990s. To me, the chart for GDP looks exactly like the chart for jobs in the post–solid growth through the recession of 2001, whereas NAFTA came into effect in 1994.

You are right that accounting-wise trade deficits are a negative entry on the GDP accounts, but that does not mean they slow growth of GDP. The negative trade deficits are balanced by equal gains in consumption, investment, or government: GDP=C+I+G+(Ex-Im) by definition. So trade deficits don't automatically slow the *rate* of growth.

You say, "I think you are not being intellectually fair to describe the world's current trade situation with the term "free trade". What we have would be more accurately described as "managed" trade. Many pieces around the Internet have popped up to note that current trade agreements have little to do with eliminating tariffs and have much to do with enshrining rent collection IP schemes for favored industries (pharmaceuticals being one such industry.) "

Believe it or not, I completely agree with you here. I actually wrote a section on this theme for this post, regarding TPP and TTIP in particular, but it got so long I cut that section and decided to put it in a separate post. IMO, NAFTA was more of a traditional trade agreement, not so tilted toward areas like dispute settlement and intellectual property.

windrivenMarch 15th, 2016 at 10:51 pm

Primarily I was drawing a distinction between the 60s that I chose as a baseline for the loss of manufacturing jobs versus the 50s you chose. But of course unionization played an important role in transitioning from the sweatshops of rural southern textile plants to well-paying jobs in modern manufacturing plants.

That said, I have mixed feelings about strong unions. They played an important role in improving the lot of American workers – and I'm not convinced that came at the expense of non-union workers. But unions can become too powerful, stifling quality improvement, resisting change, and sometimes pricing their companies out of the market. Steel leaps to mind. I am more attracted to unions along the German model where management and labor are not quite so adversarial.

This comment is already over long, but think about the role of unions in the rapid ascent of third party payers in health care. In the halcyon days of manufacturing, companies preferred to negotiate generous benefits to buy down raises in hourly wages. Wages for overtime are paid at 1.5 times base while benefits are a fixed cost. The rise of third party payers (including Medicare) seems to mark the beginning of runaway spending on healthcare in the U.S.

Ed Dolan EdDolanMarch 16th, 2016 at 7:34 am

Right. That is the whole point. The gains from trade are widely dispersed (to people like me) while the costs of trade are concentrated on a few (like you McD employee). That causes problems even when (as is normally the case) the total gains outweigh the total costs.

Several commenters have noted that the trade issue is exacerbated in the US by a weak safety net of adjustment assistance to the trade-related job losers. I will try to do a post on that topic.

Ed Dolan EdDolanMarch 16th, 2016 at 7:39 am

I largely agree with your take on unions.

I'll have to think about your comments on healthcare expenditures. I would have said that the absurd system of subsidized, job-tied healthcare was the original cause of runaway spending, whereas the rise of third-party payers like Medicare marked the beginning of cost control. I'm trying to figure out how I might be wrong about that.

windrivenMarch 16th, 2016 at 11:00 am

When I speak of third party payers I mean both private and public insurers. Both somewhat insulate the consumer from the costs of consumption. Think in an analogy, if my employer paid a third party to cover my dining expenses I would be likely to eat out more often and to pay less attention to the right hand side of the menu.

When I was young my great aunt needed a cholecystectomy – a gall bladder operation. She negotiated the price with our family physician (who was also a general surgeon) and the payment terms. Today, most general surgeons – my own included – have no idea what they charge for any given procedure. And good luck making sense of (presuming you can get a look at) any hospital's "Charge Master," a set of 'list prices' that are then deeply discounted to various third party payers.

I attribute this, again, to the separation between consumer and provider that third party payers enforce.

Efforts now by third party payers to control costs owe, in my opinion, to reluctance of employers and governments to pay more. The days of mandatory overtime are long over and the power of unions too. Health insurance costs are now just a cost of doing business; something to be tightly controlled because there is no longer much upside to making them more generous. And governments are facing large deficits and pressure to rein in spending.

Anyway, one man's opinion.

jerrylamosMarch 16th, 2016 at 7:24 pm

Nafta "free trade" U.S. heavily subsidized corn flooded Mexico putting more than 2 million Mexican farmers out of work, erased whole villages. Many of these now destitute farmers went north to find a living.

Aren't you proud of "free trade" devastating working families?

Bryan WillmanMarch 16th, 2016 at 11:14 pm

I think the thing that is "wrong" is that 3rd party payers will really control costs, and more to the point, force value evaluations.
When a person's bills are paid by their employer, some insurer they pay a (very high) fixed cost to, or medicare, but none or virtually none of the costs are out of pocket or even visible at realistic prices
THEN
Normal human price/value management goes out the window. Not just in individual choices, but in the body of public knowlege.
(There's a big body of public discussion about which car is the best value, which houses, cameras, etc. Healthcare not so much.)

Single payer or a very few large payers (say German system) might improve negotiations, but it still doesn't incentivize good patient judgement.

Likewise, in the current system, everybody is paying, but in ways that are "invisible" to them – through lower wages because their union negotiated fancy healthcare, mixed into other taxes the spending of which they don't understand, and so on. What's more they often have no effective control or ability to shop for a better/cheaper deal -> so, it makes sense to consume healthcare willy nilly, becaue the incremental cost is perceived as zero.

(I have zero faith in single payer, but noone should think that means I think the current system is at all sensible.)

Patrick R. SullivanMarch 18th, 2016 at 11:16 am

jerry, you're just factually wrong. The subsidization of corn for ethanol drove prices for food (tortillas) much higher. Corn that could have been exported to Mexico, instead went into Americans' gas tanks. That would have helped Mexican corn producers, not put them out of work.

Patrick SullivanMarch 18th, 2016 at 11:35 am

A little Machiavellism?
http://www.forbes.com/sites/michaelcannon/2016/03

———-quote———
CANNON: In the book you mention the cuts that ObamaCare made to Medicare. You refer to those cuts as draconian, but you just mentioned that AARP, hospitals, and others who had their Medicare payments cut are not asking for that back. Are ObamaCare’s cuts to Medicare draconian? Or are they not a big deal, as evidenced by the fact that these folks don’t want their money back? Well, we say “their” money, but what we mean is, they don’t want to eliminate those cuts to the subsidies they are receiving through Medicare.

GOODMAN: Let me describe how big they are. Some of you may remember, before ObamaCare we used to get these scary, scary forecasts about how much unfunded liability there was in Medicare and these numbers come out of the trustees report. When Obama signed the Affordable Care Act we wiped out $52 trillion of unfunded liability in Medicare. So if you make Medicare grow forever at the rate of growth economy, while health care costs are growing at twice that rate, the amount the government saves is huge.

Now why haven’t we seen a lot of pain and agony out there so far? Because the Obama administration has managed to circumvent some of these cuts. Medicare Advantage, for example, was supposed to endure some substantial cuts, but they went around that and they found ways of grading plans and giving them extra quality bonuses.
———–endquote———

Patrick R. SullivanMarch 22nd, 2016 at 5:19 pm

Well, well, turns out John Goodman and I are on the same page after all;
http://www.forbes.com/sites/johngoodman/2016/03/0

'I don’t really favor deductibles at all. Deductibles, along with co-insurance payments, are very crude devices that give patients very imperfect incentives.

'What I favor instead is self-insurance for many kinds of medical expenses, including almost all primary care and most diagnostic tests. Where third party insurance is involved I favor fixed payments — wherever practical – with the patient self-insuring for any additional expense.'

blueicetwiceMarch 23rd, 2016 at 2:16 pm

Mr Lamos, are you suggesting that these farmers had only
soil suitable to grow maze?

I wonder to what extent Mexico subsidized varies parts of
it's economy?

Is not America subsidizing illegal migrants?

Have you forgotten, that most if not all of Mexico history
it has been a Socialist state?

Ed Dolan EdDolanMarch 24th, 2016 at 10:02 am

Yes, the sounds like Goodman. Insurance for catastrophic expenses, self-pay (facilitated by medical savings accounts or some similar device) for primary care and diagnostic tests. Backing that up with more transparency in pricing would help, too. It makes sense for many people and a substantial share of medical expenses, although not for all people and not for catastrophic or some chronic conditions.