Why Don’t We Have Free Trade in Doctors?

With this blog post, I’m taking a quick break from trying to figure out President Trump’s trade policies. (Is this going to be the most protectionist presidency ever? Or will it end up looking not too different from a typical presidency? The conflicting signals are making my head spin!) Instead, I want to talk about an issue that Dean Baker keeps raising: Whether U.S. trade policymakers are hypocritical because they have liberalized a lot of trade in manufactured products such as steel, but not very much trade in professional services such as medical care. (See here, here, here, here, here, here, and here for examples of his references to this. I think there are more–he talks about this a lot!–but those links are a start). Here is his latest:

We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)

As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.

While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.

I agree with Dean that we should have more free trade in medical services, but the question is, why has this not happened? Is it because, as he says, “trade negotiators may feel this protectionism is justified”? As with many things, the answer is complex and has a number of components, but the short answer is that trade negotiators are not saying that protectionism is justified here. To understand the actual hurdles to liberalization in this area, you need to know how trade liberalization happens as part of a trade negotiation. If trade negotiations were run by pure free traders, they would be quick and easy. Both sides would just show up and explain that they were liberalizing all of their goods and services trade. That would be the end of it. In reality, though, there is a mercantilist logic to trade agreements. One side demands that the other open up its market in particular sectors, and the other side demands similar market opening in sectors of interest to it. In response to these demands, each side may resist opening up its own market to some extent, but it will nevertheless make what are referred to as market opening “concessions” in its domestic market in order to get the other side to open its market. It’s not pretty, and it’s not ideal, but this approach has had a good amount of success in liberalizing trade over the past few decades.

The importance of this process to Dean’s point is that U.S. trade negotiators generally don’t go into a trade negotiation offering up market opening. Rather, they respond to demands from the other side.

With this in mind, turning to the medical sector, the question is, are foreign governments demanding that the U.S. government liberalize its process for allowing foreign doctors to work here, and are U.S. trade negotiators resisting? 

The Border Wall Cannot Pay for Itself

Recent budget talks between the White House and Congress shows that President Trump puts a high value on funding the construction of a border wall. Crucial to this debate is how much a border wall will cost to construct and maintain. Center for Immigration Studies (CIS) published a brief report purporting to show that building a wall along the southern border would pay for itself if it keeps out only 160,000 to 200,000 border crossers over the next decade. That means the border wall would only have to deter about 9 to 12 percent of all illegal border crossers who would have successfully made it into the United States during that period. The report uses a variety of assumptions that unrealistically lower the cost of the wall as well as inflate the fiscal cost of border crossers.

We used more recent and precise data to update CIS’s analysis without altering its methodology. Simply using newer numbers—with no changes to the report’s unrealistic underlying assumptions—proves that the border wall cannot pay for itself. Despite fanciful promises to the contrary, a border wall is too expensive and will deter too few illegal immigrants to pay for itself—even under assumptions that are extremely generous to those who support a wall.

Updating CIS’ Analysis

The first update was to factor in a more recent estimate of the cost of a border wall. The CIS study chose to rely on a statement made by Senator Majority Leader Mitch McConnell (R-KY) rather than any actual cost estimate. We used an official estimate from the Department of Homeland Security (DHS) issued after the majority leader’s comment. This placed the cost of building a 1,250-mile border wall at $21.6 billion, or $17,280,000 per mile, that includes all costs such as the condemnation of private property through eminent domain. We also include the yearly maintenance costs. 

The second is that we adjust CIS’ fiscal cost estimate by controlling for the age of the border crossers. The National Academy of Sciences (NAS) fiscal cost estimates show that the immigrant age of arrival is vital for estimating their fiscal impact. CIS used the 2010 education level of Mexican illegal immigrants as a proxy for the education level of all future border crossers. We used the March CPS to adjust for this by assuming that the education of future illegal immigrants will be more similar to those arriving in 2015 than 2010. We further divided up the illegal border crossers by age and education to get a more accurate view of their potential fiscal impact. 

Will Republicans Expand ObamaCare?

Back when the GOP was selecting its nominee for president last year, I warned my Republican friends that on ObamaCare, Donald Trump might be worse than Hillary Clinton:

Good ol’ partisanship would stop Hillary Clinton from expanding ObamaCare even a little. A faux opponent like Trump could co-opt congressional Republicans to expand it a lot.

I even quipped that a President Trump might sell out ObamaCare opponents for 10 feet of border wall.

It looks like my prediction was eerily accurate. Even as the House Republican leadership and President Trump claim they are moving legislation that would repeal and replace ObamaCare (it wouldn’t), Trump is offering to expand ObamaCare in return for Democratic cooperation in funding a new border wall.

ObamaCare requires participating insurers to offer more comprehensive coverage to low-income enrollees, with the understanding that Congress would compensate insurers for that added cost. The thing is, the Democratic Congress and president that enacted ObamaCare never appropriated funding for those so-called cost-sharing subsidies. President Obama initially recognized the lack of an appropriation, but then began issuing those subsidies anyway–because ObamaCare would have collapsed if he hadn’t.

By that time, Republicans had taken over the House of Representatives, and they sued the Obama administration in federal court for encroaching on Congress’ power of the purse by spending federal funds without an explicit appropriation. A federal judge sided with the House. She ruled that paying those cost-sharing subsidies “violates the Constitution,” and ordered that they stop, pending an appeal, which the Obama administration timely filed.

That was the state of play when President Trump took office. His administration now has three choices.

  1. It can declare that it agrees with the court’s ruling and enforce the court order. This would mean ending the illegal payments that are the only reason ObamaCare is still on the books. If Trump ends those illegal subsidies, it is likely that even more insurers will announce they are leaving the Exchanges. As I have written elsewhere, taking this step would create even more pressure on Congress to repeal ObamaCare, particularly the law’s community-rating price controls that are causing health insurance markets to collapse.
  2. It can appeal the lower court’s ruling. This is the strategy the Obama administration pursued. It would be an awkward step given that Trump’s attorney general Jeff Sessions and Secretary of Health and Human Services Tom Price have each stated they believe these payments are unconstitutional.
  3. It can ask Congress to appropriate the subsidies. This may be the most politically awkward option of all. It would mean the first legislative change that congressional Republicans and the Trump administration make to ObamaCare would not be to repeal it, but to expand it. Funding cost-sharing subsidies would mean Republicans would be providing more money for ObamaCare than a Democratic Congress did at the height of its power.

According to Reuters, the Trump administration has chosen option #3:

President Donald Trump put pressure on Democrats on Sunday as U.S. lawmakers worked to avoid a government shutdown, saying Obamacare would die without a cash infusion the White House has offered in exchange for their agreement to fund his border wall…

Spending legislation will require Democratic support to clear the Senate, and the White House says it has offered to include $7 billion in Obamacare subsidies to help low-income Americans pay for health insurance, if Democrats accept funding for the wall.

Don’t Compel Doctors to Promote State-Favored Programs

Like all states, California has licensed medical centers of every kind. One particular type, often known as a “crisis pregnancy center,” provides pregnancy-related services with the goal of helping women to make choices other than abortion. Based on opposition to these centers, the California legislature enacted a law requiring licensed clinics “whose primary purpose is providing family planning or pregnancy-related services” to deliver to each of their clients the following message: “California has public programs that provide immediate free or low-cost access to comprehensive family planning services (including all FDA-approved methods of contraception), prenatal care, and abortion for eligible women.” But the law also creates an exception for clinics that actually enroll clients in these programs—so, in effect, it applies only to clinics that oppose the very program they must advertise.

Several of these crisis pregnancy centers sued to block the law, arguing that it violated their First Amendment rights by forcing them to express a message to which they are opposed. But the U.S. Court of Appeals for the Ninth Circuit upheld the law, holding that it regulates only “professional speech” and therefore should be reviewed under a more deferential standard, rather than the normal strict judicial scrutiny that applies to laws compelling speech. The centers have petitioned the Supreme Court to review their case; Cato has filed a brief supporting that petition.

Good News for Earth Day: A Negative Result from Ocean Acidification

In 2012, Stanford’s Daniele Fanelli published a provocative paper, “Negative Results are Disappearing in Most Disciplines and Countries” in the prestigious about-science journal Scientometrics. It demonstrated a remarkable increase in the number of papers reporting “positive” results, meaning those that found data in support of a prior hypothesis.

The reasons are manifold and in part to do with the way that we fund science. Research proposals usually include some statements of hypotheses that serve as the rationale for funding. For example, one might hypothesize that global warming will increase heat-related death, reduce crop yields, or cause wars. And, almost always, the funded scientists will find evidence to support each hypothesis.

Part of this has to do with the way agencies dole out the dough. There’s usually a meeting of five or so folks who wade through maybe a hundred proposals. There’s general discussion about which ones are worth funding, often centering around objectives and hypotheses. Upon funding, research that does not support a funded hypothesis will threaten a grant renewal.

“Ocean Acidification” will be, in our humble opinion, the next in a long line of ends-of-the-worlds that we have come to be used to. Global cooling, acid rain, stratospheric ozone depletion, tropospheric ozone increases, and global warming come to mind, in sequential order, soon to be followed by ocean acidification as our environmentalist friends become frustrated with any real meaningful policies to forestall our heretofore torpid warming.

Oddly enough, there are vast areas of the central Atlantic and Pacific oceans with naturally very low pH, or relative acidity, compared to the rest of the sea, and their relative acidity changes are large, compared to any small changes that humans have foisted on the ocean. Given that there’s often considerable biodiversity in these regions, isn’t it odd that virtually all research findings show ocean acidification to be deleterious? Kloekel (2010) performed a meta-analysis of nearly 600 findings and found approximately 97% deleterious results. That only 3% were salutary seems odd on a world where ocean pH naturally varies so much.

A recent “exception” was just published—deVries et al. (2016) in Scientific Reports. They set out to “examine the long-term effects of moderate increases in pCO2 and temperature” on the stress physiology and the hard exoskeleton of shrimp. It is a standard meme that decreasing pH, in general, is bad for hard-shelled organisms. They varied the pH and the temperature in a controlled laboratory setting. The working hypothesis was that lowered pH (more “acidic”) along with high temperature would elicit a stress response and render the shell more brittle.

Didn’t happen. Contrary to their initial thinking, the mantis shrimp exhibited an “apparently large tolerance range for changes in environmental pH and temperature.” More specifically, they found that “N. bredini showed no changes in growth, molting, enzymatic and protein indicators of oxidative stress, exoskeleton morphology, calcium content, or mechanical properties in response to experimental pH and temperature stressors,” which findings, in their words, suggest “that this species has evolved compensation mechanisms to cope with significant environmental change.” And if this one species has developed compensation mechanisms, it is not an illogical stretch to assume that other intertidal species have done so too.

Consequently, alarmist concerns for the future well-being of marine life in response to the twin evils of ocean acidification and warming are tempered (again) by observations showing that life tends to find a way to cope with the many challenges it faces.

 

References:

deVries, M.S., Webb, S.J., Tu, J., Cory, E., Morgan, V., Sah, R.L., Deheyn, D.D. and Taylor, J.R.A. 2016. Stress physiology and weapon integrity of intertidal mantis shrimp under future ocean conditions. Scientific Reports 6: 38637, DOI:10.1038/srep38637.

Kroeker, K.J., et al, 2010. Meta-analysis reveals negative yet variable effects of ocean acidification on marine organisms.  Ecology Letters, (2010) 13: 1419–1434 doi: 10.1111/j.1461-0248.2010.01518.x

Corporate Tax Cuts: Canada’s Experience

President Donald Trump and congressional Republicans are proposing to cut the corporate tax rate. With any tax cut, members of Congress want to know how much revenue the government may lose from the reform. I do not think that cutting our 35 percent federal corporate tax rate to 20 percent or so would lose the government any money over the long term. U.S. and foreign corporations would invest more in the United States, which would boost our economy, and corporations would avoid and evade taxes less.

Canada provides us with a real-world trial run of corporate tax cuts, and new budget data includes the latest revenue estimates. The nation slashed its federal corporate tax rate from 38 percent in the mid-1980s, to 29 percent by 2000, to 15 percent by 2012, as shown in Chart 1 below. Has the government lost revenue?

You be the judge. Chart 2 shows that corporate tax revenues in Canada have fluctuated with the ups and downs in the economy—revenues fell, for example, during recessions in the early 1990s and 2009. But even with the modest Canadian economic growth of recent years, revenues have held up under a much lower rate. Corporate tax revenues are 2.1 percent of gross domestic product (GDP) today, which is a bit higher than in the mid-1980s when the rate was more than twice as high.

Let’s compare to the United States. While Canada’s 15 percent federal corporate tax will raise 2.1 percent of GDP this year, the 35 percent U.S. federal corporate tax will raise just 1.7 percent. Thus, the Canadian corporate tax raises relatively more than the U.S. tax—even though the rate is less than half the U.S rate.

 

 

Canada historic tax revenues here. New Canadian budget data here.

 

Internet Speech 2016: More Regulation Needed?

Election law expert Nathaniel Persily has written an interesting article about the Internet and the 2016 election. The problems Nate (and others) see in 2016 will inform the debate about free speech now and in future elections.

Persily notes that the 2016 campaign saw an “online explosion of campaign-relevant communication from all corners of cyberspace.” Here’s his description of the Trump campaign’s social media efforts:

Employing traditional web-based communication, event promotions, new apps, native advertising (in which web ads are designed to look like articles in the publication containing them), and new uses of social media, the campaign launched 4,000 different ad campaigns and placed 1.4 billion web impressions (meaning ads and other communications visible to individual users)…the campaign targeted 13.5 million persuadable voters in sixteen battleground states, discovering the hidden Trump voters, especially in the Midwest, whom the polls had ignored.”

Trump himself tweeted a great deal, having 13 million followers by election day. But the mainstream media also picked up the tweets and prompted wide discussion and attention to them. Trump garnered about $4 billion in free media during the primaries and the general election, an astonishing sum. The new media thus drove the agenda for the mainstream media; in the past, the latter shaped the agenda for everyone.

From a First Amendment perspective, 2016 saw more speech by more people than previous elections. The election also showed that you can win the White House without dominating fundraising, an outcome that weakens the case for campaign finance regulation. Both results seem good for free speech.

However, Nate Persily is a learned and sensible analyst, and his concerns about 2016 merit our attention.