March 2007

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‘Rethinking Free Trade’ by Lindsay Oldenski

March 30, 2007 in Economics - General | Permalink

Today, guest blogger Lindsay Oldenski will give her opinion about Alan Blinder’s recent comments regarding free trade and American job losses. Ms. Oldenski is an economics PhD student at the University of California-San Diego (UCSD) and specializes in topics related to international trade.

Rethinking Free Trade?
By Lindsay Oldenski

According to a recent Wall Street Journal article, it’s suddenly become trendy for high-profile economists to contradict their previous views– and centuries of economic research– by coming out against free trade. The article by David Wessel and Bob Davis is entitled Pain from Free Trade Spurs Second Thoughts and focuses on recent comments by economist Alan Blinder and others about the potential drawbacks of offshoring service jobs.

However, this article misrepresents what Blinder is actually saying. He is not having “second thoughtsâ€? about the importance of free trade or proposing that we build a wall between the US and India. In the 2006 Foreign Affairs article that the WSJ piece is based on, Blinder says that “we should not view the coming wave of offshoring as an impending catastrophe. Nor should we try to stop it. â€? (emphasis added). Instead, he’s making the point that I’ve been finding over and over in my own research , which is that there is something fundamentally different about trade in services than trade in goods and we should try to understand as much as we can about this important economic phenomenon. Blinder’s bottom line is that the US and the world as a whole can gain from the productivity increases that accompany service trade expansion, but in order to do so we need to acknowledge that there will be adjustment costs and develop education systems, social welfare programs and other policies to minimize these costs and maximize the gains.

Unfortunately Blinder chooses to make that point by attempting to forecast the gross number of jobs that could be lost to offshoring over the next 20 years without estimating offsetting gains. His main point, emphasized in the article’s title “Offshoring: The Next Industrial Revolution?â€? is that the first two major industrial shifts (from agriculture to industry, then from industry to services) made the US better off and the current information revolution will do the same. The numerical estimate of service jobs that could be offshored is meant to quantify the extent of the shift, and should NOT be construed as a net loss. But claiming that the US could lose 40 million jobs without estimating the offsetting job gains is not going to accomplish that goal. It’s just a scare tactic that invites misuse by those who hold up job loss figures as an argument for restricting trade—exactly what Blinder says we should not do.

So what net effects should we expect from an expansion of services offshoring? The data overwhelmingly point to net gains. First, consider the US trade deficit in goods, which was a staggering $600 billion in 2005. Over the past two decades, the US had a growing trade surplus in services which reached $40 billion in 2005. This suggests that, in spite of high profile anecdotal evidence on call centers in India, the US actually has a comparative advantage in services and increasing the volume of services trade should lead to net gains. Martin N. Baily and Diana Farrell point out that while 70,000 computer programmers in the US lost their jobs from 1999 to 2004, 115,000 higher paid software engineering jobs were created during the same period. Mary Amiti and Shang-Jin Wei found that while offshoring services may have a small negative effect on certain industries, no such effect exists at the aggregate level. Looking forward, Catherine Mann of the Institute for International Economics argues that offshoring some IT service jobs will make technology inputs cheaper, leading to greater production of high-tech goods and services in the US and job growth of about 40% in IT-related occupations by 2010.

None of this evidence is meant to downplay the impact of offshoring on those individuals who lose there jobs. Indeed, Blinder’s message is targeted at helping exactly those individuals. But we should do so by easing the transition forward through the information revolution, not by trying to move backward.

Cavalcade of Risk #22 is up

March 29, 2007 in Carnivals | Permalink

The Cavalcade of Risk is posted at The Sentinel Effect website.

Spring Training

March 27, 2007 in Miscellaneous | Permalink

I’m off to Arizona today to watch 3 Milwaukee Brewers Spring Training games between Tuesday and Thursday.  My blogging will resume on Friday.

Single payer commentaries

March 27, 2007 in International Health Care Systems, Public Policy | Permalink

Tyler Cowen has interesting piece in The New York Times (“Abolishing the Middlemen…“) in which he states that a single-payer system’s cost savings from the reduced administrative and overhead cost may be illusory. The article’s arguments are sound and are similar to the one’s I made in the post titled “Medicare’s (true) Administrative Costs.”

The Economist’s View blog has some rebuttal comments from Paul Krugman. Tim Worstall’s blog makes the point that even if there are low administrative costs for government health insurance, one must take into account the deadweight loss which is incurred in order to raise the money (through taxes) to finance a single-payer system.

Overall, I think we could in theory design a superior single-payer system to that of the private market. I am skeptical, however, that a single-payer system will work in reality in the long-run for the following reasons:

  1. No competition. Competition breeds innovation and new ideas. Mr. Cowen makes the point that “Private insurance…provided earlier access to prescription drugs — an expensive yet effective form of medical care — for 20 years or more before Medicare did. The competition among private insurers may appear wasteful, but over time it stimulates better and more complete coverage.” Without the threat of competition, it is likely that single-payer systems will lag in terms of innovation.
  2. Government Bureaucrats. Is having government bureaucrats making medical allocation decisions worse than having private sector insurance company bureaucrats making medical allocation decisions? I would say probably so. Individuals with political connections will always receive top care when government bureaucrats make decisions; on the other hand, private sector bureaucrats will generally give treatment to anyone who can pay the insurance premiums they require.
  3. Consumers have less choice. If the government mandates that individuals have a specific level of government-financed insurance, this will reduce an individual’s scope of choice between consumption of medical services (or health insurance), consumption of other goods and savings.

Physicians vs. Statisticians

March 26, 2007 in Medical Studies, Physician Compensation | Permalink

An interesting post by Arnold Kling (“Doctors, Pharmaceuticals, and Statisticians“) reports on a randomized clinical trial which demonstrated that on average, angioplasties have no incremental health benefits once the patient is placed on multiple medications such as beta-blockers, ACE inhibitors, statins and blood thinners.

Dr. Kling writes: “Doctors think that they add value by giving advice on issues such as angioplasty. But the advice of statisticians may be better.  Doctors also think that drug companies earn too much money. But it may be the doctors who earn too much money.  I predict a collision between doctors and statisticians somewhere down the road.“

Nobel Peace Prize winner: ‘Patients must pay’

March 26, 2007 in Health Care in Developing Nations | 3 comments

Muhammad Yunus is not only one of the pioneers of the microcredit industry as the founder of the Grameen Bank, he is also a Nobel laureate.  The World Health Care Blog is currently covering the World Health Care Congress Europe 2007 and has an enlightening video post of some of Dr. Yunus’s comments regarding health care in the developing world.

When Dr. Yunus was questioned as to whether or not poor individuals in Bangladesh should have to pay for health care, he replied: “I think it’s very important to have the patients, the people who are asking for health services, to pay. How that payment will be made…it can be in a variety of ways. But the important thing is they must pay. They must feel that this is a service they are buying so that they feel equal, so they don’t feel small.”

Dr. Yunus later states that payment for medical services can be made in a variety of ways. Of course, there are cash payments, but individuals also can pay by taking out a loan or making incremental payments, or purchasing health insurance in anticipation of the possibility of sickness or individuals could even pay in kind if they have little cash. The rest of Dr. Yunus remarks are just as interesting and I encourage you to view his remarks.

Genetically Engineered Mosquitoes fight Malaria?

March 26, 2007 in Current Events, Medical Studies | Permalink

According to the African Medical and Research Foundation (AMREF), “[m]alaria is the most important parasitic disease in the world. It kills 3,000 children every day and more than one million each year. The majority of these deaths occur among children under five years of age and pregnant women in sub-Saharan Africa.”

In the most recent edition of The Economist magazine, a piece titled “A shift of perspective” documents the research of Dr. Mauro Marrelli and Dr. Chaoyang Li of Johns Hopkins University. The researchers hope that breeding genetically-altered, malarial-resistant parasites and releasing them into wild will help to stem the tide of malarial infections. Drs. Marrelli and Li have found a gene, called SM1, which prevents malaria infections. SM1 is superior to genes which suppress but do not prevent infection since suppressing the infection “imposes a burden on the animal, since materials and energy have to be diverted to the boosted immune system. In practice, such insects are worse off than they would be without the gene. But because SM1 prevents infection rather than suppressing it, Dr Marrelli and Dr Li hoped that different rules might apply.” The mosquitoes with the SM1 gene may be superior (in a Darwinian sense) to those mosquitoes without it and thus more of these malaria-free mosquitoes will survive.

Problems do exist. It is possible that the SM1 gene is helpful only when one copy of the gene is present in a mosquito (and not two). Also, “the type of malarial parasite used in this and many other experiments is not actually one that causes human disease.” Still there is hope that scientific advances could one day rid the world of one of its most deadly parasitic diseases.

Reauthorizing SCHIP

March 23, 2007 in Current Events, Medicaid/Medicare, Public Policy | Permalink

Politicians are faced with a serious dilemma in the near future: reauthorize the State Children’s Health Insurance Program (SCHIP) and spend billions of dollars on a single-payer government health program or fail to renew the program and leave many children uninsured and many constituents angry. The Kaiser Family Foundation reports (“Several Lawmakers…“) that the SCHIP will expire on September 30th, 2007, and that currently several Democratic Congressmen are working on competing SCHIP renewal bills. The New York Times reports (“…Helath Care Battle“) that renewing SCHIP for the next five years will cost $50-$60 billion.

While SCHIP enjoys widespread support (its is politically difficult to oppose providing health insurance to uninsured kids), opposition to the program comes from a curious source: the House Black Caucus. The Health Care Policy and Marketplace Review blog says that Caucus members such as Charles Rangel oppose SCHIP because they believe

“all of that money going to cover healthy children should be used for the people who really need it – the ’55-year-old like me’ who has diabetes or heart failure of mental illness. Medicaid funds are being used to send hundreds of thousands of healthy children of the chronically ill, near-poor diabetics to a doctor — while the actual sick person in the family sits on park bench and can’t afford to go anywhere except the ER or a public hospital, if they can afford the copay.”

Another view comes from the Health Affairs blog. In a recent post, Sarah Dine argues that providing health insurance for children isn’t enough; enabling children to easily access high quality care can be just as or more important. Ms. Dine cites a paper by Julia Lear which posits that health care professionals can often best treat children right in their own schools. The abstract from the paper is quoted below.

“A vast array of child health professionals—99,000 counselors; 56,000 nurses; 30,000 school psychologists; 15,000 social workers; and smaller numbers of dental hygienists, dentists, physicians, and substance abuse counselors—provide care to children and adolescents at school. However, most thought leaders in child health know little about this “hidden” system of care or are skeptical about its capacity to contribute to children’s well-being. Increased interest in prevention and chronic disease management, powered by escalating concern about childhood overweight, might end the isolation of school health programs and link them more effectively to community-based prevention programs and health care services.”

Health Wonk Review

March 22, 2007 in Carnivals | Permalink

The latest edition of the Health Wonk Review is up at Matthew Holt’s The Health Care Blog.

Advice on Applying to Graduate School

March 22, 2007 in Economics - General | Permalink

Interested in applying to graduate school in economics? If so, the following two links may be helpful in both 1) deciding whether or not graduate school is for you, and 2) understanding how the application process works.

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