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Anti-Protectionist Misses Most Serious Protections
Washington Post columnist Anne Appelbaum used her column today to whine about the growth of protectionism. Remarkably, she managed to overlook some of the most obvious and costly forms of protectionism.
For example, she complained that German banks, which are partly owned by the government, are giving subsidized loans to German firms. However, she somehow failed to notice that the United States is giving $700 billion in government subsidized loans to its banks from the Treasury and trillions more through the Fed. These loans are supporting the jobs of highly paid bankers who might be unemployed if the situation was left to the market.
The government is also maintaining its protection for the pharmaceutical industry, by providing patent monopolies. It is a continuing thrust of trade policy to increase the extent of this protection in other countries.
Of course higher-paid workers continue to enjoy protection in the form of licensing and professional barriers that prevent them from having to compete directly with their counterparts in the developing world.
Economic models do not care about the class of the person enjoying protection. Protection for bankers, doctors, and lawyers affects the economy in the same way as protection for autoworkers. The graphs used to model the impact are exactly the same. The difference is that the cost of protection for highly paid workers is almost certainly much greater and the "free traders" never talk about it.
--Dean Baker
COMMENTS (14)
The difference is that the cost of protection for highly paid workers is almost certainly much greater and the "free traders" never talk about it.
Am I to imply that you are not a free trader. I am a free trader especially in the areas that you point out. E.G. I know doctors who live in the USA but are not allowed to practice.
Posted by: Floccina | February 17, 2009 8:53 AM
Dean,
Thank you for all you do. You have helped to open my eyes to how the system really works and how the MSM misinforms us at almost every turn.
As I have educated myself, I have come to understand the following three points are at the very center of what must be done to correct the systemic problems we face.
1. A fiat money system MUST be run by the government.
2. Private banks must NOT be allowed to create, and extinguish, the money supply with debt-money.
3. Private banks MUST operate using their deposit base as a source for lending.
I have searched fairly extensively through what you've published that is available on the internet and I have not found any references to fiat money or money creation by you.
I wonder why someone as insightful as you has not raised this issue.
Will you please address the issue?
Posted by: Fiat Money | February 17, 2009 12:17 PM
Great observation.
Posted by: bill | February 17, 2009 12:51 PM
Dean,
Wondering if you finally decided to stop lumping economists in with the doctors, lawyers, and accountants who supposedly benefit from protectionism, even though we have no licensing requirements or anything of the sort. If you are still doing this lumping, I suggest you check out the Economics.Jobs.Rumors blog, where one can find all sorts of nasty slime, including regular screeds attacking all the Chinese who are competing for jobs with all the red-blooded Americans. Not at all a protected industry.
Posted by: Barkley Rosser | February 17, 2009 5:15 PM
What about plumbers, electricians, and hairdressers? They are also protected by licensing requirements the primary purpose of which is to create barriers to entry.
Posted by: TL | February 17, 2009 5:40 PM
Barkley,
i don't want you to feel left out, next time i will mention economists again. Of course the barriers are not absolute, but neither are tariffs. If we had a 20 percent tariff on imported shoes, the vast majority of shoes bought in the U.S. would still be produced abroad, but a 20 percent tariff is still protection.
So it is with economists. I don't know of any investor who is willing to throw down billions of dollars in an explicitly illegal venture. Wal-Mart University, which hires foreign academics at whatever wage they are willing to work for, with no pretense of trying to hire any citizen or greencard holder, is illegal. that is is protection for economists.
Posted by: Dean Baker | February 17, 2009 7:44 PM
Dean
I feel sorry for you. It must be terrible to have to read that crap but it saves the rest of us from having to do it. Thanks.
cemmcs
Posted by: cemmcs | February 17, 2009 8:24 PM
Hey and let's not forget all those "special" tax cuts which disguised subsidies. Notice how tax cuts comfort the comfortable.
Oh heck, let's not forget farm subsidies which are one of the most Serious Protections. US Government subsidies to Agri-corps help them undermine international competition.
Posted by: S Brennan | February 17, 2009 8:33 PM
Any possibility of some follow up comments on your encounter with McArdle on bloggingheads?
Posted by: David Jacobs | February 17, 2009 8:55 PM
S.Brennan might be interested in this Business Week article from Dec. 2007 on corporate taxes:
"BusinessWeek asked data tracking outfit Capital IQ (MHP ) to calculate which companies in the Standard & Poor's 500-stock index spent the lowest percentage of their earnings in cash on taxes over the past five years. The data reflect the most recent five-year period available, 2002 to 2006. These are the companies that are, in other words, getting the most mileage out of the various exceptions in the tax code.
At the head of the list: utility CMS Energy (CMS ) (0% of earnings spent on taxes on average over the past five years); natural gas driller Chesapeake Energy (CHK ) (0.3%); airplane manufacturer Boeing (BA ) (0.7%); semiconductor maker Broadcom (BRCM ) (1.1%); and utility Florida Power & Light (FPL ) (1.2%). For the entire S&P 500, by contrast, the average percentage of earnings spent on taxes was 26%—still well under the 35% stated corporate tax rate".
Posted by: Anonymous | February 17, 2009 9:49 PM
'let the market decide'...
then why these people are not letting the market decide.
elites are getting the protection while the others are left out.'goodies for biggies'.
Be at the top, influence the economy and you will get protection from the crisis.we need to implement a bit of communism at the top i guess.
Posted by: shiraz | February 18, 2009 5:52 AM
Subsidized college ends up helping the rich and middleclass much more than the poor.
Posted by: floccina | February 18, 2009 2:45 PM
Of course, when the government tries to insert protectionist language in bills, it often comes up short.
Were the Buy American provisions in the stimulus just populist pandering? I think so. What do you all think of my analysis?
http://www.insidecongresstoday.com/2009/02/buy-american-well-at-least-just-dont-buy-chinese.html#more
Posted by: Alex | February 19, 2009 10:21 PM
good！
Posted by: Abercrombie and Fitch | January 12, 2010 10:15 PM