Ed Koch: Knowing When You're Wrong

One of the great disappointments in the decision of the Bush administration to provide prescription drug coverage to Medicare beneficiaries was its refusal to allow the Medicare agency to use its enormous economic power to bargain with the drug manufacturers on the price of drugs. Many, including myself, perceived that refusal as a sellout to the pharmaceutical industry.

Democrats have said they would introduce legislation to change the law to provide the Bush administration with the power to negotiate drug prices under the Medicare program. The Bush administration has resisted the legislation and has threatened to veto. The media and the Democrats, myself included, have denounced the administration’s position. Recently, an article in The New York Times, “Senate Bill Seeks Power for Medicare on Drug Costs,” stated that “Max Baucus, Democrat of Montana, the chairman of the Finance Committee, would repeal the part of the 2003 law that prohibits such negotiations.” At the end of the article appeared the following: “The Congressional Budget Office says that neither the House bill nor the Senate version would save much money … Over all [Peter R. Orszag, director of the budget office] said Mr. Baucus’ bill ‘would have a negligible effect on federal spending’ because the government would not have the leverage to negotiate discounts deeper than those already being obtained by private Medicare drug plans.” In a letter dated April 10, 2007, to Senator Baucus (D-MT), Mr. Orszag wrote, “Without the authority to establish a formulary or other tools to reduce drug prices, we believe that the Secretary would not obtain significant discounts from drug manufacturers across a broad range of drugs.”

No one in Congress suggests that the number of drugs covered under Medicare should be reduced to cut costs. Many have lambasted the president for refusing to give the federal government the power to bargain with the drug manufacturers. However, now it appears that that strategy would not have worked anyhow. The president’s critics on this issue should acknowledge they were wrong. For the record, I do that now.

Our negative trade balance with China now totals some $232 billion per year. It is simply impossible for the United States to compete in a number of trade areas with China because of that country’s low wages, lack of medical benefits, pensions and environmental standards.

Take, for example, wages in the automotive industry. General Motors has licensed Chinese firms to manufacture Cadillacs. The wages paid in China to automotive workers are $1.50 per hour with no health benefits. The wages paid in the U.S. are $26 per hour plus costly health benefits. When China starts selling its Cadillacs at home or abroad, how can the U.S. possibly compete? It can’t.

In addition, China has imposed trade barriers that have prevented the inflow of American goods. For the first time, the U.S. has taken action, according to The New York Times. “[T]he top American trade envoy, Susan C. Schwab, announced that the United States would take China to court at the World Trade Organization over suspected trade barriers and piracy of books, music, videos and other goods.” The charges include “challenging China over its subsidies of manufactured goods.”

I believe that the various trade agreements—reached not only with China, but also under NAFTA with Canada and Mexico—put the U.S. at a disadvantage by not including requirements to provide fair wages, health benefits, pensions and environmental controls. The response generally offered by the free traders is that we benefit in other industries. That is not adequate. We are at the point that we are losing or have already lost basic industries that used to offer employment to millions of people, particularly the unskilled.

Our negative balance of trade with so many nations has turned us into a debtor nation and, equally important, has demoralized millions of people formerly part of the U.S. workforce. Upstate New York is one region that has suffered greatly from the loss of manufacturing jobs.

I have a suggestion: Why not require that all international trade agreements entered into by the U.S. include provisions that every three years, the balance of trade between the U.S. and the other countries that are parties to the agreements be examined nation by nation? Where the balance is not roughly equal or within a range of perhaps up to 15 percent, automatic tariffs and quotas would go into effect for a period of, say, three years during which the other nations would be expected to bring the balance of trade into closer balance. In the three years after that, the U.S. would restore free-trade practice to see how effective the efforts of our trading partners have been. If they were not adequate, we would again resort to tariffs and quotas. Something has to be done.