June 16, 2015
The Washington chattering class is really upset that the Trans-Pacific Partnership (TPP) looks like it’s going down. David Brooks pulls out all the stops today, using his NYT column to yell at “Tea Party” Democrats for not supporting the fast-track authority that would facilitate the passage of the TPP.
Unfortunately, Brooks was largely unarmed with facts when it came to the attack. To start, he tells readers;
“The North American Free Trade Agreement, for example, probably didn’t affect the American economy too much. But the Mexican economy has taken off. With more opportunities, Mexican workers feel less need to sneak into the U.S.”
If the Mexican economy has taken off since NAFTA they managed to conceal this fact from the I.M.F. and other keepers of official statistics. Here is the path of per capita GDP in the United States and Mexico post-NAFTA.
Source: International Monetary Fund.
Developing countries like Mexico are supposed to have more rapid growth than rich countries like the United States. Instead the gap has increased by about five percentage points since NAFTA as growth in the U.S. has exceeded growth in Mexico since NAFTA took effect. (The chart shows growth in international dollars, not adjusted for inflation.)
Brooks also seems to be inventive in his assessment of patterns of immigration. According to the Migration Policy Institute the number of Mexican immigrants to the United States rose from 4.3 million in 1990 to 11.7 million by 2010.
Okay, so maybe Brooks didn’t get NAFTA quite right, let’s see what else he has.
“In Asia, the American-led open trade era has created the greatest reduction in poverty in human history. The Pacific trade deal would lift the living standards of the poorest Asians, especially the 90 million people of Vietnam.”
Hmmm, can we really call China and India’s development policies “American-led?” I suspect the people of these huge countries would take some offense at that characterization. Furthermore, neither has come to close to following the “Washington Consensus” development path. As far as Vietnam, its per capita income has grown at a 4.8 percent annual rate over the last decade. It doesn’t look like it is waiting for Congress to approve the TPP to save them.
Then we have David Brooks quoting Tyler Cowen:
“Do you get that progressives? Poorest country = biggest gainer. Isn’t that what we are looking for?”
Hmmm, well the data may not agree with Mr. Cowen here, at least if we take post-NAFTA Mexico as our model.
“According to a survey by the University of Chicago’s Booth School of Business, 83 percent of the nation’s leading economists believe that trade deals have been good for most Americans. That’s not quite the level of consensus on man-made global warming, but it is close.”
Let’s see, that would be 83 percent of people who did not see the $8 trillion housing bubble that crashed the economy. I hope that the track record of the scientists who write on global warming is a bit better.
Then we have the specific projection of the gains from TPP:
“The authoritative study on the Pacific trade deal, by Peter Petri, Michael Plummer and Fan Zhai, suggests it would raise U.S. incomes by 0.4 percent per year by 2025.”
Well, it may not be “authoritative” but it is certainly the study showing the largest gains — approximately 2 months of normal growth, which will be felt by around 2027, after the TPP is fully implemented. The United States Department of Agriculture was somewhat less optimistic, projecting gains to GDP of approximately zero.
Both of these studies may be overly optimistic in projections of aggregate gains. (They say nothing about distribution.) Neither takes account of higher prices for drugs and other items that would be affected by the stronger and longer patent and copyright protection that is a main part of the TPP.
Yes, that is “protection” as in protectionism. These government granted monopolies raise the price of the protected items far above the free market price. To take one example that has been in the news lately, the Hepatitis C drug Sovaldi sell for $84,000 for a 3-month course of treatment in the United States. A high quality generic version is sold profitable in India for less than $1,000.
It is estimated that 3 million people in the United States have Hepatitis C. If we could give them all the generic drug, rather than pay for the patent protected version, in the U.S. the savings would be over $240 billion (@ 1.3 percent of GDP). And that is just one drug. In this case the patent protection has the same effect as putting a 10,000 percent tariff on the price of the drug. And all good economists know how bad tariffs are. In addition to raising the price of the product, they encourage corruption, like lying about the safety and effectiveness of protected drugs. It is very likely that a model that included the increased costs associated with stronger and longer patent and copyright protection would show the TPP a loser in terms of GDP growth.
Then we have Brooks telling us to give up on manufacturing jobs:
” Democrats point out that some workers have been hurt by trade deals. And that’s true. Most manufacturing job losses have been caused by technological improvements.But those manufacturing jobs aren’t coming back.
“The best way forward is to increase the number of high-quality jobs in the service sector.”
Well some of us don’t believe in picking winners and losers like Mr. Brooks, but one thing we could do is get a more competitive dollar by discouraging other countries from propping up its value against their own currencies. This is the main factor behind the $500 billion (@ 3 percent of GDP) annual trade deficit in the United States. If the trade deficit were closer to balanced it would bring back millions of the manufacturing jobs that Brooks apparently does not like. It would also move the economy back toward full employment, strengthening the labor market more generally.
Unfortunately, the Obama administration has not made addressing the trade deficit a priority. (Companies like Walmart and GE benefit from an over-valued dollar, since it allows them to buy and/or produce goods cheaply abroad.) It opted not to make currency values a part of the TPP.
Then, sensing that his economic arguments are likely to fail, Brooks pulls out the bomb.
“Imperil world peace. [emphasis in original] The Pacific region will either be organized by American rules or Chinese rules. By voting against the trade deal, Democrats went a long way toward guaranteeing that Chinese rules will dominate.”
Got that, the Chinese are coming. So if we don’t pass a trade pact that will make the countries of Pacific region pay more for our drugs and other protected products they will all turn to China.
Are you scared yet?
Okay, look for more of these hysterical diatribes as the one percent tries their best to sell the TPP. They have tons of money and power, so they may pull it off, but at least we get the entertainment value of these people making fools of themselves.
Note: An earlier version misspelled Tyler Cowen’s name.
Comments