The Debate Over the Trans-Pacific Partnership: Focus

It is foolish to debate whether a trade agreement that has not yet been negotiated is a good idea and should be ratified.

Such a debate should properly begin only once there is something to analyze.

But here we are, so…

A few words about benefits from the Trans-Pacific Partnership, should it be successfully negotiated, in response to Paul Krugman:

1. Paul Krugman says that the potential net gains from freer trade in services and (secondarily) agriculture as estimated by Petri, Plummer and Zhai of 0.5% of GDP “seem high to him”. Suppose that they are half that. In a Pacific region whose GDP is now approaching $30 trillion/year, that is $75 billion/year. Capitalize that at 4%/year and we get a net addition to world wealth of $3 trillion. That is indeed a very small number relative to the wealth of the world both now and discounted into the future. But that is a rather large number compared to other things the U.S. government might do this year. So why not grab for it?

2. Improvements in international monetary arrangements with respect to keeping exchange rates where they ought to be would also be valuable–if they could be successfully negotiated.

3. I do not think anybody is arguing quantitatively that TPP would put downward pressure on real wages in the United States of a large enough magnitude to offset the value of the $3 trillion wealth machine. If they are making such an argument, I would like to see it.

4. Paul Krugman claims that the other major effect–besides the $3 trillion wealth machine–is that the intellectual property protections make the world poorer and transfer a significant amount of wealth from the sick and the entertainment consumers of emerging markets to first-world plutocrats. But is this in fact true? And what are the numbers?

5. However, the big reason that Paul is not in support of the TPP that may be comes at the end: “Why, exactly, should the Obama administration spend any political capital–alienating labor, disillusioning progressive activists–over such a deal?” The argument here is that in the long run America will be better off if there is a more unified liberal base more enthusiastically behind the Democratic Party, and that that outweighs whatever the small and uncertain net benefits of TPP might be.
    
   I would agree that it would have been good from the perspective of Obama’s political and policy goals for him to have framed the TPP debate differently. It should be the business of McConnell and Boehner to pass the enabling legislation through the House and the Senate. It should be a requirement from Obama that they also come up with sufficient additional legislative sweeteners to make it worth his while to sign it–given labor and anti-globalizer opposition. The question should be not: “Can Obama round up the votes for ratification?”
    
   The question, rather, should be: “can Boehner and McConnell come up with sufficient legislative sweeteners for labor and progressives to elicit a signature?” That kind of forward-looking legislative-procedural chess, however–attaching all kinds of sweeteners to the enabling legislation and threatening a veto if they do not stick–has never been the Obama administration’s long suit.

Paul Krugman: TPP at the NABE: “As with many ‘trade’ deals in recent years, the intellectual property aspects are more important than the trade aspects…

…the US is trying to get radically enhanced protection for patents and copyrights… Hollywood and pharma rather than conventional exporters…. Well, we should never forget that in a direct sense, protecting intellectual property means creating a monopoly–letting the holders of a patent or copyright charge a price for something (the use of knowledge) that has a zero social marginal cost… a distortion that makes the world a bit poorer. There is, of course, an offset in the form of an increased incentive to create knowledge…. But do we really think that inadequate incentive to create new drugs or new movies is a major problem right now? You might try to argue that there is a US interest in enhancing IP protection even if it’s not good for the world, because in many cases it’s US corporations with the property rights. But are they really US firms in any meaningful sense? If pharma gets to charge more for drugs in developing countries, do the benefits flow back to US workers? Probably not so much…. Why, exactly, should the Obama administration spend any political capital–alienating labor, disillusioning progressive activists–over such a deal?