Today we are fortunate to have a guest contribution written by Jeffrey Frankel, Harpel Professor of Capital Formation and Growth at Harvard University, and former Member of the Council of Economic Advisers, 1997-99.
In recent op-eds and blog-posts I have argued that prospective trade agreements like the TPP (the Trans Pacific Partnership) would be economically beneficial for reasons similar to past trade agreements and that they would have geopolitical benefits too. I have also opposed adding currency manipulation to the trade negotiations.
I am far from alone. Such support for giving the White House Trade Promotion Authority (TPA) is shared by most economists, including 14 former chairs of the president’s Council of Economic Advisers. But we supporters have not sufficiently responded to the most common arguments of the critics of the TPA process: a perceived abandonment of democracy and transparency.
Despite what one reads, I see no such abandonment, relative to the way that trade negotiations have been pursued by the United States in the past or relative to the way that they are pursued by other countries. Regarding democracy: under Trade Promotion Authority the Congress would vote on the final agreement that the executive branch has negotiated (thumbs up or thumbs down). Regarding transparency: the details of TPP or TTIP that are unknown are details that have not yet been concluded in the international negotiations.
The negotiations could not proceed if Congress were intimately involved every step of the way. That is why it has been done this way in the past. There is nothing different this time around (unless it is the extra degree of exposure that draft texts have received).
It is true that these trade negotiations include more emphasis than many in the past on issues of labor and environment, on the one hand, and intellectual property rights and investor-state dispute settlement on the other hand. And it is true that, to get it right, the details of these issues need fine calibration. But here is the point that everyone seems to have missed, in my view: even if it were somehow logistically possible for international negotiations to proceed while the US Congress were more intimately involved along the way, the outcome would be far more likely to get the details wrong — with big giveaways to special interests – than under the usual procedure of delegating the detailed negotiations to the White House. I know that no commentator is ever supposed to say that any political leader can be trusted. But I do trust President Obama on this, far more than I trust Congress.
This post written by Jeffrey Frankel.
False dichotomy. It’s not about trusting the President more than Congress. From their approval ratings, the American people trust neither, and the idea the President is impervious to special interests is simply disconnected with reality.
Fazal Majid,
Why is this a false dichotomy? Under the normal TPA procedure, the adminitration releases the text of the agreement when it is ready and the Congress holds an up-or-down vote. The widespread criticism of the TPA process (“secrecy”, “lack of democracy,” “what are they afraid of?” ) seeks to involve Congress more intimately into the details of the negotiations. My claim is that if Congress were involved more in the international negotiations — leaving aside the correct point from “Baffling” that this is not at all workable — the outcome would likely be worse in the various sensitive areas of concern (labor rights, environment, IPR, and investor-state disputes). Whether you agree with my claim or not, why is this a false choice?
JF
Criticism of TPA is a sideshow. The problem is the trade agreements, which rely too heavily on the limited tools of economics for justification. The investor-state dispute settlement issue isn’t some well-designed machine in need of “fine calibration”. ISDS is a Big Effing Deal that will kick us in the nuts for generations to come. But, hey, what’s the loss of a little sovereignty when we can make overseas capital a little happier?
See one criticism on ISDS on Constitutional grounds here: http://www.citizen.org/documents/Alan-Morrison-ISDS-letter.pdf
Hard to argue $15 per hour minimum wage for the Asian countries, isn’t it? But then trade agreements will be denounced by those who say such agreement siphon off manufacturing jobs while, at the same time, argue for $15 per hour burger flipping jobs in the U.S.
“We love our cheap imports as long as they are made in the U.S.”
“But I do trust President Obama …..”
You’re a rare bird.
Thankfully.
TTP focuses on IP, I hear as a complaint. But if everyone had to live under the same patent protections as we in the US, that would share more broadly the cost of developing expensive drugs, thereby lowering the cost to the US consumer. What’s bad about that?
You seem to be assuming that the US patent protection scheme results in lower cost of development [relative to other IP schemes]?
And/or assuming that lower cost of development necessarily translates to lower costs to consumer?
What does the evidence say?
[I offer none… I’m asking.]
Call me skeptical…
Expanding enforcement of US-style patents to other jurisdictions does not mean drug R&D costs become more broadly “shared”.
It simply means greater rent extraction opportunities for Big Pharma (among others) via enhanced monopoly power.
Unless, of course, as part of the trade deal, Big Pharma has given some sort of lowest price guarantee on pharmaceutical sales on US soil?
No?
Thought not…
My issue with the focus on IP & investor dispute resolution is not [necessarily] that they are bad things, in & of themselves… they aren’t [necessarily… as with everything, the devil is in the details]. Rather, my ‘complaint’ about IP is that a trade negotiation – especially a multi-lateral one, with many parties, all having very different interests & goals – is all about priorities. There are only so many benefits we can rationally expect to be able bargain for, and we must expect to have to make some very difficult horse trades on matters that we ultimately decide are less important to our national interests. Getting broader IP protections for Big Pharma, more mobility for capital, and preferences/protections for foreign investors means giving up other things. Clearly, fixing the over-valued US dollar & restoring the current account to some semblance of balance {which would, in turn, help shrink the US govt budget deficit, but that’s a whole ‘nother discussion}, or restoring full employment in the US, have NOT been among the higher-valued priorities.
Ergo, I am skeptical… and thus – given history – opposed… pending a better deal.
does anybody really believe an international agreement could be reached through negotiations directly with congress to develop a consensus? foolish. congress can still vote up or down on the proposal presented to them. they have final say-and should have final say. they have demonstrated over the past several years they could not negotiate such a document themselves. that is a reality.
The problem with the TPP debate is different from past debates. The whole process plus the authority being given is being kept totally secret.
Earlier I stated that I supported fast-track authority even for this president, but the fact that there is no openness in the process and those who have seen the agreement recognize that it goes beyond fast-track authority to becoming a trade treaty to allow such things as mandates of cap-and-trade and other left wing ideas should make us all stand up and stay STOP! Not until there is complete openness should congress even entertain the idea of giving away its constitutionally designated power. The executive should not take legislative and judicial power from those constitutionally given that responsibility.
What is so strange about the push for TPP is how obsessed Obama seems to be about it. He has put more effort and political capital into this one initiative than any other in his 6 years in office. More energy than he put into climate change, more than mortgage relief, more than the ARRA, more than Dodd-Frank, more than Don’t Ask Don’t Tell, even more effort than he put into Obamacare which was rescued at the last minute only due to the efforts of Nancy Pelosi after the President had given up.
By all accounts, the TPP will have minuscule effects on GDP, a few decimals of growth over a decade. Tariffs are already very low and the U.S. could just unilaterally eliminate them if they think its so important. Benefits to foreign countries will probably be overwhelmed by the costs of onerous intellectual property extensions.
So the whole thing looks — how do we say this — weird. It is reminiscent of the mystery surrounding Bush’s selling of the Iraq War. What was Bush’s obsession with one tin-pot dictator out of many, why now, why the rush, why all of the convoluted misleading evidence? The TPP smells much the same. There is something unspoken driving the push.
As Daniel Davies said about the selling of the Iraq War: “Good ideas do not need lots of lies told about them in order to gain public acceptance.”
Joseph,
You are absolutely correct but President Obama has actually told us why he is obsessed with the deal. He intends to use the bill to extort other countries.
Below is his direct quote from an interview with NPR’s Kai Ryssdal, host of American Public Media’s Marketplace.
Congress is not trying to be involved in negotiating the deal. Critics are just saying Congress shouldn’t surrender its constitutional obligations on treaty ratification (2/3 in the Senate) or its traditional methods for evaluating MAJOR legislation (like extended review and the filibuster) before it can see the deal it’s supposed to grease the skids for.
If it’s a genuinely good deal and proponents can actually answer the critics head on, then TPA can be passed *after* the deal is available for review.
Incidentally, this particular article isn’t answering the critics head-on because there’s no discussion of the substantive policy flaws in the leaks. Saying “we don’t know what in it but let’s go ahead and make it hard to reject” is not answering the critics head-on. Not even close.
Agreed.
I don’t have any idea whether to support or reject TPA because I don’t even know what’s in it, not even from a philosophical point of view. Is it free trade? Standardization of regulation? Increased compliance on trading partners (stronger workforce laws, climate change regs)? I don’t even know whether to endorse or oppose it from a simple ideological perspective, let alone based on the particulars.
This is the President who brought us pass-it-so-you-can-find-out-what’s-in-it Obamacare. I don’t think the electorate is supportive of that approach given the history. And the President is lacking support from his own party. Don’t know what to say about that.
I have to say, Obama is making Carter look like The Great Communicator by comparison.
Steven,
It is not the president who brought us pass-it-so-you-can-find-out-what’s-in-it. It was Nancy Pelosi and now Paul Ryan. Neither party has a corner on stupidity. And what is there about Wisconsin that makes people go insane. (That’s a joke but for a joke to be funny there must be a sense of truth in it – Ugh.)
I’m persuaded by the arguments of economists on the left (Krugman), center (Summers) and the right (Cowen) that TPP is not principally about freeing trade. The gains from trade have largely been realized already, and so the TPP should not be analyzed using Ricardo’s conventional trade theory. It sounds like the TPP is really about Dispute Settlement and Intellectual Property deals. Now there may be strong arguments for enhanced dispute settlement and IP protection but I am not seeing those arguments advanced.
i have an issue with it because like others, there is no real benefit to workers, and barely any the rest of us (cheaper goods dont offset the large drop in incomes we have know we have had). so far we dont even measure job losses, or nor gains, so we have no idea how that worked out. nor are we measuring incomes gains or losses. nor do we really know if there was any price improvement. we just dont know. nor do we really help those who by no fault of their own, loose their jobs, because the place they worked was exported.
long and short of it.
seems like economists see advantages for the economy, but dont care about the impacts to others. nor can they prove that advantage actually worked like they claim it does
i.e., distribution matters
I’m disappointed on the argument in this piece as it repeats the same problem I’ve seen in every defense of the TPP. And that a failure to think through the ISDS provisions. I oppose those so strongly that I will never vote for another Democratic president if they become law. It is not just weird for Obama to push this. It’s insane. He is showing no value for the rule of law in this country. A good (mainstream oriented) overview of these problems is in the New Yorker. I will not repeat it here. I would be curious if Mr. Frankel has the stomach to go through the New Yorker piece and in detail refute the criticisms of the TPP.
The movement toward a New World Order began over 100 years ago. (See Carroll Quigley’s Tragedy and Hope.) The ultimate goal is supranational global government. This is documented so many places there can be no question about it. A supranational government necessitates stripping away all national sovereignty. As sovereignty goes, so goes individual liberty. The history of civilizations for 7000 years is overwhelming evidence that the end point will be tyranny.
The American middle-class, Russia, Iran, and China are the main remaining obstacles. This is why America is deliberately being dumbed down educationally and diluted by illegal immigration. (See Charlotte Iserbyt, Deliberate Dumbing Down of America.) The explanatory power of this top down view is immense. That immensity is eye opening. The key domestic and foreign events of the past century are consistent with this overarching view like no other. None of the wars or other key events like assassinations or 9/11 were by coincidence. Take the sequence of coups and wars of the past two decades. NATO destruction of Yugoslavia was about this. The destruction of the intensely sovereign nations of Iraq, Libya, and now Syria were about this. One by one they fell. The Ukraine is about this. Observe the ongoing propaganda campaign by the West, and its sanctions against Russia. This is a de facto tightening of the noose around the nation that sits astride the Eurasian landmass – Russia. It is well-known that to dominate the globe, Eurasia must be dominated. The politics of Europe are about this. Monetary union already achieved, next must be fiscal union. Were this to become reality, the sovereignty of the euro nations would vanish into the black hole of unelected bureaucracy in Brussels. At virtually any cost, the NWO cannot permit the eurozone project to unravel. Hence the intense drama between Greece and the troika now reaching crescendo. It is not that the loss of tiny Greece would materially matter. It is that the citizens of Spain or Italy or Portugal may awaken and opt to follow Greece. Let us call this a theory. Its test is in its predictive ability. One easy prediction is that the most obstinately sovereign of the “Stans” situated south and east of Russia will be the next targeted. What will happen to Assad is a foregone conclusion.
The lobbying for these new megatrade agreements is a poster child of the NWO push for global dominance. It gathered steam with NAFTA. The day NAFTA took effect, the US merchandise trade deficit stood at 1.9% of GDP. A decade later it was 4.7%. This gargantuan move had the ongoing consequences of hollowing out American manufacturing and eviscerating middle-class jobs. (The NWO has from the first engaged in piece-at-a-time tactics to achieve its long-haul strategy.) Any ideology will use the materials at hand to achieve its ends. Ricardian comparative advantage is ready-made theoretical justification. Ricardian theory possesses much valuable insight and content. But what is less well known is that it is dependent on a dozen critical assumptions. Most are hidden. The theory itself says nothing about the distribution of the gains. More to the point is its static nature. The real world is nothing if not dynamic, which should give full pause to blindly accepting textbook free trade without examining each case on its own merits.
One of the most powerful statistical correlations I’ve ever uncovered is between the merchandise trade deficit and joblessness. With astounding accuracy, knowing the trade deficit ratio going into a recession foretells the extent of joblessness coming out. Joblessness is here defined as the number of months it takes payroll employment to get back to its pre-recession peak. Because the 2008 recession was of a different nature than others since the Depression, this time joblessness extended even further beyond the record amount that the 2007:4 deficit already predicted. The CEAs early-2009 unemployment predictions were risible knowing this. Joblessness and wage suppression are hallmarks of this weakest recovery in US history. The trade deficit is absolutely causal, though by no means the only causal force. The burden of debt and need to deleverage gets a nod for causality as well.
This is the real story of the TPP and TIIP as viewed from the top, which perforce encompasses more than economics. This is why all the secrecy. (What is secrecy on economic issues in a free society all about anyway? It is about some narrow interest group surreptitiously and deceitfully reaching for goals that the broad public would have no part of if they knew the truth. Same with Obamacare, which however noble the intent was cobbled together in the dark of night.) The extent of corruption of both political parties is laid bare by these goings on. Strange bedfellows on this trade issue, President Obama and the Republican Congress. The flipover came about because RINOs are the party of big business. Global multinationals will be by far the main beneficiaries of TPP and TIIP. The broad American public not. This will result in further consolidation of wealth and power precisely in line with the NWO’s goal of concentrating power supranationally. At the same time, the TPP further erodes Americans’ say over what happens domestically, just like death by a thousand knives acquiescence to the UN. The academic seat of the NWO is Oxford and Harvard. The quasi-political seat is the Council on Foreign Relations and its British counterpart. The CFR staffs US government at the highest levels in vast disproportion to the huge pool of other qualified contenders. All to move the NWO project forward step by step. Americans are ignorant of this because of media blackout. From its inception in 1921, the CFR is on record unequivocally for global government. (See James Perloff, The Shadows of Power: The Council on Foreign Relations and the American Decline.) Trade has been and remains a major tactical instrument in their drive toward global dominance.
JBH: I am disappointed. Where are the Masons? And the Illuminati? And the Trilateral Commission…
Sarcasm, ridicule, the not-so-subtle put-down. Straight out of the Alinsky playbook …
no jbh, just a response to commentary that purports to have magical insight into the functionality of the world, and can see clearly the invisible rainmakers and their destructive plans. you give too much credibility to the “opposition”. the “truth” is out there, and apparently you found it along with scully and mulder.
i am not saying that bad players do not exist. but you seem to have a worldview where all of the bad players are operating in collusion. not realistic.
JBH,
Yes, there’s plenty of corruption on both sides of the political aisle, but it’s a big mistake to think that both sides are equally corrupt. By and large today’s Democrats in Congress are more concerned about the lower economic classes than the Republicans. That wasn’t always true (see for example the Reconstruction era), but it is true today. Today’s Republicans are far more sympathetic to lobbyists representing rent-seeking clients than are Democrats. It’s not Democrats who are the political friends of Big Pharma or Wall Street or Big Ag or Big Defense. Democrats are sympathetic to Hollywood studios, but so are Republicans.
What I find so amazing about your posts is the sheer cognitive dissonance. You write these long rants about how politicians are in bed with big business, yada, yada, yada; but time and again you end up defending the very politicians who are the worst offenders. Gov. Walker is no friend of the weak and powerless. Gov. Brownback’s policies couldn’t be any friendlier to the very kinds of conspiratorial actors that you wrote about in your recent post. You seem to long for the days of the Gilded Age.
2slugbaits,
My posts are hardly categorized by cognitive dissonance. I am open-minded enough, however, to go back and check. To my disappointment, the search engine no longer brings up the history of individual comments. My judgment is you read only the surface. So when the substance of a comment of mine aligns with someone whose policies you oppose, you mark that against me. Whereas my comments are as foundational as I can make them given the constraint of time and space. Let’s get the truth out and let the chips fall where they may. JFK made mistakes. But he was on the right track. Reagan made mistakes. But he was on the right track. All other presidents back to Coolidge were on the wrong track. There is no dissonance nor favoritism here. Other than my passion for liberty, truth, and a better standard of living for the common man. More specifically those who are willing to work, as all of us on this earth must, unless we coerce others via government.
Prof. Frankel,
To be honest, I haven’t been following the TPP debate all that closely…it’s kind of pointless since we don’t know all the details yet. But my sense is that the transparency issue is kind of a side issue. Given our dysfunctional politics and idiotic Congress, there probably isn’t any alternative to “fast track” approaches. We see the same kind of thing with the BRAC process for closing military bases. The concern is that, like the BRAC process, it’s shot through with corruption and rent-seeking. While I do trust President Obama infinitely more than the morons elected to Congress, I’m not quite sure that I trust the folks that are negotiating the TPP anymore than I trust the folks who submit the BRAC recommendations to the BRAC commissioners (and if you’ve ever talked with former BRAC commissioners off-the-record they will tell you how corrupt the whole thing really is). But alas, we have to live in the real world and that means accepting crappy approaches like TPP because there aren’t any practical alternatives. And I think most people get that. So the real issue isn’t transparency per se. Transparency is just code meaning that only corrupt lobbyists are making rent-seeking deals that will hurt ordinary people. That fear may or may not be justified, which is why it’s up to economists to explain the real pro’s and con’s of the TPP because it’s pretty clear that politicians cannot do so and shouldn’t be trusted in any event. For example, I supported NAFTA, but the Clinton Administration oversold its benefits and falsely marketed it as a jobs program. The potential welfare gains from TPP might be positive, but the magnitude is likely to be small. And people want to know how those welfare gains will be distributed. The stuff we hear about suggests too much emphasis on ridiculous copyright, patent and intellectual property protections suggest that the welfare gains will be skewed towards the “haves” rather than the “have nots.” How many hundreds of pages does it really take to lower tariffs? So clearly free trade is only a small piece of TPP. Most of the hundreds of pages are all about ways to short-circuit free trade and carve out local monopolies. Economists should be talking about the distribution effects and rent-seeking effects of TPP rather than the Ricardian fairy tale about wine and cloth. How many of those hundreds of pages in the TPP will address distributional issues for those hurt by TPP? Economists can’t just leave the welfare gain triangle on the blackboard as a theoretical abstraction. Economists should be suggesting ways to make sure elites and lobbyists do not capture all of the welfare gains from TPP.
To 2slugbaits,
Thank you for your thoughtful comment/questions.
(1) The example of the base-closing commission (BRAC) is indeed a pretty good illustration of the advantages of keeping Congress out of the details of a process that is liable to political abuse, but of course letting them vote -up-or-down to preserve the principle of democracy. Even if the BRAC process might have had some political flaws, as I think you recognize its recommendations of which military bases to close were a far better outcome than if congressmen had been left completely free to horse-trade. I believe the same is true with TPA,
(2) You seem less concerned about the process than most critics are, and concerned instead about the trade agreements that are likely to come out. I am interested in your sentence “I supported NAFTA, but the Clinton Administration oversold its benefits and falsely marketed it as a jobs program.” There is some truth to this. But I have two responses:
(i)Trade economists believe that the benefits from trade show up over time in per capita income, more than in employment; trade helps deliver better jobs, rather than more jobs. I have always said this myself. Even when I was a political appointee in the Clinton Administration, I carefully avoided language like “trade causes more jobs to be created.” But there is a reason why all officials in the policy realm (leaving aside a few academic economists at the CEA, who have some rare speech privileges) decide to speak the language of job creation or job destruction: that is all anyone in the political sphere wants to hear about, regardless whether they are left, right, middle, the press, whoever. I will give you an illustration. In May I took the bold step of writing a Project Syndicate column that defended the economic benefits of these trade agreements while specifically explaining that the benefits do not come primarily from more jobs but rather from better jobs (http://www.project-syndicate.org/commentary/us-should-ratify-tpp-by-jeffrey-frankel-2015-05). So far as I can tell from the comments, nobody understood my point; two of the commentators actually seemed to think that I must be arguing that TPA/TPP would create more jobs (because I was supporting the agreements, I suppose), I suppose the fault must lie in my writing; but these points are really hard to explain to people outside of economics.
(ii) More importantly: The six years after NAFTA went into effect in 1994 achieved the longest period of economic expansion in US history. It was the only period in the last four decades when real wages strongly rose, median real family incomes rose, poverty went down, unemployment fell sharply even among minorities, etc. I am not saying that NAFTA caused all that (though it may have contributed just a little). But the critics all write as if the period following NAFTA’s implementation was a period that was unusually bad for workers. I don’t see enough people checking the facts of 1995-2000.
JF
JF
The treaty is more about non-tariff barriers, they can be fairly complex to remove. Getting multiple parties to agree the equivalence of their regulatory procedures and safety standards is rather complex. Having a set of common standards lowers business costs substantially as you only have to get one set of approvals rather than many.