Wake up economists. The TPP is not “free trade”

By Leith van Onselen

The New York Times (NYT)  has published an extraordinarily one-sided article from Gregory Mankiw, a professor of economics at Harvard University, in favour of the Trans-Pacific Partnership (TPP) trade agreement. Let’s take a look:

If Congress were to take an exam in Economics 101, would it pass? We are about to find out.

The issue at hand is whether Congress will give President Obama “fast track” authority to negotiate a trade deal with our trading partners in the Pacific…

Among economists, the issue is a no-brainer….

Economists are famous for disagreeing with one another, and indeed, seminars in economics departments are known for their vociferous debate. But economists reach near unanimity on some topics, including international trade…

The economic argument for free trade dates back to Adam Smith… If economists are so sure about the benefits of free trade, why are the public and their elected representatives often skeptical?…

The Princeton economist Alan Blinder once proposed Murphy’s Law of economic policy: “Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently.”

The debate about international trade is a case in point. In the coming weeks, members of Congress will have an opportunity to prove Mr. Blinder wrong. Let’s hope they take it.

While economists do generally agree that free trade is welfare enhancing, there is one fundamental problem with professor Mankiw’s argument: the TPP would not facilitate freer trade. Rather, it would have the opposite impact.

Going by the intellectual property and investment chapters that have been leaked via WikiLeaks, the TPP would establish a US-style regulatory structure that would hand considerable monopoly-style power to US pharmaceutical and digital firms, limiting choice and raising prices for consumers. It is the very oppositite of the free trade Mankiw advocates.

Included in the draft intellectual property chapter was the proposal to extend patent protection and strengthen monopolies on clinical data. It also flagged the extension of patents for “new forms” of known substances, as well as on new uses on old medicines – an outcome that would lead to “evergreening”, whereby patents can be renewed continuously.

There draft intellectual property chapter also contained clauses to prevent circumvention of technology that restricts products to certain regions – an outcome that would hand greater pricing power to copyright holders at the expense of consumers.

The draft investment chapter, which included an Investor-State Dispute Settlement (ISDS) clause, would also give authority to major corporations to challenge laws made by governments in the national interest in international courts of arbitration, thus increasing their ability to extract monopoly-style rents from taxpayers.

As noted previously, several notable experts have voiced strong opposition to the TPP fearing that it represents grave risks for the global trading system and citizens of countries operating within it.

Former World Trade Organisation (WTO) director-general, Supachai Panitchpakdi, claims the TPP represents a step backwards to the days before the WTO when the US and Europe controlled the global trading system to the detriment of other economies.

Nobel Prize winning economist, Joseph Stiglitz, raised similar fears in an open letter posted late last year, whereby he questioned negotiators’ secrecy and warned about “grave risks on all sorts of topics” posed by the TPP, as well as claiming that it contains “many of the worst features of the worst laws in the TPP countries, making needed reforms extremely difficult if not impossible”.

Paul Krugman, another nobel prize winning economist and trade expert, has also slammed the TPP, noting that it would “increase the ability of certain corporations to assert control over intellectual property [including] drug patents and movie rights”. Krugman also claimed that “there isn’t a compelling case for this deal, from either a global or a national point of view”, and that the “economic case is weak, at best”, with “the push for T.P.P… weirdly out of touch with both economic and political reality”.

Again, far from advancing the cause of ‘free trade’, the TPP would significantly strengthen the pricing power of the powerful US pharmaceutical and digital industries, lessen competition, and worsen outcomes for consumers and taxpayers alike.

The fact that most economists, like Mankiw, cannot recognise the fundamental differences between the TPP and ‘free trade’ is an indictment on the profession.

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Unconventional Economist
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  1. Free trade is bullsh*t. It has become nothing more than a euphemism for maintaining monopoly rents, and resembles nothing of the ideals we learned of in Eco101.

    When people advocate Free Trade, they’re either:
    1) monopolistic parasites
    2) confusing free trade for Competitive Trade

    • “Free trade / Markets” was always a Bernays marketing trick like “freedom and liberty” for women who smoked….

    • I wonder if historians will look back on TPP and identify it as the point where “free trade” jumped-the-shark.

  2. Keen has refuted Mankiw often and on the slam-dunk argument of free trade Mankiw offers, Ha-Joon Chang would not accept it either.

  3. Bill Black also does an excellent take down of Mankiw’s position on the TPP here: http://neweconomicperspectives.org/2015/04/mankiw-mendacity-and-morality-and-his-league-of-failed-economists.html
    One of favourite little snippets from the article: “Mankiw quotes Adam Smith about the virtues of free trade, but Smith warned that allowing CEOs to determine the content of secret deals like TPP “ends in a conspiracy against the public, or in some contrivance to raise prices.” “

  4. If I ever want to run a scam, I’ll think up a title to call something that is intended to mislead, and then market it as that. Even though the objective of the activity is to achieve something completely different.

    So that the below doesn’t appear off topic, I provide it as an example.

    I often think of this in the context of “financial planning”. Why do we go to someone who makes a living from the sale of products largely manufactured by their employer, and expect fearless independent advice? We may need a product that their employer doesn’t even manufacture, or market. Or we may be sold something that we don’t need (like a platform to manage our investment).

    Do we go to used car sales people and expect advice as to whether to buy the car sitting in his front yard, or the guy’s down the road? Or a bike?

    • “…Do we go to used car sales people…”

      Of course we don’t but I do know of some excellent personal transportation consultancies along Parramatta Road who would be quite happy to optimise your transport requirements.

  5. OK let me be certain I’ve got this right.
    Practically every economist in the world agrees that Free Trade is a fantastic idea, everyone profits from this, it’s one of the few things that Economists agree on…OK so if I accept that at face value, it implies that (if TPP is indeed a free trade deal) than practically all economists would agree 100% with the framework, aims, intentions and implementation of TPP. I’m good up to this point but for me this is where the wheels fall off…..
    Why would any deal, with the global support of the entire economics profession, need to be negotiated in secret?

    yep ..for me that’s it…that’s where the wheels fell off.

    • The term Economist is a lot like Capitalist which in turn is a lot like all the denominations in Abrahamic beliefs [approximately 41,000 Christian denominations alone].

      “Philip Mirowski observes that

      The imperatives of the orthodox research programme [of economic science] leave little room for maneuver and less room for originality. … These mandates … Appropriate as many mathematical techniques and metaphorical expressions from contemporary respectable science, primarily physics as possible. … Preserve to the maximum extent possible the attendant nineteenth-century overtones of “natural order” … Deny strenuously that neoclassical theory slavishly imitates physics. … Above all, prevent all rival research programmes from encroaching … by ridiculing all external attempts to appropriate twentieth century physics models. … All theorizing is [in this way] held hostage to nineteenth-century concepts of energy.[179]

      In a series of peer-reviewed journal and conference papers and books published over a period of several decades, John McMurtry[180] has provided extensive criticism of what he terms the “unexamined assumptions and implications [of economics], and their consequent cost to people’s lives.”[181]

      Nassim Nicholas Taleb and Michael Perelman are two additional scholars who criticized conventional or mainstream economics. Taleb opposes most economic theorizing, which in his view suffers acutely from the problem of overuse of Plato’s Theory of Forms, and calls for cancellation of the Nobel Memorial Prize in Economics, saying that the damage from economic theories can be devastating.[182][183] Michael Perelman provides extensive criticism of economics and its assumptions in all his books (and especially his books published from 2000 to date), papers and interviews.

      Despite these concerns, mainstream graduate programs have become increasingly technical and mathematical.”

      Skippy…. Basically just boiled down 17th, 18th and early 19th century sociopolitical mores dressed up as Newtonian empiricism… why [????]… because an honest intellectual debate would eviscerate what really amounts to supernatural claims.

  6. Big corporates don’t want free trade. If so, then why do so many businesses prohibit retailers in the U.S.A from shipping to Australia? Yes, the retailers are happy to sell it to me, but the product makers don’t want them to ship it. That’s because they want me to buy it from Australian retailers who they can make a greater margin on their sales through.

    Think of all the rubbish like region coding, or region blocking of video streaming. You’re happy to pay, but they prohibit you from doing so. Free trade? Yeah right, more like legalised abuse of monopolistic powers.

  7. There was an interesting post on reddit today about VHS cassettes still being sold in USA.

    VHS have become collectibles because the copyright owners don’t see a profit in re-releasing them, and no one dares pirate them, so consequently movies are becoming lost in time.

    It’s strange to think, but it’s possible that these trade agreements may cause a modern day “burning of the books” and a loss of cultural heritage.

  8. David E.H. Smith

    TPP, TTIP, CETA & Global Treaties;
    ‘Schadenfreude’ & the Public; Too ‘Unenlightened’ to Figure out ‘The Global Slight of Mind’ Illusion.

    – David ‘Copper’ Smith

    ‘Fast Tracking’, TPP corp. ‘U.S.’s’ Feeble Attempt to Avoid Court; SHAREHOLDERS & NON Shareholders Await Supreme Court’s Findings to Proceed. ‘But, I didn’t know that that I’d have to pay for it (& somebody else doesn’t)!’

    Using Shareholders’ Meetings to I.D. Toxic Investment Houses, Brokers, Neighbors, In-laws, et al. TPP, TTIP, CETA, et al, Shareholders ‘Personna non Gratus’.
    Global Treaties Not about How Much Trade, but, How to & Who to Trade with and ‘Undermine’ AIIB.

    Corporate America, Wall St., Congress; Deluded, or, Deluding; IGNORAMUS et IGNORABIMUS?
    Just Blame & Punish/Sue Info Deprived Citizens of US, EU, Canada, et al.

    Time to Buy GOLD to Cool off the ‘Stockbrokers’ again?

    Will Individual States Jump at Opportunity to: Refuse, or, ‘Over Charge’ Business Licenses, Raise Targeting State Taxes, ‘Road’ Taxes, etc. to Recoup Global Treaties’ Suits (plus Earn Lucrative ‘Punitive Damages’) from Non Good Corporate Citizens (State non Compliant), Associated/Support Corps., Securities Exchanges, et al?

    How the Global Corporate Economy (w/out BRICS) can Punish Mutual Fund Shareholders (UnProtected), et al, to Reward ‘Preferred’ Shareholders (Protected) & Corporate leaders?

    The limited number of direct beneficiaries of the TPP, TTIP (China -Canada Investment Treaty) & the other global treaties (ie. the global corporate leaders & their ‘preferred’ shareholders), are most desperate to keep from the prying, due diligence eyes of the of the potential global un-preferred shareholders’ & the harmless NON shareholders.

    The fact of the matter is, the flurry of global treaties have very little to do with trade. The treaties are about ‘preferred’ trading partners who are successfully attempting to legitimize for the signatories of the treaty/’Arrangements’, settlements of the TPP’s ‘contrived’ disputes, et al, by enabling the parties to alleged ‘disputes’ to use non adversarial settlements whereby,
    the corporations & preferred shareholders ‘merely’ shift all of their costs from themselves to the harmless NON shareholder & the un-preferred shareholders, ie. the general public/individual taxpayers.

    These costs include the costs of determining:
    1) which harmless non shareholders will have to pay corporations & some SHAREHOLDERS (‘preferred’ SHAREHOLDERS) for the corporations’ ‘mistakes’, contrivances, unrealistic, &/or, any expectations, etc.,
    2) how high (win-fall) the punitive penalties, awards, damages, etc. will be
    without the harmless NON shareholder being represented throughout the determination
    of, not, if the NON shareholders are guilty, but, ‘merely’ how ‘guilty’ the harmless NON shareholders are with no means/opportunity to appeal the decisions by way of the Treaties’ (‘Death-Star-Chamber’) new superseding, cyber jurisdiction Tribunals,
    3) et al.
    Full Article,
    see; davidehsmith.wordpress.com
    Please consider sharing  the enclosed information & questions with 10 friends who will share it with 10 others…