Not changing minds on TPP

by Henry on May 19, 2015

I’m writing a longer post on economists and the TPP for the Monkey Cage, and perhaps another post about the idea of “mood affiliation” for here (short version – I don’t think it at all does what its advocates want it to do) but in the meantime, a specific response to this post by Tyler Cowen. Tyler, partly perhaps as a result of an argument I had with him and Noah Smith on Twitter, argues that:

I’m familiar with studies showing estimated economic gains from TPP in the neighborhood of $1.9 trillion (pdf). Given the past performance of trade models, I am willing to believe that might be an overestimate. So let’s cut those gains roughly in half to say a trillion. (That said, if I understand the Peterson document correctly, they are not even trying to incorporate gains from reallocation on the production side, as might result from comparative advantage or dynamic specialization; in this sense $1 trillion may be a considerable underestimate of the upside.) That is still a sizable sum of economic gain. What would convince me to oppose TPP if is somebody did a study showing the following: when you use a better trade model, use better data, and/or add in the neglected costs of TPP (which are real), those gains go away and indeed become negative.

This is fundamentally the wrong way to think about these models. If as Tyler accepts, thinking about TPP primarily in Ricardian terms is likely to lead one ‘substantially astray,’ then starting from a Ricardian model and stipulating that you’ll lower the expected benefits by half to give your opponents a bit of a leg up, is fallacious. Specifically, it’s a weaker version of the Iraq war fallacy that Daniel identified in his 1 minute MBA.

Fibbers’ forecasts are worthless. Case after miserable case after bloody case we went through, I tell you, all of which had this moral. Not only that people who want a project will tend to make inaccurate projections about the possible outcomes of that project, but about the futility of attempts to “shade” downward a fundamentally dishonest set of predictions. If you have doubts about the integrity of a forecaster, you can’t use their forecasts at all. Not even as a “starting point”.

This isn’t to say that the Peterson Institute model that Tyler is working from is “fundamentally dishonest.” Although Alan Beattie notes that Peterson used to be “notorious for claiming trade deals would create thousands of jobs, cure scrofula and turn base metals into gold,” he accepts that they’ve gotten better under Adam Posen, (also, in fairness to the pre-Posen regime, this). But it’s highly problematic as a starting point for debate. As Jared Bernstein describes the results of the Peterson model in email conversation: “Only in DC-style econ would a number like 0.4% by 2025, derived from a model of a 29-chapter trade agreement that the modelers never saw, be taken seriously (Remember, we can’t accurately forecast monthly jobs numbers—yet we can somehow tell you to count on a miniscule change to GDP 10 years hence).”

I’ll have more to say about these issues in a follow up post. For now, just this. If you’re trying to build theoretical argument, you can reasonably ask someone to provide you with a better theory before you abandon your own. However, if you’re trying to advocate for a policy measure, and you accept that your preferred model is likely to lead people substantially astray, you don’t have any very good warrant for suggesting that this model should still anchor policy debate in lieu of someone coming up with a better one. Far better to admit ignorance (while berating the ignorance of your opponents as you like) and to accept that everyone’s views on the policy (including your own) are likely more the product of political values than dispositive evidence.

{ 87 comments }

1

Sandwichman 05.19.15 at 7:54 pm

“This isn’t to say that the Peterson Institute model that Tyler is working from is ‘fundamentally dishonest.'”

Fine, then. THIS is to say the Peterson Institute model is fundamentally dishonest. Every word of it. Including ‘and’ and ‘the’.

2

christian_h 05.19.15 at 8:03 pm

The use of the large number “trillion” as opposed to a relative change in GDP is all I need to see to ignore Cowen on this. Because it is only that use of a large absolute number that makes the reduction “by half” seem somehow generous rather than both completely arbitrary and an avoidance of the actual uncertainty in the models, which is much larger – in fact, much larger than the predicted relative impact on GDP.

3

SamChevre 05.19.15 at 8:07 pm

Remember, we can’t accurately forecast monthly jobs numbers—yet we can somehow tell you to count on a miniscule change to GDP 10 years hence

But that’s absolutely typical of models of complex systems–from fluid dynamics all the way to global climate models: the overall impact is predictable, even if the details aren’t. (That criticism sounds like the brother to “they can’t tell me whether it’s going to rain a month from now, how can they say anything about the global climate in 2030”.)

4

infovore 05.19.15 at 8:10 pm

Remember, we can’t accurately forecast monthly jobs numbers—yet we can somehow tell you to count on a miniscule change to GDP 10 years hence.

On the other hand, we can’t accurately forecast the weather a month in advance—yet we can with some accuracy forecast the climate 10 years hence.

In other words, I don’t think that this kind of forecast in inherently absurd. But to make such a forecast the details of the treaty matter.

derived from a model of a 29-chapter trade agreement that the modelers never saw

And that’s where any forecast turns into so much garbage: it can at best be based on educated guesses about what is in the treaty, and will at worst just be derived from whatever assumptions are baked into the forecaster’s ideology.

5

Sandwichman 05.19.15 at 8:15 pm

“that’s absolutely typical of models of complex systems–from fluid dynamics all the way to global climate models: the overall impact is predictable, even if the details aren’t…”

Except in this case we are not talking about “models of a complex systems.” We are talking about arithmetical (“mathy”) exercises using assumptions totally untethered to any coherent definition of the quantities being estimated.

6

Sandwichman 05.19.15 at 8:33 pm

“it can at best be based on educated guesses about what is in the treaty…”

And even that’s assuming there is a coherent definition of economic growth, which there isn’t. See Simon Kuznets’s 1947 Journal of Economic History article, “Measurement of Economic Growth,” for a discussion of the difficulties involved in DEFINING and MEASURING growth (let alone projecting it). “Growth theory” gets around these profound difficulties by simple assuming that they can be disregarded at least “for the time being” (which eventually stretches out into forever).

But the real secret is the marvelous device called the “built-in mechanism” that ensures that labor and natural resources will appear when and where they are needed and won’t be exhausted because that trusty built in mechanism will “turn off consumption gradually and in advance.”

Models that rely on hypothetical but unspecified or fantastical “built-in mechanisms” are not “models of complex systems”.

See “Denial, Then and Now”

http://econospeak.blogspot.com/2015/05/denial-then-and-now-is-end-of-world-at.html

7

TM 05.19.15 at 8:43 pm

Since Ricardo was mentioned: As Herman Daly and others have shown a long time ago, Ricardo’s theory of comparative advantage requires the assumption that capital mobility is negligent (i. e. the capital in which the comparative advantage is incorproated stays put within national borders). When that assumption doesn’t hold, genuine comparative advantage disappears and what remains is simply wage competition. That is an indisputable argument from within classical economics completely refuting Cowen’s claims.

8

The Raven 05.19.15 at 9:36 pm

The Peterson International Economics Institute? Peterson is a bloody loon! He’s an advocate of abolishing Social Security, cutting the debt, etc., etc., etc. Though the PIIE has some respectable researchers, they’re mostly a purveyor of right-wing junk economics, and they’ve been wrong a lot more than they’ve been right.

Seriously, why is this work treated as anything other than propaganda?

9

Sandwichman 05.19.15 at 9:42 pm

Seriously, why is Tyler Cowen treated as anything other than a Tyerd Clowen?

10

Omega Centauri 05.19.15 at 9:59 pm

What Sam and infovore said:

For many systems you can compute the incremental effects of a perturbation to the system (in this case the trade agreement) better than the actual trajectory of the system. Thats very much the case with climate, we can fairly accurately calculate the size of the change in the planet’s energy balance, even if we cannot determine the details of its trajectory through time.

So the issue, is whether the data and theory that go into the computation of the perturbation make sense.

11

Sandwichman 05.19.15 at 10:14 pm

“So the issue, is whether the data and theory that go into the computation of the perturbation make sense.”

They don’t. See the Kuznets, reference above. See my blog post on denial, also referenced above. If there was a “built-in mechanism” it would require increasing amounts of energy to run it as the system became larger and more complex. Eventually all the available energy would be required to operate the built-in, self-adjusting economic system mechanism.

I love the haphazardness of the metaphor, too. Built-in implies that it was constructed. Mechanism implies that it is reversible. Not enough trees? No problem! We’ll just de-manufacture some from old wooden furniture.

12

Tom 05.19.15 at 10:26 pm

Some thoughts:

a) the Peterson Institute model is designed to basically include only the benefits of trade agreements. The economic costs of trade agreements can only come from trade diversion. The authors try to estimate the labor adjustment costs and they claim that they are minuscule compared to the benefits; but, still, the 1.9 trillion figure is gross of those adjustment costs. There is nothing necessarily wrong with the model per se but the results based on the model provide only one input of the cost-benefit analysis, not all of them. It is like reporting the effects of a medical treatment without really assembling info about collateral effects. One should be clear about this. Those who just use the PI model to proclaim victory and go home are either unaware of the literature or in bad faith.

b) I really wish we abolished the “trade deal” misnomer. We may as well call it IP deal or investor protection deal etc.

c) I have checked briefly who are the economists who came out in favor of the TPP. Posen, Cowen, Smith Krueger, Mankiw etc.: none of them is a trade economist while some are more properly considered bloggers. Still, it is true that, except Krugman (a trade economist), very few economists have so far come up against TPP.

d) As always, Rodrik is worth reading. Josh Bivens had a nice post too.

13

Jeremiah 05.19.15 at 11:00 pm

We know that a trade liberalization will lead to lower prices and greater volumes of traded goods.

Except when it doesn’t.

Apropos of which an interesting piece of research:

http://www.sdhingra.com/importing.pdf

14

Prison Rodeo 05.19.15 at 11:28 pm

Another key nugget of wisdom from One-Minute MBA is this:

“Good ideas do not need lots of lies told about them in order to gain public acceptance.”

Apparently, the lawyers haven’t heard this adage:

http://efila.org/wp-content/uploads/2015/05/EFILA_in_response_to_the-criticism_of_ISDS_final_draft.pdf

(I know ISDS is only part of TPP, but it’s an important and highly controversial part, and obviously one EFILA thinks is worth writing 40+ dense pages about).

15

Bruce Wilder 05.20.15 at 12:16 am

Tom: very few economists have so far come up against TPP

But, if economists as a profession are incompetent and corrupt boobies, then . . .

16

Sandwichman 05.20.15 at 12:44 am

“if economists as a profession are incompetent and corrupt boobies…”

Don’t you think that’s a little harsh on our blue-footed friends, Bruce?

17

john c. halasz 05.20.15 at 12:49 am

As always: Google Translate comes through with perfect, word-salad accuracy:

http://www.seathos.org/tag/blue-footed-booby/

18

john c. halasz 05.20.15 at 12:51 am

Oh, for non-Americans, perhaps, the allusion was to “Be Kind to our Web-footed Friends”.

19

Sandwichman 05.20.15 at 1:26 am

Are you for the TPP OR WOULD YOU SEE THE TERRORISTS WIN?

What Top Officials Charged with Keeping Our Nation Safe Are Saying About the TPP
White House.gov Blog Feed by Tanya Somanader 4:46 pm
It is certainly true that America’s trade policy plays a large role in the resurgence and strength of our economy – but that’s not the only role it fills. Our trade policy also sits at the core of our strategy to keep America and our allies safe in the 21st century.

So here’s the question: How can the President’s progressive trade deal — the Trans-Pacific Partnership — help safeguard our future?

Tour of @Boeing factory was particularly special for me — my Dad was a pilot/flying has been in my family for years pic.twitter.com/U7QmoGlnLz

— John Kerry (@JohnKerry) May 19, 2015

Speaking today at Boeing Headquarters in Seattle, WA, America’s top diplomat — Secretary of State John Kerry — offered this answer:

“It is no secret that the world in the future looks pretty complicated right now. The turbulence that we see comes from a combination of factors, including the fact that even as the world grows closer, there are powerful forces pulling people apart – terrorism, extreme nationalism, conflicts over resources, a huge number of people coming of age in parts of the world where there simply aren’t enough jobs. This creates a race between opportunity and frustration that we can’t afford to lose.

Expanded trade can help us win that race by spurring innovation and – and as we’ve seen in Asia and elsewhere – helping hundreds of millions of people to lift themselves out of poverty. And poverty, my friends, is where you see much of this violent extremism born.

20

Tom 05.20.15 at 1:43 am

Bruce and others: I am an economist and I won’t comment on the profession’s incompetence and corruption. I just want to note that, while I like sardines, I did not attract my mate by flaunting my feet.

More seriously, I was just noting that even using the literature on the subject – and so implicitly assuming that that literature is not tainted by the incompetence and/or corruption of the profession – one need not come in favor of TPP.

21

Bruce Wilder 05.20.15 at 5:11 am

I was once an economist, too, and I breathed thru my nostrils.

In a sociological sense, economists are the professionals, who are supposed to study and understand the public interest in trade policy, and instruct the rest of us, so that democracy might govern the state in the pursuit of public purposes. I don’t think the profession holds itself to much of a standard, intellectually or ethically, when it exploits its ritual “expertise” for private gain at public expense in mathy propaganda props, like the Peterson Institute’s “model” and cannot muster more than a handful of critical voices in opposition.

Tyler Cowen claims he would change his mind, if a better, comprehensive policy study summed the costs and benefits to a large, negative number. (Personally, I think he would change his mind when a Koch brother paid him to, and not before, but put that aside.) But, he has a point: there needs to be a better counter-argument, and there isn’t. Not on this specific policy, certainly. But, I will venture, not in general, either. There’s no reason to credit the accuracy — if that’s even the right word for a Peterson Institute hackjob — of a forecast, when economists do not have either a theory or method, sufficient to do an equivalent backcast. Where’s the analysis of the role of trade in American economic development over the last 30 years? The brilliant exposition of how NAFTA has bolstered wages and median income? The devastation of Detroit, Akron and the rustbelt that accompanied the housing bubble? (You know, the housing bubble that so many conservative economists denied and so many mainstream economists ignored.)

Tyler asks if such a counter-argument could survive an NBER conference — I seriously doubt it. If finding out that raising the minimum wage could increase employment brings on a night of long knives, imagine the reaction, if someone challenged Ricardo’s comparative advantage argument. Many economists seem to regard that argument as sacred. I think it is why economists like Noah Smith feel confident arguing in favor of a trade agreement without even knowing the provisions — trade good; more trade better is deeply ingrained on a primitive level.

Tom makes the perfectly valid point that the TPP features an array of provisions regarding investor protections from economic regulation by the state and intellectual property, which are tangential at best to the ideal of Ricardian “free trade”. It is a cliche to say that countries have long engaged in “managed trade”. So, why aren’t the outlines of a theory of managed trade part of college pedagogy in economics?

You cannot have a political debate with fibbers’s forecasts on one side and faint slogans on the other and hope good sense will muddle thru unguided and untutored. It may be polite to treat the fibbers’s forecast as suffering from methodological shortcomings, while overlooking the fibbers’s character. Is it effective?

22

Anderson 05.20.15 at 8:21 am

Wait – so Cowen is not a risible hack?

What next? A CT post on McArdle’s TPP misapprehensions?

23

reason 05.20.15 at 8:40 am

Sandwichman @19
“And poverty, my friends, is where you see much of this violent extremism born.”

Actually it isn’t.

24

Ebenezer Scrooge 05.20.15 at 10:28 am

What is this trade agreement of which you all speak? TPP is an IP agreement. (Okay, with a bit of trade.) And as we all know, too much IP can be welfare-destroying. Indeed, with patents, it is pretty easy to argue that any IP is welfare-destroying, except in pharma. Pharma IP is better than no special incentives, but better incentives for innovation probably exist.

25

reason 05.20.15 at 10:45 am

Ebenezer Scrooge @24
I see no reason for thinking of pharma as a special case.

26

Dan Kervick 05.20.15 at 11:43 am

To whom will those economic gains accrue?

US society is already dangerously unbalanced economically, socially and politically. If a trillion dollars in gains go to the top 10% of the society, and a net minus (or even a small plus) accrues to the bottom 90%, that only makes the balance problem worse and does not make the US a stronger society. A net GDP gain, even a sizable one that – implausibly – raises all boats, does not automatically equal a net value gain, since there are many and various forms of value that GDP does not measure. Some of these have to do with the health and integrity of the social contract, the dignity and efficacy of democratic self-government, the economic bargaining power of the least advantaged members of society and the intangible but very real hope and confidence that come from living in a society in which one has not been consigned to a lower caste from which there is no escape.

There are other values in play as well, most of which economists have no viable techniques for measuring. And if they did come up with such techniques, nobody should trust them – since in most of the areas, economists are, in the words of the great Walter Sobchak, out of their element.

Globally, TPP will probably accelerate the regulatory race to the bottom: the most people-hostile, business-friendly countries will acquire enhanced power to set the regulatory agenda. TPP will also increase the power of corporations and organized private capital, and decrease the power of representative governments. This is precisely opposite from the direction in which we should be going. But is a direction that a lot of economists probably heart, since hatred of representative government and fascination with the cold, authoritarian efficiency of capital seems to be woven into the moral and intellectual DNA of the economics community generally.

TPP will make it easier and less risky for US-based capital to establish manufacturing subsidiaries offshore, and export more jobs. We’re still waiting for the creative destroyers who love this aspect of capitalism, and who think entirely in terms of crude, measurable aggregates, to clean up the colossal messes they have made in the Rust Belt and the other derelict communities and classes that are only some of the rotten fruits of the free, poorly regulated and poorly planned flow of capital.

27

ifthethunderdontgetya™³²®© 05.20.15 at 12:26 pm

Dean Baker is an economist.

The BS Storm is Coming on Trade Deals
~

28

Ronan(rf) 05.20.15 at 1:49 pm

I like the point in the OP that on policy everyones views are:

“the product of political values [rather] than dispositive evidence.”

And was going to launch into a jeremiad about it, but decided against it as it would be too uninformed and tedious.

Going from this though:

http://nautil.us/issue/24/error/the-trouble-with-scientists

I’ll ask a few questions instead.
How far do ideological priors and value judgements skew research (rather than policy advice) in the social sciences (I’ll leave out natural sciences as it will lead to too much defensiveness)? My impression is that most peoples intellectual priors are built in by the second year of grad school, and most of what follows (in ones career) is just making more or less interesting/convincing arguments in support of their ideological preferences and values ? Is this too strong a statement ? And following from that, what do all those other factors that implictly skew research, (ie social/tribal pressures, a naturally limited set of tools/models (obtained early in someones career), professional socialisation etc) mean about the relevance of research for policy purposes, or research in general ? I assume most of this is meant to come out in the wash, but does it ?
(Obviously, I know social scientists(economists included) are clearly aware of all of this, it’s just rarely if ever acknowledged by their public personas. Instead what we get is ‘show me the evidence’ , and evidence selected to suit their argument.)
I guess all that leads to, what should be the experts role in policy debate ? (Don’t get me wrong, I think expert engagement in public debate is great, especially for those of us with an interest in but without the ability/drive to learn a subject in such detail. But I’m starting to wonder is it all really mostly just ideology, motivated reasoning and tribalism?)

29

TM 05.20.15 at 2:15 pm

Of course Cowen is a nakedly partisan hack who shouldn’t be dignified with a CT thread. But of you want to have fun with him, just ask him what the precise causal mechanism is that is supposed to result in trillions in “economic gains” (*). Any climate scientist who couldn’t explain the causal mechanisms behind their models would be worthless. But economists can get away with any BS in the media and that is the real problem.

(*) If Cowen responds comparative advantage, he demonstrates his ignorance of economics as Ricardo’s model works only under the assumption of capital immobility.

30

Peter Dorman 05.20.15 at 3:26 pm

In response to TM (7, 29): No, capital mobility is not a problem for trade theory, and Herman Daly was embarrassingly wrong on this. Ricardo’s assumptions in the early 19th century are irrelevant: open up any mainstream textbook on modern trade theory and you will see at least a chapter and probably more on models with capital flows.

This particular error has been harmful for the movement against neoliberal “trade” agreements. Daly’s prestige was apparently strong enough that activists with no direct knowledge of the topic started repeating the mantra that economics was wrong on trade because their models assumed that capital would never cross borders. This served to convince those who had studied economics that the alter-globalizationists were a bunch of ignorant crazies. In my experience, those who reacted that way included a large swath of academics in the social sciences (not just economists), journalists and other “thought leaders”. I won’t say that this was decisive in the larger scheme of things (it obviously wasn’t), but it was a costly unforced error.

The irony is that, as Joan Robinson point out decades ago, the problem is that the “capital account” is something of a misnomer, and economists are too prone to attribute trade imbalances to capital allocation decisions.

31

Earwig 05.20.15 at 4:21 pm

“These ‘trade’ deals have little to do with reducing trade barriers, since these are already low, with few exceptions. They are mostly about imposing a corporate friendly regulatory structure that would never pass through the U.S. Congress or democratically elected bodies in other countries.”

“But if people don’t really know what is in these packages and actually can be convinced that they will lead to more jobs and higher wages, then it may be possible to jam them through Congress. This is the explanation for the Ignatius piece and many more to come. Make sure you have a good umbrella.”

Telling it like it is, from ifthethunderdontgetya™³²®©’s link.

The dead giveaway is the pretense that it’s a trade agreement. It isn’t.

Of course the jobs projections are bullsh-t. And the folks who want this agreement don’t want it for its supposed impact on jobs.

Naturally the GDP projections are bullsh-t. The folks who want this deal don’t want it for some vague (and tiny!) boost to GDP.

Two kinds of ‘believers’ for this: One is predisposed by our national religion (free markets!, trade!) to want to swallow such bullsh-t, the other is the pundit class paid to convince others to swallow it.

32

Roger Gathmann 05.20.15 at 4:24 pm

Unfortunately, you don’t get to pick your opponents. Tyler Cowen seems like a tool to me, but when a tool gets space in the NYT, you have to deal with him. So I am happy CT is throwing bricks at Cowen’s claim, because it is going to pop up as the DC conventional wisdom to push this terrible treaty down our throats.
Just wait. It will become the “Saddam Hussein was behind 9/11” of this push.

33

Dr. Hilarius 05.20.15 at 5:09 pm

The San Francisco Chronicle covers the likely repeal of place-of-origin labeling of meat due to it running afoul of NAFTA. The WTO ruled on Monday that labeling meat as to country of origin was a restraint on trade and is expected to authorize retaliatory measures.

Tuna labeled “dolphin safe?” Products advertised as not being produced by sweat-shop labor? These agreements are a regulatory race to the bottom.

34

Bruce Wilder 05.20.15 at 5:19 pm

Roger Gathmann @ 32

Obviously, someone picks Tyler. The NY Times among them. Left neoliberals love Tyler. Brad DeLong and Noah Smith can’t get enough of him.

35

Bruce Wilder 05.20.15 at 5:28 pm

Peter Dorman @ 30

It’s in the text books? Really?!

Ricardo’s comparative advantage is in the textbooks, too. And, no student ever comes away understanding it. That’s the root problem. Not some glibness from Daly.

An economics no one understands and which does not explain much of what people can casually observe is a serious problem, because it sets up people to
1) regard economics as esoteric and opaque
2) expect economic experts to make counterintuitive claims backed by arguments no one understands.

Counterintuitive claims backed by arguments no one understands may be indistinguishable from lies.

36

fledermaus 05.20.15 at 6:10 pm

“Tuna labeled “dolphin safe?” Products advertised as not being produced by sweat-shop labor? These agreements are a regulatory race to the bottom.”

Bingo. I’m kind of surprised by the radio silence on this WTO ruling. Kinda puts lie to Obama’s claim that we won’t have to change our laws due to TPP and the ISDS. Even the GOP could get on-board with opposing these sorts of tribunals if you tell them that they can no longer have US raised beef, but will have to take their chances on mystery meat.

37

MPAVictoria 05.20.15 at 6:35 pm

The very idea that accurate labeling requirements are an illegal infringement on trade is insane.

38

john c. halasz 05.20.15 at 7:07 pm

Peter Dorman @30:

I’m not sure why capital account is a misnomer; it’s simply the mirror image obverse of the current account. And while it is true that imports/exports of capital equipment and intermediate goods are not much different from FDI, it was unrestricted, unregulated flows of finance capital that Keynes focused on as the danger and sought to remedy with his Bretton Woods proposals. Without some such system to regulate often sheerly speculative and short-term financial flows, then the disruptive and predatory pathologies of globalized trade will likely swamp the virtues of any comparative advantage effects. (And the doctrine of comparative advantage does operate with fixed and static endowments, not to mention full employment assumptions, and doesn’t really address the sequential “inter-temporal” effects, as various countries move up- or-down- the value-added chain, in this high-tech age with strategic “new trade” theory. Nor does it necessarily say anything about how the increased economic surplus it would realize would be distributed between and within countries, only that each country would reap some portion of the gain).

And the gains to “an increased division of labor, limited only by the extent of the market” carry as their obverse an increase in oligopolistic concentration and “competition”, shifted to an international level. MNC production platforming, (which I think goes together with the hypertrophied financial sector and especially the explosive growth in financial derivatives, as a means to manage the risks of such globalized operations), amount to arbitrage strategies with respect to currencies, wages, taxes and regulations that weaken the capacities of notionally sovereign (and at least potentially democratic) governments to select and implement their own policies in response to the needs and interests of their own people, in favor of the extra-territorial “rights” of capital. While the vast volume of financial flows, where the gross astronomically exceeds the net, has made nonsense of any notion of “equlibrium” FX rates, leading experts such as Obstfeld to through up their hands in futility, announcing the meaninglessness of annual current account and NIIP figures.

It’s too late to reverse the global “integration” of the economy, since production supply chains are now too firmly embedded in it. The horses have left the barn and are in the next county by now. Old fashioned protectionism and any of its traditional justifications amount to shutting the barn door after the horse have fled. But it’s notable how economists simply denounce any opposition to “free trade agreements” as simplistic appeals to old fashioned protectionism, (without acknowledging that there once might have been merits to such policies), while themselves appealing irrelevantly to the old fashioned comparative advantage argument, when tariffs are already minimal and any further gains to trade along such lines correspondingly negligible, while the gains-from-trade as a source of growth were always exaggerated, (compared to, say, tabooed fiscal policies). Only a mind as supercilious, shallow and conformist as Obama’s could think the TPP a “signature” achievement. The doubling-down on failed neo-liberal policy regimes after the GFC has revealed their essential bankruptcy.

It’s my view that global current account imbalances were a prime causal factor in the GFC. The claim of the “Washington Consensus”, (with whatever admixture of self-delusion and bad faith), was that global “liberalization” of trade would lead to increased investment and growth in the “developing world” and “emerging markets”, due to the relative scarcity and thus higher returns to capital there. Yet the U.S. ended up running current account deficits of 6% in 2006 and 2007, maybe 1.2% of total global output, which means it was importing an identical amount of capital. (Latvia, a postage stamp sized country and thus irrelevant to the world at large, ran a current account deficit of 23% those 2 years. Who among the Latvian officials or the Swedish bankers financing them thought that was a good idea?). It’s true that capitalist “market” economies contain “built-in” equilibriating adjustment mechanisms. But the problem is they might well be equlibriating fundamental underlying disequilibria. There’s something very screwy in such a global “architecture” that economists, doubling down on their theories, don’t seem to lay a finger on.

39

john c. halasz 05.20.15 at 7:30 pm

@37:

The expression “to buy a pig in a poke” goes back to the Middle Ages, referring to the practice of wrapping a piglet or perhaps some other inferior meat such as a dog in a bag, so that the customer wouldn’t realize the swindle. The equivalent expression in French is “acheter un chat en poche”, to buy a cat in bag, with “poche” being the apparent source of the obsolete word “poke”. Plus ca change, plus c’est la meme chose.

40

Jeff R. 05.20.15 at 7:37 pm

@39: I thought that you wanted to buy the pig in the poke; that pork was the superior meat that you’d think you were buying so long as the seller didn’t let the cat out of the bag prematurely.

41

Plume 05.20.15 at 7:39 pm

“Free trade” and our various trade deals are basically all about capital protection, profit protection, protection for higher executive comp, and they radically weaken labor to boot. There are no longer any significant barriers to global trade, so the various NAFTAs et al are just using that as an excuse to further exploit labor and the environment, and even their protestations to the contrary seem half-hearted. I think they realize that anyone paying attention sees this.

I read conservatives blasting Obama constantly for his supposed anti-business biases. In reality, there have been very few presidents who have been more business-friendly, and the TPP is yet another bit of proof. After all the posing on both sides of the aisle, this will be signed into law, because both parties want it. Both parties are shills for the folks who stand to benefit greatly from yet another profit protection scheme. That leaves workers, consumers and the health of the planet out of the mix.

42

Colin Danby 05.20.15 at 8:11 pm

The paper Cowen points to (http://www.iie.com/publications/pb/pb12-16.pdf) not only incorporates capital mobility, but indeed gets much of its postulated TPP benefits *from* capital mobility!

Cowen has not troubled to be clear in his arguments and so while I think Henry is getting him wrong, it’s pointless to try to figure that part out. I will point out that “Ricardian” can be used in roughly the way “Newtonian” or Darwinian” often are, to indicate classes of effects or arguments. “Ricardian” does not necessarily mean that someone is cranking all their results out of a primitive one-factor model, which the authors Cowen draws on most emphatically are not doing. (Tom @12 has good points about that paper.)

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Peter Dorman 05.20.15 at 8:21 pm

JCH @39: For some reason, whenever I point out the Daly fallacy, people assume I’ve swallowed the trade theory kool-aid whole. No. See the chapter on trade in my macro textbook, for instance. In the case of the TPP, however, trade theory is not even at issue.

What JR meant about the capital account is that, in a “true” Keynesian model of the determinants of trade and current/capital account positions, net trade in the aggregate and even at the micro level would be determined endogenously with national income for trading countries, and all would vary together. The capital account position of a country is not determined by a separable subset of savings and investment decisions (what the world “capital” implies), but by the interaction of all relevant factors, in which the decision of what to purchase on the current account is not separate from how to finance it (i.e. credit as well as income). This envisions a deep critique of standard trade theory, one which still waits to be developed. I sketched the broad contours of this my Challenge article from a decade ago, “Low Savings or a High Trade Deficit: Which Tail Is Wagging Which?”

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TM 05.20.15 at 9:39 pm

PD: all standard text book examples (going back to Ricardo with his wine/textile example) tacitly assume capital immobility. Why don’t they come up with realistic examples that actually work? Because there aren’t any.

More importantly, where are the empirical validations of the trade theories you are talking about incorporating capital flows? If you compare Daly’s with Cowen’s predictions of the actual results of trade liberalization with capital mobility, who is closer to the truth?

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TM 05.20.15 at 10:04 pm

One more thing. Your condescension for Daly and those who are convinced by his argument remind me of Krugman’s infamously and embarrassingly condescending article (http://web.mit.edu/krugman/www/ricardo.htm), which really should be read more widely, in which he claims for example that full employment is a reasonable assumption in the trade models supporting comparative advantage. Maybe economists have in the meantime convinced themselves that these assumptions cited by Krugman also are not really necessary. Here’s a question: what are, in your view, the conditions that must be met for the theory of comparative advantage – a mathematical theory, as Krugman reminds us – to hold? The answer (Krugman doesn’t even attempt one) cannot be none. If trade theory is a scientific theory, there must be a definite answer to the question I posed. It is possible that different sets of conditions are sufficient but there must be conditions.

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Peter Dorman 05.20.15 at 10:10 pm

TM: I don’t want to get into an e-tiff. (1) No, the trade textbooks don’t assume capital immobility. Look at Salvatore, to take one prominent example. Can you cite a trade textbook that *does* assume capital immobility throughout? (2) Read what I wrote to JCH. I am not an apologist for “vulgar” trade theory. I am not Krugman either, for better or worse. Pointing out a flawed argument about X does not mean you accept Y. FWIW, I absolutely agree that the endogeneity of employment is a big part of the story.

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John Quiggin 05.20.15 at 10:17 pm

In my experience, Australian economists are almost uniformly hostile to bilateral trade deals and dubious at best wrt regional deals like TPP.

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john c. halasz 05.20.15 at 10:30 pm

Peter Dorman @43:

I didn’t mean to implied that you had swallowed the mainstream orthodoxy on trade. (Given what I’ve read of yours, it would surprise me, if you did). The part that was specifically addressed to you was the bit about Robinson’s objection to the term “capital account”, since it is just an accounting identity (or whatever one should call the same thing with opposite math signs) and doesn’t imply any “causal mechanism”. But I thank you for your informative response. For the rest, I was just speaking for myself. But even if H. Daly made a crude simplistic error, that doesn’t mean that a) more “sophisticated” criticisms can’t be brought to bear along the same lines and b) that standard mainstream invocations of “comparative advantage” aren’t equally crude and simplistic. Which was part of the point I was trying to make. Comparative advantage is a logically sound argument. (Though it’s worth noting that Ricardo made it in a specific historical context and with a specifically partisan intent). As such, it’s reasonable to think that such effects exist. But it is not a timeless and unconditional “truth”, as it is presented to the public (and treated among economists, even if qualified, as a badge of tribal loyalty). And, of course, there are other effects of trade that might countervail and even swamp such tendencies.

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Colin Danby 05.20.15 at 10:30 pm

Yep. Might make TM’s head explode, but here’s Jagdish Bhagwati criticizing TPP: http://werewolf.co.nz/2012/11/tpp-head-first-into-the-spaghetti-bowl/

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Roger Gathmann 05.20.15 at 10:42 pm

43:|” In the case of the TPP, however, trade theory is not even at issue.” Yes yes yes. To get into a conversation about free trade, here, is to be lured into the desert of red herrings, where all the losing causes go to die. No, this is a straightforward power play on the Intellectual Monopoly and De-regulatory front. That is all there is to it. What can’t be squeezed out of democracies that are already dominated by cash will be enforced by a higher level – which, of course, we have to submit to. A higher level that would, for instance, try George Bush and Cheney at the Hague would be laughable – it would never happen.
The first and last thing to say about the TPP is that it is not about free trade, except as a sidecar.

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DavidMoz 05.20.15 at 11:09 pm

John Quiggin: “In my experience, Australian economists are almost uniformly hostile to bilateral trade deals and dubious at best wrt regional deals like TPP.”

I’d respond that they are both remarkably silent (publicly) and remarkably ineffectual, if your statement is accurate.

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Ram 05.21.15 at 3:01 am

Something to keep in mind:

http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_d68906VNWqVmiGN

Distinguished economists overwhelmingly agree that (1) fast-track increases the likelihood of trade deals coming to pass, and (2) past trade deals have benefited most Americans. Countless surveys show the universality of these views in the profession, including specialists in the economics of international trade.

There is nothing irrational or necessarily mistaken about opposing TPP, of course. TPP may not be like past trade deals in some respects. One may have political-philosophical disagreements with mainstream economists that render their welfare assessments incomplete. And of course, one may disagree with the underlying reasons why economists hold these views.

Still, the case for TPP is not some analysis produced by the Peterson Institute. The case is that (1) TPP is likely to resemble past trade deals in numerous respects, (2) those past deals have benefited most Americans, and most importantly (3) those past deals have enormously benefited foreigners (who ought to count for something, surely).

If you want to see the arguments for (2) and (3), don’t look at one analysis by one think tank–look at the entire literature on this topic, which includes thousands upon thousands of analyses by countless extremely smart and disinterested people who have studied the issues very carefully. Engage that literature–don’t trivialize it by calling it “a Ricardian model”. You may find that many of the arguments you find compelling on these topics have been considered and been critiqued into oblivion by economist after economist. Again, you can disagree, but make an academically respectable argument, or cite one that lays out its argument clearly so we can see whether it has already been answered by the literature.

Notice that Krugman doesn’t do this, probably due to his familiarity with this literature. Instead he questions (1), suggesting TPP is not like past trade deals, ones he has supported time and again. Maybe so, but saying that TPP is “about” IP, is a non-sequitur. TPP, like any policy, will be about a lot of things. Among other things, it will be about liberalizing international trade. What elements of typical international trade deals will TPP leave out? We don’t know, since TPP is not a finalized policy yet, but we have a long history of presidents negotiating trade deals, and Obama has indicated his intention to pursue a similar sort of deal, and this suggests TPP will, in many respects, resemble past deals, even if it includes some new, more dubious elements. So Tyler’s question is very much on point: what do you think TPP will include and why? What do you disagree with about any number of analyses suggesting the conventional elements would be beneficial? And can you give us an argument for estimating costs for the dubious elements exceeding these benefits that doesn’t pass the laugh test? The silence on this from the TPP critics is striking.

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john c. halasz 05.21.15 at 5:11 am

@52 appeals to “the literature”, which, of course, no one has actually read in its entirety, nor is it clear why anyone should want to, (as it’s likely not of any consistent quality, nor consensus and riddled with sheer philistinism). It then appeals to the poll of economists, when it is the composition of that very profession and especially their expertise in determining “social welfare” that is partly in question, (given their huge predictive failures), and why they should be accorded privileged public-political authority. And then there is the claim that economists are “extremely smart and disinterested people” and the claim that critics are “silent” about “estimating costs”, (which is perhaps more a wish than a fact).

IOW @52 is sheerly an “argument from authority”.

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John Quiggin 05.21.15 at 5:59 am

“I’d respond that they are both remarkably silent (publicly) and remarkably ineffectual, if your statement is accurate.”

Both responses are true, sadly. Lots of academic economists have marginalised themselves through an exclusive focus on esoteric journal articles, and the rest have largely been marginalised by media preference for more easily accessible bank “economists”.

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ZM 05.21.15 at 6:03 am

I already mentioned this on another threat but I think the TPP sections that require giving up sovereignty would be unconstitutional. apparently Australia did not sign up to these though.

And in terms of environment and public health I think the government is obliged to act to protect these.

I went to a talk on the weekend and even the Liberal Party MP (or senator?) there thought government had a role in health which was important – her main difference of opinion was on policy as she thought community based policies were best, an academic there thought legislation , and then the ngo representative from Stephanie Alexander’s kitchen garden foundation said the Liberal government had cut its funding but should be supporting community based measures like that to be consistent with its community based policy principles.

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c 05.21.15 at 11:04 am

@52 a couple of things:

1 as john halasz wrote there is a strong appeal to authority in your post. I don’t think mainstream economists on average have earned the status of being taken as a reliable authority. Some of the individual economists on that list should rather be distrusted.
2 ” past trade deals have benefited most Americans.”
That is still compatible with these other claims
– past trade deals having harmful effects to the worst off 10% of the population.
– doing a different trade deal that cuts out some stuff (IP fluffing; investor protections; …) and add some other things (e.g. much more cooperation against tax evasion activities) would be much better for most Americans.

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c 05.21.15 at 11:21 am

In related news:

http://www.commondreams.org/news/2015/05/20/tpp-could-undermine-health-web-say-250-tech-companies-and-digital-rights-groups
“More than 250 tech companies and digital rights organizations on Wednesday sent a joint letter to Congress, blasting the corporate-backed trade deal they say “actively silences the voices of Internet users, start-ups, and small tech companies…while undermining the health of the entire Web.”

“The letter (embedded below)—whose signatories include AVG Technologies, DreamHost, Namecheap, Mediafire, Imgur, Internet Archive, BoingBoing, Piwik, Private Internet Access, and more than 200 others—calls on Congress to come out against Fast Track, or Trade Promotion Authority, which they say “legitimizes” the secret process under which mammoth trade pacts are negotiated.”

“The Fast Track…process actively silences the voices of Internet users, start-ups, and small tech companies while giving the biggest players even more power to set policy that benefits a few select companies while undermining the health of the entire Web,” said Evan Greer, campaign director of the digital rights group Fight for the Future.”

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Earwig 05.21.15 at 12:23 pm

The case: “Overall” there will be net benefit.

(Which will accrue, overall, to those who, overall, own things, overall.)

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None 05.21.15 at 1:10 pm

Ram@52 – “don’t trivialize it by calling it “a Ricardian model””

You may want to take this up with Greg Mankiw. He went so far as to write an op-ed on Ricardo while proselytizing for the TPP.

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Ram 05.21.15 at 1:25 pm

@53: Yes, it was an argument from authority, also known as deferring to the experts. My point is precisely that none of us commenting on this topic are well-read in the trade economics literature, hence it is presumptuous to make claims that this literature can summarily be dismissed. We can either defer to the consensus of those who are well-read in this literature, or we can, you know, do our homework. I prefer to defer to the experts on topics about which I’m not myself an expert, or if the relevant authorities disagree on the subject, to remain agnostic. Here, however, is a topic where the uniformity of opinion among experts is remarkable.

@56: Yes, not everyone agrees that mainstream economics deserves the kind of deference we give to, say, natural scientists. When economists say, I have a model which says “X”, I’m usually not convinced by that either. But the trade literature is full of theoretical work (models), data analysis and interpretation, and policy studies. The judgment that trade deals have been beneficial in the past isn’t based on one model that says “X”, it is based on the judgment of people who have studied all of these ideas and information extensively, in a way that non-experts in general have not.

As to your second point, I conceded that one may philosophically differ from economists, by for example weighting the interests of the least well-off Americans far more than the rest of Americans, and the rest of the world. Fair enough, but then what’s all the business about TPP not really being about trade, or TPP being a raw deal for the middle class, etc. etc.? Those are empirical claims, and they can be evaluated, and I don’t think it looks good. You don’t make those claims, perhaps, but then I suppose my comment wasn’t addressed to you.

And yes, we should always critique policy in hopes that better policies will come in their place. However, trade deals are notoriously hard to make happen without giving presidents a free hand to negotiate, and when presidents have done so in the past, we’ve tended to get a certain kind of deal. So the relevant question is: is it likely to be a good deal or a bad deal? I can see why it would be a good deal (see all past trade deals), and I can see that it might have bad aspects (eeek, IP protection!), but I haven’t see a serious effort to balance the cost/benefit ledger.

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Ram 05.21.15 at 1:34 pm

@59: The claim that the consensus of the trade economics literature is not reducible to “a Ricardian model” is different from the claim that the Ricardian model isn’t useful. Unfortunately, most people who opine on trade don’t seem to even understand the basic Ricardian model, so it is hard to even get the discussion off the ground. See, e.g., this classic article by Krugman:

http://web.mit.edu/krugman/www/ricardo.htm

Mankiw, like many economists discussing trade in public, emphasizes Ricardo because most readers of the NY Times probably do not understand the notion of comparative advantage. Even if Ricardo is not everything economists have to say about trade, it is hard to have an intelligent discussion without having that basic background. For those, like Henry, who seem to understand but reject the Ricardo argument, they shouldn’t be engaging with Mankiw when he’s writing for a general audience, they should be engaging with trade economists writing for other trade economists.

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TM 05.21.15 at 2:15 pm

PD 46: I haven’t said that the text books explicitly assume capital immobility. That is part of the point, that the assumption is implicit but hardly ever explicitly discussed and justified. I have said that the standard textbook examples – usually variants of Ricardo’s original thought experiment – clearly would fall apart under unlimited capital mobility (you haven’t said whether you disagree, if you do I’d be curious why). These examples, and not the mathematical formalism, are what is used to convince people of the theory of comparative advantage. As jch said above, if Daly’s argument is crude and informal, so is almost all of the pro-trade rhetoric yet we rarely hear those supposedly sophisticated economists you are referring to in 30 (“those who had studied economics”) make the same kind of condescending noises about the shallowness of the pro-trade discourse.

Instead of more back and forth, I think it would really be enlightening if you could answer my question from above: can you give us a statement of the assumptions underlying the mathematical theory of comparative advantage? As Krugman says:
“Both comparative advantage and natural selection are ideas grounded, at base, in mathematical models — simple models that can be stated without actually writing down any equations, but mathematical models all the same.” Surely you can give us a statement of this “simple model”?

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None 05.21.15 at 2:31 pm

Ram@60 – “Yes, it was an argument from authority, also known as deferring to the experts.”

Excellent. Which is why I am content to accept Krugman’s assertion that the TPP is about IP over the word of an anonymous internet lobbyist. One who’s self-confessed his ignorance I might add, and is relying on common debating tropes instead – “My point is precisely that none of us commenting on this topic are well-read in the trade economics literature”. Correct, you do appear less well read on the lit than the regulars on here.

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Colin Danby 05.21.15 at 3:22 pm

TM: Where are you getting these claims? Have you ever actually looked at a textbook in international econ? The ones I have learned from or taught from are explicit about the assumptions on which the simple Ricardian model rests, and then move to models with less restrictive assumptions, including mobile capital.

Why are you pestering Peter for stuff that’s so readily available? Here is the first google hit, a standard textbook exposition of the model. Note the discussion of assumptions. http://internationalecon.com/Trade/Tch40/Tch40.php

There *are* important critiques to be made of the model, the way it gets taught, and the way it gets deployed in argument.

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C 05.21.15 at 3:30 pm

What None said. Also this :

A difference thus time is the larger IP content and big consequences for the future of Internet. Internet is arguably of crucial importance in all domains of society and will only grow in importance. Few economy trade experts (if even that; their track record the last 30 years is to advise policies that most of all enrich the 1‰ ) are at the same time tech experts och experts on the social and democratic functions of the Internet and their structural underpinnings. I will out of principle oppose any attempt to massively regulate such things through a secret process. There is too much at stake.

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TM 05.21.15 at 4:02 pm

Thanks Colin, this is helpful. Have you noticed that the statement of the model you link to assumes not capital immobility but actually that “there is no capital needed for production”? Is that supposed to refute Daly’s critique? Wow. I’m speechless.

The following discussion (from the overview) is instructive. I am grateful that this textbook is explicit about assumptions and admits that they are highly unrealistic (which in introductory text books is not usually the case). And yet the following discussion is utterly illogical and completely defeats Krugman’s claim that comparative advantage is a scientific theory like natural selection.

From the Suranovic text book (emphasis added): With so many unrealistic assumptions it is difficult for some people to accept the conclusions of the model with any confidence, especially when so many of the results are counterintuitive. Indeed one of the most difficult aspects of economic analysis is how to interpret the conclusions of models. Models are, by their nature, simplifications of the real world and thus all economic models contain unrealistic assumptions. Therefore, to dismiss the results of economic analysis on the basis of unrealistic assumptions means that one must dismiss all insights contained within the entire economics discipline. Surely, this is not practical or realistic. Economic models in general and the Ricardian model in particular do contain insights that most likely carry over to the more complex real world . The following story is meant to explain some of the insights within the theory of comparative advantage by placing the model into a more familiar setting. (And the story then is of the kind that I criticized above).

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Colin Danby 05.21.15 at 6:55 pm

TM: “Have you noticed that the statement of the model you link to assumes not capital immobility but actually that “there is no capital needed for production”? “

You cannot learn this model without understanding that it is a one-factor model. See my reference @42 re ” a primitive one-factor model.” It is taught as a one-factor model (I have taught it for many years, may God forgive me). I’m failing to understand why you think this is some kind of discovery.

This particular two-good/two-country/one-factor/constant-returns model is a propaedeutic, an exercise for starting to clarify one’s thinking. It also helps develop the *concept* of comparative advantage, which can usefully be used in other contexts. An education in mathematics, for example, typically starts with simple operations on positive integers but doesn’t end there. Again, part of the weirdness of this discussion is that trade theory is a vast sea of different models with different assumptions, including models with mobile capital, and you can talk about Ricardian effects or mechanisms in other models.

Unfortunately poor dead David Ricardo has become a shibboleth. As numerous folks including Krugman have pointed out, the merits of TPP actually have rather little to do with comparative advantage.

Daly? In addition to conflating all of trade theory with a two-good/two-country/one-factor/constant-returns model, and in addition to sharing your touching belief that pointing out the most obvious features of a model is a bold critique, he goes on to write (http://steadystate.org/growth-and-free-trade-brain-dead-dogmas-still-kicking-hard/)

“But in today’s world capital is even more mobile between countries than goods, so it is absolute, not comparative advantage that really governs specialization and trade.”

Notice, please, Daly’s rapid movement between a discussion of the properties of a model and a conclusion “so it is” about how things actually are “in today’s world.” You are right to criticize Suranovic’s hand-waving argument that orthodox economics must be true because it exists! But if you are going to call *that* illogical, and if you are going to refuse the claim that these models have insight into the real world (a totally coherent position), then what do you call it when someone does some clumsy tinkering with those same models, and claims to have produced insight into the world?

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TM 05.21.15 at 8:56 pm

I’m getting tired of this. PD asked in 46: “No, the trade textbooks don’t assume capital immobility. Look at Salvatore, to take one prominent example. Can you cite a trade textbook that *does* assume capital immobility throughout?”

The text book you Colin linked to explicitly makes assumptions that are even more restrictive than capital immobility! Ricardo himself opted to stress capital immobility rather than omitting it altogether because clearly he thought that ignoring capital would be ridiculous and nobody would buy such an obviously flawed theory – so Ricardo deserves credit for trying to be a tad more realistic than modern economists!

Conclusion: Question answered, yes text books do make these – highly unrealistic – assumptions. So what is your point? That everybody already knew the model is primitive? Great and how is that an argument in its favor? Is Daly wrong to criticize the model because one cannot expect it to be anything other than primitive? Or are you saying that real trade theory is not encapsulated in the comparative advantage model? But that is the model that the text book gives, and contrary to your claim it doesn’t give any less restrictive version of comparative advantage. That according to the text book IS comparative advantage, take it or leave it (and I quoted above at full length what the text book has to say to justify the unrealism of the model – it’s frankly depressing. And Mankiw and the likes are making the case for trade being universally beneficial by appealing to Ricardo and comparative advantage. But those who criticize him are the ones guilty of ignorance. Yeah very convincing.

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Ram 05.21.15 at 9:01 pm

@63: I guess if you support TPP, you’re a lobbyist. Even if you’re merely unimpressed with the critiques of TPP, you’re a lobbyist. OK, then. And I guess if you admit you’re not a trade economist, then you’re an ignorant lobbyist, while if you comment favorably on TPP on a blog, anonymously or not, you are a trade economist? OK, then. Maybe this isn’t the best forum for adults to reason through their disagreements as I had assumed.

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Ram 05.21.15 at 9:02 pm

^ “comment favorably” should say “comment unfavorably”

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TM 05.21.15 at 9:04 pm

Finally, the last few lines of your comment are really fascinating. For one thing, I am NOT rejecting “the claim that these models have insight into the real world”. What I’m saying (and I believe Daly is saying) is that any claim based on the models can only be valid insofar as the assumptions are met or at least not too far from reality. And sometimes without doubt that is the case. It just isn’t always the case. A model explicitly premised on capital immobility (and as shown above and contrary to PD and you, the model, as taught in standard text books does make that assumption, or even more restrictive ones) cannot shed much light on a globalized economy in which capital is highly mobile. The appeal of comparative advantage has always been that it is a “mathematically proven theorem”, not just a heuristic that is sometimes useful. That is why this debate is not nitpicking but highly relevant.

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Billikin 05.21.15 at 9:33 pm

SamChevre: “But that’s absolutely typical of models of complex systems–from fluid dynamics all the way to global climate models: the overall impact is predictable, even if the details aren’t.”

To within an error of 0.4% after 10 years????? And we really want an error at least one order of magnitude less than our prediction, don’t we? I.e., an error of 0.04%. You’ve got to be kidding.

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Ben 05.21.15 at 9:41 pm

I can see why it would be a good deal (see all past trade deals)

lulz

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Nathan W 05.21.15 at 9:43 pm

Come ON now, is there any disagreement that when you have to compete in a larger market that there is not a forceful drive where every company has to do better or the ability to allocate resources flowing from demand/purchases will be directed towards some other company.

Competition is real.

But only a few critiques are needed to place the net gain in doubt. First, there is learning by doing, and in part due to comparative advantage, some countries might find their economies stuck in a situation where their exports are low value added and their imports are high value added and they cannot enjoy the same gains from trade as other countries. Second, unchecked markets have time and time again shown their proclivity towards monopoly, and in the absence of effective intergovernmental cooperation and regulation, it is easy to imagine monopolistic or oligopolistic situations arising over time.

Is that enough to create the “reasonable doubt”?

In each specific trade deal, it should be possible to take inventory of specific costs and benefits in different industries. Aggregate modelling will too easily be subject to arbitrary or poorly motivated parameters, etc.

Finally, if it were such a good deal, then why can’t they tell us enough about it for potential opponents to be able to raise their concerns? The democratic deficit in the deal is in my mind sufficient cause to oppose it regardless of any supposed economic gains which may be expected.

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Nathan W 05.21.15 at 9:43 pm

From a puritan-like sort of view I agree with you and wish people all the best luck in the world in trying to get good answers in this so we can make informed choices, but in the real world I think big decisions often have to be made on the back of incomplete and even poorly aligned research, where leaders will have to make bold assumptions like “let’s say it’s half as big, because we know these are the pro-yes guys making the estimate”.

It’s not a generally good method because if it could be half as much, well, then, couldn’t it be the opposite direction even?

But in this case there is so much orthodoxy about the general benefits of trade with respect to production, prices, innovation, etc., it doesn’t strike me as such a crazy idea to start with the assumption, so long as it’s clearly arbitrary and is not portrayed to be founded by deep thought, that “let’s say it’s half as much”.

To get a good accounting of the costs, more transparency to potential opponents of the deal would be needed .

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Billikin 05.21.15 at 10:49 pm

Ronan(rf): “My impression is that most peoples intellectual priors are built in by the second year of grad school, and most of what follows (in ones career) is just making more or less interesting/convincing arguments in support of their ideological preferences and values ? Is this too strong a statement ?”

For scientists, yes. Scientists are trained to do their best to demolish their own arguments, to murder their darlings. That does not mean that they do not become dogmatic, like everybody else. But not until they have undergone their ordeals.

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Colin Danby 05.21.15 at 11:08 pm

TM: ” contrary to PD and you, the model, as taught in standard text books does make that assumption, or even more restrictive ones”

Has either of us denied the obvious truth that the Ricardian cloth-wine model is a one-factor model? Or denied any of its other assumptions? Note also Peter’s “throughout.” Textbooks have more than one chapter, usually.

Possibly, TM, your truculent confusion stems from conflating “comparative advantage” as a concept with a particular model that’s useful for elucidating it. Possibly you think trade theory is coextensive with comparative advantage. I can’t tell. Maybe someone else can have a more productive chat with you!

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john c. halasz 05.22.15 at 12:39 am

So what this tiff amounts to is that H. Daly was precisely wrong, but broadly or maybe just vaguely right. IOW his “criticism” of the prevailing international trade regime lacks adequate specification in terms of the “correct” models, even if there is some prima facie relevance as to what he is gesturing at. (Kaldor, for instance, long ago, pointed out, with a specified model, how countries with a concentrated, high value-added industrial sector would be advantaged in term-if-trade over countries which specialized in low value-added raw materials exports. And financial crises due to unregulated financial flows are hardly new; the difference with the GFC is that it originated and struck at the center rather than the periphery). So, yes, maybe he has failed to make his case, in terms of congeries of precisely specified models. But then the goods or ends that he seeks are also different that the goods or ends embedded in conventional economics, a “steady state”, no growth environmentally sustainable economy, rather than growth, expressed in GDP terms, as “full employment” and the continuing accumulation of “wealth”, (or the maintenance of debt). So there is something of an unreflective argument across a chasm here. Now I happen to think that a transition to an energy-and-resource efficient, thus environmentally sustainable economy is indeterminate with respect to GDP growth, (since GDP is a flow measure and it is the transformation of the treatment of stocks, “wealth”, that is the end-in-view), such that no growth or “de-growth” is not the immediate, nor ultimate objective. But the marginalization of Daly on purely formal grounds, rather than addressing the substantive issues, is all too typical of the contemptuous way that “mainstream” economists operate.

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eddie 05.22.15 at 12:17 pm

Modern day court astrologers.

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Earwig 05.22.15 at 12:30 pm

But Nathan, whether the deal is beneficial or not is hardly a standard for evaluating it.

One would at a minimum, if one were serious, want to know “For whom is it beneficial,” “Are there groups for whom it will not be beneficial,” “What are the compositions of these groups experiencing different projected outcomes from the deal?”

Instead, what we hear is: “Oh it’s just going to be a rising tide like these deals always are.” And so we stick to the charade of debating — admittedly with no data at all — the question of how much the tide will rise.

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Barry 05.22.15 at 2:16 pm

Nathan: “It’s not a generally good method because if it could be half as much, well, then, couldn’t it be the opposite direction even?”

First, those estimates are made by people who have every incentive to lie in favor of forecasting greater gains. Every f*ing assumption in there will be pushed in one direction and one direction only.

Second, see the quote from Daniel, in the original post.

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TM 05.22.15 at 4:35 pm

Colin 77: “your truculent confusion stems from conflating “comparative advantage” as a concept with a particular model that’s useful for elucidating it.”

That is a really interesting statement. Why don’t you pontificate about the confusion of economists like Krugman instead of pestering me for using the term model in exactly the way that everybody else uses it:

“Both comparative advantage and natural selection are ideas grounded, at base, in mathematical models — simple models that can be stated without actually writing down any equations, but mathematical models all the same.” (Krugman, http://web.mit.edu/krugman/www/ricardo.htm). Several times now I have asked you and Dorman for a statement of the model behind the idea and you Colin in lieu of an answer pointed to a text book which in every respect confirms what I have said. Either you show me a better model – one that incorporates capital mobility while still supporting comparative advantage – or, frankly, you shut up.

“Has either of us denied the obvious truth that the Ricardian cloth-wine model is a one-factor model?” You have said that Daly is a fool for saying that comparative advantage doesn’t take capital mobility into account. Yet the only statement /model of comparative advantage that either of you so far has provided does exactly what Daly said it did – it doesn’t take capital mobility into account (in addition to other flaws, of course).

“Textbooks have more than one chapter, usually.” Enough hand-waving. So far you have referenced the chapters that support my claims. Why don’t you show me the chapter that supports your claims.

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Bruce Wilder 05.23.15 at 6:16 am

Far better to admit ignorance (while berating the ignorance of your opponents as you like) and to accept that everyone’s views on the policy (including your own) are likely more the product of political values than dispositive evidence.

So, we are reduced to schoolyard taunts about how ignorant the other guy is?

I do not know what “evidence” would look like here, but surely even the narrowly selfish are acting on some theory, at least partially confirmed in experience? Do we think those lobbying the negotiators are ignorant of the effects of the provisions they press?

Surely, the problem is that the public or general interest is hard to account in balanced proportion.

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john c. halasz 05.23.15 at 6:29 am

@83:

It would be better if you would provide a marker to what you’re responding to, (rather than requiring the chore of finding the exact comment in an otherwise dismal thread).

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Bruce Wilder 05.23.15 at 4:40 pm

I was quoting the original post.

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john c. halasz 05.23.15 at 7:50 pm

Oh, silly me. But it’s been several days, is my excuse. Still perhaps part of Henry’s point is that it is not simply a matter of having some correct and comprehensive value-neutral model, (and it’s doubtful that any such fully predictive model exists, given the predictive record of economists, on trade in particular), but that it is always as much a matter of conflicts in values or ends-in-view, which conditions the choice and application of models. (And that people always at least implicitly have some sort of conceptual model in their heads isn’t a guarantee of any correspondence with reality or even an undistorted grasp of practical experience).

But then the larger scandal is the secrecy in which the proposed agreement is wrapped, which accords with the anti-democratic authoritarianism which is part of the “essence” of neo-liberalism. So no analysis and public evaluation of the distributive and other likely effects of the proposed agreement is possible. Which accords with that other key tenet of neoliberalism, that only Mr. Market, in his infinite complexity, can know anything for sure. Which amounts to agnotology, the deliberate production of ignorance. So maybe the taunting of the presumptuous and pretentious ignorance of the claims of others is in order.

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Bruce Wilder 05.24.15 at 4:11 am

I should have also said that I much admired john c. halasz’s comment @ 38

When I went to college in the 1970s, economics had a voice, confident that logical vetting of economic arguments had genuine value, and confident that economics could identify a general and public interest that ought to be pursued in politics. The hoary doctrine of Ricardian comparative advantage stood as a monument to the task of logically vetting economic arguments: it was the prime example of a valid argument that was important and counter-intuitive, everyone agreed it was valid. The validity of Ricardo’s argument bolstered confidence in a common interest arising from the mutual benefits of productive specialization and trade. That confidence of economics and in economics was neither dogmatic nor brittle; it was well-informed and interested in exceptions and paradoxes.

The economics of trade wasn’t “a sea of trade models”. There was a method, by which valid and invalid arguments could be separated and placed in an ordered mental space. I looked at that on-line textbook Colin Danby linked to (and I realize he wasn’t endorsing it, he was just pulling it off a Google search), and it has a lot of chapters, but what impressed me was just how mind-numbing the narrative was, and how shallow its factual basis. There was little . . . curiosity.

Obviously, my recall is colored, inevitably, by the glow of remembered youth and the idealism of that youth. Everything is best when you are young. And, it helps to be naïve. But, I don’t think it is only that — there’s a real degeneration at work here, in economics and in the political Zeitgeist. (If any felt the lack of evidence for a thesis of degeneration in said Zeitgeist, surely we got it this morning in Belle’s Irritable Gestures!)

Anacyclosis can explain a large part of it. In the early 1970s, economists could point to the Kennedy Round of the GATT, which gave effect to the post-WWII policy of general tariff reduction and trade policy harmonization, with the U.S. playing the Good Hegemon, providing a pax americana, the reserve currency and what would become the reserve consumer market. That archetype has run its substantive course, and the advocates of TPP and its Atlantic twin are running on obsolete, tired rhetoric and an arid political economy.

One easily sustained view is that it is simply not possible to squeeze much “benefit” out of tariff rates that are already very low, so selling this as a trade deal yielding dividends from a similar source, repeating the gains of previous trade deals . . . well, it is just not easy to get big headline numbers that way, as Dean Baker points out in the piece another commenter linked above.

Another sustainable view, I would think, is that the conditions that made the post-WWII order function on a deep level — U.S. as Good Hegemon — are quickly passing away, gone already in reality and gone soon even in memory. The GFC of 2008 marked out the limits of the U.S. as a provider of a reserve currency and a consumer market of last resort. The pax americana is rapidly being sucked into the growing vortex of the Middle East. The crisis of global resource limits, evident in 2007-8 but forgotten, has been peeking out at us at regular intervals ever since, and now assumes its best disguise, cheap oil. With the Euro Crisis in the headlines, one might imagine the potential for deflation and devastating commodity swings would be problems international economics would be urging politicians to solve with clever institutional solutions.

The Good Hegemon is good no more, of course, not only because economic progress has eroded the means, but also because political anacyclosis means U.S. politics has seized up in the gridlock of plutocratic factionalism. An economics of a general and public interest, though hardly a delicate flower, nevertheless can not be expected to thrive in such a hothouse of blinkered greed. Of course, the TPP is negotiated in “secret”, without Congress but with select business leaders and corporations consulted. It reflects an effort to serve factionalized rentiers — given the nature of the interests served, it is not surprising that economists search in vain for benefits. (The effort to create a global IP tax to sustain U.S. finances seems a particularly quixotic tact to me.)

Anyway, this has been my long-winded way of groping toward the notion that the root problem is that the spirit of our time is too little in the spirit of our economics.

Maybe that is the spirit of our times — to shy away from our own peculiar and urgent problems, and an economics that pretends to be timeless and transcendent satisfies that need by further enabling wilful blindness. Still, I’m not willing to say of this “no body knows nothing” and it is all just disagreements over taste in the end.

The world is not a market economy of magic mechanisms that will make any political negligence work out well enough in the end, so we do not need to think about how it works. A politics of jenga, aimed at step-wise dismantlement, will work until it doesn’t. The problem here isn’t a fibbers’s forecast. The overall problem is that we are not thinking about identifying correctly the problems we urgently need to solve.

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