Paul Krugman's Ignorant Assessment Of TPP Shows What A Nefarious Proposal It Is

from the this-is-the-problem dept

Fri, Dec 13th 2013 12:07pm — Mike Masnick

Let me start this post off by saying that I know that Paul Krugman seems to inspire... a certain kind of extreme reaction from some people, whether they support him or not. I don't fully know why this is. I think he's got some interesting insights some of the time, and I think he gets some stuff right and some stuff woefully wrong. But that's kind of true of a lot of people. Either way, I'm hoping that the discussion following this post can focus on the specifics of his discussion about the TPP (Trans Pacific Partnership) agreement, rather than tossing around ad hominems directed at Krugman and/or the reverse of that.

Anyway, it appears that Krugman has decided to discuss the TPP agreement after many of his readers asked him to weigh in. And his response is basically to dismiss the entire agreement as not really being a big deal one way or the other. The entire crux of his analysis can be summed up as: trade between most of the countries in the negotiations are already quite liberalized, so removing a few more trade barriers is unlikely to have much of a consequence. Therefore, the agreement is no big deal and he doesn't get why people are so up in arms over it.

On his basic reasoning, he's correct. There's little trade benefit to be gained here. In fact, some countries have already realized this. But that's why the TPP is so nefarious. It's being pitched as a sort of "free trade deal," and Krugman analyzes it solely on that basis. That's exactly what the USTR would like people to think, and it's part of the reason why they've refused to be even the slightest bit transparent about what's actually in the agreement.

Instead, the TPP has always been a trade liberalization agreement in name only. Sure, there's some of that in there, but it's always been about pushing for regulatory change in other countries around the globe, using trade as the club to get countries to pass laws that US companies like. That's why there's an "IP chapter" that is entirely about building up barriers to trade in a so-called "free trade" agreement. It's why a key component of the bill is the corporate sovereignty provisions, frequently called "investor state dispute settlement" (in order to lull you to sleep, rather than get you angry), which allow companies to sue countries if they pass laws that those companies feel undermine their profits (e.g., if they improve patent laws to reject obvious patents -- leading angry pharmaceutical companies to demand half a billion dollars in lost "expected profits.")

Krugman judging the TPP solely on its net impact on trade is exactly what TPP supporters are hoping will happen, so it's disappointing that he would fall into that trap. Thankfully, economist Dean Baker, who does understand what's really in TPP, was quick to write up a powerful and detailed response to Krugman that is worth reading.

However it is a misunderstanding to see the TPP as being about trade. This is a deal that focuses on changes in regulatory structures to lock in pro-corporate rules. Using a "trade" agreement provides a mechanism to lock in rules that it would be difficult, if not impossible, to get through the normal political process.

To take a couple of examples, our drug patent policy (that's patent protection, as in protectionism) is a seething cesspool of corruption. It increases the amount that we pay for drugs by an order of magnitude and leads to endless tales of corruption. Economic theory predicts that when you raise the price of a product 1000 percent or more above the free market price you will get all forms of illegal and unethical activity from companies pursuing patent rents.

Anyhow, the U.S. and European drug companies face a serious threat in the developing world. If these countries don't enforce patents in the same way as we do, then the drugs that sell for hundreds or thousands of dollars per prescription in the U.S. may sell for $5 or $10 per prescription in the developing world. With drug prices going ever higher, it will be hard to maintain this sort of segmented market. Either people in the U.S. will go to the cheap drugs or the cheap drugs will come here.

For this reason, trade deals like the TPP, in which they hope to eventually incorporate India and other major suppliers of low cost generics, can be very important. The drug companies would like to bring these producers into line and impose high prices everywhere. (Yes, we need to pay for research. And yes, there are far more efficient mechanisms for financing research than government granted patent monopolies.)

Hopefully Krugman can be convinced to rethink his initial analysis after investigating more of what's actually going on with the TPP agreement, and will no longer be fooled into thinking it's actually about trade. Of course, this is part of why the USTR is so secretive. The more they can get people thinking it's about trade, the less they'll realize it's actually about exporting bad regulations to favor a few crony-connected industries.

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Filed Under: dean baker, free trade, paul krugman, tpp, trade, transparency, ustr

23 Comments

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Arsik Vek (profile), 13 Dec 2013 @ 10:40am

Every time I read about these "investor state dispute" clauses, I can't help but think of Shadowrun.
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Anonymous Coward, 13 Dec 2013 @ 12:25pm

The 'efficient mechanisms' link just leads to techdirt's main page, not to any specific story, study, or techdirt article.
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Mike Masnick (profile), 13 Dec 2013 @ 12:40pm

Re:
The 'efficient mechanisms' link just leads to techdirt's main page, not to any specific story, study, or techdirt article.

Fixed. I'll never understand why anyone does relative links on the web. *sigh* Just put in the whole damn URL.
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Oni Baba, 13 Dec 2013 @ 1:13pm

Krugman's analysis really does miss the point. But how he approaches the TPP, or trade agreements in general is very clear. He addresses it from the perspective of his own 1980 work on economic heterogeneity, which attempts to aggregate a full-spectrum of production variables. Although he doesn't really refer to himself, he does reference the work of Marc Melitz who builds on Krugman's early work of heterogenous economic modeling. To say that this is a bean counter's way of approaching the cost of trade would not be an overstatement. This cost that this Krugman-Melitz work aggregates includes labor, shipping, warehousing, resource extraction, import-export market conditions, competition, etc.

Through Marx's terms, one could argue that Krugman represents the commodity fetishist's view of trade, and highlights one of the fundamental flaws with this kind of narrow economic reading of trade. The movement of goods and services are mediated through market exchange and not the social relationships involved with production, exchange and consumption (and we should include waste disposal and containment).

I'm not entirely clear as to whether the Krugman-Melitz accounting of trade can include all the financial packaging of re-insurance schemes, trade in services, financial derivatives and the legal costs that are included with these massive deregulation investment programs. I don't think it does, but I'm happy to be corrected.

Arnie
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out_of_the_blue, 13 Dec 2013 @ 2:07pm

FIrst paragraph failed to gin up ad hom. No one even knows who Krugman is, Mike.
He's got a tiny audience of weenies, born well off money junkies who think that they're then informed on how to exploit laborers. I gather that he's an "economist", so he looms large in your thoughts. But half the four comments so far are on the flawed link, one is some tenuous connection to something else obscure, and one is a weenie who meanders in techno-babble, and that's just about exactly the true measure of how far Krugman influences.
Economics is the non-science of telling fantasies to flatter plutocrats by omitting the real effects on laborers. It's an easy degree path for the lazy but well-off, requiring skill only at unctuous re-writing.

10:07:16[l-50-7]
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Anonymous Coward, 13 Dec 2013 @ 2:18pm

Re:
Krugmans only real conclusion seems to be that the economic effects from almost any modern trade agreement will be minimal and TPP is no exception. It doesn't seem like he has researched TPPs text at all. So in reality he doesn't say anything at all except "I don't care". Not very useful or interesting tbh.
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Michael Jefferson, 13 Dec 2013 @ 2:28pm

Read the TPP? No, that's ignorant. That's poopie work. Blanket and me wanna play.
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Anonymous Coward, 13 Dec 2013 @ 2:39pm

Re: FIrst paragraph failed to gin up ad hom. No one even knows who Krugman is, Mike.
You are nothing but babble.
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Anonymous Coward, 13 Dec 2013 @ 2:43pm

It could be said that Paul Krugman is a major "opinion leader" - a celebrated media darling looked upon as an expert again and again. Making bold assessments and predictions and then backpedaling when he's been proven wrong (in the case of Iraq, disastrously wrong) he just kind of shrugs it off, claims nobody could have known, claims he was misunderstood, etc.. That kind of smug arrogance and strategic amnesia might rile people.

Krugman is not an idiot. Neither is he a dissident. He knows what he needs to say and do to help his career, and therefore throws his weight on the side of the prevailing wind. You see, it never hurts to be wrong as long as you're running with the herd. As a largely pro-establishment, inside-the-beltway commentator, his (current) opinion of TPP is just about as expected.
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toyotabedzrock (profile), 13 Dec 2013 @ 3:06pm

I think the word ignorant should be deleted if you want reasoned discussion. It is enough to state that he is an economics person and not and IP person.

I think your libertarian dislike on his economic viewpoint might have allowed you to boil over a bit.
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ECA (profile), 13 Dec 2013 @ 3:14pm

iM NOT A LAWYER, SO LET ME ASK
OK, this is about Corps being able to file law suits against Countries..AS they are doing to Canada..

BUT, can it be used in REVERSE??
Countries Sue the corps after they TRY to take back patents that have dropped..and the corps try to gain new controls..

Like Adding to the Drug to make it SEEM better, and keeping IP rights..on reformulation, by adding NOTHING?
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Dark Helmet (profile), 13 Dec 2013 @ 3:17pm

Re: FIrst paragraph failed to gin up ad hom. No one even knows who Krugman is, Mike.
What the fuck are you talking about? If you have any mild interest in national politics, Paul Krugman is ALL OVER THE PLACE. Way to prove you're just an uninformed misanthrope, dolt....
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Anonymous Coward, 13 Dec 2013 @ 3:24pm

Re:
Agreed. Although they'd be in a nasty shock if they were to go down that route. They would have to pay to support infrastructure and would lack a public sector to dump their losses on.
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Mike Masnick (profile), 13 Dec 2013 @ 10:55pm

Re:
I think your libertarian dislike on his economic viewpoint might have allowed you to boil over a bit.

Nope. You'd be surprised. My economics are much more aligned with his than you might imagine.

My "ignorant" claim is based on the fact that he is clearly ignorant of what's actually in TPP.
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Anonymous Coward, 14 Dec 2013 @ 1:56am

Re:
Not really. Krugman sticks to what he knows for the most part, and he's generally insightful in that area. But a good number of people consider this particular viewpoint to be somewhat blinkered at times. Times like this, for example.
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Woadan (profile), 14 Dec 2013 @ 6:31am

Mike, I respect both you and Paul Krugman very highly. In your own ways, you both speak to power as it often needs to be spoken to. But in this case, I think you expect an economist like Mr. Krugman to have an axe to grind where you wouldn't expect an economist to have one.
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Scott (profile), 14 Dec 2013 @ 7:23am

Krugman recants
It looks like Krugman has realized that he needs to do a little more homework on the issue. He says as much in todays blog. Looks like Dean Baker and others taking him to task has had a positive result. A lot can be said of Prof. Krugman, but a noteworthy trait is that he is willing to go back and look at things when he is wrong and reevaluate his position. My guess is when he digs deeper he will be mortified at his first position.
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Anonymous Coward, 14 Dec 2013 @ 2:26pm

Re: Krugman recants
I'm sure that Paul Krugman already knew that TPP contained controversial regulatory provisions (acknowledging the "sinister" accusation, as he put it). He downplayed it, as he routinely downplays numerous examples of government corruption and corporate abuse. He might eventually take the position that TPP is a very bad thing, but if so, it's only because he was dragged there kicking and screaming.
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BernardoVerda (profile), 15 Dec 2013 @ 5:51pm

Re: Re: Krugman recants
Are you sure you're not confusing him with Friedman?

They do "share the stage" on the pages of the nytimes, so to speak, but they definitely see things quite differently
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Pragmatic, 16 Dec 2013 @ 6:12am

Re: FIrst paragraph failed to gin up ad hom. No one even knows who Krugman is, Mike.
She's gonna flip back to calling us Commies in 5...4...3...

Uh, Cathy, don't you hate the Commies? Why, then, are you talking like one? You've been doing it a lot lately.
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Pragmatic, 16 Dec 2013 @ 6:18am

Re:
I fail to see how TPP would benefit the economy if only the big multinationals are allowed to set the rules - and have them enforced in their favor. It has long been acknowledged as fact that what's good for the big multinationals is NOT necessarily good for Joe Public.

This is because they have no loyalty to anything or anyone but themselves. They take our money in the form of favors (they made out like bandits in Iraq and Afghanistan) or tax breaks, but what do we get in return? Jobs? Much of those have been outsourced. Don't kid yourself, Krugman hasn't even glanced at the text, he's been paying attention to the USTR.

I'm very disappointed, I thought he knew better than that. He really does seem to toe the establishment line.
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Pragmatic, 16 Dec 2013 @ 6:19am

Re: Krugman recants
I hope so. I've got a lot of respect for the man as a rule.
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John Fenderson (profile), 16 Dec 2013 @ 8:43am

Re:
"Ignorant" is not an insult. It simply means "doesn't know."

We are all, every one of, ignorant about most things.
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