Thursday, June 25, 2015

Free trade agreements have almost nothing to do with growth

Try doing a search for "how much growth is predicted under TPP or TTIP" and see what you find. I did. According to this article at TechDirt (the top link), the best estimates for TPP and TTIP combined is about 0.9% GDP over 10 years. That means that estimated growth is really about 0.09% per year, cumulative and after full implementation. That is equivalent to a rounding error.

A quick note to explain how search works at Google. Google ranks pages according to reference. The more people link to a page, the higher up it goes in the list. Google is indexing all the time to get the best search results. Linking is just a part of it, but the goal at Google is to get you want to see, fast. I've tried others and by far, Google has the best search experience for me.

It is worth noting that the TechDirt article relies in part on work by Dean Baker at the CEPR (a liberal organization). I'm a big fan of Dean Baker, so to be sure my search results were clean, I did an incognito search, in other words, I used Chrome without being logged in or using any cookies. The same TechDirt article came in at the top. Back to the story...

If we want to go conservative, then look no further than the Brookings Institute. They are predicting $77 billion a year in growth from TPP. That's still a tiny fraction of a $16 trillion economy in the US or roughly 0.48% GDP. That agrees with the other figures I've seen out there.

The Brookings Institute estimates $77 billion in new growth from the TPP. They also point out that TPA would provide a range of restrictions on the President's authority to negotiate and sign agreements:
"Under TPA Congress determines the administration’s negotiating objectives and agrees to refrain from seeking to amend a signed agreement and instead to limit itself to an up or down vote on the entire TPP agreement. The president is also required to consult Congress during the negotiations and notify Congress 90 days prior to signing an agreement. Without TPA, following presentation of the signed TPP agreement to Congress, Congress could require USTR to seek additional concessions from other TPP parties. Therefore, the TPP parties are unlikely to put their last best offer on the table in the absence of TPA."
All of this got started because I saw this article in my Facebook stream from Al Jazeera. That article is by economist Dean Baker (hey, he's a rising star) and many of the points above are discussed. Most public discourse that I see on these trade agreements is about the growth. Well, Baker says that the best estimates of growth are small and would not be felt by most of us until the agreements are fully implemented 10-12 years down the road.

But what we don't see in public discourse is the distribution of that growth. According to Baker, most of that growth would go to the top 1% and that growth is so small that it might never trickle down to the middle class. Baker also notes that the biggest concerns for the middle class are the price increases of pharmaceuticals due to stronger patent protections and higher prices for media content due to stronger copyright protections. Baker has noted that these provisions are actually trade barriers because they increase rents on inventions, drugs and entertainment (think Disney).

Baker rightly notes in the same article that the Fed is considering raising interest rates just when the economy is picking up steam. Raising rates would slow down the economy, throwing people out of work and reducing the bargaining power of the working class. When unemployment hits 4% or lower, bargaining power increases, but the 1% might prefer not to have to deal with turnover. So it looks almost certain that the Fed will raise rates.

Baker is also one of the few economists that I know who will talk about the trade deficit in the context of currency exchange. He has rightly noted that the strong dollar policy kept in place since at least the early 90s has also eroded middle class purchasing power and cost jobs by making our products more expensive to foreign markets.

To put it differently, if our products cost less, foreign markets would buy them. Balancing the trade deficit with better exchange rate management would bring about 5-6 million jobs home, equivalent to about $600 billion in economic growth. That is almost ten times as much as the TPP is estimated to generate and a fair chunk of that would get to the middle class.

Under all of this is a subtext that few if any pundits are willing to talk about. Maybe they are not even consciously aware of it: public policy is made by the 1%. Sure. We're going to see protests all over if these agreements even look like they might pass and after they pass if they pass. Congress will likely ignore the rest of us and pass those agreements. The press would have us believe that it's a done deal - well why not? 90% of the media is owned by just 6 parent corporations.

Here is an interesting point concerning job losses from trade in the Brookings Institute article that caught my eye:
"Some of these jobs losses have been due to trade: The estimates of job losses in the manufacturing sector attributable to trade range from 15-25 percent of the total. [3] The rest has been due to long-term, above-average productivity gains in the manufacturing sector that have allowed companies to produce the same quantities of goods with less labor, which has reduced the relative price of manufactured products. At the same time, demand for goods in the U.S. has not kept pace with rising productivity and lower prices, with the result that the U.S. spends less on goods. For instance, in 1960, U.S. consumers spent approximately 50 percent of their income on goods, compared with 33 percent in 2010." (emphasis mine)
This is the point about trade and economic policy in general. The middle class has seen an enormous erosion of their purchasing power since the 1960s. This is what economic policy - public policy - by and for the top 1% has done to the middle class. The middle class is running out of money and is working harder to get the money they now earn. These trade agreements will only make it harder to for the middle class to stay afloat.

I guess that's the point of those agreements.
Post a Comment