Brilliant Economists Fail Econ 101
Brad Hoppmann | April 27, 2015 at 4:24 pm
With Japanese Prime Minister Shinzo Abe in town, our Washington political heroes are working hard to ram a faux “free trade” deal through Congress. Economists are jumping in to help them, too.
One Harvard economist identified the problem: voters are just too ignorant about the benefits of free trade.
Yes, he really said that.
Actually, this voter loves free trade. I might actually endorse the Trans-Pacific Partnership if someone would only show me what’s in it. Unlike the eminent economists, I read agreements before I sign them.
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As we discussed recently in Fast Track to Secrecy and GOP to Obama: Import More Foreign Workers, President Obama really, really wants Congress to give him “Fast Track” authority to finish negotiating the Trans-Pacific Partnership agreement.
He’s making progress. House and Senate Committees both approved the Fast Track legislation last week. Final votes could happen any time.
Among the many oddities of this idea is that the senators and representatives really have no idea what they just approved.
A draft agreement does exist — but Obama has it locked up tighter than Fort Knox.
The White House says the documents are available for Congress to review. It isn’t quite that simple. Attorney and Naked Capitalism blogger Yves Smith explains.
[F]or the Administration to insinuate that the TPP will result in greater transparency is dubious, given that it’s made it well-nigh impossible for anyone in Congress to do a proper review of the text. While the US Trade Representative technically allows access, in practice, that right is empty.
The Congressman himself must read the text; no sending staffers or bringing experts allowed, and only staffers from the committees with direct oversight of trade bills (the Senate Finance Committee and the House Ways and Means Committee) are allowed to join their bosses. The USTR insists that the Congressman specify what chapter he wants to review in advance. The USTR then insists that the negotiator of those chapters be present. Since those negotiators travel, it usually takes three or four weeks to find a convenient time.
No note-taking is allowed. The text is full of bracketed sections where if language is disputed, the revisions suggested by other countries are in the brackets, with the country initials listed but then redacted, making it difficult to read (as in you can’t even read this dense text straight through; the flow of the document is interrupted by the various suggested changes). Having people from the USTR staring over your shoulder is distracting. And it’s an open question as to whether asking them questions is prudent, since it gives the USTR insight into what the Congressman is concerned about.
Perhaps these Congressmen have exceptional powers of concentration. But I read cases and legally dense material with some regularity, and I find my concentration starts going after an hour to an hour and a half. And I also find it difficult to get much more than a general sense of a contract of any length in one pass. You need to go over it again and again to see how the various sections tie together to even have an approximate grasp of what it means.
There’s simply no way that any Congressman has anything more than a very fuzzy idea of what is in the TPP.
“A very fuzzy idea” is apparently sufficient in today’s House and Senate. Most Republicans and a few Democrats are ready to sign off on the deal.
Furthermore, the draft will almost certainly change. That’s the whole point of giving “fast track” authority to the president.
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Economists outside Congress have even less of an idea what is inside TPP, but some still love it.
Harvard professor Greg Mankiw, was an economic advisor to President George W. Bush. He called TPP a “no-brainer” in a New York Times editorial this weekend.
Dr. Mankiw ponders why anyone would resist this obviously great idea.
If economists are so sure about the benefits of free trade, why are the public and their elected representatives often skeptical? One answer comes from a 2007 book by Bryan Caplan, a George Mason University professor, called “The Myth of the Rational Voter: Why Democracies Choose Bad Policies.”
Mr. Caplan argues that voters are worse than ignorant about the principles of good policy. Ignorance would be random and might average out in a large population. Instead of being merely ignorant, voters hold on to mistaken beliefs.
It’s your fault, voters. You are “worse than ignorant.” You “hold on to mistaken beliefs.”
Dr. Mankiw’s alternative, I can only presume, is to let economists decide these things.
Haven’t we tried that before? It didn’t work out very well in the last decade.
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The Mankiw article is actually very clever. He sets up a “straw man” argument about free trade and then easily knocks it down. As I’ve said, however, the TPP is not about free trade.
Another economist, William K. Black, came out swinging against Mankiw in a New Economic Perspectives article yesterday.
Mankiw claims that it is “Economics 101" that free trade is good, but he has no way of knowing whether TPP is a free trade agreement.
It is actually “Economics 101" — and has been in writing for well over two centuries — that the CEOs’ lobbyists have never, and will never, secretly draft a “free trade” agreement. It is Economics 101 that they have always and will always secretly draft language that aids their corporate CEO clients at the expense of the public — that TPP must be another in a long, dismal line of Faux Trade agreements. That’s what theory, all human experience, and the leaked portions of the TPP draft all show.
Yes, exactly. Let lobbyists write the deal and of course they will make it favor their clients. They would be terrible lobbyists if they did anything else.
I suggest you read both Mankiw and Black. See who you find more convincing, and then let me know what you think. You can leave a comment on our website or send me an e-mail.
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Stocks rose at the open, with the Nasdaq Composite and S&P 500 extending the record highs set last Friday. The gains faded quickly, though. Here are some stories I’m watching.
• Chinese stocks rallied today, with both Hong Kong and Shanghai benchmarks hitting new 7-year highs.
• We have conflicting stories about the Greece debt drama. Some say Greece is backing down, and a deal could be near. Others say Germany is preparing to let Greece default and exit the Eurozone. Markets seem unconcerned for now.
• Shares of Applied Materials (AMAT) plunged after the firm gave up merger plans with Tokyo Electron. Both U.S. and Japanese regulators had objections.
• Gold and silver popped higher today. It was the biggest daily rally since January and brought gold futures up to a two-week high.
• The economic calendar is light today, but will get busy Wednesday. We’ll get a first quarter GDP reading in the morning, and then in the afternoon the Federal Reserve releases its latest monetary policy statement.
• No one expects and interest rate hike this time, but we may get clues about whether one is coming in June.
• Apple (AAPL) releases its quarterly report after today’s close. Analysts expect earnings to be $2.15 a share on $55.75 billion in revenues. We’ll have details for you tomorrow.
Good Luck and Happy Investing,
Brad Hoppmann
Publisher
Uncommon Wisdom Daily