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Home Publications Blogs Beat the Press Paul Krugman and TPP

Paul Krugman and TPP

Thursday, 12 December 2013 14:07

I've got to take some issue with my friend Paul Krugman over his blog post pronouncing the Trans-Pacific Partnership (TPP) no big deal. As a trade question he is undoubtedly right. The countries in the pact are ones with whom the United States already has extensive trade ties and generally low barriers. Eliminating or reducing the remaining barriers cannot possibly have much impact on the U.S. economy.

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.)  

For another example, our gas industry has been pursuing fracking at an ambitious clip with little regard for its environmental impact. I personally am agnostic as to whether natural gas can be a useful bridge fuel until the cost of clean energy falls further. However, I can see no justification for allowing the process in ways that let the gas companies pollute people's drinking water and ruin their farmland.

In the Bush years the industry arranged a special exemption to the Clean Water Drinking Act so that they do not have to disclose the chemicals used in the fracking process. (They claim their mixes are industrial secrets.) If the industry got similar wording in the TPP it would both lead to open fields for fracking in the other signatories and also make the U.S. law more difficult to reverse.

There are many other areas where industry groups are seeking special treatment along these lines. No, I can't give a list with links because the draft text is a secret. Public Citizen's website probably is the best source available. It includes the chapter on intellectual property that was obtained through Wikileaks.

Anyhow, Krugman is on the money in his assessment of the impact of the TPP on trade. But the point is that the TPP is not really about trade, it's about changing the regulatory process in ways that would almost certainly be opposed by the people in most of the countries included in the deal. 

Comments (19)Add Comment
Make Them Pay Their Fair Share of Unearned Monopoly Economic Rent
written by Last Mover, December 12, 2013 3:40
Either people in the U.S. will go to the cheap drugs or the cheap drugs will come here.

Exactly. Make them all pay the full retail price. As the Big Pharma Sock Puppet Media Machine says, Americans are fed up with subsidizing the extortionist research and development cost of life saving drugs for the rest of the world. It's socialist government price discrimination through regulation, forced upon innocent capitalists trying to do their job in a free market, pure and simple.

Make the rest of the world pay more so Americans will pay less (cough cough, like prices would actually be lowered to the American suckers).

Stop the arbitrage of crooked American tourists streaming across borders to stock up on underpriced drugs in other countries to resell them to desperate fellow Americans below retail and still make a killing.

Level the playing field with TPP so everyone can be extorted equally with forced payment of full retail price. The savings alone from avoiding the high cost of enforcing segmented markets and mind numbing complexities of price discrimination mean TPP will pay for itself, the same way the Iraq War paid for itself with cheaper oil.
written by Matt, December 12, 2013 3:53
I think it's very bizarre that Krugman hasn't heard of, or at least feigns ignorance of, this analysis of TPP.

The leaked chapter makes it very clear that TPP has little to do with trade, and we have plenty of experience with older "free trade" deals like NAFTA that suggest the general idea with the agreements is to allow the average worker to compete with someone in Vietnam while protecting the average professional from serious competition, with a few other corporate bonuses tossed in.

Anyway, as I said, bizarre. If he wrote a column of criticism in the NYT about this issue many, many more people would be reached and perhaps more popular pressure could be brought on the politicians.
play by the rules....., Low-rated comment [Show]
Krugman blog comments are lining up all against that post
written by Joe T., December 12, 2013 4:31
I just read the first 20 comments or so to Krugman's post, and all would side with Dean. Never saw Krugman get scolded so much.

I guess that's what happens when you recall you were an expert on trade, so think you can quickly jump in on whatever it is those new people think they're talking about.
So glad you wrote this...
written by AJ, December 12, 2013 6:19
First thing I did after reading Krugman's post was wonder how long it would take for Dean to respond. Perfect response. Well done.
written by Ellen Shaffer, December 12, 2013 6:21
http://tpplist.wordpress.com/i...full-list/ For a good list of critiques of the IP chapter, including ours from CPATH
A little tepid
written by Robert Sadin, December 13, 2013 2:38
Dean has been one of the important voices on TPP. But I must say that this post on Krugman's column is disappointing. Is he so eager to be in K's good graces at all costs.

If any of the Washington Post columnists had written this...or Tom Friedman, Baker would have been out in full force, but here he ignores the (as previous commenter Matt wrote),
bizarre quality of Krugman's piece. K ignored the patents, he also ignored the rights of corporations to sue nations in corporate courts if their profits were threatened by environmental, safety or other laws! Finally, the secret nature of the negotiations in which only the giant multi-nationals participate...How could K be indifferent to that?

The fact is that Krugman has morphed into a very sketchy figure. He will never come out full bore against Obama or the Democrats in general on any issue.

He has never written about the crimes of the banks, the weak actions of the DOJ. (the great hearings with Elizabeth Warren were completely ignored).

He gave a female colleague at Princeton virtually unlimited space to write about executive abuse of power in Hungary. Yet not a word is written about the new executive powers on obama (Kill lists, new definitions of due process etc) and nothing on the Snowden revelations....not a word.

I am afraid that Dean is pulling his punches in today's piece...letting either friendship or the politics of the economy field play too big a role.

The fact that he had to go back to "Krugman is on the money" about trade at the end of the piece is telling.

What was encouraging is that the comments were united against Krugman. All raising the same points. It will be interesting what happens next.

Dean is fantastic. But while there is no need for personal attack...playing favorites is not good.

Bizarre. ...
written by Benedict@Large, December 13, 2013 9:05
I think commenter Joe T. above has it right on this. Krugman is simply so used to being the trade expert, that he didn't think he needed to do his homework on this. PK's comment is simply bizarre when seen as motivated by anything else.
The very fact that it's secret...
written by Bill H, December 13, 2013 9:34
If Paul Krugman was thinking outside the narrow confines of the numbers of his discipline he would recognize that the very fact that the TPP is a secret pact is a huge danger signal. If it is as benign as Krugman thinks it is, why does our executive branch not want us to know what is in it?
written by skeptonomist, December 13, 2013 1:24
I think Krugman has long been an advocate of "free" trade. He seems to look at overall "macro" aspects as affecting GDP, and not at how disadvantageous international trade has been to US workers, or at some of the specific problems like patents and the various tricks that powerful industries pull to get and maintain high profits.
Krugman outsourced
written by Patrick, December 13, 2013 1:42
the analysis of the other consequences of TPP to the rest of the liberal blogosphere. With the ostensible purpose refuted, it opened the space for alternative explanations.
odd argument, Low-rated comment [Show]
3 stars out of 4 for "Paul Krugman and TPP"
written by Edward Allen, December 13, 2013 8:55
Dr. Baker makes good points but certainly seems to be pulling his punches.

See "Is Krugman Running on Brand Fumes? (TransPacific Partnership Edition)," by Yves Smith, at http://www.nakedcapitalism.com...ition.html .
Chapter QQ
written by David Cay Johnston, December 14, 2013 7:19
My Al Jazeera column examined this, noting high up that the one public text is chapter QQ and is 30,000 words long.

The point is that "free" trade is really very managed trade and the negotiators do not include representatives of, say, factory workers or people whose lives are sustained by drugs made more expensive by the patent system.
Who benefits and why secrecy is in their interests, along with the anti-democratic policy of fast tracking are examined at http://alj.am/1g624R3
written by JimV, December 14, 2013 11:11
I've noticed before that Prof. Krugman hesitates to comment "outside of his expertise", but he could have at least mentioned that others have decried the regularity effects that are being negotiated (downwards).
..., Low-rated comment [Show]
Patrick is right
written by Eric, December 14, 2013 4:28
And Dean was gentle on Krugman for that very reason. As Patrick says, PK's note asserts that the deal is basically pointless, which opens the field for people like Dean.
TPP & Medical Patents - Australian Perspective
written by Lee, December 17, 2013 8:03
Please keep writing about this, and please get others to write about it too. From the little nuggets i have been able to pick up the TPP looks like an all out assault on Australia's incredibly successful PBS (Pharmaceutical Benefits Scheme) which is a key part of our wildly successful Single Payer Healthcare System (Medicare)

It is not just the patents, but my understanding is the drug companies are desperately trying to take away the purchasing power of our government so that we stop getting the cheap prices that a single payer system allows us to get through economies of scale, this will force the government to delay or deny more and more medications from approval for the PBS (espcially when our Conservative Government is in power who have embraced Medicare only out of political necessity even though they ideologically hate it).

Also on patents and private research for drugs, now I am no expert so I may be completely wrong here, but it seems to me when governments provided funding for research we got a lot of cures, as in we actually created drugs that cured disease and in some cases eradicated it. We also got a lot of vaccines, Polio, Rubella, Measles and the like. But ever since private companies took over, we get 'treatments' so instead of one pill you are cured, you now get a lifetime customer to a 'treatment' which obviously is what the economic side would prefer.

Am I imagining this or is this really what is happening?
Not Forgiving Krugman On This
written by DesertMac, December 22, 2013 5:36
I'm sorry, but there is simply no way in hell Krugman isn't aware of the disastrous aspects of the TPP--- just the aspects that HAVE been made public. His column seriously undermines my respect for him and his opinion. As has been pointed out over and over, the TPP is not really about free trade, so even a free trade advocate like Krugman has to have looked at the venal aspects of this corporate monstrosity. Just what we know about this plan already clearly shows that it promotes anything BUT free trade, and Krugman has to have at least read other critiques of it and he simply must be aware that it's a corporate takeover of world governments, and a global scythe to swipe the feet out from under every NGO and government fighting for the people and the environment. Krugman should be ashamed of his laziness (or indifference) in supporting this wrecking ball in one of the biggest bully pulpits still in existence, where he COULD have exposed the known sinister aspects of this plan and rallied people to demand transparency.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.