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Home Publications Blogs Beat the Press Why Is It So Acceptable to Lie to Promote Trade Deals?

Why Is It So Acceptable to Lie to Promote Trade Deals?

Friday, 30 May 2014 04:36

It's not polite to use the "L" word here in Washington, but it's hard not to be more than a bit disgusted with the frequency with which trade pacts are sold as great engines of job creation and economic growth, when they clearly are not. The latest offender in this area is Bruce Ackerman, a Yale Law professor.

In a Washington Post column Ackerman called on President Obama to push for the Transatlantic Trade and Investment Pact (TTIP), which he described as, "opening the path for job-creating opportunities for workers on both continents."  Really, what evidence does Professor Ackerman have for this assertion?

The most widely cited projections for the growth impact of the TTIP are from the Centre for Economic Policy Research in London (no connection to my CEPR) which shows the pact leading to an increase in GDP of 0.4 percent in the U.S. when its effects are fully felt in 2027, and 0.5 percent in the European Union. The analysis explicitly says that it will not lead to more jobs since the models are full employment models. It may lead to somewhat higher wages, but it is not a way to employ the unemployed. Furthermore, the discussion notes that in the transition, some workers may end up unemployed as the economies adjust to the new rules.

Implying that a deal that raises GDP by 0.4 or 0.5 percent 13 years out means "job-creating opportunities for workers on both continents" is just dishonest. The increment to annual growth is on the order of 0.03 percentage points. Good luck finding that in the data.

In addition, there are reasons to believe the growth effect could go in the opposite direction. The model used by the London CEPR does not assume any negative growth impact from higher prices for drugs or other goods that might be more costly due to stronger patent and copyright protections coming out of the deal.

These will likely be a drag on growth. Economists tend to like patents and copyrights (probably because their friends and family members benefit from them), but that doesn't change the fact that they lead to market distortions and have major economic costs. If the price of a drug rises by 1000 percent because we imposed stronger or longer patent protection it has the same effect in the market as if we imposed a 1000 percent tariff on the drug.

Markets are stupid, they don't realize that the price increase was caused by a policy that economists support in contrast to a trade policy they oppose. They respond the same way in both cases. While we don't know how much increased patent and related protections will raise prices as a result of these deals, but there is no doubt that the direction is up. And that will slow growth in a way that is not accounted for in the CEPR analysis. (Yes, higher prices give more incentive for innovation. If you find evidence that this ends up as a net positive for the economy, you get a Nobel Prize and huge bucks from the pharmaceutical industry.)

Reducing trade barriers can lead to increased economic growth and gains for consumers and workers, however the barriers between the U.S. and Europe are already very low in almost all cases. This means that the potential for further gains are limited. This deal is primarily about imposing a set of regulations on both continents, some of which may be improvements, but many of which will be designed to serve the business interests who are in on the negotiations. They hope to accomplish through a "trade" deal what may not be possible through the normal democratic process. And they won't hesitate to sell this backdoor sleaze as a "job creator."

Comments (9)Add Comment
written by Last Mover, May 30, 2014 6:56

If an all American loser liberal couple like Steve and Cokie Roberts can lie through their teeth on an economic issue like this, why shouldn't anyone be allowed to lie about it?
The answer to the question posed in your title...
written by Bill H, May 30, 2014 8:51
...is that it is permissible to lie in any part of the political arena. In fact, we expect it. "I will change the way things are done in Washington" is followed not only by appointing lobyists to the cabinet, but by retaining members of the previous, Republican, cabinet and no one is either surprised or outraged.

So firmly have the oligarchs become in control that they are no longer even subtle about their lying, nor do they even pretend to keep promises or pretend that they are not lying. It no longer matters.
written by JDM, May 30, 2014 8:52
A companion question to why is it acceptable to lie to promote trade deals is why is it necessary to lie to promote trade deals. The fact is that it's necessary because truth would turn voters against the deals and those who promote them, and then it becomes acceptable to lie because rich, entrenched groups want these deals so they will be further enriched. And much of our news media is the victim of cognitive capture.
written by John, May 30, 2014 8:54
Not exactly true. Barriers to trade between Europe and USA are rather high. Bring an item into Europe from the US and you get awarded upwards of 21% in taxes. The trick the EU plays is they tie customs duties with VAT. Either way you slice it it is a very high tariff. Remember, other countries have industrial policies in place.


written by sherparick, May 30, 2014 11:38
I am not sure it is lying when one thoughtlessly tosses out the memes one has been hearing for forty years from other elite opinion makers that "everyone knows" trade deals are "good" for the economy. Ackerman is a lawyer whose specialty is U.S. Constitutional Law and Civil Liberties. I expect what he knows about economics and trade could fit in a thimble. And if he really understood that Europe's problems are due the strait jacket imposed by the Euro and taking power from elected parliaments accountable to the people and placing it with elite technocrats who are unaccountable and looking for that big score with a corporation, he would not be so enthusiastic about trade agreements that can set aside domestic law in arbitration decisions.
This is astonishing!
written by Dave, May 30, 2014 2:05
I have a strong feeling that this has been sold to the president based upon a geopolitical argument that counters Chinese domination of the Pacific region. It is too bad the president is so trusting. This whole thing could be a bad joke if it weren't so potentially bad for so many people.

The answer to economic domination by the Chinese is to start thinking more about how to create trade agreements that take into account things we should care about, such as democratic ideas, wage fairness, etc… The answer is not to use business tactics to squeeze out the largest possible profits!

But the only people that get involved in these discussions in the Obama administration are greedy business leaders that want to defend patents and undermine market forces. This is crony capitalism at its best.
re:earlier comments that trade barriers with Europe are high due to VAT
written by John Wright, May 31, 2014 8:32
John wrote:
"Not exactly true. Barriers to trade between Europe and USA are rather high. Bring an item into Europe from the US and you get awarded upwards of 21% in taxes. The trick the EU plays is they tie customs duties with VAT. Either way you slice it it is a very high tariff. Remember, other countries have industrial policies in place."

This is not the same as a differential tariff against foreign goods as European manufacturers also see the same effective VAT when they sell items. And from my limited experience in Europe, this is reflected in the selling price of items.

If European officials didn't collect the VAT on imported goods, then this would encourage European and USA manufacturing plants to move to lower VAT regions.

The VAT is a consumption tax and tends to limit demand but it is applied to both internal and external manufacturers, so I don't view it as an unfair trade barrier.

One could argue a similar case is asking Amazon to pay local sales taxes. This is also a barrier to their "free" trade as they attempt to "export" from their low tax warehouses to states with high sales taxes.
written by Dave, June 08, 2014 1:56
I was with you. No more.

Live with the hate@
It's wrong but that does not make harmonisation with the EU a bad idea
written by Andre, June 10, 2014 4:20
You can't make more than rough estimates how many jobs or GDP growth efficiency you are able to generate by trade deals as TTIP. No one minds the "lies" because no one believes them.

It would be a huge efficiency gain for the United States to harmonise its rules with the EU-28 but here TTIP rather serves a narrow trade agenda that is based on worse regulation.

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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.