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One-handed economics

Once again, one of President Obama’s major legislative initiatives is being battered by a hostile Congress. Only this time, it is not Republicans standing in the way of the Administration’s plans, but the Democratic minority in the US Senate holding up the president’s Trans-Pacific Partnership (TPP) trade deal.

The TPP is an ambitious trade deal currently being negotiated between eleven countries: Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, United States, Singapore and Vietnam. The goal is to lower tariffs and other trade barriers—which are quite high in some of these countries–and to boost investment flows and economic integration.

What do economists think about the TPP?

President Harry S. Truman is reputed to have said “Give me a one-handed economist. All my economists say, ‘on the one hand… on the other hand.’” Although I have been unable to find concrete evidence that Truman actually uttered those words, I wish that he–or some other statesman–had.

Politicians like clear, definitive resolutions. Taxes? Nope, not gonna raise ‘em. Regulations? Never much cared for them. Entitlements? Not going to touch them. And that is understandable: it is a lot easier to rally support for a clear, unambiguous position. Face it: “Let’s go to war,” is a much more effective slogan than: “If our adversaries continue with their current belligerent actions and our national security interests are threatened, and we can get enough support from our partners in the region to join a coalition, we will take appropriate measures, which is to say, all options are on the table, military-wise…” Yawn.

Unfortunately, economics usually doesn’t make for good sound-bites and rarely lends itself to clear-cut, one-handed policy recommendations. Sometimes, it is a good idea to raise taxes. And some regulations do improve aggregate welfare, despite the unintended consequences that many of us two-handed economists will warn of. And one day, we really will have to get a handle on entitlements.

On a few issues, however, economists are “one-handed.” And “free trade,” the reduction or elimination of barriers–such as tariffs and quotas–on the free movement of goods and services across national borders, is one of those issues.

“Economics usually doesn’t make for good sound-bites and rarely lends itself to clear-cut, one-handed policy recommendations.”

According to Nobel Laureate Paul Krugman, “If there were an Economist’s Creed, it would surely contain the affirmations ‘I understand the Principle of Comparative Advantage’ and ‘I advocate Free Trade.’” And although Krugman and other economists recognize that the economic case for free trade is not absolute, freer trade is generally viewed by economists as being more desirable than its alternative: Whaples’s (2006) survey of PhD economists found that 87.5 percent agreed the US should eliminate all tariffs and barriers to trade.

Support for free trade is not limited to professional economists. According to a 2014 Pew Research Center survey of 44 countries, the median country support for free trade was 81 percent.  The rapidly growing developing countries of Asia and Africa are particularly enthusiastic about free trade, viewing it as a way to boost wages and create jobs. And even in the United States, which is far more wary of the effects of free trade on jobs and wages, the Pew survey found that more than two-thirds of those surveyed view free trade positively.

The economic argument for free trade was articulated as early as 1776, when Adam Smith wrote that trade barriers were “… either a useless or a hurtful regulation”: if domestic products were competitive with imports, tariffs were useless; if they were not competitive, tariffs were costly because they would force consumers to buy more expensive domestic goods instead of inexpensive imports.

Economists are pretty solidly behind free trade. Americans seem to be generally in favor of it as well. So why the push-back from Congress?

The TPP is forecast to benefit the US, however, the effects are not expected to be so large that voting against it would be disastrous for most members of Congress. More importantly, although the TPP will help the US economy as a whole, the bounty will not be evenly distributed. The manufacturing sector–and with it, organized labor–will suffer due to increased competition from low-cost foreign goods. And nothing makes a member of Congress spring into action like a threat to a factory in his or her district,

We still don’t know all the details of the TPP. The text has not yet been finalized, so it is premature to predict the exact costs and benefits for the US economy. Nonetheless, there are many economies across the Pacific region that are not especially hospitable to American imports. Despite the costs the TPP will impose on some parts of the US economy, a well-crafted agreement will be a net plus for the United States.

Even from the vantage point of a two-handed economist.

Featured image credit: Leaders of TPP member states, by Gobierno de Chile. CC-BY-2.0 via Wikimedia Commons.

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