Paul Krugman gave a talk on trade and the TPP yesterday at the National Association of Business Economists, and shares his thoughts today on his blog. Basically, he's saying that the real point of the TPP (although he didn't say it in those words) is to bring back SOPA. The same draconian intellectual property laws we've already beaten back several times:
The fact is that at this point trade is fairly free, and estimates of the cost of protectionism from standard models are quite small. Trade restrictions just aren’t a major drag on the world economy these days, so the gains from liberalization must be small.
What about TPP? There are still important barriers in agriculture, but advocates are pinning most of their case on services, where we’re talking about more diffuse issues of access. How much could that be worth? I try to put some upper bounds on the gains. I’ve estimated that “hyperglobalization” – the expansion of world trade to unprecedented levels since 1990 – has added about 5 percent to world incomes; but that’s the combination of everything: containerization, drastic trade liberalization in developing countries, the internet. A better model might be Europe’s Single Market Act, which the European Commission now estimates added 1.8 percent to real incomes; but Eichengreen and Boltho suggest that about half of that reflects policy changes that would have happened anyway.
And Europe, which has a compact geography and the kind of shared institutions and culture (and transparency) that make access doable, is surely a better case than the diverse, sprawling group of countries involved in TPP. I’d argue that it’s implausible to claim that TPP could add more than a fraction of one percent to the incomes of the nations involved; even the 0.5 percent suggested by Petri et al looks high to me.
These gains aren’t nothing, but we’re not talking about a world-shaking deal here.
So why do some parties want this deal so much? Because as with many “trade” deals in recent years, the intellectual property aspects are more important than the trade aspects. Leaked documents suggest that the US is trying to get radically enhanced protection for patents and copyrights; this is largely about Hollywood and pharma rather than conventional exporters. What do we think about that?
Well, we should never forget that in a direct sense, protecting intellectual property means creating a monopoly – letting the holders of a patent or copyright charge a price for something (the use of knowledge) that has a zero social marginal cost. In that direct sense this introduces a distortion that makes the world a bit poorer.
There is, of course, an offset in the form of an increased incentive to create knowledge, which is why we have patents and copyright in the first place. But do we really think that inadequate incentive to create new drugs or new movies is a major problem right now?
You might try to argue that there is a US interest in enhancing IP protection even if it’s not good for the world, because in many cases it’s US corporations with the property rights. But are they really US firms in any meaningful sense? If pharma gets to charge more for drugs in developing countries, do the benefits flow back to US workers? Probably not so much.
Which brings me to my last point: Why, exactly, should the Obama administration spend any political capital – alienating labor, disillusioning progressive activists – over such a deal?