Tuesday, 6 October 2015

TPP: Dismantling the negative railroad

Few details have been released on the final TPP deal agreed last night in Atlanta, but enough to get a broad overview—and to realise much of the opposition to it has been as unhinged as it has been incoherent. “Peak Kelsey” as one politician dubbed it. An orgy of uninformed eloquence, said another. And a very good reason for Labour to keep talking about lack of details as they work out how to quietly backtrack from the anti-TPP corner they inastutely painted themselves into.

In evaluating the deal that places us smack bang into the world’s largest semi-free-trade zone (to be excluded would be, as former PM Helen Clark suggested, unthinkable), it’s worth just recalling why human beings trade: because as Frederic Bastiat pointed out many years ago, left to our own devices few if any of us would be able to produce enough just to get through a mild winter, let alone produce enough to survive and flourish and hang around long enough to produce a mid-life crisis and a second family. Yet when we trade with each other the products of our efforts, we can, and we do. (Without trade, even a simple sandwich is beyond our individual means.)

Somewhere or other, I’ve called this the Miracle of Breakfast, the realisation that the division of labour is as benevolent as Adam Smith once explained.

As John Stossel would say, “What could be more benign than the freedom to trade with whomever you wish?”

Trade between nations connects us to the worldwide division of labour.

Trade between individuals demonstrates how trade benefits both parties to it—the double thank-you moment demonstrating that we each benefited from the exchange. 

How many times have you paid $1 for a cup of coffee and after the clerk said, "thank you," you responded, "thank you "? There's a wealth of economics wisdom in the weird double thank-you moment. Why does it happen? Because you want the coffee more than the buck, and the store wants the buck more than the coffee. Both of you win.
    Economists have long understood that two people trade because each wants what the other has more than what he already has. In their respective eyes, the things traded are unequal in value. But this means each comes out ahead, having given up something he wants less for something he wants more. It's just not true that one gains and the other loses. If that were the case, the loser wouldn't have traded. It's win-win, or as economists would say, positive-sum.
    We experience this every time we have that double thank-you moment in a store or restaurant.

That we each trade to get the things we want, and we all want very different things, are the two facts at the heart of free trade’s many benefits.  The benefits accrue not just because we allow access to our markets—to use the language being bandied around this morning by peak-Kelseyites—but because the benefits increase exponentially as the network of exchange expands.

Of course, we don’t need volumes of paper to make a “free-trade deal.” All it takes for free exchange to happen is legal protection and no outright bans. (In Adam Smith’s words, "the Division of Labour is limited by the Extent of the Market.")

But free exchange can be hampered. It can be hampered by distance—which is why people build shipping lines, roads and railways to get goods and people to markets more easily and more cheaply—or it can be hampered by tariffs and quotas that make getting goods and people to markets is more difficult and more expensive, all but cancelling out the many benefits of those shipping lines and railroads. No wonder Bastiat likened the effect of tariffs and quotas to a negative railroad—one with so many breaks in the track that costs and delay are as certain with the railroad as they are with tariffs and quotas.

I have said that as long as one has regard, as unfortunately happens, only to the interest of the producer, it is impossible to avoid running counter to the general interest, since the producer, as such, demands nothing but the multiplication of obstacles, wants, and efforts. . .
    Whatever the protectionists may say, it is no less certain that the basic principle of restriction is the same as the basic principle of breaks in the tracks: the sacrifice of the consumer to the producer, of the end to the means.

The TPP deal doesn’t take away all the breaks in the track, but it does remove many of them:

In terms of the substance, there seem to be three broad themes.

  1. Eventual elimination of all tariffs in all industries except beef and dairy
  2. Minor concessions from Canada on dairy but better deal with Japan on beef (tariff dropping from 40% to 9%)
  3. Most of the potentially “bad”* stuff has been resisted (change to Pharmac model, the US demands on ISP liability for copyright, tobacco companies can’t use ISDS provisions)

And it begins momentum to for those other breaks to be dismantled. Eventually.

Because free trade really is breaking out everywhere.

* “Bad” is by the estimation of David Farrar, whose summary this is. There is much to be said about each of these things at some point, but suffice to say now that extended 12-year patent protection for drugs pertains not to present drugs but to future miracle drugs, preserving at least some part of the golden goose that will help us all age disgracefully.


  1. Good it's finally passed to agreement. Noting, however, that the also announced OECD global tax crackdown (including NZ's base price legislation and intention to put GST on all imports), is working in the opposite direction to ensure consumers don't get the full benefits of global free trade (indeed, may mitigate them almost entirely for some of us).

    1. Ah, hadn't caught up with the details of that. Sounds much worse than I thought. Sounds like we're maybe two steps forward and maybe four back?

    2. Perhaps two steps back ... TPP is pretty good (mostly).

  2. True free trade is a good thing which benefits mankind but why is there a need for a comprehensive trade deal, put together by politicians who in the main aren't fond of individual freedom or capitalism, but are rather fond of having their snouts in the public trough, just so businesses from different countries can trade with each other..When have politicians ever advanced individual freedom, economic freedom, and human progress, except their own.

    1. If there is no trough to stick a snout into, then it wouldn't be much fun being a politician or bureaurat, Don.

    2. I do wonder why I am on moderation.

    3. Every one is, Richard, for the moment. You seriously don't want to read the latest deluge of unhinged drivel that would swamp this place otherwise.


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