Wednesday, 3 February 2016

Repost: TPP - Dismantling the negative railroad

(Photo: Kim Choe/3 News)

“Why the TPPA is a better trade agreement than you think: In a word, Vietnam.
… Vietnam will be the biggest gainer from TPP.  Do you get that, progressives?
Poorest country = biggest gainer.  Isn’t that what we are looking for?”

- Tyler Cowen, “Why the TPP is a better trade agreement than you think

In evaluating the deal that places us smack bang into the world’s largest semi-free-trade zone (to be excluded from which would be, as former PM Helen Clark suggested, unthinkable), it’s worth just recalling why human beings trade at all: 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. We can’t produce enough on our own, yet when we trade with each other the products of our efforts we can, and we do. (Turns out we’re so helpless that, without trade, even a simple sandwich is beyond our individual means.)

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

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.

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

Trade between individuals demonstrates how trade benefits each party to the trade—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.

It is just bullshit to say that because NZ has already removed most of its tariffsNZ negotiators were arguing with one hand behind their backs, with is about to get our pants down. The benefits from trade accrue not just because we allow access to our markets—to use the language being bandied around by peak-Kelseyites—but because the benefits of trade increase exponentially as the network of exchange expands. And this semi-free-trade deal expands the network about as far as it’s politically possible to go.

* * * *

The two facts at the heart of free trade’s many benefits are these:

  1. that we each trade to get the things we want, and
  2. we all want very different things 

Of course, we don’t need volumes of paper to make a “free-trade deal.” All it takes for free exchange to happen is 1) legal protection for contracts and 2) 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.

* * * *

Look, the TPP looks to be about as close to full-blown, unhampered, knock-your-socks-off free trade as Andrew LIttle looks to pulling the Labour Party together. But to complain, as both Gould and Kelsey do, that because, you know, NZ dairy doesn’t achieve full tariff-free access to the US, Canada and Japan while ignoring the small sliding tariff reductions that are allowed for is like a teenager whinging because their mummy has bought them the wrong coloured iPhone for their birthday.

It’s not full free trade—but trade between the 12 nations will be freer than it is now. There is some cronyism, but since even the cronies are quietly whimpering about things there’s less clearly less than they thought they paid for. So on balance, there are more reasons to be for than against-and being against would be to make the perfect the enemy of the good.

And since the increasing expansion of the worldwide division of labour has already meant around 138,000 people have nbeen moved out of poverty every day for the last 25 years, unless you think that’s a bad thing rather than a good, the you and I would surely see very little to complain about that expansion continuing.

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* “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.
Oh, and NZers are moochers on foreign drug producers and consumers


  1. Yes, but I'm coming down on side of TPPA is bad because it's not a free trade agreement. I note with interest that Croaking Cassandra is less than thrilled by it, and the new bureaucracy entailed across fourteen countries.

    How can it be a free trade agreement when made by central planners, and contains pages and pages of regulations to bind traders. A free trade agreement needed only one word: go.

    Surely this agreement merely grows the power of the state in member countries, and distorts free trade via the lobby dollar?

    1. Perhaps I'm wrong ... any 'sop' to free trade is better than not. But by thinking this free trade when it's not at all, it's crony, don't we feed the naysayers by allowing them to call free trade something that it's not: ie, the TPP. Those naysayers already have no clue on the nature of capitalism.

  2. In the world as it is, just saying "Go" requires pages and pages of legislation.

    Anyway, sure, lower tariffs and fewer subsidies are not as good as no tariffs and no subsidies -- but they're a hell of a lot better than higher tariffs and higher subsidies.

    And if the worldwide division of labour is expanded by a semi-free-trade deal like this ... ?

    PS: Not convinced it's entirely crony. You have actual evidence?

    1. No. Inference from its negotiators.

    2. Although have you read the Croaking Cassandra piece?

    3. Yes, I have. Short summary: he and others are concerned with something he calls the TPP "constraining domestic law and regulatory freedom."

      This is a similar argument to Jane Kelsey's and Sue Bradford's, and a very odd way to use the word "freedom"--and by the phrase is meant the TPP tying up governments to protect contracts, and to prevent wilful regulatory changes that would damage contracts. On the face of it, how is that a bad thing?

    4. Mmmm. Point well made. Reassess, reassess, reassess.

  3. Every man and his dog keeps referring to this trade deal as 'free'
    I'm only a simple man but I know there is no such thing as free in this lifetime, there is always strings attached.

    To quote Trump [yes I know you dislike the man but he knows business]

    “The deal is insanity – Nobody understands it”
    "The 5,544-page deal is far too long to be understood"
    “The deal is so bad because of the fact they don’t cover currency manipulation, - It’s the number-one weapon used by foreign countries to hurt the United States and take away jobs.”
    “China will take advantage of it—all the weak points in it, more than anybody else,” said Trump, who has previously criticized China’s manipulation of currency prices. China is not part of the TPP deal, but is widely expected to join in the next few years.

    Question - has anyone even bothered to read the whole thing???

  4. Anything opposed by Sue Bradford, Kelsey, Little, McCarten and the other "usual suspects" is something I am 10,000,000% in favour of! haha!

    If they are against it then you know the TPP is good for NZ (which they hate), good for business (which they hate), and will make people a lot of money (which they hate).

    It is no exaggeration to say the TPP is the greatest thing since sliced bread

    1. Never mind what those commie twats think. Everyone knows the devil is in the detail - And 5000 pages is a lot of fine print. Could someone address the issues Trump raised and I alluded to above

  5. I'm on Jamie's side on this - the world is full off crap masquerading as enlightenment because ordinary people don't have a year to analyse it. We are almost obliged to trust those whom we know not to trust.

    On Sunday evening the minister at my church endorsed a book that he's never read because he likes what he think it will say. This debate reminds me of that moment. I know the book he likes is rubbish but I can't say that about the TPPA.


    1. On Sunday evening the minister at my church endorsed a book that he's never read because he likes what he think it will say

      Was it the Bible? It sounds like the Bible.

    2. I was waiting for someone to raise that and its good to see people are so predictable with oldies but crappies that even I can get a prediction right.

      No, he's read the bible but its clear he doesn't understand it. Maybe theological college is just like arts degrees - passing doesn't mean you understood.



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