TPP is about as good as it is supposed to be

Tyler Cohen stakes out quite a sensible position on whether or not we should approve the trade deal called TPP:

What would convince me to oppose TPP if is somebody did a study showing the following: when you use a better trade model, use better data, and/or add in the neglected costs of TPP (which are real), those gains go away and indeed become negative.

Then I would change my mind, or at least weigh those economic costs against possibly favorable geopolitical benefits from the deal.

What does not convince me is when people simply list various costs and outrages associated with TPP.

This is the full utilitarian, rationalist-style, ‘Shut up and multiply’ response to the question. This is a strong argument. The deal has already been negotiated, so insisting on modifications at this point is akin to turning down the deal; it is a de facto yes or no offer. The geopolitical benefits are clearly net positive to the United States, and all the economic forecasts are large and positive because free trade is somewhere between compound interest and sliced bread on the awesomeness index. The arguments against the deal that I have seen all take the form of pointing out something in the deal that may be less than awesome, but nothing that can compete with an estimated trillion dollars of economic surplus, so what is the problem?

In some cases, not being able to follow the basic case was exactly the problem. Many of the opponents of the deal are indeed suffering from simple ignorance or simple scope insensitivity. Either they do not realize that trade is the reason we have nice things, and need to understand that before participating in any conversations surrounding trade agreements, or they do not understand that this bigger consideration is so massively big that it makes everything else involved (except possibly the geopolitical impact of the deal, which is a direct consequence of trade being that awesome) seem like chump change. Hopefully some of those people will read Tyler’s piece, realize they are being foolish, and change their minds.

The trickier problem is decision theory and game theory. Fast track authority for a trade deal has a lot in common with the dictator game.

The basic dictator game is that there is a delicious pie, which the dictator then divides into two pieces. He then proposes to give some of the pie to himself and the rest to the other player. The other player can then either accept the division, and both players enjoy their share of delicious pie, or refuse in which case the pie is thrown out. On one level, the only question worth asking is whether or not you are being offered delicious pie at all, since your choice is pie or no pie, but the problem with that approach, even if you don’t care at all how much pie the dictator eats, is that if the dictator knows that then he can offer you only the tiniest sliver of pie and that is all you will ever get. One must consider the bigger picture, especially if the game is being played repeatedly.

In real experiments, players very much care about whether they are being cheated, and will turn down unfair divisions even when the game is being played only once and both players are fully anonymous: They care enough about denying someone else more pie than they deserve, that they are willing to go without pie, should the dictator overreach, and the dictator is better off asking for either half the pie or not much more than half. This result occurs because humans have to act this way in the real world to avoid being exploited, and the mechanisms for making sure that happens are not easy to turn off when a laboratory experiment constructs a special case.

I believe that many people who are opposing TPP are not opposing the deal because they think the deal will, on its merits, be bad for humans or bad for Americans. Even if they do not realize it themselves, they oppose the deal because they do not think we can let those evil backstabbing bastards get away with it. Like it or not, they have a point, even if they are (quite wisely) unwilling to state the point too explicitly. Those in favor of TPP have to respond to this true objection if they want the deal to pass and similar deals to happen in the future.

The president should not be able to use the combination of fast track and the existence of an epically massive pie as a free pass to shaft everyone who wasn’t at the negotiating table in order to reward multinational corporations at the expense of the public.  The key word there is free. Of course he is going to do a certain amount of shafting and keep some of the pie to pay off private interests. That is not only how politics works, that is how life works, and being in the dictator position has its benefits.

What is vital is that the magnitude of such actions be contained, and that such actions not be free.

That means that when the deal contains things you do not like, you complain. The more things you dislike, and the bigger they are and the more you dislike them, the more you complain, the more you attack those responsible and the more effort you put forward to bring the deal down. The combination of a large group of people engaging in such actions results in an effective mixed strategy. The more of the surplus of the deal is appropriated, the greater the cost that must be paid in political capital, and the greater the risk that the deal blows up, in ways that are hard to predict.

All attempts to extract surplus from you should be punished in this way to some extent, no matter their size, because otherwise they will grow and multiply until people step up and notice. One wants to keep such things as small as possible, and make it clear that cheating you out of your fair share has its price.

If no one was yelling about how awful the trade deal was, or the only people yelling are those who are against trade on principle (who I would offer to help with that, but what would be in it for me?), the trade deal is ‘too good,’ in the sense that those negotiating could have gotten more things they value (whether that means extracting surplus, or simply means doing things that they believe in but are not popular) at little or no risk to the deal or cost in political capital. You have done your job right if the deal almost always passes in the end, but need to be willing to take some small amount of risk. Every constraint should bind, at least lightly, or an opportunity was lost.

The dictator game, in all its forms, is much more important than people realize, because people with money and power are constantly attempting to use similar games to extract all, or more than all, of the surplus out of every deal they go near. To a pathological extent they seem unable to honor arrangements that are clear win/wins without setting up a dictator-type situation, and constantly attempting to extract more and more of the surplus. When such people meet each other, deals with a lot of surplus are quite likely to blow up and not happen, and when they meet regular people, the regular person is still forced to blow up the deal reasonably often and in many situations would be advised not to even try making the deal in the first place because of hold-up and sunk cost problems. In the long run this seems to have huge negative consequences for everyone. I badly want to figure out what to do about all this, but going further into that question would be beyond today’s scope.

All of this makes me think that the president made, from his perspective, a good deal. He stole about the right amount from the people complaining, and paid off the people he needed to pay off about the amount he needed to pay them to make sure they would almost certainly shout down the people he stole from. In absolute terms, it is quite a large amount, but in relative terms, it is a rather small amount of the surplus created by the deal, and the deal will probably pass but there is a tiny chance it won’t, which is the important thing.

In other words, the system works.

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1 Response to TPP is about as good as it is supposed to be

  1. Ken Arromdee says:

    Governments aren’t supposed to be optimized for creation of surplus. Governments are supposed to respect individual rights even if more surplus could be generated by shafting some people.

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