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Economics made easy

The folks, alas a “bipartisan” group, supporting the Trans Pacific Partnership have been touting a “study” by the Peterson Institute for International Economics that purports to show that everything will be rosy if we ultimately pass the treaty.

We have a prejorative term in the legal profession that is applied to some judges. (Scalia comes to mind) It is “results oriented”. A judge is results oriented if he or she basically decides how they want a case to turn out and then figures out a rationale, no matter how specious, for arriving at the chosen destination. Bush v. Gore comes to mind. But Scalia had nothing on the Peterson Institute. Apparently they proved that nothing bad could happen by assuming nothing bad would happen:

Optimistic claims about the TPP’s economic impacts are largely based on economic modeling projections published by the Washington-based Peterson Institute for International Economics.2 Its researchers used a computable general equilibrium (CGE) model to project net GDP gains for all countries involved. These figures have been widely cited in many countries to justify TPP approval and ratification. Updated estimates, released in early 2016 and incorporated into the World Bank’s latest report on the global economy,3 now stress income gains for the United States of $131 billion, or 0.5 percent of GDP, and a 9.1 percent increase in exports by 2030.4

The projections methodology assumes away critical economic problems and boosts economic growth estimates with unfounded assumptions. The assumption of full employment is particularly problematic. Workers will inevitably be displaced due to the TPP, but CGE modelers assume that all dismissed workers will be promptly rehired elsewhere in the national economy as if part of labor ‘churning’. The full-employment assumption thus inflates projected GDP gains by assuming away job losses and adjustment costs.

The modelers also dismiss increases in inequality by assuming no changes to wage and profit shares of national income. Again, this is not supported by empirical evidence, as past trade agreements have tended to reduce labor’s share.

Finally, foreign direct investment (FDI) is assumed to increase dramatically, which contributes a significant boost to economic growth in the Peterson Institute projections, accounting for more than 25 percent of projected U.S. economic gains in the recent update. This assumes that: 1) income to capital owners will be invested; and 2) this will result in broad-based growth. Neither is supported by the evidence. A U.S. Department of Agriculture study,5 which did not assume such FDI-related investment gains, found zero growth for the United States and very modest growth elsewhere at best.

The methodology of the Peterson study is flawed; consequently, growth and income gains are overstated, and the costs to working people, consumers and governments are understated, ignored or even presented as benefits. Job losses and declining or stagnant labor incomes are excluded from consideration, even though they lower economic growth by reducing aggregate demand.

via Naked Capitalism

The report, of course, is taken seriously in our Nation’s Capital and will be swallowed whole by the Beltway media. This sort of reminds me of Paul Ryan’s way of doing things. You know, where he tells the Congressional Budget Office to assess his budgets making ridiculous assumptions:

But Rep. Ryan actually boasts a history of using gimmicks and trickery to make his tax numbers work. When he released his “Roadmap for America’s Future” several years ago, claiming it would balance the budget and eliminate the debt, he relied on one very key assumption—that his enormous tax cuts for the rich would nevertheless result in a stable amount of federal revenue. Sound familiar? In fact, when he submitted his plan to the Congressional Budget Office for official review, he explicitly told them to make the same assumption, ignoring the actual revenue effects of his proposals. Lo and behold, when the CBO score came back, it looked remarkably similar to Rep. Ryan’s own projections.

via Center for America Progress

Ryan is still considered a serious guy. The Peterson Institute’s study will continue to be cited with respect. Maybe we deserve Donald Trump.

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