Trans-Pacific Partnership and Jobs Forecasts

As Congress and the White House get ready for a fight over granting the president Trade Promotion Authority (or fast track), we're going to hear a lot about the effect of trade agreements on jobs.

Indeed, the Washington Post's Fact Checker  has been at work on the administration's claim that the Trans-Pacific Partnership (TPP) would create 650,000 jobs in the US. While the WaPo folks give the administration Four Pinnochios (on a scale of 1-4, 4 being a whopper of a lie), the most significant point is buried in the middle of the article.

When talking to Peter Petri, one of the political economists at the Peterson Institute, upon whose research the administration built their claim, they ffind Petri dismissive not only of attempts to calculate job gains  and losses from TPP, but also of the idea that significant gains or losses might occur as a result of the agreement at all. In their words:

Petri said that his book did not discuss job gains because mainstream economists do not believe that the number of jobs is significantly affected by trade policy.

“The reason we don’t project employment is that, like most trade economists, we don’t believe that trade agreements change the labor force in the long run. The consequential factors are demography, immigration, retirement benefits, etc.,” he said. “Rather, trade agreements affect how people are employed, and ideally substitute more productive jobs for less productive ones and thus raise real incomes.”

They further quote Petri as saying:

 “Employment could be negatively affected by the adjustment implications of a trade agreement,” Petri said. “We estimate ‘job shifts’—employment moving from one sector to another—and in difficult labor markets such shifts can lead to transitional unemployment, retirement or wage cuts.” But, he added, “in the case of the TPP such shifts will be small and slow, dwarfed by routine job separations and new hires in the economy. So adjustments and costs should be covered many times by gains. This makes possible strong transitional assistance for workers and communities that are adversely affected.”

The point I would make here is that the picture of the world painted by the administration's political argument for TPP  (and many of the counter-arguments likely to be raised against it) is divorced from picture of the world painted by economic theory. Job losses and gains seem to be the only valid currency in political debates on economic policy and, to the extent this is true, political rhetoric is constrained to exhorting gains or threatening losses even when neither are on the table.

This is not to say that politicians are dumb. On the contrary, the presumption is that elected officials are at least moderately politically smart since they have succeeded in getting elected. Rather, this is to point out a limitation or characteristic of the political system or culture in terms of how issues are defined and debated.

Indeed, one minor limitation is on display in the WaPo's Fact Checker article. By the rules of the column (largely set up by the editors themselves) they can only give the administration's claim one of seven predefined marks. While these categories are not completely limited to the veracity of the statement in question, they also don't allow an assessment of the relevance of the argument. That is to say the Fact Checker is limited to working within the framework of the debate as defined by the statements it is scrutinizing.


Note: The article goes on to note that any gains or loses are likely to be very small as a percentage of GDP or the US workforce (about 0.4% of either). This is something Paul Krugman noted in a Feb 2014 Op-Ed.