TPP is a trade agreement

Oddly, Paul Krugman thinks that TPP is not really about trade. CEA Chair Jason Furman, however, writes the following:

The starting point of TPP is the contrast between U.S. tariffs and those of our partner countries. Our trade-weighted average applied tariff rate is 1.4 percent and 70 percent of imports already enter our economy duty free. In contrast, on average, our TPP partners report simple average applied tariffs 1.5 percentage points higher than our equivalent rate. In some TPP countries, average tariffs are up to 4 percentage points higher, though this difference masks considerable industry-specific variation; the United States faces tariffs of up to 30 percent on auto exports to Malaysia and 40 percent on agricultural goods to Vietnam. Many TPP countries also have substantially higher non-tariff barriers, particularly in the area of services trade, where the United States maintains a strong comparative advantage. As a result, TPP will disproportionately decrease foreign barriers to U.S. exports....  

The most comprehensive estimates of the benefits of TPP are those of Peter Petri, Michael Plummer, and Fan Zhai, who employ an 18-sector, 24-region computable general equilibrium model to simulate policy changes in more than twenty different areas including tariffs, non-tariff barriers, and rules governing foreign direct investment. They find that by 2025, TPP would raise U.S. incomes by 0.4 percent per year, the equivalent of $77 billion in 2007 dollars, although the actual estimate could vary somewhat depending on the details of the agreement and alternative modelling assumptions. The European Union has said that the United States would gain a comparable amount from T-TIP. Some have described these totals as small, but I think I would risk losing my license to offer economic advice if I counseled anyone to leave $77 billion lying on the sidewalk each year.

The Case for Trade

Click here to read my piece in Sunday's NY Times.

Congratulations, Roland

Roland Fryer has won the John Bates Clark Award.  The past three winners have been Roland Fryer (Harvard faculty), Matthew Gentzkow (Harvard undergrad and PhD), and Raj Chetty (Harvard undergrad, PhD, and faculty).

Why I favor estate tax repeal

This past week, The House of Representatives passed repeal of the estate tax.  This is a policy change I have long supported, for reasons explained here.

Advice from Larry Katz

Via Nicholas Kristof:

“A broad liberal arts education is a key pathway to success in the 21st-century economy,” says Lawrence Katz, a labor economist at Harvard. Katz says that the economic return to pure technical skills has flattened, and the highest return now goes to those who combine soft skills — excellence at communicating and working with people — with technical skills.

“So I think a humanities major who also did a lot of computer science, economics, psychology, or other sciences can be quite valuable and have great career flexibility,” Katz said. “But you need both, in my view, to maximize your potential. And an economics major or computer science major or biology or engineering or physics major who takes serious courses in the humanities and history also will be a much more valuable scientist, financial professional, economist, or entrepreneur.”

Jeff Sachs defends David Cameron

Here.

The Sticky-Price Victory

Noah Smith on "What causes recessions?"

A Libertarian Coalition?

Paul Krugman says there aren't enough libertarians in the U.S. to make a libertarian candidate like Rand Paul viable.  I am not so sure about the paucity of libertarians, but even so, I doubt that Rand Paul is the best representative of that group.

Similar to Krugman, I would define a libertarian voter as one who leans left on social issues (such as same-sex marriage) and right on economic issues (such as taxes and regulation). I certainly put myself in that camp, and I don't think I am as lonely as Krugman suggests. I meet lots of students with similar views (though, admittedly, Harvard students are hardly a representative sample of voters).

Nonetheless, I think libertarian candidates face several challenges. In particular, the Republican party has traditionally relied on an uneasy coalition of economic and social conservatives.  A libertarian candidate would need to put together a very different coalition.

Rand Paul does not seem ready to do that.  He has come out opposed to same-sex marriage, for example.  He is unlikely to put together a new coalition with that position.

Many libertarian voters I know (including those students) often vote for Democratic candidates because they weight the social issues more than the economic ones. I usually vote for Republican candidates because I weight the economic issues more than the social ones.

One reason is that I don't view the Democratic Party as a leader on social issues.  Remember that Bill Clinton signed the Defense of Marriage Act.  Barack Obama was against same-sex marriage when he ran for President, and then he "evolved" (aka flip-flopped) on the issue.  On this social issue and many others, our elected leaders are really followers. The leaders are the American people.

Interview with Dani Rodrik

Here.

Economics Jokes

From Planet Money.

California should raise the price of water

There has been a lot of discussion of the drought in California and the new regulations that the state is putting in place.  But there has been little mention of the obvious (to an economist) solution: Raise the price of water.

This would do more than any set of regulations ever could.  For example, the governor is not going to force people to replace their old toilets with newer, more water-efficient ones.  But a higher price of water would encourage people to do that.  A higher price would also give farmers the right incentive to grow the most water-efficient crops. It would induce entrepreneurs to come up with new water-saving technologies. And so on.

Some may worry about the distributional effects of a higher price of a necessity.  But the revenue from a higher price could be rebated to consumers on a lump-sum basis, making the whole system progressive.  We would end up with more efficiency and more equality.

Generic Economic News

HT:MR.