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A comic on the Trans-Pacific Partnership!

So, Dan and I have been working on a piece explaining the Trans-Pacific Partnership for a while–it’s a tangled subject–and it’s finally done!

Check it out here.

24 comments to A comic on the Trans-Pacific Partnership!

  • Very much enjoyed the TPP comic. However, a brief comment on the matter of comparative advantage. It is not quite accurate to say that it is just assumed that the operations won’t shift from one country to the other that has absolute advantage. Rather it was argued by Ricardo, who “discovered” (or “invented”) comparative advantage, that capital is difficult to shift. This of course depends on the actual goods being produced and the degree that they are subject to capital intensity in production

    By the way, what is meant by “capital” in the above, and this could be raised in context with other aspects of the comic, is not the representation of capital in terms of money, but rather the actual physical machines engaged in the production process.

    • Hi Lev,

      Thanks for writing!

      It is not quite accurate to say that it is just assumed that the operations won’t shift from one country to the other that has absolute advantage. Rather it was argued by Ricardo, who “discovered” (or “invented”) comparative advantage, that capital is difficult to shift.

      Well, when I say “assumed” I meant in the sense of more or less consciously not worrying about it (so, like when you are analyzing the orbit of a satellite, you can assume that the satellite doesn’t exert any gravitational pull itself. It’s not entirely true, but it’s true enough for your purposes.)

      Ricardo argued that while it wasn’t entirely true that capital stayed home, it was true enough for the purposes of comparative advantage. (Which was the case when he wrote–Smith’s famous line about the “invisible hand” was making a similar argument–leave people alone, and they will keep their capital close to home where they can keep an eye on it. That was true 200 years ago, but not now. The problem is that people have long forgotten that Ricardo’s assumption was an assumption. (Like, if in 200 years we’re putting immense satellites into orbit, we would have to look at their gravitational pull, and if we are still following today’s procedures that will be a problem.

      By the way, what is meant by “capital” in the above, and this could be raised in context with other aspects of the comic, is not the representation of capital in terms of money, but rather the actual physical machines engaged in the production process.

      That’s not my understanding; most sources I’ve read use the word interchangeably for both, and I think rightly so (You can actually move your factory, or you can take money that you would have used to build a factory here and instead use it to build a factory in Panama). Although if I’m missing something let me know.

    • Hi Lev,

      Well, someone else said I got the definition of capital wrong, so maybe I was too quick to contradict you. More later.

  • Isaac Hoppe

    Where you say that a stimulus solves unemployment that results from trade deficits, shouldn’t the same caveat be applied there as is applied to investment? Regardless of where the money comes from, if it isn’t being used to address the most basic needs of people and institutions, then it won’t solve anything. If you look around, the stimulus did nothing to improve our infrastructure and quality of life.

    With stimulus, seems like this is an inherent problem. A program that massive can’t possibly account for individual needs with systemic consciousness. It was just assumed that people and businesses would spend it on things they needed. Well, a lot did spend it on things they individually needed. And the result was predictably disorganized. Nothing systemic was fixed by the stimulus. Unemployment remains a rampant monster. Actually, underemployment is increasing, as is undercompensation for work. Are we supposed to believe that a bigger stimulus would’ve done better? Well, where would the money come from?

    I’m not arguing for investment. I’m asking, where does this idea come from, that huge solutions are ever as organized and effective as we’re led to believe? What I understand worked so well about the New Deal is that it actually laid out a plan of use for the spending. The plans still suffered from institutional failures like racism, displacement and environmental ravages. This highlights to me the problems of top-down approaches. But its successes owe to it being planned.

    What this means about where we should find the Middle Way between individualism and society, I don’t know. I know we can’t take anything for granted, though. Least of all anything with the reach that trade agreements and stimulus packages have.

    • babaganusz

      who has ever claimed that any stimulus would ‘fix’ anything, systemic or otherwise? one would hope that something designed/intended to “fix” would have a more permanent label than “stimulus”…

      • GS

        “the idea that trade can destroy jobs only matters is we assume that we won’t create new jobs.
        In real life, we can respond to unemployment with stimulus.” (Page 15)

        While the quote doesn’t explicitly say “we can fix’ unemployment with stimulus”, it does pretty clearly imply it. Which BEGS the question, how does “stimulus” differ from “tax cuts”? Both give money to a source at the top level and ASSUME that it will be distributed usefully and effectively. Both of which are pretty large assumptions.

        While I can understand and agree with many of the points made in the comic, here is a PERFECT example of where I feel the authors politics betray his goal. Instead of directing towards a more relevant solution, he takes pot-shots at the attempts of the opposition party and lionizes his preferred party’s ideas despite the lack on any real differentiation in the policies aside from delivery vehicle.

        The whole free trade movement hurts the US consumer because we’re making it cost effective to shift production overseas. Watch an episode of “Shark Tank” (not saying that’s great economics, but..) the FIRST question people are often asked is “why aren’t you producing in China?” If it costs $15 to make a widget in the US and $3 in China, then you can make 5 widgets in China for the price of 1 in the US. The only way “stimulus” fixes this is #1. you put requirements that the company spends the money in the US AND #2. the number must be high enough to offset what they’d gain if they ignore the stimulus. If you offer me $1 million to do 100% manufacturing in the US, what good is that if I make $10 million on cheap goods produced elsewhere?

        Also, part (not all) of why foreign countries don’t “want” US goods (thus the trade deficit) is because they COST more. Why buy an iPhone when you can get a Chinese smart phone for 10% of the price. Year, rich Chinese consumers buy it for the “status” but the general consumers go with he cheaper model. The result of that is that the Chinese companies build a reputation and eventually don’t need the price break and compete head to head with the American phones. (For an interesting comparison, look at Korean vs. Japanese cars, 10-20 years ago, Korean cars were seen as inferior to Japanese vehicles, so they sold at a solid discount, now that people have bought and become comfortable with them, the prices are comparable)

        How do COUNTRIES make that work? TAXES (or “tariffs”) OUR goal with the TPP is to get other countries to lift tariffs so that our goods sell on even footing with the local brand (ignoring shipping costs if applicable). The PROBLEM is that now that’s just shooting ourselves in the foot for the benefit of big companies. COMPANIES want “free trade” because then it’s just corporations fighting a marketing war. But the problem for US CONSUMERS is that in these foreign markets that corporations covet, we’ve already lost. The local brands are entrenched and clearly established as “good enough” (or better in some cases), so why would the locals choose them over the foreign versions? To “fix” these WE need to use tariffs that we didn’t want to use for so long. We didn’t want to tax our imports because we feared reprisals from China on our stuff. (and they did it anyway)

        If we raise the prices on the foreign goods, then the choice is “made in USA” or “made in China”, and that’s IT. Rather than “made in USA” or “significantly cheaper”. If the former is the choice, then (in theory, assuming foreign BRANDS aren’t entrenched) then US produced goods will sell in greater abundance and jobs/wages will rise with the higher demand. The problem is that we’ve been chasing demand IN CHINA. (because their population is significantly higher) If we instead lets ourselves (as the second largest economy) be the primary market for our own companies we can get back to a more stable environment.

        We’re shipping our (financial) “capital” overseas because corporations have found that can PRODUCE things cheaper over there. The cleanest way to change that equation is to FORCE goods from overseas to be more expensive. This would (unfortunately) also have the short term impact of making some things more expensive, but if you truly believe people deserve a “livable wage” then its the only way to get there. There’s no point in making local labor more expensive IF corporations can get that same resource cheaper (much cheaper) with no negative on their sales.

  • Doug Haning

    Hi Mike,
    Like Lev Lafayette, I also caught your misconception of ‘capital’ on page 5. Although politicians and the mass media usually misuse this word, it still has a very specific meaning to economists. Given that you are writing an economics primer, it would seem to be a good opportunity to straighten out the terminology for the general public. The financial instruments you claim to be ‘capital’ are all what an economist would categorize as ‘savings’. Referring to ‘savings’ as ‘capital’ is like referring to ‘labor’ as ‘human capital’. Pretty soon the word ‘capital’ becomes meaningless.

    • Okay, now that it’s two people, maybe I’m off base here. Can you point me to a source that gives that interpretation? It’s not a distinction I’ve ever seen anyone (economists included) keep; people have enough trouble keeping savings and investments distinct.

  • Phil Sheridan

    The TPP comic does not fully load thru html;
    is it available in pdf?

  • It’s working for me. What’s not loading? What browser are you using?

    There’s no pdf as of now.

    • Phil Sheridan

      Only about ~80% of the images load, some partially,
      but those that do are fine.
      Several attempts on different machines,
      20 to 25 minutes+ each time, same problem.
      May be bandwidth/timeout/buffer issue on dialup.
      Still wouldn’t hurt to have this data
      in a smaller package.

      • Hi Phil,

        Okay, I think we made it smaller. But a pdf would be just as big, so that’s not a solution. May have to get it from someone else’s connection.

        • Phil Sheridan

          Thanks, Mike; this is much, much better; still took a while to d/l though…

          An interesting take on all this, you bring up quite a few
          insightful observations, but I’m also seeing some divide by 0’s…

          The human race came up with this handy invention of money,
          but few seem to grasp its true utility, or its derivatives.

          I’ll review these points in some more depth, and try to get
          back to you over the next few months, I have a business to run, cheers.

      • You’re a real deep threink. Thanks for sharing.

      • Thanks for that! It’s just the answer I needed.

  • Doug Haning

    Hi Mike,
    Here is what Paul Samuelson says in his book ‘Economics’:
    “Modern advanced industrial technology rests upon the use of vast amounts of capital: elaborate machinery, large-scale factories and plants and stores and stocks of finished and unfinished materials. Our economy receives the name “capitalism” because this capital, or “wealth,” is primarily the private property of somebody – the capitalist.”
    “Capital which is the word often used to refer to capital goods generally, is a different kind of production factor. A capital good differs from the primary factors in that it is an input which is itself the output of the economy. Capital goods, then, represent produced goods that can be used as factor inputs for further production, whereas labor and land are primary factor inputs not usefully thought of as being themselves produced by the economic system.”

    • Hi Doug,

      That shows that “capital” is generally used to mean “capital goods,” which is true enough, but not that economists make a firm distinction in which “financial capital” is properly referred to as “savings” in the way “human capital” is better termed “labor.”

      In fact, although I do believe that it’s correct that financial capital, although not the same as savings, is a subset of savings, I also believe that too much of economics is based on fudging that distinction, and I have to use the terms that people understand.

      For instance, “capital markets” refers to financial capital, and—more relevantly to trade—”capital controls” (which I originally planned to discuss but wound up cutting because of space) does too.

      It is true–and I simply didn’t notice this when I wrote it–that someone could read the piece and think that “capital” referred to financial capital exclusively. But there are plenty of other oversimplifications that I wish I had more space to discuss in depth; this will have to go on that list.

      (Yes, I in theory have infinite space, but I think if the piece got any longer people would give up on it, and in any case I pay the artist per page.)

  • The wikipedia definition of capital makes it fairly clear, and also notes the distinction between real capital and the representation of its value as financial capital.

    http://en.wikipedia.org/wiki/Capital_%28economics%29

    Of course, when referring to Ricardo’s theory of comparative advantage one should use the meaning he was employing in which most of the modern obfuscation was fortunately absent. Ricardo, like most classic economists, drew a distinction between the factors of production; land (natural resources), labour (mental and physical), and capital (durable goods in the production process).

  • Hi Lev,

    Well, I don’t think I’m wrong, exactly, to use the term “capital” for “financial capital”–“capital markets” and “capital controls,” which I originally planned to discuss, both refer to financial capital–but yeah, it’s possible to read my piece and think that capital *is* financial capital. But, there are plenty of other oversimplifications in the piece that I would have liked to have had the space to elaborate further, and this will have to go on that list.

    (It may seem like I have all the space I want, but I pay the artist by the page.)

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