Are the Peterson Institute Studies Reliable Guides to Likely TPP Effects?

More on the controversy about the economic effects of the Trans-Pacific Partnership Agreement (TPPA). This commentary by guest blogger Jomo Kwame Sundaram continues the discussion begun by Jeronim Capaldo and Alex Izurieta here. The three are co-authors of the Global Development and Environment Institute (GDAE) working paper, “Trading Down: Unemployment, Inequality and Other Risks  of the Trans-Pacific Partnership Agreement,” available here. –Eds.

Are the Peterson Institute Studies Reliable Guides to Likely TPP effects?[1]

Jomo Kwame Sundaram

Professor Robert Lawrence[2] poses three seemingly reasonable questions to conclude that his colleagues’ trade policy work on the likely consequences of the Trans-Pacific Partnership Agreement (TPPA) is superior to our macroeconomic policy exercise using the United Nations Global Policy Model (GPM). In doing so, he misrepresents the nature of our work as well as the significance of the differences, thus confusing the issues.

Our study does not purport to be a comprehensive analysis of the TPPA and its effects, as his colleagues’ studies claim to be. We have not used the GPM as a trade policy model to substitute for trade projections made by Professor Lawrence’s colleagues. In fact, despite our reservations, we accepted the earlier projections by the Peterson Institute for International Economics (PIIE) on the likely trade outcomes of tariff reductions as our starting point, but proceeded to show that their claims about the TPP’s likely growth and employment effects were problematic and did not necessarily follow.

Our model incorporates macro-financial dynamics as well as distribution and employment variations, which more realistically represent the world economy rather than their self-equilibrating, full employment model. But in line with the limited scope and purpose of our paper, we do not claim to have provided reliable and definitive projections of the TPP’s likely effects.

As is well known, the United States Department of Agriculture’s Economic Research Service (USDA-ERS) computable general equilibrium (CGE) model[3] projections of the TPP are far more pessimistic than the PIIE’s. If the differences between our results and the findings of the PIIE were simply due to using different models, then one would have to explain how the USDA-ERS model came to its very different conclusions. Clearly, CGE models can come to very different findings using different, in this case, more realistic specifications.

Crucially, we noted that by assuming full employment, the PIIE model assumes away important macroeconomic implications of the TPP. We show that using the PIIE trade projections, but with more realistic modelling, assumptions and specifications, the TPP would result in more modest growth, net job losses, greater pressure on wages and a declining labour share of income. These effects may well be eventually offset by other developments having nothing to do with the TPP, but they nevertheless remain the likely effects of the TPP.

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What We’re Writing, What We’re Reading

What We’re Writing

Jayati Ghosh, Technology and the Future of Work

Martin Khor, The Rise of the Rich-Poor Gap

Thomas Palley, Louis-Philippe Rochon, and Matías Vernengo, The Relevance of Keynes’s General Theory After 80 Years (pay wall)

What We’re Reading

Robert Pollin, Note to Hillary: Clintonomics was a Disaster for Most Americans

Rebecca Ray, China in Latin America: Seeking a Path Toward Sustainable Development (talk, summarized by Benjamin D. Baldwin, Tufts University)

Simon Wren-Lewis, Unravelling the New Classical Counter Revolution (h/t Matias Vernengo, Naked Keynesianism)

Triple Crisis welcomes your comments. Please share your thoughts below.

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Capital Bleeds from Emerging Asia

C.P. Chandrasekhar and Jayati Ghosh

Everyone knows that 2015 was a terrible year for emerging markets – but exactly how bad it was has become clear only recently. Not only was it an annus horribilis in terms of net exports of goods and services, which declined sharply and even turned negative for some previously buoyant exporters, but it was also a time when capital flows reversed course. The downturns in both indicators have been much more widespread and substantial than they were initially expected to be, and even greater than mid-year assessments suggested.

In a previous edition of MacroScan, we used IMF data to show how net capital flows into developing Asia had declined significantly in 2014. This marked a break from the previous boom period when emerging markets – and especially those in developing Asia – could do no wrong in the eyes of global investors. But 2015 turns out to have been much more devastating for emerging markets across the world, including those in Asia. A new report from the Institute of International Finance (“Capital Flows to Emerging Markets”, IIF Washington D.C., 19 January 2016) indicates just how serious the swings in capital flows have been.

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Modeling TPP: A response to Robert Z. Lawrence

As trade ministers gather in New Zealand to sign the controversial Trans-Pacific Partnership Agreement (TPP) Feb. 4, Global Development and Environment Institute (GDAE) Research Fellow Jeronim Capaldo and coauthor Alex Izurieta published the following GDAE Globalization Commentary as a response to “Studies of TPP: Which is Credible?” by Robert Z. Lawrence for the Peterson Institute for International Economics. Lawrence takes issue with the modeling of TPP recently published by GDAE, “Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement,” which pointed to limitations in the Peterson Institute’s own modeling, notably its assumption of full employment, and offered additional analysis based on more realistic modeling assumptions. The controversy was recently covered by the New York Times.

By Jeronim Capaldo and Alex Izurieta

In a recent blog post Robert Z. Lawrence of the Peterson Institute compares our projections of TPP’s economic effects with those by his colleagues Peter Petri and Michael Plummer. Since the two sets of projections point to opposite GDP and employment outcomes in the United States, understanding the differences between them is important. We are thankful to Lawrence for bringing up, perhaps unintentionally, a few frequent misconceptions.

Lawrence’s comparison is organized around three questions he asks about each model: Is the model appropriate to explain trade policy? Does it sensibly depict TPP? Are the results credible? These are reasonable questions. Unfortunately, Lawrence’s answers contain several incorrect statements about our model while turning a blind eye to the problematic aspects of his colleagues’ work. If compare we must, we should be fair.

We offer different answers to Lawrence’s three questions and suggest considering a fourth, critical one.

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The Greenhouse 100

Regular Triple Crisis contributor James K. Boyce and his colleague Michael Ash, both professors of economics at the University of Massachusetts and researchers at the Political Economy Research Institute (PERI), released the Greenhouse 100 index late last month. The list, including the 100 U.S. companies responsible for the largest total greenhouse gas emissions based on Environmental Protection Agency (EPA) data, shows a stunning concentration of emissions at the very top. “The top ten companies emit 12.5 percent of total U.S. greenhouse gas emissions from all sources, both stationary and mobile,” reports the press release describing the findings. “The Greenhouse 100 together account for 34 percent of emissions nationwide.” The full text of the press release follows, and the full list of the Greenhouse 100 can be found after the jump. In addition, a Real News Network interview, in which Michael Ash discusses the report, is available here. —Eds.

Researchers at the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst today released a new edition of the Greenhouse 100 index, ranking U.S. industrial polluters on the basis of their emissions of the gases responsible for global climate change.

Topping the list are three electrical power companies: Duke Energy, American Electric Power, and Southern Company. Each of the top three released over 100 million metric tons of CO2 equivalent emissions in 2014. Together, these three alone are responsible for more than five percent of greenhouse gas emissions from all sources combined in the United States – as much as the average annual emissions of about 75 million automobiles.

Other companies in the top ten are NRG Energy Inc., Berkshire Hathaway, Dynegy, Xcel Energy, FirstEnergy, and PPL Corporation. The U.S. government ranks sixth on the Greenhouse 100 list, weighing in at almost 75 million metric tons – equivalent to more than 15 million cars. US Steel, ranked number 21, is the top non-energy corporation on the list.

The top ten companies emit 12.5 percent of total U.S. greenhouse gas emissions from all sources, both stationary and mobile. The Greenhouse 100 together account for 34 percent of emissions nationwide.

The data for the Greenhouse 100 rankings come from the U.S. Environmental Protection Agency’s Greenhouse Gas Reporting Program, which reports emissions from large facilities in the United States for the year 2014. PERI researchers matched the individual facilities to their owners to produce the Greenhouse 100 rankings.

Users of the web-based Greenhouse 100 can see the breakdown of emissions for individual companies by facility. PERI researchers also calculated the percentages of low-income and minority populations living within 10 miles of each facility. These provide an indication of the extent to which emissions of the toxic co-pollutants – such as particulate matter, nitrogen oxides and sulfur dioxide – that are produced along with greenhouse gases disproportionately impact these groups.

“The Greenhouse 100 index informs communities, consumers, and investors which large companies release the most climate pollutants into our air,” said Professor James K. Boyce, director of PERI’s Development, Peacebuilding and the Environment program. “People have a right to know about corporate responsibility for global climate change. Legislators need to understand the effects of corporate behavior on their constituents.”

The Greenhouse 100 accompanies PERI’s well-known “Toxic 100” rankings of corporate air and water polluters.

“In making this information available, we are building on the achievements of the right-to-know movement,” explains Professor Michael Ash, co-director of PERI’s Corporate Toxics Information Project. “Our goal is to engender public participation in environmental decision-making, and to help residents translate the right to know into the right to clean air, clean water, and a livable planet.”

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