A US-led trade deal is currently being negotiated that could increase the price of prescription drugs, weaken financial regulations and even allow partner countries to challenge American laws. But few know its substance.
The pact, the Trans-Pacific Partnership (TPP), is deliberately shrouded in secrecy, a trade deal powerful people, including President Obama, don’t want you to know about. More than 130 members of Congress have asked the White House for greater transparency about the negotiations and were essentially told to go fly a kite. While most of us are in the dark about the contents of the deal, which Obama aims to seal by year end, corporate lobbyists are in the know about what it contains.
And some vigilant independent watchdogs are tracking the negotiations with sources they trust, including Dean Baker and Yves Smith, who join Moyers & Company this week. Both have written extensively about the TPP and tell Bill the pact actually has very little to do with free trade.
Instead, says Dean Baker, co-director of the Center for Economic and Policy Research, “This really is a deal that’s being negotiated by corporations for corporations and any benefit it provides to the bulk of the population of this country will be purely incidental.” Yves Smith, an investment banking expert who runs the Naked Capitalism blog adds: “There would be no reason to keep it so secret if it was in the interest of the public.”
Let’s turn now to another big story most of us know even less about than drones. TPP — the Trans-Pacific Partnership. It’s a trade agreement the United States is negotiating with Australia, Canada, Japan and eight other countries in the Pacific region. If you don’t know about the TPP, and few do, it’s because the powerful people behind it — including President Obama — don’t want you to know.
The negotiations are shrouded in secrecy, and once they are completed, Obama wants to rush the agreement through Congress — fast-tracking, they call it — with our elected representatives given the choice only of voting it up or down. Last year, over 130 members of Congress asked the White House for more transparency about what’s being negotiated, and were essentially told to go fly a kite. You can be sure of this, however: a select group of corporate partners — companies like General Electric, Goldman Sachs, and Pfizer, the pharmaceutical giant — are not likely to be in the dark. Players like these stand to be the real beneficiaries of the agreement, because like other so-called “free trade” agreements, TPP actually will reward those at the top, even as it creates rules to override domestic laws on the environment, workplace safety, and investment. Corporate lobbyists already are lining up in Washington to ram the agreement through once the White House hurries it out of the delivery room. How do we know this? Because some vigilant independent watchdogs are tracking the negotiations, with sources they trust, and two are with me now.
YVES SMITH is an expert on investment banking and the founder of Aurora Advisors, a New York based management consulting firm. She runs the “Naked Capitalism” blog, a go-to site for information and insight on the business and ethics of finance.
DEAN BAKER is co-director of the progressive Center for Economic and Policy Research in Washington, DC. He’s been a senior economist at the Economic Policy Institute and a consultant to Congress and the World Bank. I rarely miss his blog, “Beat the Press,” and I’m a regular reader of his column in the “Guardian” newspaper.
Welcome to you both…
DEAN BAKER: Thanks for having me on.
YVES SMITH: Nice to be here.
BILL MOYERS: Twelve nations are involved in negotiating this treaty and yet so far hardly a peep or a leak from inside. Why so much secrecy?
DEAN BAKER: Well, it’s a very strange procedure here. Essentially what you’ve done is you’ve parceled out chunks of the agreement. So you have an agreement, a portion of it dealing with prescription drugs, you have a portion dealing with the internet, you have portions of it dealing with various aspects of environmental regulations. And you only have those parties to the table that are directly involved.
When I’m saying directly involved, essentially the industry groups. So it’s not as though we’ve brought the environmentalists there to talk about what sort of an environmental regulation we want around fracking. You have the industry groups, the oil and gas industry, they’re sitting down there with their counterparts in the other countries, deciding what sort of regulations you’ll have on fracking. So it’s a very peculiar way to go about doing a treaty. And I think if there were more public knowledge of it, people would be very unhappy.
It’s very peculiar to have an agreement of this importance be kept so much under wraps. One of the things that is known is apparently only five of the 29 chapters actually have anything to do with trade.
YVES SMITH: So really, it’s a mistake to call it a trade agreement. This is really an agreement that’s purpose is substantially to weaken nation-based regulation while at the same time strengthening intellectual property protections. So it’s basically a gimme to companies on both ends.
BILL MOYERS: Well, if there is so much secrecy, how do we know what we don’t know, to paraphrase Donald Rumsfeld?
DEAN BAKER: Well I mean there have been some leaks from people involved in the process, so there have been bits and pieces that have come out. But it’s very difficult to really know what is in there. They give limited access to members of Congress. And this, again, you know, Yves was making comment about that. You know, this really, to my mind, is quite a scandal.
So even a member of Congress, our elected representatives, can’t just go in there and say, “Let me see, you know, where this stands, where the latest text is.” They can get limited access to parts of it, they can’t bring their staff in, and they’re basically sworn to secrecy.
YVES SMITH: Some people have seen pieces. One of the groups that’s been very on top of this has been a Washington D.C. group called Public Citizen. And from the pieces they’ve been able to put together, they see that it, for example, will allow drug companies to increase prices, to extend the term of their patent.
So the patent protection will go longer, it’ll be much longer before anything will become generic. It would restrict buying local of all sorts. So for example, governments would not be able to, you know, say, “We’re only going to be able to buy from people in state or people in the US.” It would make things like GMO labeling impermissible.
It would weaken environmental regulations. So for example, you couldn’t say, “Gee, you know, Chinese tilapia, we don’t want to import that anymore because it’s become too toxic.” That kind of restriction would not be permissible.
DEAN BAKER: Yeah, let me carry that even a step further with the prescription drugs, just to try and put some dollars and cents on that. We spend around $300 billion a year on prescription drugs. Without patent and other similar protection we’d be spending about $30 billion. So this is, you know, how much for paying extra for prescription drugs because we have patent-related protections.
Now you could imagine a trade agreement, if this was really about trade, we’d be going, “How can we bring those prices down?” But instead, what you have is the drug companies there, and they’re not talking about how to bring them down. They’re talking about how to bring them up. Primarily in other countries, but they’d like to bring them up in the United States as well.
BILL MOYERS: Is that free trade?
DEAN BAKER: It’s the opposite.
BILL MOYERS: That law, is the patent law free trade?
DEAN BAKER: It’s a protection. And that’s what I just find—
YVES SMITH: Right.
DEAN BAKER: —so amazing. It’s called patent protection. And then they’re going, “That’s free trade.” And “No, this is a government-granted monopoly. And that just speaks to, you know, how convoluted our language has become, that it’s not free trade if we don’t extend the government-granted monopoly long into the future.
BILL MOYERS: Doesn’t the entertainment industry also stand to gain?
YVES SMITH: Yes. I mean, one of the things that— there’s a European counterpart of the Trans-Pacific Partnership that’s also under negotiation. One of the things that France is upset about is that they provide subsidies to their entertainment industry. The idea that a French film that would only appear in an art house cinema is any threat to the American movie industry.
I mean, that’s absurd. And yet that kind of thing would not be permissible under that version of the deal. One of the things that would happen apparently under both deals, is even more severe restrictions on copying and transfers, to the point where one of the leading one— an internet group called the Electronic Frontier Foundation said it would even interfere with the basic operation of the internet because things like temporary copies wouldn’t be permitted under this rule.
DEAN BAKER: Also, there’s an issue of enforcement here that people might remember the Stop Online Piracy Act that they were trying to get through in the United States a couple years ago, and of course there was a big uprising against, a lot of grassroots opposition, a lot of companies, in fact, came out in opposition to it.
And one of the big points there was that it required third parties. So someone posted something on my website that turned out to violate a copyright of Warner Brothers, well, under that, I could be held liable for this. Warner Brothers could take action, legal action against me. As it stands now, if I have material that violates their copyright, it’s incumbent on Warner Brothers to go, “Oh, you have to take this down.”
And then I have, you know, it’s a reasonable time period to take it down.
BILL MOYERS: So is this why you wrote the other day, “This could make … Google, Facebook, and indeed anyone with a website into a copyright cop”?
DEAN BAKER: Exactly.
BILL MOYERS: But this is the paradox to me, I mean, as you’ve just said, stronger copyright and patent protection is the very opposite of free trade. They involve government interference and intervention in the market. They restrict competition. They lead, as you’ve just said, to higher prices for consumers. How can you describe this as a free-trade agreement?
YVES SMITH: I think the free trade idea is what’s being used to bully a lot of the countries into it. That if you’re not part of this deal, you’ll somehow be left on the outside. You know, there’s a big argument apparently in Japan about this right now, that Japan is one of the late joiners to the negotiations.
And some groups in Japan have started objecting. And the government’s saying, “Well, if we don’t participate, you know, everybody else will be in and we’ll be out.” So that’s the leverage that America is apparently using to try to get people on board
DEAN BAKER: But this is really important to point out it isn’t free trade. You know, if you look at the actual trade barriers that exist between the United States and these other countries, at this point, they’re almost all very small. You know, if you have a tariff of one percent or two percent, you know, the things like that, it really doesn’t matter whether it’s there or at zero.
So what this is really about is, you know, these sorts of, in many cases, provisions increasing barriers or restricting the ability to have environmental regulations, health and safety regulations. That’s what it’s really about, trade’s really peripheral.
YVES SMITH: That’s how this works in combination with the secrecy provision. It’s free trade because nobody knows otherwise.
BILL MOYERS: What is your greatest concern about this?
YVES SMITH: I think the drugs one is my biggest one. And the second one, frankly, is financial services. Because this would also basically make a lot of financial services regulation that we now have pretty much impossible. It would force—
BILL MOYERS: How so?
YVES SMITH: It would force everything— well, apparently financial services is one of the chapters. And so again, it would lead to a race to the bottom, that any country, that any signatory to the pact could say, “Gee, you know, X, Y, Z country has weaker regulations. You know, you’re hurting us by making us adhere to this higher standard.” And in particular, and another sort of interesting conflict is that one of the things that it rules out is capital controls.
Now, historically, people used to say that, you know, again, the sort of simpleminded idea that capital controls weren’t such a good thing.
And now the IMF has come around and has said that capital controls, you know, certain types, are actually desirable. Chile and Malaysia had them both going into the crisis, and they did better than a lot of other countries as a result of having them. But that in fact may be one of the things that makes a steel founder, that some of the countries that have them and like them, are objecting to the faculties that are included in the pact.
BILL MOYERS: Is it conceivable to you that this could affect the enforcement of Dodd-Frank, which was ostensibly passed to prevent another great crash like 2008? Could this affect the enforcement of Dodd-Frank?
YVES SMITH: Yeah. No, I mean, certainly the derivatives regulation, and I would expect the capital levels. There’s no—
BILL MOYERS: How? How would that work?
YVES SMITH: The first language in both these deals goes something along the lines with, “All signatories are required to make their laws and regulations conform to the standards of this agreement.” They are literally required to make their nation-based laws subordinate to the terms of these agreements. And again, we don’t know exactly what’s in them. But the whole notion is that they are to permit very liberalized capital flows and minimal restrictions. So like, Dodd-Frank basically is inconsistent with that.
BILL MOYERS: So foreign trade partners would conceivably be allowed to challenge American laws?
YVES SMITH: Yeah.
DEAN BAKER: That’s exactly the point—
YVES SMITH You know, one of the things it extends is a concept that exists in NAFTA, but it’s— which is that you have special panels that companies can go to get matters adjudicated if they believe that regulations have led them to lose profit. And it’s not even necessarily that they’ve currently lost profit. It’s that they have potentially lost profit.
For example, one case that’s now pending under NAFTA is that Quebec has an anti-fracking prohibition to protect the Saint Lawrence River Valley. There’s a US company that’s suing $250 million. And if they win that case before the special panel, the Quebec government will have to pay that amount. Under the TPP, you’ll see an enormous expansion of that kind of power.
BILL MOYERS: Both of you are good at arguing the other side for the purposes of debate. So what’s good about this? Why should anybody be for this free-trade agreement that’s not a free-trade agreement?
DEAN BAKER: Yeah, it is really hard for me to see. I’m sure if we had the whole text in front of us, I’m sure you know, both of us would be able to find things, we’d go “that good, that good.” I mean, there has to be something that’s good. You know, the way it’s being constructed, it’s not the way in which you design a treaty that’s intended to benefit the bulk of the population of either the United States or the other countries.
I mean, you won’t just have the corporate interest there, and that’s literally what you’ve done. I mean, it’s kind of amazing. What are they going to do? They’re going to try to ensure that it maximizes their profits.
Now, not everything they have there is going to be bad, but I suspect most of the clauses in there are going to be to advance their interest.
YVES SMITH: One of the aspects of the Trans-Pacific Partnership is it’s an everyone-but-China deal. One of the intentions of the deal is to isolate China. So if you think isolating China is a good thing, then that would be a reason to support the deal.
Now in fact, ironically, a lot of the companies that are supporting this deal may not have thought through all of the implications because a lot of them have extended supply chains that go through China. This disrupts their current supply chains, they might actually have to reorganize their lives a bit more than they had thought.
DEAN BAKER: Our economies are very integrated. One would expect that they’ll continue to be integrated. You know, so the idea that we’re going to isolate them, I don’t really see how that would work in any case. But if that were a goal of policy, if we actually could get to a situation where we did sort of separate the countries, that would not be a pretty picture. So I think we have to look to integrate with them. And ideally on better terms than we currently have.
BILL MOYERS: Some people refer to this Pacific deal as the quote, “North American Free Trade Agreement on steroids.” Does that make sense to you?
YVES SMITH: Well, it does because the North American trade agreement in the end wound up helping corporations and didn’t do much for American workers. In fact, there have been economists who’ve said that NAFTA produced as much as nearly a million job losses in the US
And the whole notion of this agreement is to facilitate the movement of capital and to give even more privileges than it has now. So you know, workers, except for a few who have a seat at the table like the UAW, workers are basically at the back of the bus on this one.
BILL MOYERS: President Clinton, a lot with NAFTA. Listen to this.
BILL CLINTON: NAFTA will tear down trade barriers between our three nations. It will create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone. The environmental and labor-side agreements negotiated in my administration will make this agreement a force for social progress as well as economic growth.
BILL MOYERS: Did NAFTA bring us hundreds of thousands of jobs? Did we get better environmental and labor standards? What did we get?
DEAN BAKER: You’d be very hard-pressed to see us having gotten jobs from NAFTA. I mean, you had the number of companies you could identify that shift operations to Mexico. And that was clearly the main point of the agreement, because there are extensive chapters on investment and much of the agreement was about making it easy for, say, a General Electric, General Motors to shift their operations to Mexico and know that they would be guaranteed that there wouldn’t be an issue of expropriation, they won’t have to worry about repatriating their profits.
That was really the point of the agreement. So we did lose a lot of jobs to Mexico for that reason. In terms of the environmental and labor standards, those were thrown in as an afterthought. Now, you have had some effort to take advantage of those. I wouldn’t really say it’s had much impact. I mean, basically to help the situation some unions in Mexico, or workers trying to organize unions in Mexico.
But those really were an afterthought. And they weren’t intended it’s the way it’s always treated. The investment stuff is serious. You don’t play games with it. The labor stuff is like, “Oh, okay, you can talk about it.” There’s no real enforcement mechanism. No one’s going to go to court and pay hundreds of millions of dollars in damage ’cause they didn’t comply with the terms of the labor conditions.
BILL MOYERS: Same with the environment, right?
DEAN BAKER: Exactly. There’s nothing— and it’s not that we couldn’t put terms in. I mean, these are all intelligent people. If we wanted to put in terms with that agreement that had enforceable environmental standards, they would be there. And then if you had a situation where a company was breaking those standards, they would be paying very serious damages. That has not happened ’cause of NAFTA.
BILL MOYERS: Ross Perot, whom as you both know ran as a third-party candidate in 1992 against George H.W. Bush and Bill Clinton warned us against NAFTA. Listen to this.
ROSS PEROT : If you’re paying $12, $13, $14 an hour for factory workers, and you can move your factories south of the border, pay one dollar an hour for labor, hire young twenty— that’s assuming you’ve been in business for a long time, you’ve got a mature workforce.
Pay one dollar an hour for your labor, have no healthcare, that’s the most expensive single element making the costs, have no environmental controls, no pollution controls, and no retirement, and you don’t care about anything but making money, there will be a giant sucking sound going south.
BILL MOYERS: He was prophetic.
YVES SMITH: Yeah. Well, and the funny bit about his math is that actually one of the things that is distressing, and apparently this is actually worse in the TPP. But the companies had tended to move production even when the economic case was very weak. And so when that happens, what you’re really seeing is a transfer from— you’re not really seeing shareholders benefit.
You’re basically seeing a transfer from factory labor you’re cutting their pay. to the top executives, there are industries like furniture. I mean, when— think about it. We’ve got US wood, and the shipping to China, and then shipping it back.
You know, a lot of the values in that wood, you would lose a lot in the transit time, you also lose a lot in flexibility. And people in industries where you’ve got a lot of US content in things that are shipped overseas and then sent back, and they’ve said, “The economic case just isn’t very strong. But we did it because our stock would get a pop from it.”
BILL MOYERS: During the 2008 campaign, candidate Obama was skeptical about NAFTA. Here’s what he said then.
KEITH OLBERMAN: Scrap NAFTA, Senator Obama, or fix it?
PRESIDENT OBAMA: I would immediately call the president of Mexico, the president of Canada to try to amend NAFTA, because I think that we can get labor agreements in that agreement right now. And it should reflect the basic principle that our trade agreements should not just be good for Wall Street, it should also be good for Main Street. And the problem that we’ve had is that we’ve had corporate lobbyists oftentimes involved in negotiating these trade agreements. But the AFL-CIO hasn’t been involved. Ordinary working people have not been involved. And we’ve got to make sure that our agreements are good for everybody. Because globalization right now is creating winners and losers. But the problem is, it’s the same winners and the same losers each and every time.
BILL MOYERS: What do you suppose is the influence on President Obama that caused him to reverse course on NAFTA and not fulfill what was a campaign pledge?
DEAN BAKER: Well, I think it’s the nature of politics in the United States. I mean, it’s not a secret. You know, you have very powerful politically, economically— people who, you know, are pushing for this. And you know, we saw this with Wall Street, you know, when President Obama first came into office. You know, at that point, you know, Wall Street is on its back, meaning the financial industry.
And basically President Obama had it in his ability to break up the big banks, totally restructure finance, he decided not to go that route. And his top advisors, well Robert Rubin, played an enormous role, you know, as the top executive at Citigroup and formerly Goldman Sachs.
He was not going to go that route because these are the people he was listening to. And I think that’s continued to be the pattern throughout his administration, that’s he’s listening to people with a corporate interest, he was just talking about there. Those are the people who are steering the policy.
YVES SMITH: I mean, I’d go a little bit further than Dean on that. In that when you look at Obama’s record of his campaign promises versus what he’s actually done, there’s sort of a normal, acceptable level of political lying, and Obama has gone way past what is historically the normal in terms of, you know, politician fudging and then doing something else when they’ve been in office. This is just another example.
BILL MOYERS: Do you buy Dean’s argument that it is the power of Wall Street? That it is—
YVES SMITH: I think Obama’s fundamentally a very conservative person. The idea that he ran as the anti-Bush because the country was desperate for somebody other than Bush. So he sold what would sell. But he’s liberal on social issues, but economically, he’s not very different than the Republicans.
BILL MOYERS: This discussion brings me to the economy. As you both know, the September jobs report, which was delayed by the government shutdown, was weak by all reports. What is it going to take to turn our economy around for working people and middle class people out there who really are in pain?
DEAN BAKER: Well, we clearly need much more rapid growth, and it’s just not on the agenda. And it’s sort of like, you know, there they seem to be hoping when I’m saying they, people in Washington, you know, including the Obama administration, somehow something’s just going to jump out of nowhere. And the economy doesn’t work that way.
So, you know, if we’re going to see more rapid growth, you know, it’s fairly narrow places it has to come from. You know, are we going to see some surge in consumption? Very hard to see. Is there going to be a surge in investment? You know, very hard to see. Basically, the government’s the one entity that has the ability to boost the economy.
BILL MOYERS: By spending money?
DEAN BAKER: By spending money. Larger deficits. You know, that this what it boils down to. And that’s, you know, you cannot say that. I mean, I’ve talked to people in the administration, talked to people in Congress, they go, “Oh, I’ll get killed if I say that.” Well, some of them got to say it because that happens to be true.
BILL MOYERS: Do you believe it?
YVES SMITH: Absolutely. I mean, if you want to look at the economy in a very simple way, we’ll just get rid of the import-export sector, because for the US, this won’t change the story. You’ve got households, you’ve got the government, you’ve got businesses. Households tend to be net savers, because people save for retirement and emergencies.
Businesses we like to think of businesses as being net borrowers, because businesses invest and spend. And then therefore the notion is— the reason that a lot of people are opposed to government running deficits is that they’re afraid that the government will borrow and crowd out business investment.
The fact is that businesses even in the last expansion under Bush were net saving. Which is— so basically capitalists aren’t acting like capitalists anymore. They’ve gotten so short-term oriented. And in a weak economy, you know, they’ve got— they pull in their horns, they don’t spend a lot, they don’t invest then either.
And now we’ve got companies literally borrowing hundreds of billions of dollars. They’ve got record levels of cash. What are they doing? They’re buying back stock. So this is actually the time government should be running deficits. And yet it’s anathema to say it politically.
BILL MOYERS: Well, why is that? I mean, it seems to me the other side has won the argument.
DEAN BAKER: Well, they’ve won it politically. What’s striking is they’ve lost it completely in academic economics. This is an active area of economic research. At this point, there’s been literally dozens of papers produced that show if we want to see growth in the economy today, the government’s going to have to run larger deficits. So the opponents of big deficits say, “No, that’s going to undermine business confidence. So whatever the government does by way of increasing spending, we’re going to undermine business confidence , we’ve got consumer confidence so that we’ll offset it.” People have studied this and, you know, including the International Monetary Fund, which I mention here because not so much that they’re just authoritative, but they’re, tend, to be conservative.
You’d expect them to typically be on the opposite side of this. They’ve produced a number of papers showing that no, the current context, bigger deficits will lead to more growth, more jobs. But politically, you can’t say that. And I will disagree with Yves on this because I do think trade actually could be part of the story. But here again, they can’t talk about that.
If you go to someone in the administration, to my view, if you wanted to see an improved trade balance, get the dollar down. Very simple. A lower-valued dollar means our goods are cheaper elsewhere in the world, imports are more expensive to people in the United States, so we buy more domestically and produce goods, fewer imports.
Exchange policy, exchange rate policy is something we don’t talk about. So the two things that could boost the economy, larger deficits, lower-valued dollar, are both things that they don’t talk about.
BILL MOYERS: You both keep saying they don’t talk about this crucial issue, they don’t talk about that crucial issue. They don’t take this stand and speak the truth to us. What’s going on?
YVES SMITH: Well, I wrote something in 2010. I said that Obama believes that the response to any policy problem is better propaganda. And unfortunately, I think this was an illustration of that phenomenon.
BILL MOYERS: But is it better propaganda to be silent when people can’t get jobs that job growth is down, we need to spend money, and they’re not doing it.
YVES SMITH: He won in 2012, even with a terrible economy. So it didn’t, you know, it didn’t seem to— running bad policies didn’t seem to prevent him from getting reelected.
DEAN BAKER: And the people in positions of power, they’re basically doing okay. I mean, the stock market’s up, corporate profits are at near-record highs. So, you know, for the people in power, they’re doing fine. So I’m not saying that they’re all, you know, like, evildoers who want people to suffer. But, you know, I’ve been, you know, I’m sure you could turn on the news any day of the week and you’ll hear a roundtable like this, you won’t be there, I won’t be there, Yves won’t be there.
And they’ll go, “Look, we just have to get through a tough time.” And invariably, the people at the table aren’t experiencing a tough time. So it’s saying, you know, “Those tens of millions of people that are either unemployed or partially employed, they haven’t had a wage increase in years, they’re going to have to get through tough times.” So there’s a real disconnect, the people who are sort of making policy, passing judgment on policy, they’re okay. It’s all these people around the country that are really suffering who don’t really have a voice.
YVES SMITH: Yeah, I think it’s even— and I think to amplify that, if you go to Washington D.C., you know, it’s incredibly prosperous.
And most D.C. people, to the extent they leave D.C., they come to New York. And if you stay in the better parts, if you stay in Manhattan, things look fine in Manhattan. Now, you have to not look out the window of the Acela.
I mean, I’ve you did, you’d see how bad things are. But, you know, it’s very easy to ignore what’s happening because again, as Dean said, it— you know, these people all deal with other people who are basically doing fine and they don’t hear or have much contact with the people who are suffering.
BILL MOYERS: Well, this brings us to the upcoming, big fight over Social Security and Medicare. Top Republicans are saying repeatedly that they will be glad to end the sequester, the across-the-board federal cuts that took place earlier this year if Democrats agree to future cuts in Social Security and Medicare. How do you both think this is going to play out?
DEAN BAKER: Well, President Obama’s indicated he’s been willing to make cuts in both Social Security and Medicare. But I think he needs something more in taxes than the Republicans are prepared to give. So my guess is that you won’t see that. But it does have me very concerned.
These are openly on the table. And you look at the condition of today’s elderly, I think you’re really hard-pressed to say that they have too much money. I mean, for 40 percent of that people, 40 percent of people over age 65, their Social Security check is more than 90 percent of their income. And these are checks that average a little over $1,200 a month. So to say that these people are doing so well, we should be looking to cut back their benefits or have them pay more for Medicare, that to my mind, seems 180 degrees wrong track.
YVES SMITH: I think to put it more bluntly: no one is willing to talk about the fact that Social Security and Medicare cuts equal having old people die faster. And that the proposals to do that are indirect. And they’ve labeled them in technical language so that most people won’t realize that’s what happening. I mean, chained CPI, you know, that’s a “my-eyes-glaze-over” term. And that’s—
BILL MOYERS: Consumer Price Index?
YVES SMITH: Right, and so that’s the mechanism by which the social security is going to be cut, is that the cuts will basically lag the inflation that seniors experience.
BILL MOYERS: And yet, I can just show you the headlines. President Obama said the other day the country has to address quote, “long-term obligations,” that we have around things like Medicare and social security. The chair of the Senate Budget Committee, Patty Murray, Democrat from Washington State says, “All issues are on the negotiating table.”
The number two Democrat in the Senate, Dick Durbin, told “FOX News on Sunday” that Social Security’s going to run out of money in 20 years, Medicare may run out of money in ten years, let’s fix it now. That’s Dick Durbin, number two man in the Senate. I mean, it sounds like Democrats are in a bargaining mood.
DEAN BAKER: Absolutely. The one thing we have going for us is the vast majority of people across the country in both political parties are strongly opposed to these cuts. You know, so that is the thing they have to overcome. So you get 75 percent to 80 percent of Republicans, Tea Party Republicans that are opposed to cuts to these programs.
But just to take the specific points that, you know, Senator Durbin raised, if you look at Social Security, it’s gone from being about four percent of our economy in 2000, to about five percent today. It’s projected to be about six percent in 20 years. That’s because we have an aging population, the baby boomers. We can handle that. That’s not a big deal.
But when you talk about Medicare, it’s a totally different story. That’s being driven by our healthcare costs. We spend more than twice as much per person as the average for other wealthy countries, we have nothing to show for it in terms of outcomes. We have to fix our healthcare system. So talking about “we’re going to take this from seniors” is totally wrongheaded.
Now we can go back to our trade deal and say, “Okay, let’s get lower-cost drugs. Let’s get lower-cost doctors.” There are things we can do to fix healthcare. I’ve been on panels with a lot of these people that go, “Oh, but Dean, fixing healthcare’s hard.” I thought you were the tough guys.
YVES SMITH: There’s a piece of this that’s even uglier, which is that the statistics that everyone relies on, you know, all the people that you quoted, come from the Congressional Budget Office. They’re the more skeptical economists who have looked at them, have actually found pretty serious problems with their forecast, that even though they are, quote, “nonpartisan” in terms of not being affiliated with either party, they have in fact taken a very deficit-hawkish approach to the way they put their numbers together. Two economists who are at the Federal Reserve, and they are probably the two most qualified economists in the country, they wrote a paper on the CBO’s healthcare cost forecast, and they shredded them. So if you were to use these Fed economists’ forecast, you wouldn’t be anywhere near as concerned. You wouldn’t have the drive to quote, “fix,” end quote, these programs.
YVES SMITH: But I think it’s back to Dean’s point, that it’s actually for Medicare, it’s a reflection of the way we do healthcare in this country. And the fact that we’ve got—doctors are paid for services. And therefore they have an incentive to recommend more services. You’ve also got a population which is trained to think that more treatment is better.
The desire to intervene quickly, even for things that aren’t very serious is very strong here.
DEAN BAKER: Yeah, I’d agree with that completely. And just making a couple points again. Social Security, I think it’s just absurd to think of this as a problem. We’re aging. I don’t think that’s a bad thing. I mean, we could all have us die younger, but I don’t think people would really think that’s a good story. So that’s going to cost money. And it does cost more money today than it did 20 or 30 years ago.
It’s going to cost more money 20, 30 years from now. If people of normal wage growth, if people got their share of economic gains, we’d be talking about before-tax wages 30 years out that are 40 percent or 50 percent higher than they are today.
You know, that’s not an issue. Now when it comes to healthcare, you know, Yves is exactly right. But the other thing, you know, I think we have to put this in some context. We don’t know. And I think you’re exactly right that the projections are likely too high. But let’s say the Congressional Budget Office projections prove right. I don’t think we’re going to have morons running the country in 25 years. So if it really is the case that we’re looking at these really big healthcare costs, they will be able to deal with that then.
BILL MOYERS: Well, on what basis do you make such a prediction?
DEAN BAKER: Well, the reality. However much I might be critical of Congress and the president, we don’t have a history of runaway deficits. As much as they like to say, “Oh, we—” we actually don’t. You know, and I’d argue they probably did too much. You know, you go back to the Clinton years, you know, they said, “Oh, we got to balance the budget.”
And of course they did. But the idea that we just had exploding deficits that, you know, Congress and our president just looked the other way. We don’t have any history of that.
BILL MOYERS: Yves, explain this then. It seems that although the facts and argument may be on your side, the politics of it is going in the other direction.
YVES SMITH: Well, there’s a very effective messaging apparatus. It doesn’t include middle-class Americans. I think that’s what it boils down to. You know, that the people that the reporters get their information from are the ones that significantly push stories.
And a very significant percentage of the stories that appear for a very long period of time have always been driven basically by press releases or messaging.
And Pew studies have basically found the same thing is true now. That half the stories are literally promoted to the media. And then in the other half, inevitably, if you’re a journalist, you’re going to call some famous person who’s legitimate, you know, to get the sort of plus and minus.
And most of the famous people who are legitimate are, you know, either they’re important government officials who are going to be— who are largely on board with this story, or they’re going to be business interests. There are unfortunately very small— only very small pockets of people who are considered to be legitimate that a journalist would call to get the other side of the story.
BILL MOYERS: We started with free trade, let’s close with free trade. You’re on the board of an organization called Just Foreign Policy. And that organization is offering a reward, to anyone who can give it a copy of the negotiating text of the Trans-Pacific Partnership Agreement. Any takers so far?
DEAN BAKER: Not so far. So the idea here is that we do have people involved in negotiating process, they have access to at least parts of the deal. So the hope is that someone from good conscious, presumably more than, you know, the hope of getting a big reward, will feel, you know, feel the urge to make it public and, you know, the organization Just Foreign Policy— I’m on the board, but I don’t play an active role in running it— will be happy to then post on the web so that, you know, people across the country can really, you know, in all the countries will have an opportunity to see it.
BILL MOYERS: So in the last word here, both of you— the argument is this Trans-Pacific Partnership Agreement will ensure a freer flow of goods and greater prosperity. The other side of it really serves essentially what we know about it, the corporate interest. Is that where you come down?
DEAN BAKER: Very much so. I mean, this really is a deal that’s being negotiated by corporations for corporations and any benefit it provides to the bulk of the population of this country will be purely incidental.
YVES SMITH: There’d be no reason to keep it so secret if it was in the interest of the public.
BILL MOYERS: YVES SMITH, DEAN BAKER, thank you very much for being with me.
DEAN BAKER: Thanks for having me on.
YVES SMITH: Thank you.