By Lambert Strether of Corrente.
I like Tyler Cowen’s restaurant reviews a lot, but sometimes I think he should stick to doing them; I think that right now, in fact. Here’s a throwaway post from Cowen on ISDS provisions in the Trans-Pacific Partnership (TPP). tl;dr: Move along people, move along. There’s no story here. In longer though not very long form, after posing this rhetorical question in the headline:
How bad are the investor arbitration clauses in TPP?
Cowen goes on to quote a great slab of a post by Gary Hufbauer — we’ll get to Hufbauer in a moment — and frames it by answering his own rhetorical question:
Mood affiliation aside, these clauses do not constitute a significant reason to oppose the treaty, in my view.
Well, being but a humble blogger, I had to go look up “mood affiliation,” which Cowen defines this way:
It seems to me that people are first choosing a mood or attitude, and then finding the disparate views which match to that mood and, to themselves, justifying those views by the mood. I call this the “fallacy of mood affiliation,” and it is one of the most underreported fallacies in human reasoning.
You know, like when Publius wrote Federalist 51 out of pique. No, but all kidding aside, take the ISDS “lost profits” clauses — please! Yves writes:
Last week, Lambert flagged that the Administration can’t even get its story straight. The [White House] text states:
The reality is that ISDS does not and cannot require countries to change any law or regulation. …
Narrowly speaking, suing ex post facto to make a government pay a foreign investor for his future lost profits does not “require” a country to revamp its rules. But who are you kidding? The ISDS mechanism vitiates enforcement.
For example (via Public Citizen):
When an all-party committee of the provincial government of New Brunswick, Canada recommended that the province develop its own public auto insurance program, the private insurance industry used the threat of a NAFTA investor-state case to successfully lobby against the program. In response to public outcry over skyrocketing auto insurance premiums, the New Brunswick committee recommended a public plan that would achieve average premium reductions of approximately 20 percent. The Insurance Bureau of Canada, representing Canada’s largest insurers, immediately warned that the proposal could trigger NAFTA investor-state cases from foreign insurance providers in Canada as a NAFTA-prohibited “expropriation” of their market share. The proposal was soon scuttled, due in part, according to observers, to “aggressive threats of treaty litigation.”
Keeping premiums 20% higher than they would be with a public system? Impressive. Talk about expropriation! Notice also that the mere threat of ISDS litigation caused the government to back off. What’s that fact set got to do with mood or attitude? That’s an outcome the ISDS is designed to achieve; compensation for “lost profits,” or, to rephrase the term in a less Orwellian manner, “minimizing political risk” for corporations by gutting the ability of democratic governments to protect their citizens.
And not to go meta on the meta, but isn’t Cowen’s use of the “fallacy of mood affiliation” an example of the genetic fallacy? After all, minimizing political risk is what it is, whether the poor shlub bearing that message, doomed to be shot with spurious rhetorical constructs, is Sunny Jim or the Wicked Witch of the West.
And while we’re at it, what’s a well-respected academic like Cowen doing quoting a funny-numbers-for-hire guy like Gary Hufbauer, anyhow? Not that a blind pig can’t find a truffle every so often, but doesn’t the principle of altruistic punishment imply a necessary selectivity in sourcing? Hufbauer is an old friend; you can reread the whole discussion — which exemplifies academic choice theory — here in this Naked Capitalism post from 2007, from which I abstract away the technical detail:
From [Dani] Rodrik:
Many many years ago …, I heard Gary Hufbauer tell an anecdote at a conference on international trade. A government economist is called in by his superior, who tells him “Look, I have to make a case for this policy in front of Congress, and I need a number real bad.” The economist responds, “well, I haven’t done a proper analysis, so I can give you a real bad number.” Perhaps it was a true story based on Gary’s own government experience.
I am reminded of this story by Mark Thoma’s post, which focuses on the magnitude of the gains from globalization. He says “there’s something important that’s generally missing from the attacks on globalization’s supporters, actual evidence.” He refers to a Bernanke speech and at length to a paper which Bernanke cites by Bradford, Grieco, and Hufbauer (yes, the same Hufbauer). The Bradford et al. study argues that removing all remaining barriers to trade would raise U.S. incomes anywhere from $4,000 to $12,000 per household (or 3.4-10.1% of GDP). That is a whole chunk of change! …
As Thoma says, we cannot dismiss “evidence” just because we disagree with it. …[W]hile I would not quarrel with the assertion that globalization increases the size of the pie for the U.S., I do have a big quarrel with the kind of numbers presented by Hufbauer and company. They seem to me to be grossly inflated. Let me take up Thoma’s challenge and explain why. [Technical detail omitted.]
… The real action is in the non-standard methodological choices made by Bradford et al.–choices which are designed to generate large numbers.
What puzzles me is not that papers of this kind exist, but that there are so many professional economists who are willing to buy into them without the critical scrutiny we readily deploy when we confront globalization’s critics. It should have taken Ben Bernanke no longer than a few minutes to see through Bradford et al. and to understand that it is a crude piece of advocacy rather than serious analysis. I bet he would not have assigned it to his students at Princeton. Why are we so ready to lower our standards when we think it is in the service of a good cause?
Finally, a few words on the putative substance of Hufbauer’s slab, as quoted by Cowen. I’ll pick just one point:
The record shows that, far from a record [sic] of multinational corporations trampling sovereign states, investors have won fewer than a third of the cases resolved by the ISDS process1.
Bollocks, on two counts. First, Hufbauer doesn’t evaluate the cases on the merits. If 100% of the cases were frivolous, than winning even “fewer than a third” of them is indeed “trampling sovereign states.” Second, being an untrusting sort, I clicked through to footnote (1) in Hufbauer’s original post that Cowen quotes. Here it is:
1. High-profile cases cited as cause for concern about ISDS cite companies that allegedly seek to rollback [sic] regulations, for example, the Philip Morris–Australia plain-packaging tobacco case and the Vattenfall–Germany nuclear energy case among others. But the fact that such cases have been launched says nothing about the utility of the ISDS system; moreover, the cited cases and others in contention have not yet been fully decided. It makes no sense to condemn the ISDS system for imagined failures.
The superscript of footnote (1) is placed so as to seem to support the “fewer than a third” claim, but the supporting logic seems to be lower in the paragraph. There, we read that Hufbauer’s 29% (< one-third) figure covers only the “vast majority” of cases tried at the ICSID. However, we don’t know what “vast” means to Hufbauer, so “fewer than a third” is spuriously precise. In addition, Hufbauer seems to think that no costs are imposed on governments or their peoples until the cases are “fully decided,” but as we have seen, that’s false.
More centrally, the fact that a corporation can sue the government of Australia at all for regulating cancer stick labels to protect its citizens is an ethical and policy collapse of such magnitude as to render the very concept of utility, at least in Hufbauer’s hands, a hilarious nullity.
If Philip Morris didn’t want to be regulated, it shouldn’t have stayed in the cancer stick business. Philip Morris should eat its losses for its own bad judgment of political risk, not seek to stick the citizens of Australia with the bill through ISDS.
Can do better!
 Hey, kidding!