George Will in the Gamma Quadrant (Why Oh Why Can't We Have a Better Press Corps?)

It's sad that George Will is still writing. In fact, it's sad that George Will was ever writing. Matthew Yglesias snarks away:

TPMCafe || Health Care With Your Hyundai?: By Matthew Yglesias: George Will explains the world:

Miller bluntly says that the social contract written after 1945 is being -- must be -- repealed because, given globalization, unskilled manual labor cannot be paid $65 an hour, with the cost passed on to consumers.... Herb Stein, the University of Chicago economist who served as chairman of President Richard Nixon's Council of Economic Advisers, famously said: If something cannot go on forever, it won't. Delphi's resort to bankruptcy and GM's attempt, with the cooperation of the UAW, to avoid, for now, doing that, suggest that America's welfare state -- its private sector as well as its public-sector components -- is reaching its Herb Stein Moment.

...[I]f you think about the world's major car companies, they're not located in India. Instead, your primary automakers are in the US, Germany, or Japan. Germany, as you may have noticed, is not exactly well-known for its lack of a welfare state. In Japan, too, the people who work for car companies get health care. But Will clever avoids Germany or Japan. Instead we hear about Hyundai.... So what's the deal with South Korea? Lets take a look:

The South Korean government committed itself to making medical security (medical insurance and medical aid) available to virtually the entire population by 1991... the Ministry of Health and Social Affairs coordinated its efforts with those of employers and private insurance firms to achieve this goal. Two programs were established in 1977: the Free and Subsidized Medical Aid Program for people whose income was below a certain level, and a medical insurance program that provided coverage for individuals and their immediate families working in enterprises of 500 people or more. Expenses were shared equally by employers and workers. In 1979 coverage was expanded to enterprises comprising 300 or more people, as well as to civil servants and teachers in private schools. In 1981 coverage was extended to enterprises employing 100 or more people and in 1984 to firms with as few as 16 employees. In that year, 16.7 million persons, or 41.3 percent of the population, had medical insurance. By 1988 the government had expanded medical insurance coverage in rural areas to almost 7.5 million people. As of the end of 1988, approximately 33.1 million people, or almost 79 percent of the population, received medical insurance benefits. At that time, the number of those not receiving medical insurance benefits totaled almost 9 million people, mostly independent small business owners in urban areas. In July 1989, however, Seoul extended medical insurance to cover these self-employed urbanites....

Oops!

In every major car-making country, auto workers get health care. The difference is that in every major car-making country besides the United States there's a systematic government policy in place trying to make sure that everyone gets health care. This is good policy.... America's private sector welfare state is, indeed, breaking down. But our public sector one isn't breaking down. It's being bankrupted as a matter of deliberate public policy by officials who want to wreck it in order to better afford tax cuts for extremely wealthy individuals.... [T]o pretend that nefarious "globalization" is responsible for it all is absurd. Universal health care is a staple of much more trade-dependent countries than the United States. Nothing is stopping us from doing it except the George Wills of the world.

Comments

[elliottg]

I'm always using Stein's quote to point out the inevitability of universal healthcare in this country. Herb Stein may have been a Republican, but he wasn't a fool (even though his son is).

[pgl]

Hmm. Let's run with the Herb Stein quote Will (ab)used. Herb was a pretty decent economist so he'd pose this in terms of real compensation relative to productivity (aka unit labor costs). Does Will really think real compensation is rising exponentially? Herb - do the numbers for the village idiot in the bow tie!

[anne]

This is an especially important economic post. Thank, Brad and Matthew.

[erg]

The main point that Matthew and Brad make is valid in that the largest car companies in S Korea, Japan etc. offload their health care costs to the state just removing their competitive advantage.

Yet, the world's major car companies may not be located in India or CHina, but they are increasing manufacturing, R&D and design there. India has almost no social security system to speak of, and while there are free public hospitals, access is terrible outside of the cities. Will's point is not totally invalid.

[robert waldmann]

You are unusually restrained by a desire to be nice to George Will. I will be more blunt in case any reader didn't get the strength of your contempt for his argument.

In your very kind post you understate your case. Universal health care is not just consistent with competativeness in high wage industries, it is necessary for competetiveness in high wage industries (and spellling tooo).

GM has trouble competing with everyone but Ford and Crystler because it is paying for health care not only for its employees are retirees but also for the uninsured. In the USA health care providers must charge the insured an arm and a leg to give a hand to the uninsured (ask Sen Frist about advances in transplantation technology and why he dumped his shares in the family business).

The US system is idiotic industrial policy in which high wage traded goods industries support Walmart. Since manufacturing firms pay workers more than they could get in other sectors there is good reason for a rational but nasty country to subsidize it's manufacturers in order to grab the good jobs and labor market rents.

A nasty and totally moronic party which sadly is in power in the USA has decided instead to subsidize low wage industries because the alternative would be socialism. The USA is an amazing country and will probably survive such a brilliant strategy for making it poor.

I work on the assumption that you can't keep the USA down. Otherwise I would have to conclude that it has no chance in its death struggle with the Republican party.

[ken melvin]

I think Will and ilk should be payed minimum wage, maybe less, and get no health care. A hundred years ago, before ronnie, when I was dumber, I used to think that Will was bright; wrong but bright. Along in there about the time of sir roland of holyrood, Will lost his marbles. Today, he is but a blither.

[anne]

Robert Waldmann:

'A nasty and totally moronic party which sadly is in power in the USA has decided instead to subsidize low wage industries because the alternative would be socialism. The USA is an amazing country and will probably survive such a brilliant strategy for making it poor.'

Yes!

[anne]

Robert Waldmann's response is quite among the finest I have seen :)

[save_the_rustbelt]

Apparently the conventional wisdom is that fixing healthcare will fix the auto companies and save the UAW.

Wrong.

Where do we start?

Featherbedding
High absenteeism
dumb management
short warranties
cars that are homely
care that are not durable
lost market share

Check the faculty parking lot at any university - you will not find many Chevys (except the 1992 Implala driven by a grad student). Prof. DeLong looks like a Lexus guy to me, just guessing.

NO, this problem is a whole lot more complicated than health care.

[dearieme]

Is it just conceivable that the problem is not entirely unrelated to the fact that Toyota and Honda make better cars and build them better too?

[John Emerson]

Blog Democrats (except for Kaus) seem to have become steadily more friendly to labor during the last 4 years. No longer a "special interest group", apparently.

[DOR]

Has no one considered the variation in tax rates among Germany, Japan, Korea and the US?

* In those three economies, health care is paid for from general revenues through higher tax rates.

* US companies pay lower taxes than companies in those three economies.

* US workers have no universal health care; workers in those three economies do.

: You get what you pay for.
.

[Rob]

US workers work for Honda, Toyota and Nissan as well. They all have plants in the US. And GM, Ford and Chrysler produce in Canada as well as Mexico (as does many other companies) for US consumption.

[bakho]

American auto companies are run by businessmen who are more concerned with the bottom line than making the cars they would want to drive. Chrysler was successful with the minivan because that was what soccer Moms wanted to drive. However, the market has shifted and the Detroit no longer makes the cars people want to drive.

When Apple Computer was run by the Pepsi guy, they had little innovation and made bottom line decisions that almost sank them. When Jobs returned, he started making the computers he wanted to use with the software that did the things he wanted to do and brought in the ipod which stored and played music the way he wanted it. Guess what. It has been successful. American auto companies are lacking the innovation and leadership at the top.

Granted, the health care system is a complete mess and the new Medicare Prescription Drug Plan is WORSE THAN INCOME TAX. This boondoggle has to be far worse that the worst fears about HillaryCare. Grandpa can't figure it out. Oh my God. There are dozens of competing insurance plans each of which covers some drugs and not others. Each has a different fee structure of monthly fees, co pays and coinsurance. Medicare sends a 100 page book with 10 pages of charts outlining the plans, but fails to deliver the details that are needed for a rational decision. Grandpa quit reading after the first 22 pages because of eye strain. WTF were they thinking? Grandpa doesn't know which plan to choose. From what I can tell, the only way to get the detailed information on which plan is the best is to call up each of the dozens of insurance companies and ask them on the phone. Since Grandpa can't hear, we will have to figure it out for him. This would be a great Service-learning project for a business class. The information does not seem to be on the web. I think our Congressmen should each be locked alone in a room with a list of prescription drugs for 10 of our citizens and not be allowed to come out for any reason until they have figured out which of the plans would be the best for each set of prescriptions. I suspect they would be locked in the room for months.

[luci phyrr]

I think the Prof is a Subaru guy. I like the German cars for their design, while bemoaning their reliability.

[Lewis Carroll]

Just a thought, but has anyone checked the level of executive compensation at Japanese vs. American automakers?

Seems to me that, if US companies have to compete on price as well as quality, a bloated exec comp system would make competition difficult.

Something's gotta give somewhere, right?

[howard]

i'm no blogging triumphalist, but what i think will should bear in mind that what certainly can't be sustained in the blogging era is paying very high salaries to the beltway pundit class to produce piffle.

newspapering as we know it is already a declining industry that will be looking to cut costs, and its most expensive, least productive employees are the idiot pundits (there are, of course, a handful of actual, competent pundits, but george will and virtually all of his peers at the wapo aren't among 'em).

[a]

Well sure. What Yglesias is calling for is for GM's healthcare to be subsidized by more efficient industries via universal health care.

Am surprised that an economist wouldn't point that out, along with its disadvantages.

[Firebug]

Will's statement proves too much. If the price of free trade is that the American middle class loses our standard of living, then why shouldn't we just say "to hell with free trade"?

[ritchie]

"...Toyota and Honda make better cars..."

I'm wondering which of these two groups might make better cars:

1) well cared for workers

2) not so well cared for workers

[Ursula]

Its obvious to me that the GOP leadership has given up on Americans and are busily trying to eliminate everything that lends them security of any kind, such as employer-provided health insurance, labor laws and standards, social security, public education, healthy air and water, community activism, etc. Everything free must go, to be replaced by an unaffordable and predatory 'alternative'.

Its' as if they were trying to kill us. Seriously.

With 'friends' like these, who needs enemies?

[One Salient Oversight]

According ot the 2005 UN Human development report (Table 6, page 28) the US spends at total of 14.6% of GDP on Health expenses. This includes 6.6% public expenditure and 8.0% private expenditure.

Compare this to other nations:

Norway 9.6% (8.0% public, 1.6% private)
Iceland 9.9% (8.3%/1.6%)
Australia 9.5% (6.5%/3.0%)
Sweden 9.2% (7.8%/1.4%)
France 9.7% (7.4%/2.3%)

Yet when you compare social statistics like Infant mortality, AIDS infections and preventable diseases, you discover that these other nations have better stats.

So. America spends more on health - as percentage of GDP - than any other western nation. At the same time, these other nations have better health statistics.

What does this say about American health care? It means that it is inefficient. A Public health care system that is complemented by a smaller private health care system appears to be far more efficient than the free-market system that America has produced.

Socialists should be jumping with joy over this!

[One Salient Oversight]

My honest belief is that the ideology of low taxes and small government is so ingrained in these people's minds that they cannot understand it when basic statistics prove them wrong.

[nick]

The Netherlands, beginning in 2006, is switching to a health care system that might be a model for the United States.

The main features:
* Insurance is mandatory for all residents of the Netherlands.
* Health insurance will be provided by private, for-profit companies which will provide (at least) a government-defined standard package of essential healthcare.
* Insurers must accept everyone.
* Companies will compete with each other on price and quality, but each insurer must charge the same premium for the same policy type, regardless of the risk a patient represents.
* The insured pays a nominal premium to the insurer. Employers pay an income-related contribution for their staff.
* The income-related contributions, about 15 billion euros a year, will flow into a central fund. The money will be redistributed to insurance companies based on their profile to ensure risk is spread evenly across the sector.
* The government will pay the insurance premiums for children under the age of 18.
* Employees with low income as well as students are eligible for government assistance.

more (in English):
http://www.minvws.nl/en/themes/health-insurance-system/default.asp

[islm]

American health care costs and poor outcomes in terms of mortality and general health may be due to inefficiencies of the profit system

Insurance companies make profit (6% or 8%) on the business they do paying their subscribers' medical reimbursements.

Hospitals are generally private and for profit so the patient pays his insurance with its profit which pays profit to the hospitals and doctors.

Then the insured pays more toward profits and some toward uncollectibles, due to uninsured, uncovered medicare and medicaid costs, in co-pays and so forth.

So is 12 to 14% of US heath care 'costs' profit?

If we are behind the rest of the world why have a "profitable" health industry?

But, I subscribe to the notion that part of the reason for US health statistics to be behind the rest of the world is life style. That is further hindered by the profit industry making it impossible for many to contemplate preventive notions.

Poor preventive medicine and encouraging excessive lifestyle is business development for the for profit health system in the US

[anne]

http://www.minvws.nl/en/themes/health-insurance-system/default.asp

January 2, 2005

Health Insurance System: Theme

Under the government’s plans a new health insurance system for curative healthcare for all residents of the Netherlands will come into force on 1 January 2006. Under the new Health Insurance Act (Zorgverzekeringswet) all residents are obliged to take out a health insurance.

In the current situation, only employees within the meaning of the Sickness Benefit Act, people who are entitled to a social benefit and self-employed people with incomes below the maximum wage/income level are compulsorily insured under the Social Health Insurance Act (Ziekenfondswet). People with a higher income still have a choice: they can take out a health insurance or they can decide to go through life uninsured. Alongside there is a separate scheme for police officers and provincial and municipal civil servants.

The new system is a private health insurance system with social conditions. The system will be operated by private health insurance companies that may make profits and pay dividends to shareholders. The companies are obliged to accept every resident in their area of activity. A system of risk equalisation makes the acceptance obligation possible and prevents direct or indirect risk selection.

The insured pay a nominal premium to the health insurer. This premium can differ from health insurer to health insurer, but each health insurer will have the same premium for each policy type. Everyone with the same policy will pay the same insurance premium. The Health Insurance Act also provides for an income-related contribution to be paid by the insured. Employers will contribute by making a compulsory payment towards the income-related insurance contribution of their employees.

The new health insurance comprises a standard package of essential healthcare. The package provides essential curative care tested against the criteria of demonstrable efficacy, cost effectiveness and the need for collective financing. The insured package follows on from the cover provided under the Social Health Insurance Act and the Medical Insurance Access Act 1998 at the time when the new Health Insurance Act comes into force.

The latest information on developments surrounding the proposed Health Insurance Act can be found on the website www.zorgaanzet.nl

[anne]

http://www.nytimes.com/2005/10/20/national/20medicaid.html

October 20, 2005

U.S. Gives Florida a Sweeping Right to Curb Medicaid
By ROBERT PEAR

WASHINGTON - The Bush administration approved a sweeping Medicaid plan for Florida on Wednesday that limits spending for many of the 2.2 million beneficiaries there and gives private health plans new freedom to limit benefits.

The Florida program, likely to be a model for many other states, shifts from the traditional Medicaid "defined benefit" plan to a "defined contribution" plan, under which the state sets a ceiling on spending for each recipient.

Children under the age of 21 and pregnant women will be exempt from the limits.

The Florida plan says, "The state will set aside a specific amount of money for each person enrolled in Medicaid," based on the person's medical condition and historic use of health care....

[Slocum]

"From what I can tell, the only way to get the detailed information on which plan is the best is to call up each of the dozens of insurance companies and ask them on the phone."

I'm not saying the prescription drug plan is was well thought out or well implemented, but this is silly. We all face comparably difficult choice problems and manage them. How can I tell which of dozens of cars to buy except by calling up every manufacturer on the phone and asking them questions? Why doesn't 'somebody' reduce all those choices to just one or two and just figure out which car would be best for me?!?

What everybody does, of course, to cut through the confusion by seeking out reviews, comparisons, etc by people who make a living by going through all the details and sort it all out. Or they ask their friends what works well for them. Why wouldn't we expect the same thing to happen for competing health care plans?

[kharris]

Howard,

Good point, but with a troubling potential implication. When so much thought, good and otherwise, is available at zero marginal cost (except the opportunity cost of not chasing squirrels or not making crepes), the highly paid pundits of the world have to adjust. The adjustment seems to be to target a less thoughtful audience. If the goal, at any point along the opinion delivery chain, is to go for the reader who only wants validation of their own views, then we can expect no more than a foolish consistency from the Wills of the world. The Limbaugh model works.

A,

Nobody thinks health benefits are free. Only those who haven't thought about the problems of delivering health benefits have not realized that every structure involves inefficiencies. National health care is far from perfect. The point here, though, is George Will's reliability as a thinker, rather than the appropriate system for delivering health benefits. But if you want to push on with your point, see the response from "One Salient Oversight."

[Slocum]

"Is it just conceivable that the problem is not entirely unrelated to the fact that Toyota and Honda make better cars and build them better too?"

Of course that's the problem, but it's inextricably linked to the cost disadvantage that Big 3 face. Is the Honda Accord a better car than a Cadillac STS? Ah, but you say, the STS costs twice as much. Well, yes, but the same principle applies across the board. What if Toyota can make and sell a Camry for $21000 and GM would have to charge $22500 for a vehicle of equivalent quality. Could GM charge $1500 more for that car? Nope. Certainly not. In fact, at this point, due to their relative reputations (which have been developed over many years and are highly resistant to change), GM would have to sell the equivalent car for substantially LESS -- say $19500. Ooops.

We can actually see this second effect in action when GM sells actual Toyota products -- GM couldn't sell the Prism for as much as a Corolla, and was recently selling the Vibe at employee discount prices when Toyota was doing no such thing with the Matrix, even though the cars are mechanically identical (and the styling of the Vibe is generally considered superior).

So what do you do if you're caught in such a trap? In general, you try to avoid going head-to-head with me-too products where the combination of your cost disadvantage and your reputation disadvantage is going to kill you. You look for a market segment where your lower-cost, higher-reputation competitor has not focused -- pickup trucks and SUVs, for example. Or, in Chrysler's case, modestly priced, V8-powered, rear-wheel drive cars. And you try for styling hits (the upcoming Pontiac Solstice roadster isn't going to be a better car than the Mazda Miata but may outsell it because it's cooler). Of course, when U.S. manufacturers happen upon such niches, it's only a matter of time before the transplants go after them (as has happened in the minivan, pickup, and SUV segments). And, of course, the tranplants can play the styling game, too (Nissan Altima, for example).

Since GM realizes it's going to have to charge quite a bit less than a Camry for any car in the same segment, it builds them cheaper still -- it tries to minimize R&D expenses by extending the life of a platform by re-skinning old models (see the 'new' GM minivans). It uses 4-speed automatics instead of 5-speeds, and lower-cost pushrod engine technology instead of multi-valve VVT overhead-cam engines. Are these offerings as good as Toyota's? No. But if GM spent the money to produce ones that were, they'd be unable to sell them and would be even more screwed than they already are.

The bottom line is that the twin cost and reputation disadvantages the Big 3 face factor into all the decisions as they try to figure out what kind of vehicles they can make and sell at a profit despite the advantages of their competitors.

[bakho]

The US spends a lot for health care and has bad outcomes because it is a Have and Have Not system. The infant mortality rate for wealthy people with insurance is world class low. The infant mortality rate for the uninsured poor is third world high. The US would rather spend billions caring for premature infants than spend a lesser amount to provide free prenatal care to poor women. There are still a lot of people in the US that resent equality for blacks and object to their tax dollars going to support services for people of color. Of course these people have never learned that failure to educate and maintain the health of a large segment of our population is a drag on the economy. But these people would cut off their nose to spite their face. Unfortunately the US government is currently led by a bunch of these southern rednecks.

Much of the US health care dollar is spent in the last months of life. This is because dying people require extensive care. Extensive care and monitoring is expensive, be it hospital, hospice or nursing home.

[Barkley Rosser]

Yes, it is pretty straightforward: if the private welfare state is shutting down, then a public one must be erected to replace it, especially for health care.

[Julian Elson]

I'm not the kind to think that universal health care is the philosopher's stone that will solve all of our problems. It will make things a bit better on the sort of "economic development and growth" front, and a lot better on the "sick people being able to get coverage" front, though it must be remembered that the U.S. is, for all its problems, richer than Canada, Japan, and Germany (note: not sure if that's fair, because it includes all of Germany, not just the former west Germany), so if universal healthcare solved all ills, then one would probably expect Canada, Japan, or Germany to be richer than the U.S.

It's amazing, though, how Will can just act as if fairly obvious counter-argument just plain don't exist. Does he just avoid addressing such counter-arguments because he hopes his readers don't know about them? I'm reminded of Aquinas's argument structure, with the thesis-objection-rebuttal system. Well, reminded because it's the opposite of Will's system. Maybe Will isn't being as ignorant as he seems when he leaves such gaping holes in his argument: he fears that if he presents objections, and tries to refute them, his refutations will be less convincing than just leaving blanks there and hoping the objections don't occur to his readers on their own.

[Barry]

"Blog Democrats (except for Kaus) seem to have become steadily more friendly to labor during the last 4 years. No longer a "special interest group", apparently."

Posted by: John Emerson

Kaus ain't a Democrat. He's right-winger, playing the 'even the liberal ____ agrees with the GOP' schtick.

[Barry]

"newspapering as we know it is already a declining industry that will be looking to cut costs, and its most expensive, least productive employees are the idiot pundits (there are, of course, a handful of actual, competent pundits, but george will and virtually all of his peers at the wapo aren't among 'em)."

Posted by: howard

This would be nice to see, but I doubt that we'll see it. Pundits who are fools/evil can crank out pap/sh*t pretty cheaply, if they're syndicated. Will, I'm sure, pulls down a pretty penny, but if it's spread out over 100 publications, that's a couple of thousand dollars per year for each publication.

Compare that to the cost of a real reporter, who might spend a week getting a story.

[anne]

Indeed, the private health care market is an increasing problem for employers and proportionally more so for employees. I would add to this the problem extends to pension benefits as well.

[Peter]

I seem to remember this conversation last week.

The $65/hour number is something called "fully burdened overhead." That is a word-of-art at GM that takes into account not only the salary of the employee, but all the overhead associated with the employee: building, utilities, employer portion of taxes, benefits, pensions, depreciation of equipment/buildings/furniture. The FBO at GM is about 2.5x what the salary of the person is.

I can imagine your outrage if you were told at your pay-review time: "well, we can't give you a raise this year, since you got a new desk and electric rates pushed your FBO outside your pay band."

Cutting your paycheck by $20/hour, to $10/hour (which is the sort of paycut that the CEO of Delphi is demanding), that will only cut the total cost of labor from $65/hour to $45/hour. Then he will still be whining about $45/hour lawnmowing union labor. And the stooges and shills will continue to whine about overpriced American labor.

[glenn hefner]

Bad cars, folks, bad cars!!! If GM and Ford could make cars that people WANTED to buy - and not simply because they're $5,000 cheaper than last month - there would be no discussion.
The Corolla and the Accord are the best selling cars in the US, and it has nothing to do with health care.

[anne]

Peter:

'The $65/hour number is something called "fully burdened overhead." That is a word-of-art at GM that takes into account not only the salary of the employee, but all the overhead associated with the employee: building, utilities, employer portion of taxes, benefits, pensions, depreciation of equipment/buildings/furniture. The FBO at GM is about 2.5x what the salary of the person is.'

Peter, thank you for carefully explaining this critical figure. The idea that workers at Delphi are making $65 an hour has been essentially repeated and repeated, with no reporter I can find having bothered to ask, how could this number be possible? The number was happily repeated by Delco's chief as a condemnation of labor, but it is nothing of the sort.

[anne]

http://www.nytimes.com/2005/10/16/weekinreview/16gross.html?ex=1287115200&en=1f22ac8ac2cf2db4&ei=5090&partner=rssuserland&emc=rss

Delphi Inc., Meet Germany Inc.
By DANIEL GROSS

On Oct. 8, Delphi Inc., the largest auto parts company in the United States, filed for Chapter 11 bankruptcy protection, citing, in part, the high cost of its American workers, who earn as much as $65 per hour.

[anne]

http://www.nytimes.com/2005/10/10/business/10delphi.html?ex=1286596800&en=c95d41baeed3b651&ei=5090&partner=rssuserland&emc=rss

With Delphi Filing, Tougher Times for Auto Industry Workers
By DANNY HAKIM

The Delphi that emerges from bankruptcy will have a smaller, poorer work force. Currently, Delphi's American workers make about $65 to $70 an hour including benefits, more than 10 times, at least, the compensation of workers doing similar jobs in Mexico and China. Delphi wants trims that would take that below $20 an hour, in part by cutting wages to $10 to $12 an hour from $26 to $30.

[a different chris]

>than making the cars they would want to drive.

Although with you in general, I'd say they *are* making the cars that management wants to drive, and that's the problem. Notice how, when the Prius comes up, people like Luntz
almost literally unzip their pants and start waggling their, um, "thing" at us. "A niche
car", "Americans don't want that". That's why it's so hard for the Big Three to build a
decent small car, they wouldn't own one. In American, a small car is for kids. Period.
You are supposed to "grow out of it", not in the literal sense (family size) but in the sense
that you don't wear teenagerish clothes any more. It's all about impressing, better yet,
intimidating the neighbors (which ironically is a totally adolescent atitude).

Furriners don't think like that. Of course, we look down on them as less than manly for it.

>to be subsidized by more efficient industries

"a", you reinforce my belief that the hardest right understand the absolute LEAST about business,
both in the sense of specific companies and a general national economy.

Have you ever been in a startup? Been in a mature company? Been in the middle? I've done all three.

Business go thru virtually the same phases as humans, circa 1800. They are born, likely to die young, but if
they don't they usually enter the mainstream of productivity, and then they age and slow down a bit.

In business, it's start-up, then growth phase, then "mature" (commodity) industry. Well, just
like Darwin could tell you, a group dynamic that nurtures the first - resource consuming - phase from
the second -resource creation- phase, when the occupants of the second phase are both thankful
for the nurturing they got and comfortable that in the third -break even- they will be supported,
well that's a pretty damn competitive strategy. Count canine populations verses the big cats (sans lions),
for example. No way a coyote is as individually fearsome as a mountain lion, but coyotes are everywhere.

If the companies at the top of their game subsidize the start-ups and the mature industries, well
they're just subsidizing earlier and later versions of themselves. Which should be absolutely cool
with any thinking person.

Furthermore, companies don't always age so much as they get into a cyclular pattern. Note the
oil bidness, for one. It was less than 10 years ago

In that case, you want companies and knowledge not to disappear during what is only a modest downturn.
So when you

[anne]

Peter, again:

'The $65/hour number is something called "fully burdened overhead." That is a word-of-art at GM that takes into account not only the salary of the employee, but all the overhead associated with the employee: building, utilities, employer portion of taxes, benefits, pensions, depreciation of equipment/buildings/furniture. The FBO at GM is about 2.5x what the salary of the person is.'

[a different chris]

uh,

"So when you are waxing you support the waners and when you wane the waxers support you."

oops

[anne]

http://select.nytimes.com/2005/10/15/business/15nocera.html

The Hammer of Bankruptcy at Delphi
By JOSEPH NOCERA

But Mr. Miller's message, at bottom, is not all that different from the one Mr. Lorenzo once delivered: Delphi needs a more competitive cost structure, and bankruptcy is the only way to get there. The company, which lost $2.4 billion last year, simply can't sustain any longer a labor force that gets $65 an hour in overall compensation, and allows workers to retire with full pension and benefits after 30 years, even if they're only in their late 40's. Delphi's competitors, indeed, Delphi's own workers outside the United States, make far less than that.

[a different chris]

Oh, and "cycular" is too a word. It's in Rove's double super-secret dictionary, so I'll have to kill you all now.

They say "preview is your friend". I'm not so sure, as I still fail to see my mistakes and therefore it just makes it all the more embarrassing.

[anne]

Repeatedly reporters and analysts simply took the claim that Delco workers are getting $65 an hour in compensation at face value. Where was it reported that this was nothing whatsoever near what Delco workers made in compensation? So, we have a company whose chief has gone about claiming sympathy for workers while completely distorting worker compensation. So, let us cut workers compensation to $10 dollars and hour and all will be well. Huh?

[a different chris]

Hey, I just thought of something:

>can't sustain any longer a labor force that gets $65 an hour in overall compensation, and allows workers to retire with full pension and benefits after 30 years

Isn't that pretty similar to the Navy, Army etc? Actually, I'd say the OC is greater than $65/hr and retirement is quite a bit closer than 30 years for a full-timer?

Can we afford it?

BTW, George Will would literally suffer grevious physical failure on an auto assembly line, so if it's a job he can't do then how does he know what it's worth?

[anne]

Wonderful Brad DeLong passes along the idea that Delco workers getting $65 an hour, for Matthew Yglesias had used the figure, which George Will had used, which Delco's chief has been purposefully and methodically using to prevent any sympathy for workers.

[anne]

Peter:

The $65/hour number is something called "fully burdened overhead." That is a word-of-art at GM that takes into account not only the salary of the employee, but all the overhead associated with the employee: building, utilities, employer portion of taxes, benefits, pensions, depreciation of equipment/buildings/furniture. The FBO at GM is about 2.5x what the salary of the person is.

I can imagine your outrage if you were told at your pay-review time: "well, we can't give you a raise this year, since you got a new desk and electric rates pushed your FBO outside your pay band."

Cutting your paycheck by $20/hour, to $10/hour (which is the sort of paycut that the CEO of Delphi is demanding), that will only cut the total cost of labor from $65/hour to $45/hour. Then he will still be whining about $45/hour lawnmowing union labor.

[Wow!]

[a different chris]

>The Corolla and the Accord are the best selling cars in the US,

The best selling part of 50% of the auto market. Check out the sales figures on the F-150, will ya please?

[a different chris]

>that will only cut the total cost of labor from $65/hour to $45/hour

anne - really great catch!! Now lets just wait for the business press to fire that question at him!!

(crickets chirping)

[anne]

Several more points of interest. Ford is profitable, though GM is losing money. Why? Again, why is there so much smart money anxious to own pieces of GM? Chrysler is fine, though owned by a German vehicle manufacturer. Toyota and Honda are fine.... There is so much here I do not understand.

Thanks, Different Chris :)

[lise]

Terrific comments, and Anne is right we have to learn to question more thoroughly. Well, reporters must learn.

[scottynx]

Brad Delong writes:
[But our public sector one isn't breaking down. It's being bankrupted as a matter of deliberate public policy by officials who want to wreck it in order to better afford tax cuts for extremely wealthy individuals.... ]

Have you read Bruce Bartlett's essay:
"Taxation Trash From the Times"?

http://www.nationalreview.com/nrof_bartlett/bartlett200510130903.asp

"....Interestingly, the latest Internal Revenue Service data on distribution of the tax burden were released the same day Tritch’s tirade appeared. The data show that the top 1 percent of taxpayers paid 34.3 percent of all federal income taxes in 2003, although they earned just 16.8 percent of the adjusted gross income. The top 5 percent of taxpayers paid more than half of all federal income taxes, the top 10 percent paid two-thirds, and the top half of taxpayers paid 96.5 percent — meaning that the bottom half paid just 3.5 percent.

Another IRS report deconstructed the top 1 percent and found that the top 10 percent of the top 1 percent (the top 0.1 percent) increased their share of all federal income taxes from 7 percent in 1980 to 15.3 percent in 2003. These 129,000 tax filers earned 7.6 percent of the income and paid an average tax rate of 23.6 percent. This came to $114.6 billion — four times more than all the taxes paid by the 64 million taxpayers in the bottom 50 percent, who paid an average tax rate of 2.9 percent.

I would be curious to know just how much more Tritch thinks the wealthy ought to be paying. Back in the good old days (from her point of view) when Jimmy Carter was president and the top statutory tax rate was 70 percent (versus 35 percent today), the top 1 percent of taxpayers paid only 19.7 percent of all federal income taxes. In other words, although the marginal tax rate of the top 1 percent has fallen by 50 percent, their tax share has almost doubled.

I assume that Tritch would be happier with the British tax system, where the top income tax rate is 40 percent. But according to British tax data, the top 1 percent of taxpayers pay just 21 percent of income taxes, the top 5 percent pay 40 percent, and the top 10 percent pay 52 percent. The bottom 50 percent, meanwhile, pay 11 percent of all income taxes. In other words, wealthy British pay higher rates — as Tritch would have it here — but pay less of the overall tax burden...."

[anne]

http://www.nytimes.com/2005/10/15/business/15five.html?pagewanted=print

Proposed Cuts in the Factory and in the Fields
By MARK A. STEIN

The company's 34,000 unionized American workers now cost about $65 to $70 an hour, including benefits. Delphi wants to reduce that expense to below $20 an hour, in part by cutting wages to $10 to $12 an hour, or less than $25,000 a year, from the current $26 to $30 an hour.

[Barry]

Scottynx, has the distribution of income stayed the same over this time period, or has it changed a bit? If so, in which direction?

[Barry]

In addition, d'ya think that Bruce corrected for changes in the tax laws? I don't mind what the rate is, if I have sufficient convenient loopholes.

[anne]

http://select.nytimes.com/ref/opinion/04talking-points.full.html

Tilting the Tax System in Favor of the Rich
By Teresa Tritch

The progressive tax system, which was set up to ensure that rich people shoulder a bigger share of the government's bills than the not-so-rich, is in trouble.

Wealthy individuals and large corporations have been steadily, and successfully, prevailing upon their congressional allies to rewrite the tax code, shifting more of the burden onto others.

Among their recent victories:

• Shrinking the estate tax
• Rolling back taxes paid by investors and corporations
• Using revenues from payroll taxes on workers to mask the cost of tax cuts for the rich...

Higher Taxes on America's Paychecks: The Rise, and Rise, of Payroll Taxes

At the same time that the taxes investors pay - estate, capital gains and corporate - have gone down as a share of federal revenue, taxes that workers pay have grown. In 1980, 31 percent of federal revenues came from payroll taxes, which are paid by everyone who works for a living. In 2004, 39 percent did.

Payroll taxes are sharply skewed against the lowest wage earners. In 2004, the average payroll tax rate for workers making $50,000 to $75,000 was 12 percent. For someone making more than $1 million, it was just 1.5 percent.

The reason for this imbalance is that a large portion of the wages of highly-salaried people are exempt from payroll taxes. This year workers and employers will each pay a 6.2 percent payroll tax, which is earmarked for social security, on all workers' wages up to $90,000. Wages above $90,000 are not subject to the tax. ( Workers and employers will also each pay a 1.45 percent payroll tax on all wages, with the proceeds going to Medicare.) The hit is even bigger than it seems. Although workers pay half and employers pay half, most economists agree that workers ultimately bear most or all of the employer's share in the form of lower wages and salaries.

The tax system is now so ut of whack that the vast majority of Americans now pay more in regressive payroll taxes than they do in progressive income taxes.

Regressive as they are, payroll taxes are actually becoming more so. The amount of income that the tax is applied to has not kept up with the income gains of the highest-paid workers. In 1983, only 10 percent of total wages escaped the payroll tax. Today, 15 percent does - wages earned by those with the highest salaries.

It gets worse still. Payroll taxes have long exceeded the amount needed to pay for current Social Security benefits, creating a surplus in the Social Security trust fund. (The surplus is currently $173 billion annually). At the same time, however, the rest of the government is running a deficit, currently $504 billion, caused in large part by various tax cuts on investment. The "official" deficit is therefore $331 billion. ($173 billion trust fund surplus minus $504 billion budget shortfall.) In effect, the surplus - which comes from taxes paid by working people at the middle and lower rungs of the income ladder - is being used to mask the true cost of today's deficit-financed tax cuts on estates, capital gains and corporations.

It wasn't supposed to be this way. Excess payroll tax revenues were intended to build up a cushion to pay Social Security benefits to baby boom retirees. The payment of those benefits - akin to a "return" on one's taxes - would erase the painful regressivity of the tax.

If current high-end tax cuts continue, however, the deficits they provoke will make all government programs vulnerable to cutbacks, including Social Security, even though workers have been paying high payroll taxes for decades precisely to avoid that outcome.

In this way, tax cuts for the rich are fomenting a crisis for everyone else. The Bush tax cuts are especially damaging because of their size, and because they are occurring just as baby boomer begin to retire. If the Bush tax cuts were allowed to expire, their revenue would be far more than enough to close the long-term funding gap in Social Security, without cutting benefits. But the Bush administration wants to make them permanent.

[scottynx]

[Scottynx, has the distribution of income stayed the same over this time period, or has it changed a bit? If so, in which direction?]

The distribution has skewed towards the rich. Has this hurt the poor and middle class? Did it come from thier pockets? Or did technological progress, freer trade, less taxation, and a freer economy allow the rich to actually produce more. Efficient markets hypothesis says that things are generally priced according to all/most relevant market information. Is labor exempted?

This is not a zero sum world. Your neighbors gains is not your loss. When your neighbor gets a raise and you didn't, did he steal from you or did he work hard?

In fact, the rich getting richer helps poor people. Why? A) They didn't steal from the poor. B) They have more money to invest, and start companies which can hire the poor. Why think Zero Sum? Think Dynamically. The pie is not fixed. The size of the pie depends on how friendly we are to achievement.

Did Bill Gates rob you by designing the computer you are on right now and becoming rich? If tax rates were sky high on the rich would he still work as hard? Sky high tax rates on the rich is ecouragement for our best minds to take a vacation/retire instead of continuing to innovate, invest, and make our lives so much better?

[scottynx]

Barry writes:
[In addition, d'ya think that Bruce corrected for changes in the tax laws? I don't mind what the rate is, if I have sufficient convenient loopholes.]

Well, the language Bruce Bartlett used repeatedly is "paid". So if those aren't really taxes paid then Bruce lied. Wouldn't the NYT, as well as the whole liberal blogosphere have jumped on him by now?

Anyways, he didn't lie.
Here is the actual IRS report URL:

http://www.irs.ustreas.gov/pub/irs-soi/03in05tr.xls

Check footnote 3: It says "Total income tax is income tax after credits....

also, the first words of the report are
"Table 5.--Individual Income Tax Returns with Positive Adjusted Gross Income....."

No, Bruce Bartlett didn't lie.

[anne]

http://www.nytimes.com/2005/06/06/opinion/06herbert.html?ex=1275710400&en=c03b1056decb6b77&ei=5090&partner=rssuserland&emc=rss

June 6, 2005

The Mobility Myth
By BOB HERBERT

The war that nobody talks about - the overwhelmingly one-sided class war - is being waged all across America. Guess who's winning.

A recent front-page article in The Los Angeles Times showed that teenagers are faring poorly in a tight job market because of the fierce competition they're getting from older workers and immigrants for entry-level positions.

On the same day, in the business section, the paper reported that the chief executives at California's largest 100 companies took home a collective $1.1 billion in 2004, an increase of nearly 20 percent over the previous year. The paper contrasted that with the 2.9 percent raise that the average California worker saw last year.

The gap between the rich and everybody else in this country is fast becoming an unbridgeable chasm. David Cay Johnston, in the latest installment of the New York Times series "Class Matters," wrote, "It's no secret that the gap between the rich and the poor has been growing, but the extent to which the richest are leaving everybody else behind is not widely known."

Consider, for example, two separate eras in the lifetime of the baby-boom generation. For every additional dollar earned by the bottom 90 percent of the population between 1950 and 1970, those in the top 0.01 percent earned an additional $162. That gap has since skyrocketed. For every additional dollar earned by the bottom 90 percent between 1990 and 2002, Mr. Johnston wrote, each taxpayer in that top bracket brought in an extra $18,000.

It's like chasing a speedboat with a rowboat.

Put the myth of the American Dream aside. The bottom line is that it's becoming increasingly difficult for working Americans to move up in class. The rich are freezing nearly everybody else in place, and sprinting off with the nation's bounty.

Economic mobility in the United States - the extent to which individuals and families move from one social class to another - is no higher than in Britain or France, and lower than in some Scandinavian countries. Maybe we should be studying the Scandinavian dream.

As far as the Bush administration is concerned, the gap between the rich and the rest of us is not growing fast enough. An analysis by The Times showed the following:

"Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000. Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000." ...

[anne]

http://www.nytimes.com/2005/06/05/national/class/HYPER-FINAL.html?ex=1275624000&en=f1af44c9cec8c79e&ei=5090&partner=rssuserland&emc=rss

June 5, 2005

Richest Are Leaving Even the Rich Far Behind
By DAVID CAY JOHNSTON

When F. Scott Fitzgerald pronounced that the very rich "are different from you and me," Ernest Hemingway's famously dismissive response was: "Yes, they have more money." Today he might well add: much, much, much more money.

The people at the top of America's money pyramid have so prospered in recent years that they have pulled far ahead of the rest of the population, an analysis of tax records and other government data by The New York Times shows. They have even left behind people making hundreds of thousands of dollars a year.

Call them the hyper-rich.

They are not just a few Croesus-like rarities. Draw a line under the top 0.1 percent of income earners - the top one-thousandth. Above that line are about 145,000 taxpayers, each with at least $1.6 million in income and often much more.

The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.

The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell.

Next, examine the net worth of American households. The group with homes, investments and other assets worth more than $10 million comprised 338,400 households in 2001, the last year for which data are available. The number has grown more than 400 percent since 1980, after adjusting for inflation, while the total number of households has grown only 27 percent.

The Bush administration tax cuts stand to widen the gap between the hyper-rich and the rest of America. The merely rich, making hundreds of thousands of dollars a year, will shoulder a disproportionate share of the tax burden.

President Bush said during the third election debate last October that most of the tax cuts went to low- and middle-income Americans. In fact, most - 53 percent - will go to people with incomes in the top 10 percent over the first 15 years of the cuts, which began in 2001 and would have to be reauthorized in 2010. And more than 15 percent will go just to the top 0.1 percent, those 145,000 taxpayers.

The Times set out to create a financial portrait of the very richest Americans, how their incomes have changed over the decades and how the tax cuts will affect them. It is no secret that the gap between the rich and the poor has grown, but the extent to which the richest are leaving everyone else behind is not widely known....

¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.

¶Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.

¶The alternative minimum tax, created 36 years ago to make sure the very richest paid taxes, takes back a growing share of the tax cuts over time from the majority of families earning $75,000 to $1 million - thousands and even tens of thousands of dollars annually. Far fewer of the very wealthiest will be affected by this tax....

[anne]

Among the most petty of tax distortions is the favoring of capital gains and dividend income over interest income. Interest income which is quite important for many middle class households is taxed at income tax rates where dividend and capital gains income is taxed no more than 15% and in the case of capital gains only when realized.

[Julian Elson]

The claim that there are such things as non-zero sum interactions must never be confused with the claim that no resources are scarce.

[Fred Hapgood]

There is an immense problem with national health care insurance as currently presented that no one I know of is addressing, and that is that over time the reimbursement wars will gradually eat up all the value. Insurance, public or private, splits the value definition process into two parts and then sets those two parts against each other. Most insurance policies cover events that are rare, so the war doesn't really get a chance to develop. Health care is different -- the stakes are immense and the claims are continous. In this context the war between reimburser and rebursee will be relentless and insatiable. Every season the reimbursees will come up with clever new tactics; every season the reimbursors with new defenses, usually requiring the hospitals to fill out more forms. Round and round and round, with more and more value sucked out of the process with every cycle. Eventually the entire health care budget will be devoted to a single act of reimbursement, and then it will break free of reality altogether, and spiral away into the sky.

As P.J. O'Rourke has said: You think health care is expensive now, you just wait till it is free.

[J Thomas]

Fred Hapgood, you are right.

Everybody wants the best healthcare they can possibly get but they don't want to pay for it.

We got insurance programs that would pay for catastrophic care.

But we had more catastrophic care than we could pay for, so we got employers to pay for it. And it's getting to be more than employers can pay for so we'll get the government to pay for it.

Meanwhile they branched out into routine care. Insurance companies are good at using their marketing clout to get lower prices for themselves. The medical industry has to raise prices for the uninsured to compensate. The more the insurance companies went into routine care, the more routine care got too expensive for the uninsured to pay.

You have correctly identified the issue. And you have proposed no solution. Getting the government to pay the bills is only another stopgap, like getting employers to pay the bills. If we follow that stopgap, what will we do when the government can't do it either?

And if we don't use the government stopgap the problem comes crashing down on us that much quicker.

Do you have any suggestion?

The central problem is that we want more health care than we can afford, and the medical industry has various tariffs (like laws against practicing medicine without a licence or prescribing without a license) that make it even more expensive. And then the insurance industry makes it more expensive still.

Any suggestions?

[Jim D]

Last two commentors:

Remember who the reimburser and reimbursee are - the insurance provider and... the doctor/hospital/provider (usually). The patient is almost a third party to much of what goes on.

I think it goes without saying that providers (particularly hospitals) have gotten considerably more bargaining power over the last few years because hospitals and practice groups have accreted into larger and larger organizations.

One thing that would happen by nationalizing insurance would be that the insurer's bargaining power, currently diminished because of the fractured state of insurance, would be greatly increased (even more so because of the magic wand powers of the State).

A reimbursement war is not simply tit for tat. You must account for the structure of markets and the market leverage/bargaining power each side brings to the table.

[J Thomas]

Jim D, do you have any suggestions?

[janegaltfan]

From the desk of Jane Galt:

Brad De Long slams George Will for claiming that the lavish wages and benefits automakers receive are unsustainable, and then ignoring Japan and Germany, where he claims the bulk of the world's cars are manufactured.

But of course, while corporate headquarters are located in Germany, German car companies are relocating their factories to Eastern Europe as fast as their hot little feet can carry them. Wages are lower in Eastern Europe, and of course, those countries do not have the lavish health care systems funded by huge social security contributions. Japanese car companies, meanwhile, are relocating much of their production . . . to the American south, where their workers are not unionised.

This is a mixed, picture, of course; Japanese automakers are also locating to Canada, which has national health care. But to argue that Germany and Japan have somehow found a way around the problems of an aging industrial population is just wrong.

Update: I should point out, as well, that Japan relies on an extraordinarily rigid regulatory regime to keep imports out of its markets, which is what allows its domestic auto business to support a pretty lavish pay regime. Obviously, if we blocked all auto imports, Detroit would also be in pretty good shape. American consumers would be stuck driving ugly, unreliable cars, but who the hell cares about them?

[janegaltfan]

http://www.janegalt.net/

[c8to]

heh DOR, in socialist countries like Germany you get what someone else pays for.