Posts from — November 2008

From “Sick in America” with 20/20’s John Stossel.

Needless to say I am dead against Universal Health Care, and prefer something even more free-market than what we have today. The biggest problem with our health care system today is cost – how do we fix that? About a year ago, my employer introduced what is called a High Deductible Health Plan (HDHP) with a Health Savings Account (HSA). At first I thought it was highly annoying – I had to open a new account, save receipts, pay bills, pay attention to costs, etc. I used to have what I thought was a much simpler Health Maintenance Organization (HMO) plan. I didn’t have the freedom to go to any doctor – it had to be a doctor in “the network”, and I couldn’t go to a specialist without first being routed through my Primary Care Physician (PCP). What were the actual cost of my doctor visits? I had no idea. But it was simple. I would just pay the $25 co-pay and maybe get some confusing paperwork in the mail with a heading “This Is Not a Bill”, which meant it would go straight to the trash and out of my mind.

The fact that people don’t know how much medical procedures cost is a main reason why costs have been rapidly increasing. Doctors with patients who have full coverage plans have the incentive to charge patients whatever the system will allow. Insurance companies have the incentive to deny coverage for certain procedures to keep costs down. Highly educated doctors are reduced to low-level employees whose actions are effectively regulated by large corporations. With my new HDHP and my HSA I actually have to pay attention to what things cost, and I have the freedom to shop around. My company contributes to the HSA and I can put tax deductible money in there as well. I can use it to pay for doctor visits, contact lenses, medication, the dentist, and many more things. I have the incentive to look for the best possible treatment at the lowest possible cost, and websites are springing up to provide people with this information. And if something really bad happens, I am covered for anything that costs more than my deductible (about $2000). Yeah I have to keep track of a few more things, but I now feel that I am in control and I have more choices. This is how the system should work, and this is how our country can save health care.

From the Reason Foundation:

Sorry, my layout is not prepared for wide aspect ratio video I’m working on it. That’s fixed now.

I just read a great article about sweatshops from the liberal Pulitzer-Prize winning journalist Nicholas Kristof.  Humanitarians generally believe that sweatshops are deplorable places and that Americans should boycott companies whose products are manufactured in sweatshops.  The truth is, that by American standards, sweatshops are in many cases downright deplorable.  But in actuality the working conditions and pay in a third-world country sweatshop are far better than in alternative lines of available work – agriculture, crime, prostitution, etc.  Sweatshop jobs are in high-demand and are a way out of poverty for much of the world’s poor.  As sweatshops become more productive, wages increase and conditions improve.  As wages increase, workers have more disposable income and access to better education.  As incomes and education increase, workers gain access to better jobs, and the process goes on.  It may take generation or two, but countries like South Korea and Taiwan that opened their labor markets early on are now considerably farther ahead economically than countries like China and India, which did so much later.  So, ironically, the best way to improve working conditions at sweatshops, is to buy more stuff produced in sweatshops.

It seems that President-elect Barack Obama is asking President Bush to provide further aid to the U.S. automakers.  It seems like the NY Times prefers this route too, because they have painted a bleak short-term picture of what were to happen if any one of the automakers fails. To do this they cited the “Center for Automotive Research”, which has strong connections to organized labor and the auto industry:

The major automakers — G.M., Ford and Chrysler — are each using up their cash at unsustainable rates. The Center for Automotive Research, which is based in Michigan and supported by the industry, released on Election Day an economic analysis of the impact of one or all of them failing. If the Big Three were to collapse, it said, that would cost at least three million jobs, counting autoworkers, suppliers and other businesses dependent on the companies, down to the hot-dog vendors and bartenders next door to their plants.

The center also concluded that the cost to local, state and federal governments would reach to as much as $156.4 billion over three years in lost taxes and higher outlays for things like unemployment and health care assistance. Separately, some economists say the demise of even one of the automakers could tip the current recession toward a depression.

But what about long-term? I hope President Bush will take a stand, and will not increase the aid to the automakers. It is actually the best thing to do to for the long-term future of the US auto industry. One of the Big Three needs to fail for the UAW to get the picture.

I’m a little bit incensed that the government is going to loan the U.S. auto industry $25 billion, and possibly more. I have always thought that these are poorly run companies that design lousy cars, or cars that were too big and fuel-inefficient, and as such they deserve to fail. But I also thought that because of the high labor cost brought about by the United Auto Workers (UAW) union, it was difficult for the U.S. auto companies to be as flexible as they needed to be.

I was recently speaking with a friend who argued that the big problem was management, that the executives at these companies were just plain dumb. It was hard to disagree with that, but after doing a little reading, I can’t really place that much blame on the executives. Ford, GM, and Chrysler have been shuffling through executives in recent years – could they really all be dumb?

It’s really a much more complicated issue than that, and it has to do with the UAW and the Corporate Average Fuel Economy (CAFE) standards. Let’s address the UAW. There are basically two auto industries operating in the U.S. There’s one in Detroit which includes GM, Ford, and Chrysler, where the workers are all UAW. Then there’s one in the southern U.S. which includes Honda, Toyota, and Hyundai. Their workers do not belong to a union and work predominantly for less money (although that is not always the case) and no pension benefits.

Now, the CAFE standard basically mandates that your entire fleet of domestic vehicles has a minimum fuel efficiency, or else you pay a fine based on how much you’re over that minimum. As a result of CAFE, the UAW, and low fuel prices, the U.S. automakers were basically forced to make more SUVs and trucks, because those vehicles have much higher margins, and are much more profitable – at least when they’re selling. But, to meet CAFE, the U.S. automakers also had to offer a line of much lower profit-margin fuel-efficient vehicles. In order to keep costs low, for years the companies skimped on styling, materials, and engineering, to the extent that they lose money on each and every fuel-efficient small and mid-size car they sell.

Instead of letting the free-market dictate the winners and losers in the auto industry, the U.S. government intervened, first through CAFE and now through a generous though not unprecedented lending program. The UAW has huge sway in Washington over our political leaders, and they have Barack Obama as an ally. President-elect Obama also supports the Employee Free Choice Act, which will make it easier for auto industry workers in the southern U.S. to unionize. He also wants to raise tariffs on cars imported from South Korea by renegotiating our trade pact with them. I fear the result of all this will be more expensive, lower-quality cars for the masses. But this isn’t going to hurt the rich, just the lower and middle-class.