Krugman on GM's Crash

This commentary is very timely -- we had this same discussion at our house recently. As debilitating as the cost of health care seems to be for U.S. corporations, I'm surprised it hasn't been solved by now. Corporations seems to be pulling all the political strings and W might as well be President Coolidge whose mantra was "The business of America is business." Unfortunately, America's business seems to center around consumption rather than production.

For the system to change, severe "torque" must be placed on it. Isn't 30,000 more jobless souls in the country enough "torque" to move us closer to a national health care system?

The New York Times
November 25, 2005
Op-Ed Columnist
Bad for the Country
By PAUL KRUGMAN

"What was good for our country," a former president of General Motors once declared, "was good for General Motors, and vice versa." G.M., which has been losing billions, has announced that it will eliminate 30,000 jobs. Is what's bad for General Motors bad for America?

In this case, yes.

Most commentary about G.M.'s troubles is resigned: pundits may regret the decline of a once-dominant company, but they don't think anything can or should be done about it. And commentary from some conservatives has an unmistakable tone of satisfaction, a sense that uppity workers who joined a union and made demands are getting what they deserve.

We shouldn't be so complacent. I won't defend the many bad decisions of G.M.'s management, or every demand made by the United Automobile Workers. But job losses at General Motors are part of the broader weakness of U.S. manufacturing, especially the part of U.S. manufacturing that offers workers decent wages and benefits. And some of that weakness reflects two big distortions in our economy: a dysfunctional health care system and an unsustainable trade deficit.

According to A. T. Kearney, last year General Motors spent $1,500 per vehicle on health care. By contrast, Toyota spent only $201 per vehicle in North America, and $97 in Japan. If the United States had national health insurance, G.M. would be in much better shape than it is.

Wouldn't taxpayer-financed health insurance amount to a subsidy to the auto industry? Not really. Because most Americans believe that their fellow citizens are entitled to health care, and because our political system acts, however imperfectly, on that belief, tying health insurance to employment distorts the economy: it systematically discourages the creation of good jobs, the type of jobs that come with good benefits. And somebody ends up paying for health care anyway.

In fact, many of the health care expenses G.M. will save by slashing employment will simply be pushed off onto taxpayers. Some former G.M. families will end up receiving Medicaid. Others will receive uncompensated care - for example, at emergency rooms - which ends up being paid for either by taxpayers or by those with insurance.

Moreover, G.M.'s health care costs are so high in part because of the inefficiency of America's fragmented health care system. We spend far more per person on medical care than countries with national health insurance, while getting worse results.

About the trade deficit: These days the United States imports far more than it exports. Last year the trade deficit exceeded $600 billion. The flip side of the trade deficit is a reorientation of our economy away from industries that export or compete with imports, especially manufacturing, to industries that are insulated from foreign competition, such as housing. Since 2000, we've lost about three million jobs in manufacturing, while membership in the National Association of Realtors has risen 50 percent.

The trade deficit isn't sustainable. We can run huge deficits for the time being, because foreigners - in particular, foreign governments - are willing to lend us huge sums. But one of these days the easy credit will come to an end, and the United States will have to start paying its way in the world economy.

To do that, we'll have to reorient our economy back toward producing things we can export or use to replace imports. And that will mean pulling a lot of workers back into manufacturing. So the rapid downsizing of manufacturing since 2000 - of which G.M.'s job cuts are a symptom - amounts to dismantling a sector we'll just have to rebuild a few years from now.

I don't want to attribute all of G.M.'s problems to our distorted economy. One of the plants G.M. plans to close is in Canada, which has national health insurance and ran a trade surplus last year. But the distortions in our economy clearly make G.M.'s problems worse.

Dealing with our trade deficit is a tricky issue I'll have to address another time. But G.M.'s woes are yet another reminder of the urgent need to fix our health care system. It's long past time to move to a national system that would reduce cost, diminish the burden on employers who try to do the right thing and relieve working American families from the fear of lost coverage. Fixing health care would be good for General Motors, and good for the country.