economy – Page 28 – Hank Kalet

Fixing health care will help heal economy

There is an element of the auto-industry bailout debate that has Watching the debate over the car industry’s implosion and the need for federal largess that has received scant attention: the impact that health benefit costs have on costs.

A few analysts have comment on this — Robert Reich, Paul Krugman, the UAW and this piece from The Coastal Journal — but for the most part the health care issue has been off the table, except when it has been framed as one in which greedy employees are killing competition.

Progressives would be smart to counter this anti-worker rhetoric forcefully and use the auto-industry debate to bring the discussion of health care into the larger issue of our economic future.

Too many analysts — like Michael Boskin, for instance — are offering this kind of misguided advice:

The most important issues facing the country right now are income, jobs and wealth — not energy, health care, the environment or the distribution of income. This recession is the real thing, far worse than the two brief, mild recessions of the last quarter-century.

Mr. Obama needs to think about everything his administration does through the prism of how it will affect the economy in the next two years. That means postponing, scaling back or slowly phasing in proposals that impose significant costs on the economy. For example, his energy and health care proposals, if enacted, would destroy investment and jobs now, whatever they might accomplish later.

But investment in green technology and reforming health care will go a long way to fixing what ails us. Consider how health care affects the price of cars — and the decisions made by Detroit on what kinds of cars to build and market:

GM’s obligations to its employees and retirees add about $2,500 to the cost of each automobile sold. In part because of the high cost of these benefits, and in part because GM simply failed to read the market properly, GM manufactures and sells mostly large vehicles with large price tags. They also consume large amounts of fuel.

Toyota, on the other hand, benefits from a national health program and a retirement program in Japan, and in most of the countries where it manufactures its goods … Canada, and the countries of the European Union. So even though Toyota does buy insurance for its employees in Kentucky, the costs are more than offset by benefits it does not have to purchase for its employees in Kyoto. While GM’s average car price tag includes $2,500 for benefits, Toyota’s average car price tag includes about $300 for benefits.

As a result, GM can’t compete with Toyota on a straight apples-to-apples cost comparison. A Camry-like vehicle, manufactured by GM, would be a couple of thousand dollars more expensive. GM would lose comparison shoppers in price. And Toyota has developed a well-earned reputation for reliability over the years, too.

So, to compensate, GM manufactures mostly big vehicles … trucks and SUVs, high-priced sporty vehicles, such as the Corvette, and luxury cars, like the Cadillac. And for a time, these vehicles were the vehicles of choice, due to a strategic and successful marketing campaign in the United States.

But then the price of gas went up and concerns about the environment also rose. And while Toyota adjusted quickly … spending its capital in R&D and getting its small hybrids out within just a few years, GM kept making its SUVs, large pickups, and gas-hungry sports and luxury cars, betting that the price of gas would go down and that buyers would choose to stay with the bigger vehicles. But they were going the way of the dinosaurs on whose ancient blood these vehicles feasted … simply put, no one could afford the gas. If a buyer didn’t absolutely NEED a large pickup, he didn’t buy one. Toyota, meanwhile, couldn’t keep its Prius hybrids in stock. Even zero-interest car loans couldn’t bring the buyers back to GM for long.

Other industries in the United States that compete globally face the same uneven playing field. Taking health care off the table as a cost of business would go a long way toward improving out competitiveness, which is why reforming our broken health care system has to be a major short-term priority and not something left to later.

The new administration appears to understand this. Consider what Tom Daschle — Obama’s top health care advisor — had to say the other day:

“There is no question that the economic health of this country is directly related to our ability to reform our health-care system,” Daschle said.

Daschle cited the fact that high health care costs are preventing U.S. businesses from staying competitive and creating jobs. “That’s what makes this so urgent and so much a part of the economic recovery process,” Daschle said. “I believe that for the first time in American history, health-care reform will be done.”

Let’s hope so.

Dispatches: Aid to — and from — the states

Dispatches this week is on the partnership that President-elect Barack Obama is seeking with the states to stimulate the economy.

It’s about the jobs

Do the Big Three car companies deserve a bailout? Perhaps not. But that is probably the wrong question. The question is what happens if they don’t get help — and not just to the car makers or even their employees, but to the entire economy. That’s how Josh Marshall and Matthew Yglesias frame the question, and it makes a lot of sense. Marshall makes the case that propping up the auto companies maybe no different than other ways of spending public dollars to stimulate the economy.

Whatever we think of the long-term or even the medium-term fate of the US auto industry, it’s hard to think of many other stiff accelerants to the downturn than one of more of the big automakers going bankrupt any time in the next year.

For all sorts of reasons, we couldn’t broadcast the idea that we’re just propping up these companies in the near term as a de facto stimulus effort or as a way to keep money flowing into people’s pockets (nor am I proposing that approach, as opposed to a plan which keeps them spending and employing while also laying the groundwork for longterm health). But if Krugman’s prognostications are right, it’s not clear to me that such an effort would not justify itself in macro-economic terms.

Yglesias — who links to Marshall (which is where I came across it) — adds to his point:

To me, this is by far the most persuasive case for a bailout for the car companies. If they were facing bankruptcy amidst a period of okay economic growth, I’d be strongly inclined to spend $38 billion on direct assistance to the state of Michigan and to displaced workers, feeling the best thing for the economy would be to liquidate firms that need liquidating and help people find work elsewhere. But at the moment, no matter what you did nobody could find new jobs elsewhere. Under the circumstances, giving money to GM to keep producing cars makes a certain amount of sense just as make-work. Ideally, it’d be better to employ all those people in infrastructure projects instead but the quantity of useful “ready to go” infrastructure projects is actually smaller than the volume of stimulus being contemplated, so that can’t be done on the necessary time frame.

That said, it’s important to keep in mind that there’s a tension between bailing out GM as a jobs program and bailing out GM as part of an alleged restructuring program that leads the firm to profitability. The plan GM submitted to the congress, for example, calls for both steep cuts to its workforce and for substantial union givebacks. Reduced production of vehicles is presumably part of that picture (to match reduced demand) which, in turn, means lower orders for suppliers. That’s business. But it’s not stimulus. The logic of stimulus is that we should be making the cars whether or not they can be sold at a profit just for the sake of keeping people employed.

The key piece in an auto-industry bailout, therefore, is to tie the money to maintaining jobs, along with green incentives and some other requirements. If we allow the Big Three to shed jobs and reduce production, then all we’re doing is tossing money down a rat hole, as far as the economy is concerned. We can’t climb out of a recession if no one is working.

Fixing infrastructure, creating jobs

Gov. Jon S. Corzine announced a $2.8 billion plan for transportation projects that he views as “supporting or creating an estimated 26,000 jobs.”

“If we are going to provide relief from the national recession, we need to keep New Jerseyans working and keep local economies strong,” Gov. Corzine said. “We need boots on the ground. We need shovels in the dirt. These are the projects we need to get under way to help bridge the recession while providing the long-term benefits of an improved transportation infrastructure.”

Some of the projects — like the Alexander Road Bridge in West Windsor — are near completion, while others have yet to start. But all are part of an attempted “acceleration of previously-planned public works projects” that the governor considers “a key component” of his “economic stimulus and recovery initiative.”

All department heads, particularly the commissioners and directors of the Department of Transportation, New Jersey Transit, Toll Authorities, Schools Development Authority, Board of Public Utilities, and the Department of Environmental Protection have been instructed to expedite projects currently on the drawing board, as to create and preserve New Jersey jobs in the midst of the current national recession.

According to the Department of Transportation, the $2.8 billion will be spent over the next year, with about $1 billion going toward “projects which were previously unfunded” or “projects that have been accelerated.”

These projects are expected to create or support 26,000 jobs directly, but up to 45,000 positions when indirect jobs by suppliers and induced jobs from economic activity is considered.

The governor says that an additional “$1.2 billion in transportation projects have been identified, and will be funded if federal economic stimulus assistance becomes available.”

Local projects include:

Alexander Road Bridge in West Windsor — $3.3 million of the $20.84 million to be spent in 2009
Rt 1 Millstone River Bridge Replacement in West Windsor — $21.72 million of $25.32 million in 2009
Replacement of culvert under Rt 1, Bridge over Heathcote Brook in South Brunswick — $1.19 million of $4.25 million in 2009
Rt 206 Bypass between the Old Somerville Rd and Mountain View Rd intersections in Hillsborough — $1.5 million of $173.59 million in 2009
Rt 33 Conrail Bridge in Robbinsville — $10.50 million of $14.74 million in 2009
Widening of Schalks Crossing Road Bridge over Northeast Corridor line and Devil’s Brook to provide sidewalks — $400,000 of $6.40 million in 2009

Projects in Planning

Rt 1 Bottleneck Relief in South Brunswick — the project is designed to “relieve an existing bottle-neck” on a “stretch of the roadway (that) currently accommodates only two travel lanes in each direction. Sections of Rt 1 both north and south carry three lanes of travel.” Project is estimated to cost $400 million. The DOT plans to spend $800,000 in 2009.
Safety improvements on Rt 1 southbound from Nassau Park Blvd to I-95 — project estimated to cost $12.40 million, with $40,000 to be spent in 2009.
Drainage improvements on Rt 1 in South Brunswick (Ridge and Raymond roads jughandled included) — project expected to cost $8.30 million, with $15,000 to be spent in 2009
Culvert replacement at Rt 130/Crystal Lake Dam in Bordentown Township — total cost estimated at $5.20 million with $30,000 to be spent in 2009.
Rt 206/Ewing St Safety Improvements in Princeton — project expected to cost $4 million, with $50,000 to be spent in 2009.
Rt 206, Hillsborough-Montgomery Gateway — expected to cost $2.5 million, with $15,000 to be spent in 2009
Rt 295/Rooute 1 intersection — project expected to cost $2.1, with $40,000 to be spent in 2009
Rt 31 Pennington Circle Safety Improvements — project expected to cost $13.5 million, with $30,000 to be spent in 2009.

Stop blaming the unions for Big Three’s problems

I guess the problem with the American auto industry is not the inflexability of unions, after all. Who’d a thunk it.

At a news conference in Detroit, the U.A.W.’s president, Ron Gettelfinger, said that his members were willing to sacrifice job security provisions and financing for retiree health care to keep the two most troubled car companies of the Big Three, General
Motors and Chrysler, out of bankruptcy.

“Concessions, I used to cringe at that word,” Mr. Gettelfinger said. “But now, why hide it? That’s what we did.”

Labor experts said the ground given by the union underscored the precarious condition of the Detroit companies, as the U.A.W.’s own prospects for survival are also in doubt. “It is an historic and awfully difficult moment for the U.A.W.,” said Harley Shaiken, professor of labor studies at the University of California, Berkeley.