Eli Lehrer

 

GM, of course, declared bankruptcy today. A number of things—bad management, poor products and screwy labor relations—hurt the company. But in the end, the biggest problem GM couldn’t solve related to the company’s liabilities to retirees. The company, which currently employs about 150,000 hourly workers, was responsible for the health care of over 1 million people and pension obligations for over 650,000 people.  These pension obligations were probably the largest factor in GM’s demise and public policy should, at minimum, stop encouraging companies to take on anything like them.

The lure of pensions is obvious. A pension is another benefit that a company can provide to its workforce and, although quite attractive (“We’ll support you for life!”) it imposes few up front costs.   A company that offers pensions has more money to invest in new products, pay dividends, and meet payroll while simultaneously being able to do well by its existing work force. The problem, however, is that all companies go through a lifecycle: they start small, become big, decline, and eventually go out of business. Of the 100 largest companies in 1900, only 7 existed in the same form by 2000. And this cycle of creative destruction is accelerating, of the 100 largest companies in 2000, by my count,  at least 19 have either merged with a similarly-sized company, been bought out, gone bankrupt, or needed a government bailout to stay afloat.

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I’ve had some fleeting contact with the management of the Republic Windows and Doors plant that striking workers have famously occupied. Working on an article for Governing Magazine about Chicago’s use of Tax Increment Financing (TIF)–a form of government-to-business subsidy–Chicago’s Planning and Development Commissioner cited Republic as a shinning success story for the city. Because TIF financing (which uses property taxes to return the subsidy to the public treasury) relies on the business continuing to operate and continue to pay taxes, it seems likely that the City of Chicago will end up in trouble too as a result of the company’s shut-down.

At a meeting I attended a top Ford Executive made an interesting point: Automakers, he said, wanted to avoid bankruptcy because the mere fact of a bankruptcy filing would reduce new car sales to near-nothing. Thus, he said, they “didn’t want to call it bankruptcy” but would “pay the price” nonetheless. I am against auto bailouts, but he may have a valid point here. I would not buy a car, no matter how well made, from a company in Chapter 11. After all, cars need regular service and any car from a given manufacturer has at least some parts that no other manufacturer uses. If the manufacturer no longer exists, then the car parts might not.
Although plenty of car companies have merged or partially merged to get out of trouble–recent-memory examples include Chrysler and AMC and Renault and Nissan–I can’t think of any auto company anywhere in the world that has entered chapter 11 or its local equivalent and emerged anything other than a hollow shell. Can anyone think of a counter example?

Reports have it that Congress and the President have agreed to an auto industry bailout. Bad idea. But here’s one prediction: this $15 billion stopgap is all the automakers will get in direct aid-as-aid. It isn’t that Congress will suddenly become convinced that bad companies should be allowed to fail. Rather, it’s that other concerns will take precedence and can serve the function of an auto bailout anyway. Thus, I’d suspect that future aid to automakers, direct and indirect, will flow under other labels. Two likely vehicles: infrastructure stimulus and health care reform. An infrastructure bill could and probably will include grants and loans to help build “green” industry. Cash-desperate automakers will take them. Health care reform, if it strengthens the individual market and shifts some obligations, subsidies, and incentives from businesses to individuals, could also let automakers welsh on commitments they’ve made to union healthcare trusts and save money that way.
If Congress is going to do bailouts, I’d actually prefer a system that makes them transparent. But I’d bet they will be hidden elsewhere instead.

Doug,

The situation you describe in the UK here is outrageous however one looks at it. Indeed, it provides a strong case why the United States should not switch to the type of single-provider health care system that exists under the UK’s National Health Service. But I’d take issue with your conclusion:

But turning the entire system over to government ensures that Americans will lack the health care they need and will end up paying a lot more for whatever care the government deigns to provide.

For at least two reasons, I don’t think this makes sense.
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Where the 1960s Never Ended.

Ithaca: Where the 1960s Never Ended.

Ithaca, New York, home to my noble alma mater, has long been considered a place where the 1960s never ended. Now, via William Jacobson in The American Thinker we find that the Ithaca Common Council has voted to make Ithaca a “sanctuary city” for anti-war protesters–who, frankly, don’t need sanctuary anyway. But the Common Council hasn’t seen it fit to apply the same standard to those who might support the Iraq war. When a member of the Council challenged the idea that “minority”–pro-war–opinion might also need protection, it was voted down. The proposed amendment read as follows:

RESOLVED, That this Resolution be a reaffirmation of our commitment to the First Amendment, which ensures the rights of the people to freedom of expression and to peaceably assemble; that we are especially cognizant of the importance of protecting this right for the minority opinion, which may or may not be in agreement with sentiments expressed in this Resolution.

I covered the Ithaca Common Council myself as a reporter and, well, let’s just say that I routinely called it the “People’s Soviet.” Even though I still consider myself a fan of the self-described socialist who served as mayor of Ithaca for much of my time there, I think that this action surely gives the place a Soviet flavor.

President-elect Obama has named Tom Daschle to head the Department of Health and Human Services. By some measures the largest department in the government, Daschle is sure to take center stage in Obama’s inevitable effort to reform the U.S. Healthcare system. So what of the choice? Well, Daschle has some good ideas, one wrong idea, and one really bad one. A quick rundown:

Good Ideas: Daschle believes that individuals, mostly, should have to pay for their own health care and opposes the current mixed-economy health-care system that costs a ton but doesn’t provide good care for most Americans.

The current U.S. health care system–which isn’t a free market in any sense of the term or “freer” than most other developed countries’ health care systems–seems largely devoted to cost-shifting rather than actually providing health care. Every party involved–consumers, insurers, the government, hospitals, doctors–tries to get somebody else to pay its bills. The pendulum swings back and forth a bit but nothing really changes in a fundamental way.

Like Daschle, I’d prefer a mostly private system where hospitals remain private, most people pick their own health insurance, and pay for it themselves in a free or mostly free market. Netherlands, Switzerland, and, to some extent, France, have systems like this. (Germany has an employer-based system that’s basically the same as ours with a few more subsidies, mandates, and price controls.) All these systems are far from perfect but have less government involvement than ours (France is about the same) and give individuals more choices than ours. None are a free market but they all move closer to that ideal than what now exists in the United States.

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Michelle makes a good point below. There’s also a good case that an Obama administration will be good news for those who favor depository institution reform. Some background: Right now, three major types of depository institutions–banks, thrifts, and credit unions–provide pretty similar services to Americans. All make loans, offer checking accounts, and provide certain types of investments. Each one has different regulatory requirements. Although enormous differences exist, it’s fair to say that credit unions generally face the most government oversight while thrifts face the least.

Although they emerged for distinct reasons–credit unions for people who couldn’t get banking services elsewhere, thrifts to provide mortgages, and banks for everything else–these reasons have long since fallen by the wayside and the institutions compete based more on regulatory niche than actual desire to meet their customers’ whims.

It would be better to consolidate all three types of institutions under one type of liberal charter that combines the best of all worlds. Every institution should have the lower-tax status of credit unions, banks’ freedom to make whatever loans their customers want, and thrifts’ freedom to open branches wherever they want.

The most concrete move to do this–substantial deregulation of credit unions through the Credit Union Regulatory Improvement Act–attracted most support from Obama’s fellow Democrats.

It’s a good idea and I’d think that it should attract the support of an Obama administration.

Voting this morning in my busy Fairfax County Precinct, I realized something: the old way of voting–on paper ballots–is better than every new fangled contraption scientists have dreamed up.

Before I entered the polls this morning, I was dimly aware that Virginia’s legislature had approved a law mandating paper ballots. To me, this was a rather silly exercise: except in a few large cities, vote fraud just isn’t that common or consequential even though both Democrats and Republicans love to accuse the other side of stealing elections. The best way to vote, I thought, was the easiest and most high tech. I was wrong.

Watching the polls, I realized the true advantage of paper ballots: because they cost almost nothing, there’s no real limit on the number of voting booths that can exist in a locality that uses paper ballots. At least in Fairfax County where I live, a computer of sorts–an optical scanner with technology that dates to the 1960s–still gets used to tabulate ballots. But most voters actually cast their votes on paper. Although the line was, by far, the longest I’ve ever seen–it filled up nearly an entire elementary school building–it moved much faster than the one I stood in when I voted for President in 2004 on a touch screen. Thinking about it, I’m not quite sure why we ever abandoned voting by paper ballot in favor of mechanical machines, punch cards, and touch screens. Paper is easier, cheaper, more secure, and allows for a lot more voting booths. But, since paper ballots will be be the only way to vote in Virginia starting next year, I cast my vote the now-old fashioned way. . . via a touch screen.

An article from the Australian Herald-Sun newspaper points out that the release of new AC/DC albums has correlated with economic recessions in the United Kingdom. True.

Another odd correlate: expansions of Bradley International Airport outside of Hartford, Connecticut.  Whenever the airport expands, the economy contracts.

Bradley, according to the FAA, the 50th busiest airport in the country, serves the cities of Hartford, CT and Springfield, MA. Relative to the size of the cities it serves–both under 200,000 in population–it’s a pretty busy airport. Some people doing business in the New York suburbs fly there as do those connected with the insurers, defense contractors, and other assorted businesses that headquarter in the Connecticut River Valley.

The correlates:

  • The airport opened in 1947 when the end of World War II was causing significant economic dislocations.
  • An “international” expansion opened in 1971 and 1972, just in time for the oil crisis recession.
  • In 1989, another expansion opened just as all of New England (and then the whole country) slid into a major recession.
  • A major parking garage opened in 2001 just in time for 9/11. (The garage actually couldn’t be used for awhile because of security concerns.)
  • And, guess what? The final phase of a major expansion is going on right now.

Unlike the AC/DC albums, I do think that this correlation may be due to something other than blind luck. Hartford and Springfield both saw their glory days before World War II and have been on the decline, more-or-less, ever since. The airport tends to grow when Connecticut’s economy hits a high point and New York City’s three impossible-to-expand airports get particularly over-crowded. Anyway, just a thought.