Monday, October 22, 2007

Mythbusters: Competition and Insurance


If there's somethin' strange in your neighborhood, who you gonna call?
Megan McArdle (with an assist from Greg Mankiw) busts the mythical link between taxpayer funded healthcare and international competitiveness. She says:

Greg Mankiw points out that this is silly:

Employer-provided health insurance is just a form of compensation that happens to be provided in kind rather than in cash. What the Times seems to be saying is that because companies like General Motors have promised levels of compensation too large to make them competitive in the international marketplace, we should shift the responsibility for some of that compensation from the companies to the taxpayer.

An alternative approach is for the companies to reduce compensation to levels they can afford. One might respond that reduced compensation would be hard on workers. But so would the higher taxes needed to pay for the national health insurance the Times is lobbying for. There is no free lunch here.

But what he doesn't point out is that one of their main assertions--that GM is losing competitiveness because it has to pay for health care and pensions--isn't even true. GM's foreign competition comes from Japanese and German cars; the next biggest player, the Koreans, has less than five percent of the market. And Japan and Germany have employer-paid health insurance just like American companies.

I have no idea how the meme got started that American companies are losing competitiveness because only they have responsibility for their employees' health, but it shows up quite a lot, along with the even more erroneous belief that our pension problem creates a competitiveness disadvantage; for the record, Germany and Japan have their own gigantic pension problems.

I ain't afraid of no ghost!

UPDATE: Her post on optimal tax policy is even more awesome. Read the whole thing.

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