It's hard to compete

The New York Times thinks that our low taxes are making us uncompetitive with the rest of the world:

Politicians on the right have continuously paraded the specter of statism to rally voters’ support for tax cuts, mainly for the rich. But the meager tax take leaves the United States ill prepared to compete. From universal health insurance to decent unemployment insurance, other rich nations provide their citizens benefits that the United States government simply cannot afford.

The consequences include some 47 million Americans without health insurance and companies like General Motors being dragged to the brink by the cost of providing workers and pensioners with medical care.

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.

GM's problem is not that it has to supply health care for its workers, but that its health care costs seem to be running about 200% of the national average. That's union bargaining power, not the national health care system. It is true, of course, that a national system would remove the union's ability to bargain up health care costs, but as Greg Mankiw points out, the bargaining power wouldn't go away; one expects that it would just be used to extract some other form of compensation, such as better pension coverage, earlier retirement, or higher wages.