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ThoughtsOnline

Friday, November 25, 2005


One of the nice things about staying in an expensive hotel is that they give us a capsule wrap-up of the NYT, so I don't have to pay a buck for the paper version and I don't have to pay for Times Select to get annoyed by Krugman's latest....

... in which he complains that GM (and, by implication, every company carrying legacy health care costs) is at a disadvantage by having to lay out about $1,500 per car in health care costs, whereas the likes of Toyota only has to pay about $200 per car.

It's not that he really cares about the likes of GM, it's simply that he's in favor of national health care and GM is the horse he's riding right now.

That probably explains how Krugman could so easily overlook some other solutions to GM's problems that wouldn't involve nationalizing what amounts to roughly 20% of GNP (I'm guessing on the exact number, and as I'm on vacation, I'm not looking it up).

Were, for instance, GM to sell more cars, that $1,500 per car number would shrink a whole lot. As anybody with a real understanding of business (as opposed to Krugman's 'I learned all I know about business in school' approach) knows, non-variable costs drop as a percentage of sales as sales increase. Sell twice as many cars, and presto, GM only has to lay out $750 per car. And, the reverse holds true: sell fewer cars and watch your unit costs go up. So, were GM to sell more cars, the likes of Toyota would be selling less, and as a result, they would be paying out a lot more per car for health care than they are now.... perhaps enough to the point where the cost differential between Toyota and GM would be small enough to not factor into buying decisions. Of course, were GM to sell a lot more cars than they are now selling, they would be making so much money that nobody would care about how much they were or weren't paying for employee and retiree health care.

The problems GM faces really aren't problems faced by the majority of business (or workers, for that matter). Old-style manufacturing companies are very much in the minority these days. I can't think of a single company that has been formed in the last 30 years that has GM's problems. So why screw around with health care to solve the problems of a relatively small (and smaller each day, the way GM is going) part of the economy?