Tuesday, March 31, 2009

New article: Wheeling Out the Latest Contrivance

It's not exactly Social Security-related, but I have a short piece in AEI's online magazine The American discussing claims that nationalizing health care would make the Big Three automakers more competitive. This view stems from a) the idea that the automakers themselves pay health costs, when in general they would be deducted from the overall compensation of their employees; and b) the view that government provision of health care is necessarily more efficient. It can be, but many of the reforms put forward wouldn't do much to reduce costs.

The fight for survival by the not-so-big three Detroit automakers, now effectively owned and managed by Washington, has made them unlikely proponents of government-controlled healthcare. Healthcare costs add more than $1,500 to the cost of each vehicle made by Detroit, it is said, putting them at a significant disadvantage relative to competitors in other nations where healthcare is provided by the government. If healthcare were provided by the federal government, some argue, automakers' costs would decline, their cars would become more competitive, and their business fortunes would improve.

It is an attractive argument. Unfortunately, it goes against how most economists think about how healthcare costs are truly paid. The question regards the "incidence" of healthcare costs, meaning that the person who actually bears the cost of healthcare is often not the one that formally pays for it. Whether health costs are financed by employers or by the government, the true cost is actually born by workers. Nationalizing healthcare, which is effectively what most liberals wish to do, would do little to improve automakers' competitiveness.

Click here to take a read.

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