Paul Krugman on Toyota, Southerners and the welfare state
Today's Paul Krugman column is quite interesting, but not because it presents good arguments, but because it contains so many fallacies.
His entire column makes a big deal about a decision by Toyota to build a plant in Canada, which he claims proves the superiority of Canada's somewhat more extensive welfare state compared to the United States. That Toyota has also recently announced new factories in Texas, Kentucky and West Virginia is not mentioned, as it would contradict his "empirical evidence" of how beneficial Canadian welfare statism is.
From this single investment in Canada after many more investments in the United States by Toyota he alleges that this proves how the welfare state will attract investments. Well, that surely must explain why continental European countries and Scandinavia attracts so much foreign investments while we all know how no company must surely want to build factories in China who was attacked in The Economist for not subsidizing health care sufficiently.
He also attacks Southerners for being an uneducated bunch -specifically mentioning Alabama where LvMI is headquartered and attributing that to dogmatic right-wing opposition to tax increases to help fund higher government spending on education.
Presumably he thinks education spending should be raised to the extremely high levels of District of Columbia, where test scores surely must outperform those in Alabama. Or do they really?
Comments (34)
In one respect, Krugman is right. It is easier for companies to move somewhere that pays healthcare, so they don't have to. Of course, that doesn't take into account that corporate taxes in the US are very high for industrial nations.
Specifically, Canada is lowering corporate taxes to bring foreign investment.
Hmm, lowering taxes spurs investment? Where have I heard that before. Not from Krugman, I know that much.
I have to think The Fairtax would do more for the American job market than national health care EVER would...
Published: July 25, 2005 6:39 PM
"That Toyota has also recently announced new factories in Texas, Kentucky and West Virginia is not mentioned, as it would contradict his "empirical evidence" of how beneficial Canadian welfare statism is."
How can Mr. Krugman be viewed as having anything but the most rudimentary integrity when he (I assume knowingly) omits mention of the newly announced (and existing) Toyota plants in the U.S.? Objective presentation of the facts and striving for the truth apparently are quite low on Mr. Krugman's value scale. As I mentioned in an earlier posting, if Paul Krugman and those like him (no matter what their economic or political views), are shining examples of those who are "educated", then I will remain "ignorant", and proud of it.
Published: July 25, 2005 6:44 PM
"Funny, isn't it?"
Krugman's article, that is. I like this one: "So what's the impact on taxpayers? In Canada, there's no impact at all: since all Canadians get government-provided health insurance in any case, the additional auto jobs won't increase government spending.�
The detrimental impact of socialism on Canadian taxpayers has been having its effect since before Toyota’s decision to locate its plant in Canada. The reason Canadians are more broke than their American counterparts is that they’ve already been paying so much higher taxes for so much longer. That the addition of this new plant won’t change this is hardly a redeeming feature of the socialist system up there.
Published: July 25, 2005 7:36 PM
Krugman is a political hack. It's always nice to see some more evidence of this added to the pile.
Published: July 26, 2005 4:10 AM
Is it true, as Krugman claims, that
"Canada's health care system has far lower costs per person than the American system, with its huge administrative expenses"
If it is, why is the US system so much more expensive? What are these "administrative expenses"?
Published: July 26, 2005 4:30 AM
Mr. Panetta, you aught to ask a doctor. Or rather, ask their office staff what takes up the majority of their time.
Regulatory compliance and insurance forms. Insurance being highly regulated by government too.
The paperwork requirements are these "administrative expenses". Remember HMO and other legal creations that killed private practice? More regulatory costs. It's simply not possible for the lone doctor to make a living doing family practice. The burden must be shared among multiple doctors in order to remain even close to affordable.
Try this: Ask your doctor if they have a cash discount for services if you pay them directly without having to go through the insurance company. I haven't been to one yet that didn't.
Published: July 26, 2005 9:22 AM
The problem is that I don't live in the US (I'm an Italian living in London) so I don't know much about US healthcare apart from what I hear in the media. Left wing media usually describe it as inadequate and failing the poor, right wing media describe it as an ideal, efficient system.
What I wonder is: how can a system which relies more on private initiative and less on the state be more wastful than a centralised state one? The only explanation I can think of is the threat of lawsuits in the US, which is much less strong in Europe since compensations here tend to be far smaller.
Published: July 26, 2005 10:40 AM
I have been debating liberal Krugman fans on his web site. So far they have failed to explain why Krugman would fail to mention Toyota's investment south of the border and why China with its lack of welfare statism is considered so attractive for investments. Their explanation for the fact that DC schools trail the rest of the country despite having far more resources is the prevalence of "subcultures" (I think we know what that is a code word for) hostile to learning. But as to why that can't be used as a explanation for why Southern schools trail the rest of the country, no explanation has been offered so far.
Published: July 26, 2005 10:47 AM
Despite their supposedly lower levels of educational spending and achievement, the last time I looked the southern states were doing relatively better than many of their northern counterparts in overall economic growth and job growth. But then again, I don't think the southern states are turning out the quantity or quality of "intellectual" exemplified by Mr. Krugman.
Published: July 26, 2005 11:20 AM
Stefan: I agree about Krugman's intellectual dishonesty (or ignorance) in ignoring Toyota's investments in the US, but your other question can be answered by pointing out that there is no requirement in China for foreign firms to provide health care to workers.
Published: July 26, 2005 11:27 AM
But Bruno, are really companies in the US required to provide health care to workers?
Published: July 26, 2005 11:53 AM
Mr. Panetta, thank you for the clarification. With the extent of federal, state and local regulation of medicine, I'm not going to say that it is indeed less regulated than a government provided system. Considering the layers of regulation, the interactions of regulated insurance, regulated businesses, regulated doctors and hospitals, there are infinite opportunities for many small wastes to add up to one really big waste.
Published: July 26, 2005 1:00 PM
I do not think health care and its costs are the main issue. The main issues are the total (including benefits) current and expected future costs of employing a worker, the worker's current and expected productivity, and the expected selling price of what the worker is producing. The cost of health care is just one of several costs that an employer must consider in determining his total labor costs.
Published: July 26, 2005 2:08 PM
--"What I wonder is: how can a system which relies more on private initiative and less on the state be more wastful than a centralised state one?"
Well, the problem is we've managed to combine some of the worst features of each into something that isn't one or the other. People like to make a big deal about the US healthcare system being private, but when the federal government is spending more than half the money that goes in to it each year, how private it is really?
This is compounded by other government-caused (but not directly government-paid) factors, such as massive tax breaks for companies that do provide what the government considers health insurance to their employees.
You should also note that there are actually very few true health insurance plans offered in the US (mostly due to regulation, as far as I can tell). What we mostly have are group-pay plans, where every participant is paying in much the same amount no matter how many or few services they take advantage of. Anyone should be able to see why this would lead to major supply/demand imbalances, which have to show up somewhere. People with "insurance" see increasing premiums and decreasing coverage. People without it see the pure rise in prices.
Of course, all the problems caused by government-led distortion are exactly what are driving the cries for government to take over completely...
Published: July 26, 2005 2:47 PM
Anyone who thinks American health care is a "free-market" is grossly misinformed. The providers are government enforced cartels and the consumers think they pay nothing since they are shielded from directly paying the actual bills.
Published: July 26, 2005 4:08 PM
I think Krugman has been a misleading with this statement:
"But that's not right, even aside from the fact that Canada's health care system has far lower costs per person than the American system, with its huge administrative expenses"
A link posted in the comments in the PK blog reveals that in 1999, administrative costs per capita were $1059 in the US and $307 in Canada. I'm not sure whether Krugman is suggesting that Canada's lower health costs arise because of lower administrative costs, but this is not true. OECD data show that in 2000, per capita health spending was $4539 in the US and $2503 in Canada. So even when you exclude admin costs, the US still has higher health care "costs" than Canada.
Of course the fallacy with this whole line of reasoning arises when you call spending on health care "costs". As anyone with a bit of economic knowledge knows, and I assume Krugman is supposed to know something about the subject, revenues and costs are not the same thing. Since the US system provides better quality care, it only stands to reason that Americans will spend more money the goods and services the industry provides. Not to mention that until recently, it was deemed illegal to pay for operations covered by the state in Canada.
I'm guessing that the reason the Canadian system has lower admin costs comes from economies of scale, as the system is fairly centralized. If the US system were truly private, than I would expect it to have lower costs, but as we all know, the private health care system is the US is nothing more than a myth. A true private system would cost far less than even the best run public system, and would result in healthier and more productive employees, which is a far better way to attract investment.
Published: July 26, 2005 4:31 PM
The argument about administrative costs being lower in government-run health care vs. private health care is bogus. First, government lowers its administrative costs by forcing private doctors and other health-care providers to bear the burden of complying with government regulations. For example, a survey by the America Association of American Physicians and Surgeons found that doctors “estimate that they and their staff spend 22% of their time on compliance with Medicare regulations, and that it costs, on average, $22 to process a Medicare claim, compared to $14 for a private claim.� Nor do estimates of government health-care administrative costs take into account the cost of collecting the tax revenue for the programs. Put those factors into the mix, and government wouldn’t look so efficient.
Second, there are a lot of apples to oranges comparisons. One study Krugman cited in a previous column compared administrative costs by measuring administrative costs in private insurance as a percentage of income while measuring administrative costs in public health care programs as a percentage of expenditures. Reviewing the literature, Henry Aaron of the Brookings Institution was “struck by how hard it is to identify and estimate administrative costs accurately at a single point in time in a single nation, how doubly hard it is to compare costs at a single point in time among nations, and how triply hard it is to make meaningful international comparisons of trends in administrative costs over time.�
Then there are the questions such an argument overlooks, such as “What do we get for incurring administrative costs?� and “Is it potentially wasteful to not have enough administrative costs?� Regarding the first question, we could reduce administrative costs in the private sector to near zero, but would anyone argue that the economy would run more efficiently with no management, accountants or advertising? As for the second, administrative costs can help prevent waste, such as fraud. Given how much fraud appears to be in the Medicaid system, perhaps a bit more oversight (which would undoubtedly add to the administrative costs) is called for. Anyone want to bet that the level of fraud in private insurance is lower, and that the efforts private companies make at fraud prevention come under “administrative costs�?
Published: July 26, 2005 5:31 PM
Health care is definitely a big factor in why Toyota went there, but then, so were the government investments in the area. With that in mind, I have to ask, how did Texas, Kentucky, and West Virginia bribe Toyota? I'd be terribly surprised if that wasn't part of the deal.
I'm also a little unsure of your comparison of Canada and the European countries. If they are not already considerable in the business of producing cars like Canada is, why would they start? There's also probably an issue of geography.
Additionally, among other things, notice how you don't refute his claim that the poor literacy of the workforce is a problem. Instead, you merely offer a sarcastic, thoughtless response.
Published: July 26, 2005 6:14 PM
One of the explanations for the lower per capita health spending in Canada could be that the government does not supply the same resources that would and are available in the US. There is currently a debate going on in Ontario over a private facility that wishes to open its doors to "only offer drugs to cancer patients that Ontario hasn't yet approved for coverage by its health plan".
Ontario hasn't approved supplying these drugs under its health plan so you can not get them, period. But they have been approved by Health Canada (Canada's FDA except when the real FDA approves a drug in the US, a doctor can provide it).
The debate is whether the the Health Minister will shut it down before it opens or after it opens.
This is an example of not supplying what is needed or wanted. You don't have to pay for what you don't supply which will certainly keep your costs down.
While you can schedule a quick MRI for your pet
a quick MRI for your pet .
For humans in Ontario in 2004, the median waiting time was over six months.(which you pay for out of your own pocket), you can't do the same for yourself - it is illegal.
Perhaps the cost is lower because the services are not really provided:
-4.5 MRI machines for every million people, well below the OECD average of 7.6
-CT scanners in Canada stood at 10.3 for every million population, below the OECD average of 17.9.
-Canada had fewer doctors per capita than the OECD average. There were 2.1 doctors for every 1,000 Canadians, while the average was 2.9.
Published: July 26, 2005 9:27 PM
My solution is to try de-regulation of US medical licence, and attract 100 thousand Indian and Chinese doctors to US. The other aspect to attract Japanese investment is that forbiden US lawyers to sue any companies for big profits. I remembered 5 years ago a japenese top TV show mentioned, that 1 million US lawyers were keeping to investigate who has big money, so Japanese must hide their money from them. I think they did good job, because US lawyers' targets are shifted recent years to MSFT, MRK, PFE, MO, RAI, IBM, C, BAC, JPM, XOM etc.
Published: July 26, 2005 10:19 PM
Brian:
If you go to this link, you will find that the Canadian government is going to put in $125 million worth of subsidies. The U.S. state governments would have put in $250 million.
http://www.cbc.ca/cp/business/050630/b0630102.html
Published: July 27, 2005 6:40 AM
One problem of the health care debate is that people use the word "cost" when they mean the word "price." "Price" is how much you pay when you buy something, ie., the total cost of health care. "Cost" is the total economic impact this buying decision will have, i.e. the total economic impact that the health care buying decision will have.
I know that to readers of this website, this is an elementary distinction, but I believe that it is too rarely insisted upon and so gives opponents an unearned advantage.
For example, getting access to many medical procedures is far faster in the US than Canada. Does this mean that people in the US are that much more productive, since one assumes that before treatment a person is incapable of working?
Published: July 27, 2005 9:43 AM
Google up, 'canada auto industry subsidy' and you'll quickly see what a liar Krugman is. Both the Federal and Provincial governments are pouring hundreds of millions of taxpayer dollars into Ford, GM and other automakers.
Published: July 27, 2005 10:28 AM
"Health care is definitely a big factor in why Toyota went there, but then, so were the government investments in the area. With that in mind, I have to ask, how did Texas, Kentucky, and West Virginia bribe Toyota? I'd be terribly surprised if that wasn't part of the deal."
Sure American states offer subsidies (That again illustrates why Ayn Rand's talk of big business as a "presecuted minority" was and is false), my point was rather that he is either extremely ignorant or dishonest if he says that the Auto industry is "heading north".
"I'm also a little unsure of your comparison of Canada and the European countries. If they are not already considerable in the business of producing cars like Canada is, why would they start? There's also probably an issue of geography."
My point was that Western Europe apart from Ireland aren't considered a attractive place for new plants in virtually any area
"Additionally, among other things, notice how you don't refute his claim that the poor literacy of the workforce is a problem. Instead, you merely offer a sarcastic, thoughtless response."
I wasn't sarcastic against the idea that poor literacy is a problem, rather I was it against the idea that the solution is more money to government schooling. As my link showed, Washington DC schools perform far worse than those in any state -including even "Deep South" states like Mississippi, Louisiana and Alabama- despite having the highest per pupil school spending
Published: July 27, 2005 10:51 AM
don't underestimate the power of government. It has the power to "buy off" companies with all kinds of bribes and promises.
Published: September 5, 2005 11:42 PM
With their own money, no less. What an absurd system.
Published: September 6, 2005 4:36 AM
Hi! I too want will share the reasons in occasion of Toyota car.
The first car was toyota corolla, volume of the engine 1.5, good car, but very weak engine.
Car economy class. Car toyota camry, volume of the engine of 2.0 litres. Excellent car,
but it would be desirable even more powerfully! Now I go on car toyota Surf, the engine diesel!
That is necessary for me! 1KZ! COOL!
Published: November 2, 2007 4:15 PM
Hi!!Arielb! I agree with an idea of the author and I think that the industry
will please us still with novelties. At me all over again was toyota camry now
I wish to buy KIA What model better?
Published: January 9, 2008 2:04 AM
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Published: May 6, 2008 11:21 PM
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Published: June 11, 2008 11:29 AM
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Published: June 11, 2008 11:29 AM
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Published: June 11, 2008 11:29 AM