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Willisms

« Some Pre-Thanksgiving Ted Kennedy Humor. | WILLisms.com | Social Security Reform Thursday: Week Forty-One -- Demographics & The Failing Pyramid Scheme. »

Trivia Tidbit Of The Day: Part 224 -- General Motors, Michigan, Health Care, & Wealth Care.

European Labor Conditions In America-

Almost immediately after GM's announcement yesterday that it was eliminating 30,000 jobs, the Democrat demagogue patrols pounced.

Because Democrats and leftists control the establishment media and Republicans and conservatives *ostensibly* control the government, there is rarely any sort of balance to reporting on America's robust, thriving economy. Anecdotal bad evidence (such as mass manufacturing layoffs) always trumps statistical good evidence (such as every economic indicator out there), even overwhelming good evidence.

Within hours of the GM announcement, my email box was cluttered with messages from liberals and leftists and Democrats and socialists and communists-- it's getting harder to differentiate anymore-- declaring that the General Motors layoffs were evidence of "Bush's failed policies" and of a struggling, terrible economy, caused by those heartless, greedy, fatcat Republicans.

Let's be serious, here, though. Layoffs are difficult to deal with for any community, or any family. These particular GM job cuts are concentrated in Michigan but will impact communities all over the country:

closinggmplants.gif
Click image for larger version, or go here and click the multimedia graphic on the lefthand side.

Republican politicians are rightfully wary of bringing up that whole Schumpeterian "creative destruction" thing, because in an era of diminishing and diminutive political soundbites, it's easy to be taken out of context. It's easy to be painted as a heartless, greedy fatcat, for deigning to suggest that a company should have the right to hire and fire as it sees fit.

The medium- and long-term forces of creative destruction, however, are amazingly powerful-- and positive:

Economist Joseph Schumpeter taught us years ago that gales of creative destruction generate more than usual growth, profits, and real wages, with lower-than-usual inflation and interest rates. Schumpeter’s gales are blowing.

In the United States, unlike in countries such as Germany or France, we have quite a bit of creative destruction. It goes on mostly under the radar screen. Companies make constant tweaks, hiring and firing, expanding and streamlining, and ultimately innovating. Innovation creates new jobs. It's no wonder that the U.S. has created tens of millions of jobs in the past couple of decades, while Europe has not.

America, relative to Europe, has unleashed the forces of creative destruction. In America, unlike, say, Germany, a company can fire an employee with relative ease.

Harsh?

No.

Because that same company is willing to hire more readily, as well. Other companies are also willing to hire more readily. And bad, inefficient companies are replaced with good ones. The free enterprise system replenishes itself vigorously, like blood through the cardiovascular system.

Take a deep breath. No, really. Do it. Breath in as deeply as you can.

Feel the oxygen scattering frantically through your arteries, your veins, your capillaries, replenishing your muscles and skin with freshness.

Not to go all yoga instructor on you, but now imagine that it was harder to replenish those bits of fresh air in your bloodstream. Maybe there's a blockage somewhere in there. Maybe you promised those little oxygens they could stay in your body forever. You can't inhale, because you are not allowed to exhale.

Diagnosis: Eurosclerosis.

It's real. It's debilitating. It's not just a labored analogy. Eurosclerosis is caused by many factors, ones discussed here quite often, but stifling labor regulations that erect disincentives and barriers to the gradual, perpetual tweaks of creative destruction are a major cause of Eurosclerosis. Pie-in-the-sky promises on pensions and benefits, mortgaged to pyramid scheme funding structures, don't help much, either. "Safety net" job bank programs that pay idle employees not to work are reminiscent of some of the stories from the Soviet Union (workers paid to perform meaningless jobs as if they were actually contributing), and the costs of guaranteed employment are staggering:

costlysafetynet.gif

Guaranteed employment is enticing, but the only real guarantee is that it will lead to an untenable financial situation for any company that allows labor unions to dictate such a silly policy. What's more, it costs GM roughly $1500 per vehicle to cover health care costs for its employees. Promises, promises.

Interestingly enough, non-union U.S. automobile plants are doing better than you might imagine (underlining mine):

While GM struggles, America’s automobile industry as a whole is doing quite well. Last year, American workers in U.S.-based automobile plants assembled 12 million cars and light trucks. That compares to an average of 10.6 million a year in the decade before enactment of the North American Free Trade Agreement in 1994. In the past decade, the total volume of automobiles and parts manufactured in the United States has grown by 40 percent, according to the Federal Reserve Board. All that means that production and jobs have not been shifting from GM to rival automakers abroad, but to its rivals inside the United States....

According to the UAW contract in force until 2007, GM’s hourly workers pay only 7 percent of their total healthcare costs, compared to 27 to 32 percent paid by the average U.S. salaried worker....

In contrast, most foreign-owned auto plants in the United States are non-unionized. Their workers are not as generously compensated as GM’s workers, but they are relatively well-paid with good benefits. And because their employers are not saddled with the uneconomic pension and healthcare costs of a UAW contract, they can produce cars at a more competitive price, creating more opportunity and job security for existing workers. Michigan-based GM’s toughest competition these days is not from Japan, but from Ohio, Kentucky, Tennessee, Mississippi, South Carolina and the other states where foreign-owned auto companies have established production facilities.

Let's make one thing clear. Creative destruction does not have to be so abrupt, bursting, painful, and dramatic. If, over the years, GM had not been overrun by union rules and regulations, it could have made more minor adjustments here and there, shedding unnecessary jobs, innovating, investing in itself, creating better products, capturing more market share, rolling in profits, and then adding other jobs (perhaps more and better jobs than were gradually shed before).

So what does all of this mean?

It means that bumper stickers like this one I snapped a couple weeks back while on a bike ride...

healthcaresticker.gif

... incidentally, not found on an American brand of car...

democratcar.gif

... are completely clarifying.

This bumper sticker is trite, sure, but it sums up everything you need to know about Democrats and Republicans today.

Democrats wants us to become more like Europe, economically. Wealth, for Democrats, is bad. Making it. Nurturing it. Praising it. Bad. Bad. Bad. Wealth is icky.

But health care, presumably socialist universal health care, for Democrats, is awesome.

Paying for it? P'schaw. Whatever.

It never dawns on the Democrats that creating wealth, expanding wealth, extending wealth, and otherwise treating wealth like the good thing it is, could help pay for that health care. Wealth care is the best health care policy. Wealth care creates jobs. Wealth care creates innovation. Wealth care produces advances in technology and medicine. Wealth care makes health care more effective, more miraculous, and more accessible than ever before.

Some have claimed that the high costs of health care General Motors pays out should be picked up by the rest of us. If only GM had the government paying for those benefits, GM wouldn't have to send those jobs overseas (nevermind that those jobs aren't going overseas), to countries that have wonderful "free" health care. Many Democrats want this marvelous "free" health care not only for General Motors, though. They want it for everyone.

No, thank you. If we go down that road, as so many seem to want us to, we'll essentially be extending the GM/Europe model to the entire American economy, rather than the other way around, as it ought to be. We'll see Americasclerosis rather than the sort of vigorous job growth we've had in recent years. Health care will become less efficient, with less breakthroughs, slower advances, and an overall poorer standard of health care for most Americans.

Bad.

Avoid. Avoid. Avoid.

Indeed, is it any wonder that over the past year, from October 2004 to October 2005, jobs were created all over the country (with the exception of Katrina-hit Louisiana and Mississippi), even manufacturing states, while lonely Michigan lost jobs (.pdf):

oct0405.gif

Lonesome, lonesome Michigan, where the unions roam free, where health care is more important than wealth care, where Democrats have reigned now for so long. How ironic that organizations principally devoted to improving the lives and jobs of workers have become the cause of such uncreative destruction.

Want a worker's paradise, with lots of jobs, high pay, good benefits, and decent job security? Thinking that more unionization, less trade, more protectionism, less free enterprise, and more Europeanism is the answer for America's economy in the 21st century? Think again. Just look at Michigan. More extremely, look at Europe. Even more extremely, look at Cuba and Angola and the former Soviet Union. We need to make America-- all of America-- more American. This country was and is great because of our free enterprise engines of commerce, not because of untenable European conditions.

Let's learn economic lessons from the evidence before us. Let's not import European labor rules and regulations into the whole of America, as Michigan did. Let's not focus on health care to the detriment of wealth care.

Let's instead continue to lower taxes, let's reform our government's entitlement programs (Medicare, Medicaid, Social Security), and let's encourage the kinds of policies that distinguish us from-- and set us above-- Europe.

-------------------------------------

Previous Trivia Tidbit: Dangerous & Safe Cities.

Posted by Will Franklin · 23 November 2005 03:28 PM

Comments

This is one of the best posts I've seen you write-up yet.

I nominate it for the Carnival of Classy.

Posted by: Hoodlumman at November 23, 2005 04:00 PM

Great post. (I'm fascinated by the "Big 3" demise stories, as I last year bought an American car--sort of, an Escape, 15k, manual, 30 mpg highway, and I need a truck for long trips... had very low expectations for the car, but am quite happy, not enough to figure out what the connection is between it and the Mazda Protege.)

Anyway, noticed from your chart--there doesn't seem to be a Taxachusettes on it. Something to do with the high cost of regulation? Technology's back in a big way, and it's strange that Kerryland hasn't benefitted from it...

Posted by: Some Self-Employed Guy at November 23, 2005 04:12 PM

Great post, Will! I appreciate the news on jobs increasing across the US. Who knew?

Posted by: Jim Hoft at November 23, 2005 04:20 PM

To the Democrats, the economic system is a "zero-sum game". Which of course it is not.

Posted by: James Harrison at November 23, 2005 04:24 PM

Don't Louisiana and Michigan also share one other thing? Democrat party govenors and governments?

Coincidence? HA!

Posted by: Frank Martin at November 23, 2005 04:35 PM

Absolutely fantastic. You've managed to accomplish something which always plagues my economics degree carrying self--expressing such fundamental, self-evidently true principles in clear concise language easily understood by a lay person.

Incidentally, the same economic factor was at play during Japan's 15 year long period of economic stagnation. While they didn't have government mandated job security, the principle of "Lifetime Employment" resulted in essentially the same effect--companies wouldn't fire any one, so they were likewise scared to hire anyway. Further, they were paralytically unable to respond to changes in the market place.

Posted by: Beck at November 23, 2005 04:37 PM

Michigan doesn't have a Democratic legislature. Both the House and the Senate have solid Republican majorities. Even though the state tends to trend Democratic in national elections, in the 90's the Republicans were able to use their control of the governorship and legislature to push through redistricting boundaries that solidified their control of the latter branch. In addition, several other state-wide elected officials (AG, SS) are also Republicans. I think it's not accurate to say the state is dominated by a Democratic government.

Posted by: holden at November 23, 2005 05:04 PM

Along these lines, an interesting article on "free" Euro health care. Perhaps Europe has not repealed the laws of economics and has not re-engineered human nature?
http://www.brusselsjournal.com/node/504

Posted by: Jim, Mtn View, CA at November 23, 2005 05:21 PM

I find it interesting that the supposed problem with the big three American car manufacturers is always blamed in a large part by the legacy costs of high health-care and other benefits paid to union employees while employed and after employment. Although I agree that this is a substantial disadvantage for the automobile manufacturers it strikes me as odd that the deep deep discounts Ford, GM, and Chrysler are applying to their current models are far more then $1500 per vehicle.

The bottom line; American cars aren’t worth the money that is required to manufacture, distribute, and market the vehicles. If the American car industry made a better vehicle and paid attention to what the consumer wanted, they would not be in this jam.

Posted by: Chris Silvey at November 23, 2005 06:01 PM

Great piece.

"Let's learn economic lessons from the evidence before us."

Amen. A comparison of American and European job creation since the 70's is most instructive. Add to this a comparison of entrepreneurial activity, and the benefits of lighter regulation and lower taxation become crystal clear.

Posted by: cosmo at November 23, 2005 07:09 PM

Michigan has a Dem Governor, and it's largest (for now) City has been run by Democrats for-fricken-ever. When was the last time the state presidential election went Republican? I would say that the state is pretty controlled by the Dems. The question I ask - Jennifer Granholm is considered a "rising star" in the party. Why is she in no way being held (politically) for the failures in the state during her tenure?

Oh, that's right, it's George Bush's fault.

Posted by: Carin at November 23, 2005 07:12 PM

I concur...great post.

But, I'm not too worried about unions in the private sector. After all, union-hampered companies will eventually meet their demise and be replaced by better companies. It will be ugly in GM's case--and they may grab at the public kitty on their way down--but survivable for the rest of the economy.

What has me worried is the rise of voracious public employee unions unconstrained by economic realities facing private enterprise. They can fund and vote for politicians who are happy to raise taxes to create ever more tax-eating programs. Unlike any other Americans, public employee unions alone can essentially vote their employers bigger budgets, themselves better benefits and higher wages. I my mind it is a clear, unadulterated conflict of interest that they are allowed to vote with our pocketbooks. I just can't figure out how we could change that.

This problem is already past the inflection point in California and approaching terminal velocity. This state is going down hard when the economy slows again.

Beware the of public employee union jihadis: they are coming for your wallet.

Posted by: pdquig at November 23, 2005 07:14 PM

Interesting that, in biology, Democrats (among others) point to the overwhelming evidence for evolution, survival of the fittest, et al, and ridicule intelligent design, yet in economics, well, obviously, more intelligent design is better. "Creative destruction"? Not on my watch! What are we? Savages?

With a little poetic justice, the Democrat party will be a victim of social Darwinism.

Posted by: Dave in Ohio at November 23, 2005 07:28 PM

Hmmm, I wish I could be so optimistic about large companies not being able to garner government largesse to subsidize thier bloated status quo. As Texas has turned Republican after decades of Democrat rule, the parties have changed, but the underlying (or perhaps overhead) power structures remain the same. The same political groups maintain the same power and wield the same influence. The teacher unions, the insurance companies, the banks...

In fact in a lot of cases, the same people that were running as Democrats in the 80's or 90's are now running for the same offices as Republicans, and the actual changes in the state as far as fiscal policy are a long time coming.

I imagine a state with a private sector dominated by unions such as Michigan would have much harder time at getting actual fundamental changes.

I am a first time visitor to your site Will, but not a last time visitor, great article.

Posted by: Joel Mackey at November 23, 2005 08:14 PM

I'm a car guy. 30 years in the industry. Mostly European high-line, currently ( and very happily) Volvo.

Fact is American product is as good or better than most "foreign" product. Lexus may rank #1 in the surveys, but most people are totally unaware that Cadillac and Buick are both in the top 4!

White collar, soft handed yuppies turned against the US union workers who bought them their middle class lives in the 70's and 80's.

The bottom quintile of the working class has had the legs cut from under their hopes of a decent life by the flood of cheap and desperate immigrant labor. The well paid blue collar aristocrats of manufacturing have been sold out to foreign factory serfs, and now the mass of middle aged technocrats and the kids who were told that computers were the new plastics are being H1B'd and outsourced out of the middle class.

Until lawyers, CEO's and the chattering classes can be replaced by foreign labor we can expect no changes. Our state and local governments are increasingly captive of the non-producing public service unions and will remain so as long as the tax harvest holds out.

GM most assuredly suffered from decades of incompetant management. As late as 1970 they had nearly 60% of the US market, but our absurdly low import tax has robbed the American working class of one of its premier economic props.

The lopsided automotive parts and vehicle trade restrictions practiced almost universally to the detriment of US manufacturing are beyond my comprehension. Can it be that no one in China wants a Corvette?

On a more technical note- forget the hybrids. They are not getting the mileage claimed, no one has figured out what to do with all the used batteries, and few if any of the owners understand the expense involved in replacing the battery pack on a 100 or 150 thousand mile car.

The answer to mileage is coming in two to three years- Diesel. Very high pressure diesel fuel injection combined with new low sulpher US fuel will open up our market to new high performance diesels that will increase fleet mileage 20 to 30%.

Last word- do not buy a small car for fuel mileage- those safety ratings are very misleading- the laws of physics have not been repealed- the break point is around 33-35 hundred lbs plus- under that survivability drops way off.

Posted by: Hugh Brennan at November 23, 2005 08:41 PM

The GM plant in Oklahoma City is semi-famous for being the place where Brian "the Boz" Bosworth loafed for a summer when he played for OU...he reported leaving soft drink cans in the doors of unfinished vehicles. GM insisted he exaggerated. Anyway, when the plant was shifted several years ago to the new mid-size SUVs, such as the XUV models, at first there was joy, which eventually turned to concern when those models didn't sell. Drivers like the large size GM SUVS, but not the mid-size. It is unfortunate that GM couldn't meet customer expectations for this size auto. By the way, Willisms has published numerous "instant classics" before and this is one of the best. We need not only to nod our heads in agreement but take action in support of the goals Willisms espouses: low taxes and radical reform of entitlement programs. This will keep us free, strong and enjoying our blessed liberties. Once again, thanks Willisms.

Posted by: Zsa Zsa at November 23, 2005 08:54 PM

>Wealth, for Democrats, is bad. Making it. Nurturing
>it. Praising it. Bad. Bad. Bad. Wealth is icky.

George Soros. Bill Gates. Warren Buffet. John Kerry. Hollywood. All among the wealthiest of us, and all Democrats. It seems to me, Democrat propaganda notwithstanding, that wealthy people are overwhelmingly Democrat, not Republican, and that Democrats suffer from severe cognitive dissonance when it comes to wealth and the environment.

Posted by: Bob at November 23, 2005 10:02 PM

One point where the comparison of GM to Europe doesn't apply: the social promises in Europe are made by politicians, not set in a labor contract, and therefore those promises are easier to break. Case in point: the Merkel government in Germany exempting job protection for the first two years of employment (instead of only the first six months). They didn't have to ask the unions for approval, they just did it.

Posted by: Scott at November 23, 2005 10:21 PM

Ouch!

The current Governor of Michigan is a Democrat, but every other major statewide office and both houses of legislature are held by Republicans. Prior to Governor Granholm, we had Republican John Engler, who led the state for 12 years with a Republican majority in both houses for most of his tenure.

For the record, the problems in Michigan have little to do with labor unions or domination by the Democratic party. Rather, the problems with the economy here are based solely in Michigans dependence on the domestic automotive manufacturers, and their inability to consistently market and sell cars that people want to buy. While the Japanese were busy anticipating higher gas costs and the effects on car buying, the Americans were busy flooding the market with cheap 0% finance automobiles.

While the recession was hitting the rest of the country hard in 2001 and 2002, Michigan was doing fine. The Big 3 had a good thing with the cheap financing, but of course- after everyone who had a domestic car brought one- it was going to be several years before anyone wanted to buy another Chevy. Also, now that those large GM SUVs are coming back onto the market, the used market is forcing prices down, and so are high gas prices.

Personally, I think things here will turn around by second quarter Fiscal Year 2007. Of course, in the meantime, we're likely to see a housing surplus that could cause local bubble problems, but the employment situation should improve by then.

Posted by: Darius at November 24, 2005 12:32 AM

Interesting article !

Posted by: Tanguy Veys at November 24, 2005 04:42 AM

Sorry Hugh, but having driven quite a number of the options out there, most of the US cars are inferior in performance, finish and reliability to the Japanese designs and the styling is atrocious. Cadillac is an exception, as is Chrysler to an extent (Chrysler's are somewhat iffy on finish and reliability but have all the performance and styling that GM can't seem to grasp). The European stuff is good, but maintenance intensive, especially VW and Audi.

The Japanese seem to excel in designing good looking, good performing, reliable cars that are reasonably easy to service.

The European cars are extremely safe, reasonably reliable, perform superbly but are expensive to maintain and have little margin for deferred maintenance.

With the exception of Cadillac and DaimlerChrysler, as well as certain Ford models (notably the current Mustang), North American cars are bland, perform poorly, have poor fit & finish and require a fair bit of relatively cheap maintenance. The US makers haven't figured out that people want a good looking car which will run as well 5 years from now as it does today. The 'Quality' you get from US makers is entirely in the low number of duds from the factory, not simple reliability.

Posted by: Adam at November 24, 2005 07:45 PM

It's an interesting blog piece. My firm has very similar policies and
recreates itself continually. We once had a company program
called "Break It." We literally tore apart every established procedure
and remade it. I will say this, unlike other media firms who are
suffering now, we continue to grow and profit. Cha, Cha, Cha.

But this blog article does not address a deeper issue, not only for
General Motors, and that is the matter of healthcare in our nation.
What will it take for an American President to tackle what can only be
described as a crisis? There is no damned reason why this nation
cannot muster the same energy and determination it invests in NASA
projects toward training and equipping a new generation of nurses,
technicians and doctors, which would lower costs and availability of
healthcare for all of us and can only benefit firms like General
Motors.

I'm not talking about "Universal Healthcare" or "Socialist Canadian
Medicine", just fund the schools! We have 12 applicants for ever
nursing school admission. We are forced to import physicians from
wherever we can find them. Our hospitals and their staff are
overwhelmed, as they fail to keep pace with the population.

Of course, we would probably have to stop pissing our money away in
Iraq, but that is another story.

Posted by: Lab Rat Carl at November 24, 2005 09:27 PM

Great blog I hope we can work to build a better health care system. Health insurance is a major aspect to many.

Posted by: Blue Cross of California at December 1, 2005 12:49 AM