Asymmetrical Information

Two reasons why other countries spend much less than we do:

1. In America, half of a person's lifetime medical costs are spent in their last six months of life. Government run systems in other countries refuse to spend that money.

2. 30% of our medical insurance premium goes to pay the costs of lawsuits. Government run systems in other countries do not allow lawsuits for pain and suffering.

Great analysis, Jane. I would add that this "intergenerational warfare" claim, to the extent it may have any validity at all, is essentially about a situation that is rapidly becoming history. The tension arises where a company has a fixed-benefit retirement plan (a/k/a a pension). Fixed-benefit retirement plans are things of the past. I'm not aware of any US company that offers a fixed-benefit retirement plan to new hires, and most companies that still have employees who got a fixed-benefit plan when they started are offering incentives to get those employees to switch to something less risky for the companies. Today, instead of pensions, companies offer fixed-contribution retirement plans (e.g., 401(k)s) -- the employer agrees to make a certain fixed contribution now (usually matching what the employee contributes) and is freed of the risk of having to make a fixed payout 30 years from now. With a fixed-contribution plan, there's no basis for "intergenerational" conflicts.

I wonder about the other side of that statistic - that our life expectancy is lower. In America, since you have to pay for your medical, you are free to not pay for it, and have the consequences of that choice. In other words, a poor crack-head mom might get care in England that they would not get in America, and die (in America) as a result of their own poor choice.

Is there any way to get the life expectancy rates of those that actually participate in the health care system here? I bet our rate will be a lot higher if you exclude those that don't participate.

-Donut

Another question on the relative life expectancy issue is how are the numbers calculated in each country? Do premature babies that die within a day or so get counted as live births in Europe and thus factor into the life-expectancy numbers? I've read that they *are* counted as live births in the US (I could be wrong about that) and not in Europe. If that's correct then the comparisons are...less than useful.

Donut:

The reason our life expectancy rate is lower is that our infant death rate is higher. There are three reasons why our infant death rate is higher.

1. Our welfare system pays children to have children. Teenage mothers have a higher chance of having a child with birth defects resulting in the infant’s death.

2. Our welfare system pays crack mothers to have children. Crack mothers have children with birth defects resulting in childrens' death.

3. Doctors in America deliver babies that are severely premature. Some of these severely premature infants live but most die. Doctor's in other countries do not even try to deliver severely premature infants.

Jake,
Can you post links for the two pieces of data in your first comment? Thanks.

Don't forget to toss in the homicide and accident death rates of young people in this country, which has a measurable impact on life expectancy, without regard to quality of health care. To the contrary, if one is going to suffer a gunshot wound or other major violent trauma, one would be better off enduring such a fate in the urban U.S. than anyplace in Europe, with the possible exception of Northern Ireland, where there has been much experience with gunshot traumas. Even this doesn't address the fact that the greatest predictor of death, regardless of quality of health care, is being unable to achieve and maintain a high metabolic rate, and the U.S. population most commonly meets this description, since it is the most obese and sedentary.

Also, the post Jane excerpts is fatuous, in that it fails to recognize that one of the major impediments to nationalizing health care in the U.S., whatever one thinks of it's merits, is that any such move will include MORE rationing for retirees, since Medicare rations less that what retirees experiences in other systems. There is no better place than the U.S. to be a 72 year old fat diabetic with arthritis, and our politicians desperately seek their votes. Thus, there will be no national health care system.

Finally, perhaps Mr. Sawicky is unaware that stockholders of firms that enter bankruptcy quite frequently lose everything. The fact that they retain what dividends were paid in the past, assuming they weren't so unwise as to use them to purchase more stock, usually isn't much consolation.

All in all, the argument is silly at best. I don't believe that Mr. Sawicky is a silly person, so it can only be assumed that other factors are at play.

Jake, do you have citations for either of your claims?

I can buy that a majority of health care expenditures are for the latter years in life (although I’m not sure what the percentages are and would appreciate a link to a study for some hard numbers) but your claim that 30 percent of our medical insurance premiums goes for lawsuits seems just a bit hard to believe.

BTW: here are the dividends paid to Delphi shareholders:

http://phx.corporate-ir.net/phoenix.zhtml?c=105758&p=irol-dividends_print

The racial composition of the US is important to the life expectancy statistic. Compare apples to apples. Americans of English descent probably have at least as long a life expectancy as English in England. And better teeth.

A couple of points:

First off, just to clarify, the article was not written by Max Sawicky but by Dean Baker.

One problem is that retirees are being asked to make sacrifices by wealthy executives who will themselves profit from them, as any cost savings accrued will enhance company profitability which will then enhance already bloated executive compensation packages. Pretty cynical, that. I suggest you look at the compensation packages of the execs at the airlines who have filed for bankruptcy and are looking to gut the pension plans of retirees.

National healthcare would subtract out substantial wasted money on bureacratic functions built around denying benefits. Medicare still connects with this corrupt system where profit rather than care for those in need is the primary function of the healthcare industry so Medicare's rising costs are a red herring. Also, see the point directly above as the executives in the healthcare industry are no different and are playing the same game. Granny dies sooner so those HMO executives can continue to make their yacht payments.

Yet, highly opinionated, if Granny is fat, diabetic, and arthritic, she is more likely to get heart procedures, joint replacements, etc., under Medicare than in other nationalized systems. Guess what? Plenty o'money is made by providing those treatments in the U.S. Medicare system.

I'd like to quibble with the statement "But obligations to bondholders, unlike those to retirees, are fixed: companies owe a certain amount for a certain period of time, and no more. Mandatory obligations that have no cap on amount or duration...".

Everybody dies. In any large group, the average age of death can be set, or every life insurance company in the world would be out of business.

So, I don't really see any difference between bond-holders and retirees.

Bud - The difference between bondholders and retirees is that the payments due to bondholders are fixed while the payments to (or for) retirees healthcare are not. Yes, an actuary might be able predict how long a given group of retirees might live, but the costs of providing the retirees benefits has gone up much more than anyone would have estimated 20 years ago.

Jane,

Re; "...no one wants to tell granny that she can't have her 1% shot at living another six months."

Realizing that though I will be paying to give granny that 1% shot, I do not want to put my own children in the same spot. Only question is how to avoid it.

I read that benifit costs at Delphi run about $65 an hour - with the salary portion of that about $26-30$ an hour. I wonder - given the choice - how many employees would rather more pay and fewer benifits?

It seems that since benifits can't be taxed - vacation, health coverage, pension, it's caused us some trouble.

Also, am I alone in thinking that unions have a nasty tendency of killing gold egg laying geese?

'I don't believe that Mr. Sawicky is a silly person...'

Then how to explain the numerous silly things he posts on his blog?

"no one wants to tell granny that she can't have her 1% shot at living another six months". Ho hum: I predict that the expression "Going Dutch" will gain a new meaning for the elderly.

The fact is, we're spending a lot of money on the elderly, and will spend even more in the future, because no one wants to tell granny that she can't have her 1% shot at living another six months.

And is that really such a bad thing? Are you willing to be the one to tell her to suck it up and die? If you're not, you shouldn't ask your doctors or health care administrators to do it either.

I'm willing to be the one to tell her that her insistence on having a 1% shot at living another six months is (1) a benefit that she didn't earn and (2) a burden on younger persons who, if they were free to invest the money, would more likely be self-sufficient when they reach her age.

The problem with benefit-focused defenses of Social Security, Medicare, Medicaid, and other welfare schemes is that such defenses ignore the opportunity costs of perpetuating those schemes.

Tragedy of the commons. If I told my parents that I had the choice of paying for the surgery or sending their grandchildren to college, they'd say they'd had a good life and opt for college.

The taxpayer, on the other hand, is faceless, and it's "not really stealing, because politicians passed laws, you know."

"Medicare still connects with this corrupt system where profit rather than care for those in need is the primary function of the healthcare industry so Medicare's rising costs are a red herring."

The people you deal with, doctors, nurses, etc. will always have their interests in mind. Nationalizing healthcare will not change that. In profit-driven systems, where patients have choices, they will strive to make you satisfied enough with their services to come again and not badmouth them to your friends.
In nationalized healthcare systems, they strive to remain on the bosses' good side, and the bosses - on the politicians' good side.

Of course, people vote for politicians, so presumably they can be counted on to have our best interests in mind. But does anyone really believe that?

As to Medicare becoming more efficient once it no longer has to deal with messy capitalists... I'll charitably assume you were stoned when you wrote that one.

We're bumping up against a basic economic rule: People will use more of something than they really need as long as they don't have to pay for it (or as long as what they have to pay is not directly connected to what they use). The only way to get medical costs under control is to shift the bills back to the individual.

And this is why defined-benefit plans are crap.

"As to Medicare becoming more efficient once it no longer has to deal with messy capitalists... I'll charitably assume you were stoned when you wrote that one."

Joe, save your charity for Paul Krugman:

"The great advantage of universal, government-provided health insurance is lower costs. Canada's government-run insurance system has much less bureaucracy and much lower administrative costs than our largely private system. Medicare has much lower administrative costs than private insurance. The reason is that single-payer systems don't devote large resources to screening out high-risk clients or charging them higher fees. The savings from a single-payer system would probably exceed $200 billion a year, far more than the cost of covering all of those now uninsured."

http://www.pkarchive.org/column/061305.html

Well goodness, if Paul Krugman said so, it must be true!!!

It did not need to be an inter-generational struggle between workers and retirees. It became that because of two key decisions by the Congress.

Congress really defined the pension dilemma faced at Delphi and many other employers, both in the single-employer plans and in the multi-employer plans. The dilemma is really the product of two decisions by the Congress. The first was to allow benefits to be granted without being immediately fully funded, a practice most common wth the non-pension benefits, but not unknown in the world of the pension plans ( let me just postpone my pay-in until we're back on our feet,etc.). The second, and intersecting, decision was to allow and even demand that benefit funds to invest in equities and other more risky investments rather than bonds and fixed-yield instruments.

Benefits that must be immediately fully funded actuarially tend to dampen the willingness of the parties to sacrifice immediate benefits for long term benefts. There will always be some future regarding, but when the price must be paid today and not just pushed off to future generations or future earnings to pay for, then cooler heads will tend to prevail about the total size of the promise as well as its composition. The key here is the requirement to immediately fully fund the benefit, to match the actuarial benefit with a defined benefit instrument, a non-callable long term bond with a known yield. This really does convert most defined benefit pension plans into the economic equivalent of a defined contribution plan, with small actuarial issues affecting things at the margin. But even these gets managed relatively quickly. And, in the main, the base for calculating pension funding requirements under ERISA and the MPAA acts are actuarially pretty solid ( albeit very dull reading).

One can also see that such an approach, applied to health care costs, could have also provided for the generation of a sum of money for each retiree to cover Medicare gaps and the like.

But this was not to be. The bigger problem has been that the ability to forecast revenue, the actuarial assumption on investment yield, has been compromised.

This bigger problem has been caused by the second decision, encouraged by Wall Street, to allow and even encourage pension funds and other funds to invest in equities and other investment vehicles in preference to fixed income vehicles.

Most of the massive unfunded liabilites that now exist in pension funds, whether defined contribution or defined benefit, have come from the stock market gyrations since 2001. The actuarial requirements have been overwhelmed by the losses in the stock market and in the other investment vehicles. In some cases in the multi-employer funds, most of which are defined-contribution(cents per hour worked) funds,there is a 20% underfunding that cannot be absorbed in any way by either the workers or the employers without destabilizing the employment market in the same way that Delphi must.

The tragedy is further compounded by the inability, under existing rules, for plans to accummulate reserves in the good times. In the 70s and 80s corporate raiders were allowed to take out the excess and finance the takeovers. When this practice was ended,the equity profits of the 90s boom could not be saved or sheltered for the bad times; the pension funds were required to give it all away to beneficiaries or be taxed on the surplus accummulated.

The equity swings have also hurt the funds accummulated in the reserves of many health care funds, making the ability to service both retirees and current workers ever more difficult.

There is clearly a need to reduce the risk of the PBGC by requiring full funding of all retiree benefits. But unless that full funding is defined so that the actuarial risk is matched immediately with a known defined contribution instrument ( ie, a non-callable long term bond) the requirement of full funding,as it is defined today, will not be enough.

One might then ask if there is any long term utility to such pension funds. After all, they are a commonweal alternative to the individual investment of the defined-contribution 401(k) or IRA. There is an argument to be made that the simpler adminsitrative overhead more than offsets the portability value that people prize so much in the world of the 401(k).

Opinionated,

I hate it when someone I disagree with quotes Krugman on me. It has a terrible affect on my confidence.

Canada can afford spending less on healthcare because its government can tweak the definitions of what is essential care to fit budgetary constraints. The result is desparate Canadians, sick of waiting months for an MRI or hip replacement, forced south of the border to get that care.

In other words, Canada pays less because (among other things) it gets less out of its healthcare system.

As to Medicare's ruthless efficiency, did you read the NYT story maybe a month ago, according to which some 40% of Medicare funds are misspent, either on unnecessary procedures or through simple corruption? I don't know what the breakdown is for private insurers (and we all know they are not the most efficent business) but I doubt that much goes towards administrative overhead.

Why not try this nationalization thing on something less crucial than healthcare? Why don't we nationalize the news media, or car manufacturing first? See how efficient that turns out before committing one sixth of our economy to Congress' caring hands.

Donut:

The reason our life expectancy rate is lower is that our infant death rate is higher. There are three reasons why our infant death rate is higher.

1. Our welfare system pays children to have children. Teenage mothers have a higher chance of having a child with birth defects resulting in the infant’s death.

2. Our welfare system pays crack mothers to have children. Crack mothers have children with birth defects resulting in childrens' death.

3. Doctors in America deliver babies that are severely premature. Some of these severely premature infants live but most die. Doctor's in other countries do not even try to deliver severely premature infants.

As nice as it would be to explain the difference away as defintional, it isn't. The differences in life expectancy between the United States and other countries exist for all age groups, meaning it isn't because of higher infant mortality. Did you really think that the difference between 4 deaths per 1000 live births and 6 deaths per 1000 live births would explain 2-5 years difference in life expectancy at birth? Furthermore, the difference can't be explained by the lower life expectancy of blacks. Life expectancy of whites at birth is only about 0.5 years longer than life expectancy at birth of the whole population. Again, if the difference between whites and blacks is 5 years, when blacks are 12% of the population, did you really think the white/black gap could explain a gap of five years between Americans and Japanese?

Canada's government-run insurance system has much less bureaucracy and much lower administrative costs than our largely private system. Medicare has much lower administrative costs than private insurance.

Canadian PMs have been known to take a southern scenic route when searching for healthcare, and just ask any medical professional who has treated medic(are/aid) patients what they think of dealing client-side with that mysteriously efficient administration.

The differences in life expectancy between the United States and other countries exist for all age groups, meaning it isn't because of higher infant mortality. Did you really think that the difference between 4 deaths per 1000 live births and 6 deaths per 1000 live births would explain 2-5 years difference in life expectancy at birth?

But it's not as though the US is 2.5 years behind all other first-world nations. And it's not as though there aren't other factors to take into consideration. Americans are notorious for their poor diets and sedentary lifestyles, so it's not fair or reasonable to compare the health care systems of, say, the US and France based on differences in life expectancy.

The closest comparison in terms of diet and lifestyle is probably the UK, where the life expectancy is about eight months longer than in the US.

Anyway, if we're going to make silly comparisons between populations with radically different demographic and lifestyle factors, why don't we talk about Hong Kong and Singapore, where life expectancy is higher even than in Japan?

FXM -- Good comment.

Dean Baker, the author of the excerpt Jane quoted, actually has no practicable solution to the problem he complains about. What if bankruptcy law were changed and pension obligations were given priority over even bond holders or executive salaries in court proceedings? Well, that would only accelerate the drift away from defined-benefit plans.

Agree about FXM's post. Good to see a real expert contributing to these discussions.

FXM:

I think the issue was less the type of investments used - equities seem most reasonable for a large, long-term pool like healthcare savings - but shoddy accounting standards.

In the 80's and 90's, companies assumed they'd continue getting 20% returns on their pension funds forever, and therefore slashed payments into those funds, as 'they weren't needed'.

Auditors complained quietly, and then were shut up IIRC when Congress blessed this nonsense. The scandal is the accounting, not the vehicle.

FXM,

Wouldn't investing in "a non-callable long term bond" leave a company open to underfunding if we enter a period of high inflation?

As I understand it, pension benifits are usually calculated based on the salary at the time of retirement.

Ex. An employee making $2.00 an hour at GM in 1952 retires in 1982 making $20.00 an hour - and his pension is based on that $20.00 rate. How can investing in "a non-callable long term bond" accomodate that?

Thanks!

John

I thought the quote from Sawicky's site was the silliest analysis I had seen in a while. Then I read Krugman's. Does PK really think there's $200 billion in savings if we stop trying to weed out poor risks? Are there any costs associated with this Paperwork Relief program he suggests? Like more bad risks?

For the life of me I can't see using PK as a source for arguments anymore. We all knew he was approaching dementia re: Bush & Co, but we may have assumed he was quotable some time on some subject like economics. Apparently not anymore.

did you really think the white/black gap could explain a gap of five years between Americans and Japanese?

First of all, it is three and a half years, not five. Life expectancy for Japan is 81.2, versus 77.7 for the United States.

But anyway, you are right that the white/black gap doesn't explain the difference between the United States and Japan. But have you considered the white/Asian gap? Asian-Americans have an average life expectancy of 83.6 -- about six years longer than that of average Americans, and over two years longer than that of the Japanese.

I've also often wondered if the American population generally suffers from an environment and diet which is, in many (most?) cases, pretty significantly different from that of most of their ancestors. That could be a downside to being a nation of immigrants. For example, it might not be healthy to eat a lot of beef and live in a hot and sunny climate if your genetic heritage is that of pale-skinned fish-eaters from Scandinavia.

As for complaints about executive salaries, remember that if you cut them too much, you won't have the executives anymore. Executive-caliber people can job-hop quite easily. Now, I can think of many cases where getting rid of the existing set of executives this or any other way would be a good thing, but how do you hire replacements if you can't offer good pay?

FXM's comments are among the best and most cogent that I have ever seen on this site. One thing needs to be added, however, to the mix: the ongoing depreciation of the currency.

I am quite sensitive to this due to having lived through the Nixon wage and price controls; nothing concentrates the mind like shopping for food at midnight and following the stock clerks around as they stick new, higher prices on everything from condensed juice to meat to paper towels...

Another vivid memory: reading a news story in the local paper (that cost 20 cents to buy) about a couple who had retired a year or so earlier. They had managed their life well; the house was paid for, the car was paid for, their children had jobs, and the man of the house had made sure to work for a company that took care of retirees. He had managed to quit the labor force earlier than anyone in his family, because he knew that the defined benefit pension payout of $400/month for the rest of his life would provide a fine life for him and his wife. Situations such as this are the reason why Cost Of Living Adjustments (COLA) exist in Social Security and other defined benefit pensions.

Then the inflation of the 60's caught up with him, and that $400/month wasn't worth so much any more...

It is probably impossible to succeed in managing a defined-benefit pension system with COLA in the current environment; there's no way to keep up with the ongoing destruction of the currency via inflation. The hedonic and other manipulations of the CPI by the Feds might make it a bit easier for a while, but in the end inflation will "win".

Delphi's plight would appear to be an oracle for us all...

Questions:

1. Didn't the Canadian Supremes rule that their health care system was a failure?

2. Didn't US corporations lobby to be able to put away more cash for pensions during the 90s only to have Congress and the Clintons oppose the effort as supposedly "overfunding pensions" (thus reducing taxable income)?

3. If nationalized health care is so great, why does the health care suck so horribly in every country that has it?

Stan,

1. The Canadian Supreme Court did not rule any such thing. They simply ruled that it violated the Charter of Rights to deny Canadians the ability to buy private insurance.

2. No. The government does not control what goes into private pensions. Most corporations that had overfunded pensions raided them.

3. Well, frankly it doesn't. A recent list of the most competitive economies in the world included the Nordic countries, each of which has nationalized health care. Ideologues such as yourself refuse to recognize what a burden the existing broken system is to businesses in the U.S.

A recent list of the most competitive economies in the world included the Nordic countries, each of which has nationalized health care

Stan's third point wasn't "countries with nationalized health care suck", it was "countries with nationalized health care have sucky health care". So the fact that Nordic countries are competitive isn't relevant. It just means that they're competitive countries with lame health care, that's all.

It also wouldn't really help your point unless they were ranked as *more* competitive than the United States. Which, if the list was accurate, they weren't.

Finally, the only thing that is "broken" about the American system is that it provides care to people with little chance of long-term survival. That is what uses up the majority of the funds.

It will be interesting to see what happens over the next 10 to 20 years in Europe, especially the Nordic countries, as the demographic collapse really gets going. When Germany has one retiree over 60 for every person under 60 the pension issues alone will be staggering, but the "free" medical care on top of that will be back breaking.

The recent German election was illuminating: nobody over there likes the status quo, many can see a train wreck looming, nobody wants to give up anything to avoid the train wreck by changing the status quo. So the next government of Germany will be an odd coalition that won't have the authority to do much of anything, but will be blamed for the continuing employment and deficit crises. So nothing of substance will be done to address either.

Demographics suggest to me that the vaunted government health care systems of Europe will not look the same in 20 years as they do now. One way or another, the generous systems of today will change radically...

"The closest comparison in terms of diet and lifestyle is probably the UK, where the life expectancy is about eight months longer than in the US." And that's probably explained by the superior British climate.

Demographics suggest to me that the vaunted government health care systems of Europe will not look the same in 20 years as they do now.

I'm not certain how this is relevant to the discussion at hand. Any system is going to have a tough time due to demographic difficulties. Would Europeans suddenly start having more kids if they switched to a private medical system?

Or is this more in line of "Those anemic (as evidenced by their gov't run medical systems) Europeans can't reproduce as fast as us virile (as evidenced by our private competetive medical system) Americans"?

Unless the gov't pays for diapers and all the assorted costs of childcare with the magic money tree, I suspect that having children can be punishing economically. When 15% of the workforce is unemployed, everybody pays through the nose in taxes, the incentive to bring a new mouth to feed could be reduced. Basically, everybody over there gets tons of benefits but doesn't have a whole lot in the way of disposable income, compared to their American counterpart. It's kind of dreary situaton to be in, really, and not one that encourages lots of baby-making.

{Demographics}

Tom West wrote:
I'm not certain how this is relevant to the discussion at hand. Any system is going to have a tough time due to demographic difficulties.

Delphi signed some really sweet deals with some workers (as did GM and Ford) and now something has to give. Those deals assumed certain economic conditions that don't exist anymore, right?

European welfare states have "signed" a really good deal with their subjects, but those deals are premised on a growing population and aren't going to hold up under the strain of demographic collapse.

Complex bureaucratic system, in my limited experience, respond verrrry slooooowly to changes in the external environment. Simpler systems can respond quicker. Which describes the EuroWelfare states?

Would Europeans suddenly start having more kids if they switched to a private medical system?

I have no idea. The cultural malaise of Europe is a huge subject. "Spengler" over at the Asia Times has some interesting articles on this topic, along with the demographics of the Islamic world. Reading his erudite works would surely be more profitable than baiting me...

Or is this more in line of "Those anemic (as evidenced by their gov't run medical systems) Europeans can't reproduce as fast as us virile (as evidenced by our private competetive medical system) Americans"?

Hmmmmmm.....I think not. But it is a cute strawman, to be sure...

There's a killer one-shot solution to the European demographic problem: Euthanasia. I'm dead serious. They don't have a Religious Right that'll flip out and try to force feed people nutrient paste.

A recent list of the most competitive economies in the world included the Nordic countries, each of which has nationalized health care. Ideologues such as yourself refuse to recognize what a burden the existing broken system is to businesses in the U.S.

The Nordic countries all have national health care systems which are built around user fees. In fact, people often pay as much or more out of pocket for routine services in Sweden than they do in the U.S. They certainly pay more out of pocket there than in totally broken systems like in Canada or the UK, or in Medicare. Come to think of it, France, which also has an excellent public health system, has a substantial public-private insurance partnership system with user fees. They manage to decrease moral hazard that way.

The national health systems which really work just don't operate the Canadian way, and it's ridiculous that people think that they do. Stop talking about the Swedish health system as though you have any idea how it works. here's a nice primer on it.

Sure, the US would be well served by moving towards the Swedish system-- but not the Canadian system. That's because the Swedish system is in a lot of senses more free market than the current US system, especially at the Medicare level.

Would Europeans suddenly start having more kids if they switched to a private medical system?

Might the Euro-weenies start working a full week, retire later and make smart decisions about healthcare if they weren't getting it paid for by others?

"1. The Canadian Supreme Court did not rule any such thing. They simply ruled that it violated the Charter of Rights to deny Canadians the ability to buy private insurance."

They acutally ruled that it was a charter violation to deny access to private insurance because existing waiting lists in some cases violated the "charter's guarantee of right to life, liberty and security." Not exactly a ringing endorsement.

I'm certainly not qualified to comment on the US health system, but anyone who thinks Canada's is the model to follow hasn't been paying attention to the ongoing debates up here. There are regular news stories about spiralling health care costs, alternating with stories about waiting lists and health care failures (e.g., it just took Toronto more than a week to diagnose 17 deaths at a nursing home as due to legionnaire's disease, largely because they were using outdated tests).

The medical debates up here always revolve around how to fix health care, which seem to boil down to allowing more private care vs throwing more money at the existing system. That it's broken is taken as a given.

Two points in follow-up.

1. The virtue of a non-callable fixed income instrument in a defined benefit plan is that you are certain of the yield to maturity, which allows you to match maturities against the retiree pool; since you have a pretty good idea when any given employee age-group cohort is going to retire, since some go immedately upon reaching retirement age and others stay on in predictable patterns, an actuary knowing the pattern of wage increases can match the payout models with the income models that a fixed instrument held to maturity provides for both interst yield and principal repayment, the two income strams that are relevant. The non-callable feature is critical; every high-yield instrument that gets called overwhelms someone's income expectation. Life insurance companies use fixed income instruments in much the same way.

The pension plan problems become most acute when the radical swings of the stock market overwhelm the actuarial assumptions. Consider the New York State Pension Plan, one of the largest defined benefit pension pools in the United States, which has a single trustee with broad discretion. The equities growth of the 90s gave the trustee, who later ran for Governor unsuccessfully and presided over the compensation committee at the NYSE that approved the large payout to Richard Grass, the ability to tell the local governments covered by the plan the very good political news that there would be no longer a need for plan contributions, which the local governments quickly turned into property tax reductions. Now, with the 21st century market crash, those same localities are facing the need to raise the amounts now required as plan contributions, precipitating swinging increases in property taxes.

The few public pension plans that stayed fully in fixed income instruments did not face this crisis.

2. There was an effort in the 90s by some to allow the build up of larger reserves. If memory serves, the effort never got any political traction because times were just too good and no one really thought that the good times would end. There was also an argument madse at the time that with reserve accumulation there would be a build up of capital that couldn't be invested efficiently, with too much capital chasing too few assets and forcing asset appreciation unrelated to earning capacity, and a reduction in current consumption, which is why there was the mandate that plans give away their surpluses to current beneficiaries, who would spend it, rather than save it for future beneficiaries.

John Thacker,

That's really the point I was trying to make. Those who for some strange reason insist on defending the existing system in the U.S. always point to the Canadian system as some kind of object lesson, even though it certainly isn't the only way to do it. I never thought the system in Sweden or the other countries that you never hear about because it works fairly well worked the same as the Canadian system.

There was an effort in the 90s by some to allow the build up of larger reserves.

It seems implausible to me that the government would try to stop companies from increasing pension funding. Do you mean that there are limits on the tax deductions that a corporation can take for funding a pension, and that they wanted to increase those limits?

John Thacker's intemperate language betrays at least as great a disconnection from reality as those he criticises.

The idea that the UK system, for example, is 'totally broken' is nonsensical. The UK system does distribute healthcare differently, but that's hardly the same thing. Nobody in the UK need worry about being able to afford access to healthcare. Nobody in the UK needs worry about the impact of changing job, or of a period of unemployment, on their ability to get the health care they need. Against that, people with full health coverage in the US do in some circumstances getter faster or more technically advanced healthcare.
I am a member of an efficient universal health insurance system where premiums vary with ability to pay rather than with costs to serve. There are arguments for moving from one system to another, but they are a very long way from being overwhelming.

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Jane,

I'd like to know what you were smoking when you wrote "Delphi's jobs are very highly-skilled indeed, and replacing any significant chunk of the workforce with people off the street is not a realistic option"?

The majority of Delphi's UNSKILLED workforce are people with no more than a high school education, if that. Most, if not all of them are employed at Delphi only because of the "good old boy" system. If it weren't for their parents or "Uncle Joe" slipping them in through the back door, many of these "highly-skilled" individuals would have a difficult time holding down a position flipping burgers at a Burger King.

I live near a Delphi plant and have encountered many of the workers. The few that do have half-a-brain laugh about how over-paid they are for such a thoughtless, unskilled position. They tell me how they fight to be laid-off ahead of others so they can earn ninety-five-percent of their pay for doing absolutely nothing at all. It may not be much different from what they do at the plant but at least they do something while at work (if that's what you prefer to call it).

I know many educated and skilled laborer's that would be thrilled to earn $10.00 to $12.00 per hour with half way decent benefits. These individual's are the ones that should be earning $27.00 per hour with outstanding benefits, but they are not fortunate enough to have parents or an "uncle Joe" that can sneak them into a place such as Delphi.

The bottom line is; anyone off the street can take over nearly any position at a Delphi plant at the drop of a hat and there would be no interuption in production. Ask any honest Delphi employee and you will realize that the machinery does most of the "skilled" work.

If the unions keep up the good work, eventually all of the work will be done by machines and manufacturers won't have to worry about labor rates any longer.

Since the name of the Holy Krugman [Paul who?*] has been invoked, it might be interesting to read his take on Delphi:

"Today, some of us like to stress the depressing effect of the dysfunctional American health care system on wages. A large part of the problem facing the auto industry and other employers that still provide good jobs is the cost of providing health insurance, both to their current employees and to retired workers.

What if neither education nor health care reform is enough to end the wage squeeze? That's the possibility that makes free-trade liberals like me very nervous, because at that point protectionism enters the picture. When corporate executives say that they have to cut wages to meet foreign competition, workers have every right to ask why we don't cut the foreign competition instead.

I hope we don't have to go there. But denial is not an option. America's working middle class has been eroding for a generation, and it may be about to wash away completely. Something must be done."

*I'm doubly amused because I can't link to Paul the Great at the NYTimes and had to use a link at the Red Star Tribune (where he fits in well). Perhaps there's something self-referential in his fear that we're losing 'the last few good jobs'?

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