Tuesday, August 25, 2009

There is no French free lunch when it comes to health care

Guy Sorman writing in City Journal:
It may indeed seem free, or close to free, for an American tourist receiving treatment in an emergency; as a French taxpayer, however, I paid a heavy price for Paretsky’s husband’s treatment. And you, my American reader, did too.

How much? France’s costly national health insurance is mostly financed by taxes on labor. A Frenchman making a monthly salary of 3,000 euros will pay approximately 350 of them (deducted by his employer) for health insurance. Then the employer will add approximately 1,200 euros, making the total monthly cost to the employer of this individual’s services not 3,000 euros but 4,200. High labor costs in France affect not only consumer prices but also unemployment rates, since employers are reluctant to pay so much for low-skill workers. Economists agree that unemployment rates and the cost of national health insurance are directly related everywhere, which partly explains why even in periods of economic growth, the average French unemployment rate hovers around 10 percent.

Monday, August 24, 2009

Sometimes it works the other way

WSJ:
HOUSTON -- Farouk Shami, a Palestinian-born hairdresser who built a $1 billion manufacturing company around a popular line of hair irons, is moving all of his production of hand-held appliances from China to a sprawling new factory here.

The move flies in the face of conventional wisdom, which says gadgets like this are best made in a low-cost country. But, he says, outsourcing has led to a loss of control over manufacturing and distribution.

"We'll make more money this way -- because we'll have better quality and a better image," says the 66-year-old, who says his company, Farouk Systems Inc., spends about $500,000 a month fighting counterfeits, most of which he says originate in China. The company collects the fake products and tracks the source, and then brings action in China to shut down illegal producers.

Mr. Shami figures having production under his nose will help him control quality and inventory, and also fight the fakes, since imported irons will automatically be suspect. He sells in 104 countries, but the U.S. represents over 60% of the company's sales.

"I think you're starting to see more manufacturers rethinking outsourcing," says Daniel Meckstroth, an economist at the Manufacturers Alliance/MAPI, a public policy and research group based in Arlington, Va., calling a June speech by General Electric Co. CEO Jeffrey Immelt, where he said that overseas outsourcing had gone too far and that U.S. companies needed to expand domestic production, a "bellwether of what's happening in manufacturing."

Broken windows theory in action: Cash for clunkers!

BRIAN WESBURY applies the "broken windows" fallacy to Cash for Clunkers:
The basic problem with cash for clunkers is that it uses the old “broken windows” theory of economic activity. Everyone who lives in a hurricane zone knows that typically people are never busier than right after a major storm. Roofs need to be replaced, while damage to vegetation, glass, power lines, boats, etc., all require overtime to repair. All that activity gets counted in GDP.
 
But everyone also knows the storm was a bad thing, destroying property that was built at a cost in the first place. Sure, everyone is as busy as a beaver, but they’re just busy replacing what they had, not actually improving their standard of living.

A wealth tax for the deficit?

ARNOLD KLING:
Other countries that have defaulted have not had the option of enacting wealth taxes. When you are in a banana republic with shaky government finances and you have a lot of wealth, you send that wealth over to the United States, where your government cannot get to it. That "safe haven" motive is what keeps the dollar so strong. Anyway, by the time the banana republic gets around to enacting a wealth tax, all the wealth has fled the country and there is nothing left to tax. So the banana republic defaults.

Will it be "U-shaped" or "V-shaped"?

NOURIEL ROUBINI in the FINANCIAL TIMES:
There are also now two reasons why there is a rising risk of a double-dip W-shaped recession. For a start, there are risks associated with exit strategies from the massive monetary and fiscal easing: policymakers are damned if they do and damned if they don’t. If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation).

But if they maintain large budget deficits, bond market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.

Another reason to fear a double-dip recession is that oil, energy and food prices are now rising faster than economic fundamentals warrant, and could be driven higher by excessive liquidity chasing assets and by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created negative terms of trade and a disposable income shock for oil importing economies. The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly towards $100 a barrel.

In summary, the recovery is likely to be anaemic and below trend in advanced economies and there is a big risk of a double-dip recession.

Infant mortality and health care reform

STEVE CHAPMAN:
"A lot of things could be done to keep babies from dying in this country. But the health care 'reform' being pushed in Washington is not one of them."

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