Gladwell on Economics

If you want to understand corporate America and/or nationalized healthcare it is critical that you read this four year-old-piece. Three years before GM went bankrupt, Malcolm Gladwell clearly articulated their problem in his New Yorker article “The Risk Pool”:

If the retiree obligations of Bethlehem Steel had been pooled with those of the much younger industries that supplanted steel—aluminum, say, or plastic—Bethlehem Steel might have made it. If you combined the obligations of G.M., with its four hundred and fifty-three thousand retirees, and the American manufacturing operations of Toyota, with a mere two hundred and fifty-eight retirees, Toyota could help G.M. shoulder its burden, and thirty or forty years from now—when those G.M. retirees are dead and Toyota’s now youthful workforce has turned gray—G.M. could return the favor. For that matter, if you pooled the obligations of every employer in the country, no company would go bankrupt just because it happened to employ older people, or it happened to have been around for a while, or it happened to have made the transformation from open-hearth furnaces and ingot-making to basic oxygen furnaces and continuous casting. This is what Walter Reuther and the other union heads understood more than fifty years ago: that in the free-market system it makes little sense for the burdens of insurance to be borne by one company.

The fundamental issue is the number of pensioners for each active worker. What’s particularly fascinating to me is that, during the strong times for unions in the 1950s, they (the unions) were overwhelmingly in favor of a government plan that managed their pensions and healthcare. They got it: a pension funded by diverse sources due to a generalized pool always has far far less risk than a pension dependent exclusively on the long term stability of a single company.

Brief Notes Nearby