More Unions are Angry about the Unintended Consequences of Obamacare

Posted by PITHOCRATES - May 26th, 2013

Week in Review

The unions and President Obama were tight.  Once upon a time.  They helped the president win two elections.  Dumped truckloads of campaign money into his coffers.  And the thanks for all of this?  Obamacare.  Which they once enthusiastically supported.  But now they are learning what the opponents have been saying about Obamacare all along.  That it will make health insurance more expensive.  And likely that people will lose coverage they like and want to keep.  It’s getting so bad that unions are now coming out in opposition of Obamacare (see Some unions now angry about health care overhaul by SAM HANANEL, Associated Press, posted 5/24/2013 on Yahoo! News).

…some unions leaders have grown frustrated and angry about what they say are unexpected consequences of the new law — problems that they say could jeopardize the health benefits offered to millions of their members…

“It makes an untruth out of what the president said, that if you like your insurance, you could keep it,” said Joe Hansen, president of the United Food and Commercial Workers International Union. “That is not going to be true for millions of workers now.”

The problem lies in the unique multiemployer health plans that cover unionized workers in retail, construction, transportation and other industries with seasonal or temporary employment. Known as Taft-Hartley plans, they are jointly administered by unions and smaller employers that pool resources to offer more than 20 million workers and family members continuous coverage, even during times of unemployment.

The people who work in construction may work for many different construction companies throughout their working life.  But they have consistent benefits because of the one constant during their union life.  Their union membership.  Which makes these jobs different than someone working in the same UAW assembly plant all of their life.  Who also work for the same company all their working life.

A lot of people will stay in a job they don’t like because of their health insurance benefit.  Construction workers don’t have to worry about being stuck in a job they don’t like.  If they don’t like an employer they can quit.  Go to the union hall.  And pick up another job.  All without any interruption in their benefits.

Construction companies collectively bargain contracts with these unions.  For example, electrical contractors will negotiate a contract with the local chapter of the union representing electricians.  And health care costs are a big part of those negotiations.  For it is these electrical contractors that pay for the health insurance plans managed by the union.  And it’s costly.  Raising a contractor’s cost when bidding new work.  Which is why union construction companies try to keep nonunion companies from bidding their work.  Because nonunion companies don’t have this massive cost to pay for this generous union benefit.  Which can provide uninterrupted health insurance for an unemployed worker sitting at the hall for months waiting for another job.  As well as for his wife and his children.  Something people don’t enjoy when they get laid off from most other private sector jobs.

The union plans were already more costly to run than traditional single-employer health plans. The Affordable Care Act has added to that cost — for the unions’ and other plans — by requiring health plans to cover dependents up to age 26, eliminate annual or lifetime coverage limits and extend coverage to people with pre-existing conditions.

As it has added to the cost for ALL insurance plans.  There’s a reason why before Obamacare plans didn’t cover dependents up to age 26, had annual or lifetime coverage limits and excluded pre-existing conditions.  Because they add great cost.  Insurance companies aren’t greedy.  They’re just trying to provide insurance.  Having people pay a little bit for a policy to insure against a large financial loss.

For insurance to work you need a lot of responsible people paying a little bit for those policies.  Forcing plans to cover pre-existing conditions, though, makes people NOT buy health insurance.  For they think why should I pay years of health insurance premiums when I can just buy a policy when I’m sick?  Which they will.  So they will consume a lot of health care costs that have to be paid by people who are buying policies.  While contributing nothing to the pot for others.  Making those policies under Obamacare very expensive.  Because with preexisting conditions covered a few people will now have to a pay a lot.

Workers seeking coverage in the state-based marketplaces, known as exchanges, can qualify for subsidies, determined by a sliding scale based on income. By contrast, the new law does not allow workers in the union plans to receive similar subsidies.

Bob Laszewski, a health care industry consultant, said the real fear among unions is that “a lot of these labor contracts are very expensive and now employers are going to have an alternative to very expensive labor health benefits.”

“If the workers can get benefits that are as good through Obamacare in the exchanges, then why do you need the union?” Laszewski said. “In my mind, what the unions are fearing is that workers for the first time can get very good health benefits for a subsidized cost someplace other than the employer.”

You see, the Obama administration cannot give a subsidy to the unions.  Because they have to pay for subsidies they give to low-income people with a ‘tax’ on other insurance plans.  That is, the people who can afford to pay for health insurance have to pay the subsidies for those who can’t.

The ultimate goal of Obamacare is to put the private health insurers out of business so the government can step in and get what they want.  National health care.  Of course, doing that has one big drawback for these unions.  With national health care you don’t need to belong to a union any more for the kind of health care benefit that provides for you and your family even when you’re unemployed.

Labor unions have been among the president’s closest allies, spending millions of dollars to help him win re-election and help Democrats keep their majority in the Senate. The wrangling over health care comes as unions have continued to see steady declines in membership and attacks on public employee unions in state legislatures around the country. The Obama administration walks a fine line between defending the president’s signature legislative achievement and not angering a powerful constituency as it looks ahead to the 2014 elections.

The cost of unions has pushed most of U.S. manufacturing offshore.  Public sector unions are bankrupting city and state governments.  And even the state of Michigan, home of the automotive industry, has voted to become a right-to-work state.  The heyday of the unions is over.  And they’re struggling to hold onto what little they have.  Especially in the private sector.  Where their ranks have done nothing but fall since the Sixties.

The unions poured money into the reelection of President Obama because Democrats are supposed to make things better for unions.  Not worse.  At this rate unions may start voting Republican.  For though they may not have as generous union contracts they may at least still have union contracts.  Because with the business-friendly environment of the Republicans there may at least be a building boom.  And more union construction jobs.

As the 2014 midterm elections draw close you may see a louder voice for the repeal of Obamacare.  This time coming from one-time vocal supporters.  Perhaps giving Democrats a difficult time at winning their elections.  Unless they come out for the repealing of Obamacare, too.  For unions may have at one time thought about how nice it would be to get rid of that costly benefit from their benefit package.  Which will happen if Obamacare evolves into national health care.  But now they’re seeing that this outcome may make unions irrelevant.  And are likely thinking, “My God, what have we done?”

It just goes to show you have to be careful what you wish for.  Because sometimes those wishes come true.

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Painters who fell to their deaths are just 19 of the 75,500 Chinese Construction Deaths in 2011

Posted by PITHOCRATES - September 16th, 2012

Week in Review

China is exploding in construction activity.  There is a building spree going on over there.  Where it seems like money is no object.  And worker safety is not a great concern (see Workers killed as elevator plummets 34 floors to ground by Zhou Lihua in Wuhan, Hubei and Zhao Lei posted 9/14/2012 on China Daily).

Nineteen workers at a construction site in Wuhan, Hubei province, died on Thursday after the elevator they were using fell 100 meters to the ground.

The tragedy happened around 1 pm when 19 painters at the construction site of Donghujingyuan, a residential real estate project, were taking an elevator, according to the local fire department…

Residents living near the construction site said the maximum capacity of the elevator used by the workers is 12 passengers, reported cnhan.com, a major news website in Wuhan.

Why the elevator was overloaded remains unknown…

More than 347,000 work-related accidents happened in 2011, and more than 75,500 people died in such accidents, according to the State Administration of Work Safety.

If you ever have the opportunity to tour a large U.S. construction site take it.  If you can, spend a day or two there.  See how they start every day.  With a safety meeting.  See them discuss hot work permits (any work that could act as a source of ignition).  You can’t just do this work without first having your hot work plan approved.  Note a worker on an 8-foot ladder.  Chances are he or she will be wearing a fall-prevention harness.  Note a worker in a manhole and the retrieval harness tripod above the hole to winch the worker out in case they are injured inside the manhole.  Note how they have a piece of test equipment to continuously monitor the air quality before they enter the hole.  And while they’re in the hole.  Note the big steel trench boxes inserted inside an open trench to protect workers from a cave-in.  Note the rebar ends sticking up out of the ground covered with bright colored protective caps to prevent anyone being impaled on one.

As you take all of these safety precautions in you can’t but help think of one thing.  How can they actually build anything having to comply with all of these costly safety requirements?  And they are costly.  Which is why they don’t build buildings like they used to.  The safety budget reduces the construction budget.  Greatly increasing the cost of construction.  So much so that small contractors can’t even afford to work on the big jobs because the safety requirements would bankrupt them.  Just as an OSHA fine would if they were caught in a safety nonconformance.  For being safe is very costly.  And trying to be unsafe is costlier still.  So our construction workers are safer.  But it comes with a price.  It makes construction much more expensive.  Giving us less building for the buck.

China doesn’t burden their construction industry with excessive safety requirements.  Based on the number of construction deaths.  In 2011 75,500 workers died.  By contrast the number of U.S. workers who died in the construction industry in 2010 was 751 according to U.S. Bureau of Labor Statistics.  Or 0.99% the number of deaths in China.  So it would appear that China is a little more lax with their construction safety.  Which probably explains why they can build so much.  Because they aren’t spending a large chunk of their construction budgets on safety.  Which means we could never build like the Chinese.

This is the advantage of one-party rule.  Of communism.  People are expendable.  In fact those 75,500 who died opened up jobs for more unemployed Chinese moving into the cities from the impoverished rural country.  So a little worker attrition actually helps.  And yet the American Left likes to point to China as the way capitalism should be done.  With the state running it.  So it’s fair.  And not all about the profits.  The Left would love to have the U.S. government run private industry like they do in China.  Even though that kind of state-capitalism comes with a higher death rate for workers on the job.

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FT127: “Obamacare is a lot like the Smoot-Hawley Tariff in terms of scaring the bejesus out of businesses.” -Old Pithy

Posted by PITHOCRATES - July 20th, 2012

Fundamental Truth

The Roaring Twenties gave us Automobiles, Electric Power, Radio, Movies, Telephones and Air travel

In 1921 there were 9 million automobile registrations.  That jumped to 23 million by 1929.  An increase of 156%.  That’s a lot more cars on the roads.  In the Roaring Twenties we made cars out of steel, paint and glass.  Inside we fitted them with lumber, cotton and leather.  We put rubber tires on them.  And filled their fuel tanks with gasoline.  So this surge in car ownership created a surge in all of these industries.  Extraction of raw materials.  Factories and manufacturing plants to build the equipment to extract those raw materials.  As well as the machinery to build these automobile components.  And the moving assembly lines in assembly plants to assemble these automobiles.  The plants, warehouses and automobile dealers created a surge in the construction industry.  And all the industries that fed the construction industry.  Including the housing industry to house all these gainfully employed workers.

And this was just the auto industry.  Which wasn’t the only industry that was booming during the Roaring Twenties.  Thanks to the hands-off government policies of the administrations of Warren G. Harding and Calvin Coolidge businesses introduced us to the modern world.  Electric power came into its own.  By 1929 about 80% of all installed horsepower was electrical.  And it entered our homes.  Electric lighting and electric appliances.  Vacuum cleaners.  Washing machines.  Refrigerators.  All of this required even more raw material extraction from the ground.  More manufacturing equipment and plants.  More wholesale and retail construction.  And more housing to house all of these workers earning a healthy paycheck.

And there was more.  The Roaring Twenties gave us broadcast radio in our electric-powered homes.  Free entertainment, sports broadcasts and news.  Paid for by the new industry of advertising.  Competing with radio was another growing industry.  Motion pictures.  That by the end of the Roaring Twenties were talkies.  And speaking of talking there was a lot of that on the new telephone.  In our homes.  Interconnecting all of these industries was ship, rail and truck transportation.  Even air travel took off during the Twenties.  More raw material extraction.  More equipment.  More manufacturing.  More construction.  And jobs.  More and more jobs.  The hands-off government policies of the Harding and Coolidge administrations created the great Bull Market of the Twenties.  Explosive economic activity.  Real economic growth.  Creating low-cost consumer goods to modernize America.  Increase her productivity.  Making her the dominant economic power in the world.  The Europeans were so worried about America’s economic prowess that they met in 1927 at the International Economic Conference in Geneva to discuss the American problem.  And how they were going to compete with the American economic juggernaut.  Because the free market capitalism of the New World was leaving the Old World in the dust.

Herbert Hoover was a Republican in Name Only that FDR once Admired but Calvin Coolidge Despised

This was real economic growth.  It was not speculation.  This wasn’t artificially low interest rates creating an asset bubble.  Working Americans bought homes and cars.  And furnishings.  Businesses produced these to meet that demand.  They had growing sales.  And growing profits.  Which increased their stock prices.  Investors wanted to own their stocks because these companies were making money.  And with the world modernizing these stock prices weren’t going anywhere but up in the foreseeable future.  Unless something changed the business environment.  Well, something did.

Despite the roaring economy Calvin Coolidge did not run for a second term.  Which was a pity.  For his successor, Herbert Hoover, was a Republican in name only.  He was a big time progressive.  Who wanted to use the power of government to make the world perfect.  A devout believer in the benevolence of Big Government.  He added about 2,000 bureaucrats to the Department of Commerce.  FDR at one time admired him (before he ran against him for president).  Coolidge despised him.  Under Hoover the federal government intruded into the private sector.  His economics were Keynesian.  He, too, worshipped at the altar of demand.  He believed high wages were the key to prosperity.  For people with more money buy more.  And all that buying created demand for businesses to meet.  Even during a recession he believed wages should not fall.  Despite the fact that’s what recessions do on the back side of the business cycle.  Lower prices and wages.  And lay off people.

By the Twenties American farmers were mechanizing their farms.  Allowing them to grow more food than ever before.  Agriculture prices fell.  At first this wasn’t a problem as there were export markets for their bumper crops.  Thanks to a war-devastated Europe.  But eventually the European soldiers returned to the farm.  And the Europeans didn’t need the American food anymore.  Even places tariffs on U.S. imports to their countries to help their farmers get back on their feet.  Add in a bad winter that killed livestock.  Some bad insect infestation in the summer.  Add all this together and you had the beginning of the great farm crisis.  Debt defaults.  Bank failures.  And the contraction of the money supply.  Which the Federal Reserve (the Fed) did not step in to compensate for by expanding the money supply.  Which was sort of their purpose for being in existence.  As there was less money to borrow business could longer borrow to continue their growth.  Because of the time factor in the stages of production to expand production required borrowing money.  To make matters worse the Fed was actually pulling more money out of circulation.  Because they looked at the rising stock prices and concluded that speculators were borrowing money to invest in the stock market.  Thus inflating stock prices.  But it wasn’t speculators running up those prices.  It was an economic boom that was running up those stock prices.  Until the government put a stop to that, at least.

Bad Government Policy didn’t Create the Roaring Twenties but Bad Government Policy ended Them

The Smoot-Hawley Tariff was close to becoming law in the fall of 1929.  It was moving through committees on its way to becoming law.  This tariff would raise the tax on all imports by about 30%.  The idea was to protect domestic supplies and manufacturers.  But even in 1929 it was a global economy.  A lot of imports entered the stages of production.  Which meant costs would be increasing throughout the stages of productions.  Greatly increasing the input costs of all those businesses enjoying those high stock prices.  Which would raise their prices (to cover those higher input costs).  Reducing their sales.  And slashing their profits.  Add this to the contracting money supply and it painted a very bleak picture for business.

With demand sure to fall due to a massive new tariff that was about to become law businesses cut back.  To get rid of what was about to become excess capacity.  For they were smart.  And understood what affected their businesses.  And you know who else were smart?  Investors.  Who looked at this tariff and saw a locomotive engineer about to slam on the brakes.  And if Congress passed this into law after 1928 Coolidge wasn’t going to be there to veto the law.  So they all came to the same conclusions.  The bull market was coming to an end.  And they wanted to sell their stock to lock in their stock gains.  Which caused the great sell-off of 1929.  And the stock market crash.  Starting the Great Depression.

People still debate the cause of the Great Depression.  A popular argument is that greedy investors caused it by speculating in the stock market.  Or that greedy businesses out-produced demand.  But the economics of the Roaring Twenties don’t support this.  This wasn’t people buying big houses because interest rates were low.  This was the electrification of America.  Cars.  Telephones.  Radio.  Movies.  Air travel.  This was broad and real economic growth.  Bad government policy didn’t create it.  But bad government policy ended them.  And it was the expectations of even worse government policies that yanked the rug out from underneath the economy.  By causing a business contraction and stock market sell-off.  Much like Obamacare is doing to businesses today.  Scaring the bejesus out of them.  For they have no idea what their future costs will be under Obamacare.  So they are doing their best to prepare for it.  By not expanding their businesses.  By not hiring anyone.  And sitting on their cash.  To prepare for the worst.  Much like businesses did in 1928.  Which explains why the Great Recession lingers on.

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China’s Largest Port Builder cuts its IPO Funding Target by 75%, China’s Boom Times Over?

Posted by PITHOCRATES - February 4th, 2012

Week in Review

Could the bloom be off the Chinese economic rose?  Perhaps (see China Communications Construction Cuts IPO Offering by 75% by Reuters posted 1/30/2012 on CNBC).

China Communications Construction, the country’s largest builder of ports, launched its long-delayed Shanghai initial public offering on Tuesday, with the IPO’s fundraising target slashed by 75 percent to as much as 5 billion yuan ($789.76 million)…

China’s stock market [.SSEC  2330.41    17.85  (+0.77%)   ] slumped 22 percent last year under the weight of monetary tightening and global economic uncertainty, forcing many Chinese companies to postpone their listing plans or cut fundraising targets.

China Communications Construction will sell up to 1.6 billion shares in Shanghai, or about 10 percent of its enlarged capital, and will use the proceeds to fund construction projects and equipment purchases, according to its prospectus.

A slumping stock market and global economic uncertainty?  Things that don’t bode well for an economy based on manufacturing for export.  The boom times may be over.  When they cut the funding expectations by 75% for a company that will use those funds for construction projects and equipment purchases tells you one thing.  Investors don’t think there will be much more construction or equipment purchasing in the not so distant future.  And, perhaps, that there is a surplus of capacity in Chinese manufacturing.

The Chinese were pumping so much easy credit into their economy that they got inflation worries.  Which could be the least of their worries.  Their greatest worry is, or should be, an asset bubble.  Their coordinated effort to raise economic activity with their state capitalism built like there was no tomorrow.  And all those ghost cities built without anyone to live in them may come back to haunt them.  Making Japan’s Lost Decade look more like an unpleasant weekend.  For that’s one thing the Japanese didn’t do.  Build cities for people who weren’t there.

Japan’s Lost Decade was a boon for Bill Clinton and the United States.  For it helped to make the Nineties a prosperous time.  Until those irrational expectations spoiled the party.  Those dot-com investors looking for the next Microsoft.  But a Chinese lost decade may not be as beneficial for the U.S.  Without the Chinese to buy the exploding U.S. debt they will have to find other means to fund that debt.  Either with taxes.  Or with a hidden tax.  Inflation.  Either way is sure to tank economic activity in the U.S.   Dragging out this Great Recession into depression-like waters.

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