SYNOPSIS: Interview with Paul Krugman on rising health care costs

MARIA BARTIROMO, host: Welcome back. We're talking about the problem of rising health-care costs in America. Though they've tempered somewhat, costs are still outpacing the growth of the economy by about three to one. Joining us now to offer his take on the issue, noted economist and New York Times columnist Paul Krugman who has written a series of columns on the topic. Nice to have you with us, Paul.

Mr. PAUL KRUGMAN (Columnist, The New York Times): Good to be on, Maria.

BARTIROMO: First off, what strikes you most about Dr. McClellan's comments?

Mr. KRUGMAN: What is amazing to me--and, you know, Mark McClellan's a good guy; he's got to give the official line--is that we're talking about a very, very serious crisis and the thinness of what he's really proposing. We've got--it's like somebody who's extremely sick and he's saying, `Well, why don't you take two aspirin and call me in the morning?' There's really nothing in there that's going to do anything significant about the rising costs and the unraveling of our health insurance system.

BARTIROMO: So what should be done?

Mr. KRUGMAN: I predict in the end we're going to have a national single-payer health-care system. It's not going to be Draconian. It's--we're not going to have, you know--doctors are never going to be government employees. But we are going to have some form of national coverage and we're going to have it both because the public will demand it and because corporations, because employers will demand it, this system is just not working.

BARTIROMO: And speaking about corporations, in the case of General Motors' woes, unions are standing firm refusing to make any concessions. Listen to this.

Mr. RON GETTELFINGER (President, United Auto Workers): To say that General Motors is in a crisis mode today when they have $20 billion in cash reserves, when they're paying shareholders dividends, I'm not sure that that's the right term that anyone would want to use.

BARTIROMO: That was the head of the UAW. And they make no concessions. Yet the UAW members on average pay 7 percent of their health-care costs compared to 27 percent paid by GM's salaried workers. To what extent should they make concessions in your view?

Mr. KRUGMAN: You know, I have sympathy for both sides on this. I think General Motors has a problem. The UAW has a problem. Really this should not be a dilemma that they're facing. You know, the--as a society we believe people should get essential health care and it shouldn't be contingent on a job. It shouldn't be a burden either on the workers as a condition of their employment or on the employer as a condition of offering the jobs. There's a really interesting story which did not get enough play in the US press. Toyota has just made a decision about a big new plant and it was widely thought that they were going to locate it in the southeastern United States, and they chose to put it in Ontario, Canada, instead. And they said that a very major factor is Canada has a national health insurance system. That saves us $4 or $5 an hour in hiring employees. By making it a cost for the corporation, we're just, you know, denying good jobs to the United States. We're making ourselves less competitive for those good jobs in the world economy.

BARTIROMO: Right. And Toyota and so many companies say this is the number one problem that they face. You look at polls that show...

Mr. KRUGMAN: Sure.

BARTIROMO: ...the rise in health care tops the list of top concerns of so many businesses. You've written about Wal-Mart...

Mr. KRUGMAN: Sure.

BARTIROMO: ...how the average full-time worker...

Mr. KRUGMAN: Sure, and...

BARTIROMO: ...makes $17,000 a year and the company's health plan covers fewer than half of its workers. Do you blame Wal-Mart? Or is that what it takes to succeed in a global economy these days?

Mr. KRUGMAN: Well, there's a question about whether Wal-mart even has to be as brutal as it is. The New York Times had a very interesting piece about Costco which competes head on with Sam's Club and does so with a very different model where it has loyal workers, low turnover rates, much better benefits. But, you know, basically, the point is we are a rich country. You know, we're always talking about what a rich country we are. Why should we be a country in which hard working people aren't guaranteed health care if they need it?

BARTIROMO: Right.

Mr. KRUGMAN: And that's just wrong. And look, this is not the way it has to be. But the problem is that the world is starting to look--or our economy is starting to look more like Wal-Mart and less like General Motors in the good days. The share of workers who get benefits at all is declining and the quality of the benefits.

BARTIROMO: So what about the Medicare prescription drug plan for seniors? Dr. McClellan was just talking about it, how, you know, we could see it implemented in January.

Mr. KRUGMAN: We should have prescription drug coverage for seniors. I mean, this is a major part of medicine. If you're going to have Medicare, if it is going to cover people, it should cover prescription drugs. That bill is a monstrosity. And I think everybody who isn't more or less in the pay of the administration admits that it's a monstrosity.

BARTIROMO: Why?

Mr. KRUGMAN: The order went out. Let's--it--everything about it makes no sense. It covers a lot of your expenses up to a point. Then there's a hole. People call it the doughnut. Then it covers a lot of your expenses above a certain point. There's no good reason for that, except that they wanted to make the numbers fit. Here you have the government as an enormous purchaser of drugs now excluded from the ability to bargain for lower prices, so this ends up being an enormous kind of corporate welfare act for Big Pharma. It's just not a well-constructed bill, and it's enormously expensive without generating a lot of benefits for seniors.

BARTIROMO: Let me ask you your take on China's decision late this week to revalue the currency. How much more expensive will that make the price of products that are made in China and sold in Wal-Mart or elsewhere be?

Mr. KRUGMAN: Well, this was a trivial move on the part of the Chinese. This was 2 percent. You're not going to notice that. It only matters if it's the start of something big. And right now, the people I talk to, there's this intense debate about whether this was a little bit of theater designed to sort of quiet the protectionists in Congress or whether this is the beginning of a really major change in the value of China's currency.

BARTIROMO: Thanks to economist and New York Times columnist Paul Krugman. Up next on the WALL STREET JOURNAL REPORT, we'll talk about the news of the week, including: Just when you thought the stories coming out of the disgraced former Tyco Chairman Dennis Kozlowski's camp couldn't get any more salacious, wait till you hear what extremes his son-in-law went before taking his vows of fidelity.

Originally broadcast, 7.24.05