Taking Home the Wrong Lesson on 737 Max

The New Yorker has taken a look at a 238-page congressional report and come up with exactly the wrong conclusion regarding government oversight of the aviation industry.

I won't rehash the conversion of Boeing from private corporation to creature of the government, or how ludicrous the idea is that the government didn't have enough control over Boeing is: I blogged about those last year in a post titled "What Happened to Boeing?"

Instead, I'll content myself by quoting two paragraphs that should cause fans of government "oversight" to at least squirm a little.

First, we have the following paragraph, which I am sure the New Yorker sees as a damning summation of this travesty:

That diagnosis was right, as far as it went, but this goes beyond Boeing. The ultimate cause of the disaster was the drive to raise profits at any cost -- and the cult of the stock price, to which so many venerable companies have conceded.

Raising profits at all costs. Those corporate bastards! we're supposed to think.

One common-sense question and a moment with a search engine will very easily show how stupid the whole idea is that one can profit "at all costs" by screwing the people you're supposed to be trading with -- you know, to mutual benefit, and (you should know) by mutual consent.

A Wikipedia entry on the consequences of the Boeing 737 Max groundings specifically addresses the financial consequences of this swashbucking, pirate-like antithesis of good, rights-respecting, long-range, capitalist business practice:

Image by SounderBruce, via Wikipedia, license.

The Boeing 737 MAX groundings have had a deep financial effect on the aviation industry and a significant effect on the national economy of the United States. No airline took delivery of the MAX during grounding. Boeing slowed MAX production to 42 aircraft per month until in January 2020, when they halted until the airplane is reapproved by regulators. Boeing has suffered directly through increased costs, loss of sales and revenue, loss of reputation, victims litigation, client compensation, decreased credit rating and lowered stock value. In January 2020, the company estimated a loss of $18.4 billion for 2019, and it reported 183 canceled MAX orders for the year. [bold added]

I guess the standard left-wing trope that we "consumers" are complete morons who will lap up whatever is placed in front of us is ... at least questionable -- as is (or should be) the whole idea that there is a "cult of the stock price," or at least one with the tenet that murdering your customers will go unnoticed.

One thing the New Yorker did get partly right is that it called what happened an example of regulatory capture, which is a species of cronyism. The piece notes that "many employees of the agency's safety arm believed that its leaders were 'overly concerned with achieving the business-oriented outcomes of industry stakeholders.'"

Considering how well that worked, let that sink in for a moment. Officials in a government agency with a post-office/public school-like government guarantee that they have a job insulated from competition -- and so no real skin in the game -- can pronounce something safe or not almost at whim. Said agency's imprimatur has lulled the public at least a bit on the matter of aircraft safety, and therefore distorted the incentives for actual quality in an entire industry.

When a seal of approval -- from fallible human beings who don't have to answer to a market -- becomes the standard, getting away with "cutting corners" stops being about real-world incentives and consequences and you get: People bribing or being in cahoots with Those Who Confer Stamps of Approval, rather than people asking questions like, "Might a second indicator of speed more than justify the small per-unit cost, by saving our customers' lives and our reputation down the line?"

I don't mean to whitewash corporate executives who pretend that regulatory capture is a long-term viable way to make money. But, as I noted before, "The government has all kinds of control in Venezuela, for example, and that place is a train wreck."

There are clear, reality-based incentives for quality in the private sector. And government control of industry not only is no guarantee of same, but replaces those incentives with those favoring regulatory capture. Rather than double down on government control, perhaps we should reconsider the whole idea that government officials have any business attempting to substitute themselves for the judgement of customers of businesses, aided by experts who also have to compete for attention on merit.

To the extent that there is a "cult if the stock price," I would propose that it is a direct result of the decoupling of the mutual interests of businessman and customer caused by the improper intrusion of government into that relationship. Cronyism is indeed a problem, but it is the child of the more fundamental one of central planning.

-- CAV