Milton Friedman v. Michael Moore on Pinto
Fascinating exchange from the late 1970s.
In this video (circa 1977-78) a young and thin Michael Moore challenges economist Milton Friedman on whether it was economically rational for Ford to risk gas tanks exploding in the Pinto rather than make a $13 modification to the design:
Tyler Cowen thinks Moore wins; judging from the title, the person who posted the video on YouTube disagrees.
I’d say Friedman wins the larger debate–indeed, Moore concedes that it would be a different calculation were the amount astronomically higher than $13–but loses the battle for the audience. While I agree with Friedman (and Moore) that it would be absurd to value human life so dearly as to stop people from being able to afford to drive, it’s even more absurd that an added $13 to the price of an $1830 car is the breaking point.
Moreover, while I agree with Friedman that people should be free to make those decisions for themselves, that only works if they’re given the same information available to Ford. In this case, however, people reasonably assumed the risk associated with a tiny car in order to save money and/or gasoline. They did not, however, knowingly take the risk of being blown up by a gas tank that Ford know was defective.
This is a perfect demonstration of one of the central flaws of libertarianism: it requires that we allow a sort of moral opt-out clause, and allows that opt-out primarily for the rich and for corporations.
I’ve yet to hear a libertarian argue that all people should abandon all morality. What they want is for businessmen to be allowed to do so, while average folks, the hoi polloi, continue to follow the rules that keep civilization running.
It is a matter of principle. It always will be. There is no opt-out from morality. You cannot simply decide that the rules of common decency don’t apply to you. Nor is there a corporate exemption — decisions within a company are still made by individual humans, and those individuals are subject to a moral code, like it or not.
An individual human, or several individual humans, made a decision to allow children to burn to death rather than spend $13 per car. Those are the facts. A man, probably a father himself, decided that other people’s children should burn so that he could report better earnings, see his stock price go up, and make more money.
Friedman’s argument is sophistry. He’s trying a reductio ad absurdum and it’s pathetic. Moore isn’t sufficiently agile to catch him as well as he might. But that doesn’t alter the shallowness of Friedman’s thinking and the juvenile nature of libertarianism.
Milton Friedman wasn’t the lunatic the Teatards make him out to be.
Same with Reagan.
Any comment on your man Mitt Romney’s last minute bold stance on the debt ceiling deal?
Moreover, this is a useful corrective for when someone of a libertarian stripe points out how the market is self-correcting. Ford paid little to no penalty in the market for its decision.
Michael Renolds, I could not agree with your observation more, well said.
Note that it is not really Michael Moore.
I don’t want to sound filp, but does anyone else think of the movie Top Secret when the Pinto is mentioned?
The problem with the essay, and the comments is that you choose to deny the general principle, and focus narrowly on a $13 part. And that is done to grandstand.
Broaden your thinking. How did a Pinto do in side crashes or head ons? Not well, it was an econobox. What buyer didn’t know that. Should $2000 of armour plating have been added to each car? How about today; do we want to conveniently pick and choose our cost benefit issues just to make a politcal point?
How about starting with “life is sacrosanct,” and no value tradeoffs can be made, so those evil businessmen should manufacture a car like a Sherman tank, and the speed limit should 10 mph. That would eliminate traffic deaths. Perfect. Now people will say, Drew, that’s ridiculous. No its not, its the very same argument. But its convenient to pick a $13 part and excoriate evil, mean, dare I say greedy businessmen.
And how about in the current ridiculous debate over AGW. Seen those Prius’s? How about those Smart Cars? Michael Moore and the left wants us all to drive them over a hoax theory. But I sure wouldn’t want to be in one if it hit my S550 head on. I think I know who would die. But does Michael Moore consider himself immoral – practically a murderer – for such irresponsible advocacy? Of course not….”that’s different,” you see. Leftist “gooood,” businessmen “baaadd”
The closest thing to a good point was absence of consumer information, which is always an economic problem. But let me ask you, does the beaming new owner of a Smart Car who is driving off the lot about to save the world need a certificate from the manufacturer saying “dude, if you hit a dump truck you are going to be toast.” Or do they know that already, should they know that; and do they even care? Grandstanding over $13 parts is easy; dealing more comprehensively with overall economic tradeoffs is hard.
Friedman elevated the argument to real world realities and wiped his ass with Moore.
@ponce: Milton Friedman was a fine economist by anybodys measure. He wouldn’t recognize these Tea Party folks.
Friedman basically concedes the point at the end.
@Drew: The argument presumes that Ford know that the gas tank was unusually dangerous, could be fixed for $13 each, and decided that it made more sense to just pay off those unfortunate few who were killed.
If, contrariwise, Ford didn’t know at the time and it turned out after the fact that a $13 piece could have fixed the issue, then you’re quite right: A whole lot of $13 fixes could make the car both incrementally safer and less affordable.
You’re just restating Friedman’s reductio ad absurdum. It doesn’t work any better the second time.
Here, I’ll play the same game in reverse.
Drew, a captain of industry, discovers that he can save 19 cents on every cellphone he sells, but they’ll cause a renewal of the Black Plague and wipe out most of the human race. It’s okay, though, because the plague won’t decimate the market until Drew is retired. Plus, he didn’t really have much going on for the next product cycle.
Friedman would have no basis for objecting to a business decision that 1) made a profit and 2) obliterated the human race.
Once again, don’t do philosophy starting with clowns like Ayn Rand. It’s not even sophomoric, it’s high school.
Moreover, while I agree with Friedman that people should be free to make those decisions for themselves, that only works if they’re given the same information available to Ford.
Thank you for admitting libertarian principles only work in a fantasyland where manufacturers identify and inform consumers about defects to their products before they sell them.
Individual consumers don’t get to make these kinds of choices. For products as large and complex as cars it would be completely impractical. Consumers can only make choices from a menu decided on by the manufacturers. That means that consumers are controlled by the values assigned by manufactures, and they are controlled by profit considerations. That is why we have (and need) government regulations, which allow consumers as voters to express some of their preferences and values before the menu is decided.
@Drew: Shorter Drew: Who cares about real world facts? The only thing that matters is economic theory.
@Drew: Even shorter Drew: I drive a really expensive car.
I can’t listen to the debate currently, but I do have a question, are there no lawyers in this libertarian hypothetical being constructed?
People often forget that businesses themselves are consumers, and rely upon the regulatory actions of government to do business.
For example, real estate investors buy property, safe in the assurance that the building was designed by a state certified engineer, was inspected by a city building inspector, was designed to health and safety codes, and so on.
Imagine if they had none of this- how would an investor know what building was safe to buy, and which was a firetrap ready to collapse? Most building flaws are hidden from view and there is no practical way to assess them after they are constructed.
The same goes for all the other things that businesses buy and consume- government regulation makes it safer and more convenient to run a business in confidence, by removing risk.
Exactly. Libertarianism only works in fantasyland. In other words, it works in the same place as magic swords and flying horses.
The galling thing is that libertarians love to strut and posture as ultimate, hard-nosed realists. In fact they spout transparent nonsense easily penetrable by any bright college freshman taking Philosophy 101. It’s not even a respectable-but-failed philosophy, it’s philosophy for people so immature they cannot differentiate between reality and their preferred fantasy world.
Also note that this is not just about information. Even if it is possible to fix a problem for 13$ a car, that does not mean that it can be provided as an option for $13. Offering a fix like this as an option could easily have been more like $200 per car so equiped. Ford has the choice between one design and another but the manufacturing and inventory planning costs of offering the safer one as an option would cost far more per car.
The fact that you can even write such a sentence without a trace of irony or embarrassment says a lot about you, James. And it’s not good.
What company, on the planet, has ever willingly told their consumers that a product of theirs could kill or seriously injure them?
The “market” does not self-correct, as Libertarians claim.
The “market” cannot and does not account for morality. As long as their are immoral or amoral business people among us, the “market” will not every work properly on it’s own.
And, as the bank bailouts have shown us time and time again, it’s capitalism when the markets are going up, but socialism (i.e. government bailouts) when the markets, banks, or businesses tank.
Not at all. The problem here isn’t that people are morally opting out, but that information is not being shared. Ford knew the gas tanks were defective. Ford did not share this information. Ford let their customers think there was no such risk. In this regard Ford was wrong in a moral sense and should be held accountable. Problem is trying to stop this kind of thing before it happens.
Consider another type of crime, murder. Would stopping murders before they happened be good? Sure. Can we reasonably do it? Not really. Some cases maybe, but in general no. So at best we can try to implement a deterrent.
Going back to the gas tank, the deterrent should be set such that it negates any benefit Ford would have obtained by keeping this hidden information hidden. Suppose the profits for selling the Pinto is $50 million, then a penalty that is in excess of the $50 million should be imposed. Even if the actual loses are say, $5 million, by setting the penalty too low it is in Ford’s best interest (speaking in just monetary terms) to keep quiet as long as possible about the defect. If the penalty is in excess of all of their profits then announcing the defect and doing a recall would be the better course of action. Especially if the actual loses are $5 million plus the $13*number of cars recalled. So long as that number is less than the penalty Ford would favor the recall.
That is one way to approach this problem. It is essentially an incentive problem. Coming up with the right set of incentives to get people who have hidden information into revealing that information. Hidden information, by and large, tends to reduce economic welfare.
We make these kinds of decisions all the time in society and our lives. We set the speed limit at 65mph knowing full well it will result in a positive number of deaths. We allow people to drive cars in residential neighborhoods knowing full well that they will result in a positive number children being killed. The list goes on and on. Our leaders send military personnel off to do things knowing that there will almost surely be some who die. LIfe is about trade offs. Ideally we want the best information when making decisions regarding various trade offs. That hiding information is sometimes in the interest of various economic agents is not surprising. Using government to try and solve this problem isn’t always the best solution, IMO.
Further the implication that the people at Ford are libertarians is silly. They might have been, but chances are the decisions makers were not. In fact, I’d argue that most businessmen are not libertarians or libertarian minded. Most businessmen do not like competition. Which is why you see many businesses endorsing regulations that have a side effect of reducing competition.
Libertarianism, broadly speaking, is about making choices–i.e. having liberty. The problem when one is not fully informed of the consequences of one’s choices is a problem whether one is a libertarian, a liberal, a conservative or whatever political belief one holds. A libertarian does not believe that somebody who purposefully hides important information from another when they are engaging in some sort of transaction is a good thing.
In short Michael, you have erected a nice big straw man and knocked him down.
” In fact, I’d argue that most businessmen are not libertarians or libertarian minded. Most businessmen do not like competition.”
I think you’re certainly right about that. Friedman once said to me that your average businessman wants free enterprise for himself, but not for his competitors.
It may not have paid an explicit amount, but what about lost customers? Did some customers who would have bought Fords opt for a competitors car as a result of the Pinto? This is often the type of corrective action most of those who think markets work well think of. Problem is it is not easy to quantify, and quite a bit of research indicates that in a market economy keeping hidden information hidden does reduce overall economic welfare. But this problem would not go away if we could snap our fingers and everyone on the planet became an ardent liberal.
This is a familiar libertarian argument that once again fails to make allowances for reality.
You’re supposing a world where every purchase is buried in a recitation of potential problems. Are they ranked efficiently from likely to unlikely? Is there a neat hierarchy of possible damage? If so, who would impose such a thing?
In reality, even if we had laws requiring full disclosure on pain of insuperable damages, the companies would cover their asses by doing the disclosure equivalent of an Apple terms of service document. It would be 50 pages long and completely indecipherable.
The disclosure would of course shift the liability from the company to the buyer. And since the company can hardly be expected to create a document with “Car will blow up and burn your family to death” in bright red text, it would be obscured with legal language and the document itself expanded to a degree that no buyer could possibly penetrate.
Once the buyer had signed off on the unread document the company would be fee to place pieces of dynamite in the glove compartment and fill the gas tank with nitroglycerin.
But let’s pretend that’s not how it would go. Let’s pretend that it all ends up being adjudicated in civil court. I like fantasy as well as the next guy.
On one side of the courtroom, Covington and Burling with hundreds of lawyers, paralegals and investigators and an open-ended budget.
On the other side, Frank the Lawn Maintenance man and his cousin Tommy, who normally handles real estate transactions and has a staff of nobody and a budget of nothing.
Right. Totally realistic world there, Mr. Verdon. Looks fair. That’ll keep the corporations on their toes: bogus disclosure and Godzilla vs. Bambi legal actions.
Like I said: not even sophomoric. High school.
BTW, I’ve often thought our tort system is perhaps the best check on these kinds of shennanies. Nothing gets the attention of malacting businessfolk more forcefully than a juicy lawsuit and the attendant bad publicity that does get the info out. And yes, I do acknowledge the problems with the tort bar, but still it does work from time to time.
Come to think of it, though, maybe we’d do better with some kind of Super Angie’s List.
I don’t see what the big deal is about what James wrote.
Let me see, it says:
1. In general when people can make choices for themselves that is a good thing.
2. When one side has information that the other side would benefit from and does not share that information it is bad.
How is this bad. Most economists I know who study or have studied incentive problems and information constraints would agree. And that would include even guys like Krugman, Christina Romer, and lots of other “liberal” economists.
First, I don’t see how this makes James a bad person even if it is true everywhere and at all times. Second, I don’t think it is true everywhere and at all times. A firm will share such information when it is in the firm’s best interest to share the information. That may not be sufficient, but it doesn’t mean it never ever happens.
Sure they can. I’d also argue that if a market cannot correct itself over the long run then something is preventing it from correcting…and that something starts with the letter “G” and ends with the letter “T”.
Of course, when a market corrects that does not mean that markets are working perfectly all the time every where. In fact, it implies the opposite: that markets can sometimes get out of alignment. But that eventually the market will try to correct. That correction can be painful for many involved and if the initial distortion is big enough and/or goes on long enough can impact other markets (e.g. our current situation).
This is true of just about anything in life I’m afraid. If we elect an immoral or amoral person into the Presidency is there some sort of special safe guard that will protect us all? What about an immoral judge, or an amoral prosecutor, or an immoral cop?
In a world where legal resources were equal? Maybe.
In the real world where it’s 100 Harvard lawyers and their staff vs. some guy with a mail order JD? At that point, why bother? Why not just admit we’re in feudal times again and if the Baron wants to screw your bride and ride through your corn crop, too damned bad, you should have been born of noble blood.
Um, let’s see, impeachment and next election for the POTUS, impeachment or recall or professional misconduct proceedings for the judge, and Internal Affairs, the FBI or your local politician for the cop. Imperfect. But let’s not pretend the defenses aren’t there.
@Steve Verdon: “It is essentially an incentive problem. Coming up with the right set of incentives to get people who have hidden information into revealing that information.”
Product recall coverage is a standard feature of a commercial general liability policy, but it is going to require the manufacturer to notify the insurance company promptly of a defect when they learn about it or the coverage is lost.
No Michael you are the one out of touch with reality. Hiding relevant information is bad whether we are talking about markets or government and most things in life. In fact, I’d argue that with government it is potentially far worse in that government has a monopoly on the use of force and violence. Think about what we know now regarding MWDs vs. what we were told way back in 2001 and 2002.
Please quote where I made such an assumption? Hint: I didn’t.
I was pointing out that hidden information (aka moral hazard, asymmetric information, etc.) can cause the market to not work well. And that creating an incentive scheme that tries to solve this problem is a good idea. Personally, I’m skeptical such a scheme would come about in a pure market economy thus providing a role for government.
Ahh yes, the clarion call of the Nanny State believer.
Right which is why the company I work for settles the bulk of their lawsuits. Sure. Stick to your fantasy novels.
You want to replace our system of regulations that keep business transactions fair and safe, with the tort system that works, as you put it, FROM TIME TO TIME?
I can see why you are not an ad copy writer- “Air Libertaria- Our planes land safely, from time to time.”
Wait! Some one needs to be told that a little econbox, which gets great gas mileage, because it’s made out of aluminum so thin, you have to be careful how hard you slam the door. That has plastic parts where ever they can be used in order to save weight, isn’t as safe as an SUV or a pickup that weighs three times as much? I would think that most buyers would be intelligent enough to assume that. But we live in an age of lawyers, where what used to be simple common sense, these days has to be spelled out in extensive “legalese”. BTW, how many Pintos did Ford make? Wiki says about a two million over the production run of the car. NHTSA list 27 people as killed by rear end fires in Pintos (yes the media does exaggerate). Ford would have spent $26 million dollars to install that $13 dollar part. That works out to about $962,962 dollars per person.
I really think you should haul your ass out of Orange County CA and check out life outside that well manicured and boring little sanctuary. Or even just start reading Radley Balko’s stuff on a fairly regular basis. Hell, just trundle on over to the Innocence Project and read a few cases there.
If you really think that IA works for getting bad cops your are being really, really stupid.
On the other hand, if I feel a business has ripped me off there isn’t anything they can do to keep my business.
@sam:” I’ve often thought our tort system is perhaps the best check on these kinds of shennanies”
That’s what is curious to me about the hypothetical. Once the manufacturer knows about a defect and they fail to act, they are going to face liability far greater than the cost to repair, far greater than the loss of life or health, and greater than their profits. The main problem is that tort law has difficulty monetirizing the value of a lost life, but so does the regulatory system. (I believe the $200k per life in this hypothetical is based upon government assumptions derived from economic studies about how people value their lives)
@michael reynolds: And don’t forget the Supreme Court, who would weigh in to say that Frank the Maintenance Man and all the other victims can’t make a class action claim, but must each sue individually.
Did I say I wanted to replace, etc.? No, I did not. One thing to keep in mind is that you can regulate all you want (and I’m for strong regulation), but it is the tort system that supplements that system (doesn’t replace it) by addressing those cases of bad acting that the regulatory regime does not or cannot reach. Part of the impetus to “reform the tort system” is to prevent suits that bring corporate malfeasance into the sunlight. Not perfectly, I admit, but it does work.
@sam: I would say it is generally (and should be) the opposite. The regulatory system supplements the tort system. The tort system is flexible enough to exist without pre-existing standards. If you manufacture a defective product, you pay the damage you caused.
When government wants to use command and control regulation, they almost always suffer an information gap, and need years and sometimes decades to figure out the different ways to make a widget, the various cost structures available, and the various (and often contradictory) regulatory trade-offs. Often what the end up doing is codifying what big industry has been doing and cut off innovation. Even more problematic, they use regulation to defend against the tort system. Nothing like getting injured by a product that has been approved by the government or inspected by the government.
Yeah, that’s a better way of putting it, PD. And your observation about defensive regulation is right on. But the imprimature of regulation might not always work for the business interests. See, In Medicine, New Isn’t Always Improved. (Made me rethink my ankle options – replacement, no, fusion, yes.)
I didn’t say IA worked, I just said there was a mechanism. Without going into the tedious aspects of my misspent youth: I’m not naive about cops or courts. I also know the difference between poor man’s justice and rich man’s justice.
Incidentally, I have hauled my ass out of Irvine. I am now living in the rough-and-tumble world of Tiburon, CA. It’s financially diverse (we have the well-off and rich,) racially diverse (saw a black dude just last week, but that may have been in Mill Valley,) and politically diverse (I don’t think we went much over 90% for Obama.)
What can I say? My places of residence lend themselves to easy parody. In the last decade it’s been Chapel Hill, Tuscany, Irvine and now Marin County. I have no defense.
You noticed that too…I’m sure someone around here was really impressed that some anonymous person, who presents himself as one of the Masters of the Universe, drives a Mercedes…
There’s nothing in that counter argument, Steve.
Yes, information is better than no information. But that’s not practically relevant to what we’re talking about. It’s like the symptom read-off that comes with every new medication. May cause . . . well, anything. Therefore nothing. So much for the disclosure.
Which is why we have an FDA, the dreaded nanny state, checking to make sure pills won’t kill us, and various other nanny state regulators making sure other things don’t kill us.
And which nations on earth have similar nanny state apparatus? Let’s see, that would be 100% of the wealthy, successful nations on planet earth.
Congo has no nanny state. I bet their market works really, really efficiently.
The overlap between “rich and successful with high quality of life” and “nanny state” is 100%.
I’m in a fantasy world?
@michael reynolds: I think you have an ill-informed view of libertarianism. Even the most infantile versions of libertariansim (like robert heinlein books) are capable of handling the idea that lib’s promote the market as a method to CORRECT immorality, not as a way of accepting it. Libertarians believe that mechanisms must be in place to correct unethical behavior, and that the market + certain transparent, stable, etc. gov regulations are the best method. This is very different from believing that it’s PERMISSIBLE or ACCEPTABLE for businesses to be unethical.
For the record I think this is the worst Friedman response I think I’ve ever seen, the student makes a great point.
I know what they say. I used to be a Libertarian. First generation. Of course, I was a teenager. Then I encountered the real world.
One of the first things the Bush admin go to work on after Bush took office was making it more difficult for consumers to have access to government product safety data. They seemed particularly intent on burying data on automobile tires.
@Drew: Even shorter Drew: I drive a really expensive car. And if you don’t, you pretty much deserve what you get…
Thought we needed a tag line.
@ all the libertarians.
The problem is not with the theory of free markets in specific or libertarianism in general; all theories work in in theory; even Communism. The problem is that when asymmetrical information is anathema to the proper functioning of a “free” market as well as other things like unequal access to the courts and legal representation and those things are rampant. The wealthy have better access to the legal system, better representation, access to the political system in ways that most of us simply do not and there is nothing being proposed by libertarians, or conservatives to change that.
Look at the health care system, many libertarians / conservatives want to reduce regulations and weaken torts. so where is the redress of grievances? There isn’t one other then to let the market rule and that simply does not work in medicine except in those very few ares where the procedures are not necessary to life and limb (boob jobs, laskey surgery … ).
The problem starts the minute you try and craft a proposal to address the problem of asymmetrical information, whoever ox is getting gored, ramps up an assault on the proposed fix to the point where few people no weather to shit or go sailing and the whole thing gets bogged down in a massive disinformation campaign financed by the aforementioned goree. Before you know it lobbyists are dumping truckloads of cash into politicians war chests and they get up on the floor of congress passionately defending the indefeasible. AstroTurf campaigns hit the airwaves with disinformation and before you know it end of life counseling becomes “Death Panels”. Ending subsides on corn for corn syrupy become a tax on juice and soda, and everyone is worked into a lather.
Could a libertarian approach work? sure. Can it work as long as there are huge divides in power and access to the political/legal process? No way.
@Rick DeMent: Your argument is utterly irrelevant to right libertarians. This is an ideology which (like its twin, Marxism-Leninism) completely rejects empiricism, insisting it is the vanguard of the historical dialectic despite a single historical analogue.
And note its internal contradictions. Steve Verdon wants to scrap our system of regulations and bureaucratic enforcement in favor of a system which somehow “negates” any nefarious financial gain made by Ford. Yet doing so would require an effectively permanent body of investigators to provide expertise to a court system without engineering experience. So having dragged us through the massive shock of having banished the regulatory apparatus, the Steves of the world would then end up re-creating it.
Unless of course Steve insists it is the responsibility of the plaintiff to hire engineers to conduct those studies, and give that testimony. In which case the vast majority of Americans would be utterly helpless against corporations with endless pockets.
“In which case the vast majority of Americans would be utterly helpless against corporations with endless pockets.”
I think, for Libertarians, that is the entire point
@michael reynolds: Fair enough, but your comments don’t seem to reflect that. I could judge the Green Party by what they said when I was in college, but that would probably be unfair, as I assume they’ve learned something since age 20.