Via Economic Policy Journal

Boeing Max 737

Kevin emails:

Hi Bob,

Regarding the Boeing 737 Max crashes, if I have my facts correct, there were 2 crashes (one in October 2018 that killed 189 people in Indonesia and another in March 2019 that killed 157 people in Ethiopia) that killed 346 people in total before the plane was officially grounded.  According to the article below, “Boeing cut corners to save money”.  

My question is, wouldn’t “free market capitalism theory” (not sure what the correct terminology is) tell us that Boeing wouldn’t want to risk its reputation (as it would affect the company’s bottom line) and, therefore, would only produce products that it believed were safe to its customers?

Maybe it can be argued that Boeing (incorrectly) believed that their customers would be safe, despite the cost-cutting measures.  If that were the case, however, wouldn’t they have grounded the planes after the first crash because having it happen a 2nd time would be a disastrous outcome?  Isn’t this also the free market argument that regulatory oversight for plane safety is unnecessary?

In this case, however, there was both regulatory oversight (from the FAA) and free market forces (Boeing not wanting to lose the public’s trust) but yet we still had 2 crashes.

What are your thoughts on this?

RW response:

First of all, I am not an expert by any means on plane engineering, so I have no idea whether the plane was improperly designed. I am really against people who are not experts pontificating on any technical science, be it climate change, plane engineering or whatever if they haven’t spent serious time studying the subject.

So I will state I have no idea and no opinion if the plane was poorly designed or if the two crashes were simply coincidences.

It strikes me as extremely unlikely that Boeing senior management would have allowed the planes in the air in the first place if they knew two planes would crash in such a short period. This has no doubt been a nightmare for them. In fact, while stock market indexes are at new highs, the market capitalization of Boeing is down by roughly $30 billion from its high.

That said, there is nothing in free market theory that says occasionally dumb management can not end up running a company. All free market theory says is that if a management is so incompetent that they end up ruining their product, they are not going to be in business much longer.

Let’s, arguendo, say that management did understand that the 737 Max was designed with serious flaws and sold the planes knowing they would crash, now how long do you think they would be able to get away with that even if there were no government regulatory airline agencies?

I would say if there was one more 737 Max crash that would pretty much be the end of anyone willing to fly on a 737 Max.

Now, it is possible that management was dumb and was aware of a faulty design but thought “Oh, well it is no big deal.” But once planes do start crashing, it will become a very big deal.

My guess is that after the first crash, top management thought of it as an outlier event. Whether they should have or not is a different question.

Regardless, the free market reacts viciously against obvious stupid.

Boeing’s origin dates to 1916, so management has a very long track record of not being stupid. That’s why people have trusted flying in their planes without giving it a second thought.

But if management decides to cut corners in ways that will cause planes to crash, plane sales will also crash. The free market will see to that, pronto.

RW


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