This Blog Has Moved!

My blog has moved. Check out my new blog at

Your Ad Here

Tuesday, March 2, 2010

Toyota Recall

The Toyota recall is an excellent example of how the State rewards and encourages dishonest behavior. According to pro-State troll justice, if you sell a defective product, the only penalty is that you must replace it and give compensation to any victims.

An executive can always claim "I didn't know it was defective!", and that's an acceptable pro-State troll excuse. According to natural law, it makes almost no difference if you injure someone on purpose, or through your own incompetence. "I'm stupid!" is not a valid defense, when you claim to be an expert car manufacturer.

This story was interesting. Some people sued Toyota when their car malfunctioned and they got in an accident. Eager to suppress evidence, Toyota executives settled. As terms of the settlement, the information obtained in discovery was not publicly disclosed.

That's an important principle of corrupt State law. Someone sues you for selling a defective product. Once you see they're going to win, you offer a nice settlement. One of the terms of the settlement is a gag order. Only a tiny minority of your victims sue, so this is a profitable strategy. For example, drug company executives use this strategy when they are sued after a drug causes harmful side-effects. A judge in a free market court would *NEVER* allow the "gag order" clause. Corrupt State courts encourage such behavior. In a really free market, if you were discovered to be covering up a defective product, the punitive damages would be *HUGE*.

Allegedly, Toyota executives knew about the problem. They only acted once the evidence was overwhelming. I've heard several different excuses circulated.

  1. The floor mat was defective, causing the accelerator to get stuck.
  2. The accelerator was defective, and got stuck.
  3. The people involved in accidents were careless drivers. Toyota is blameless.
  4. The software that controls the car is defective.
  5. Most cars have a safety feature that says "If the accelerator and brake are simultaneously pressed, cut off gasoline to the engine." To cut costs, Toyota did not include that safety feature.
The last item is particularly offensive. They left out a standard but not-State-required safety feature.

Suppose an executive at Toyota heard about the problem. Now, he can fix it, which costs $X, or he can cover it up, which might cost $Y when he gets caught. He'll only get caught z% of the time.

As long as X > z*Y, it's in the rational self interest of the executive to cover up the problem. Via limited liability incorporation, the executive can't be personally sued when his fraud/negligence is discovered. A corrupt State justice system is the result of lobbying by executives and insiders. There is a cap on damages Y, especially punitive damages. This provides a huge incentive for dishonest and negligent behavior.

If the only penalty is a recall, then the incentive is for the executive is to cover up the problems for as long as possible. Immediately fixing the problem via a recall costs X. Covering up the problem and having a recall later costs X, but you won't always get caught. Therefore, you should cover up the problem.

In a really free market, punitive damages would be high enough to discourage flagrant dishonesty and negligence. There would be no limited liability incorporation. Limited liability incorporation protects insiders from the negative consequences of fraud and negligence.

A pro-State troll says "Punitive damages should never be so high that the corporation is bankrupted." That is false. That's a pro-State troll excuse that justifies protecting insiders from fraud. If punitive damages would cause bankruptcy, then the plaintiffs become the new owners.

State bureaucrats say "We ordered Toyota to recall their cars!" This makes them seem like heroes. Public knowledge of the problem had already become huge. At this point, a recall was obviously needed. By saying "We ordered a recall!", State thugs seem like heroes.

The problem was caused by government regulation in the first place! Toyota's CEO speaks in front of Congress and apologizes. That helps re-affirm the authority of the State.

Toyota's recall problem may help Ford/GM/Chrysler. The problem is that they have a monopoly/oligopoly. Via State restriction of the market, a handful of people can't start a new car manufacturing business. The problem is not "Building a car is hard!" The problem is all the bureaucratic requirements for getting a new car approved as legal to drive. That's a tax on small car manufacturers. Even though Toyota/Ford/GM/Chrysler have lousy products, it's essentially illegal to compete with them.

The Toyota recall problem was entirely caused by the State. There are three key defective regulations. Punitive damage caps reward and encourage dishonest/negligent behavior. Limited liability incorporation protects executives when they commit fraud/negligence. State restriction of the market makes it illegal to compete with Toyota.


Anonymous said...

I once knew a businessman. I could never work out whether he was stupid or incompetent or some dastardly combination of both. I saw him screw over clients. He would never deliver nothing, but rather something broken. It is much harder to sue someone for a broken product, rather than a complete empty void. He knew how far he could go and that people wouldn't sue him, so long as the amounts weren't that huge and the case that easy.

Screwing clients over is only one step removed from screwing over workers working on your side.

When the clients can't be screwed, his screws over his own side.

I never did work out whether he was just very, very stupid or incompetent. You can't know for sure. You can't have hard evidence either way. But he upset a lot of people.

By the way this man (and I use the term loosely) used to work for an old, rather infamous bank. That bank screwed over whole countries.

It is a nasty poison that spreads and spreads.

FSK said...

When you have an industry completely divorced from productive work, like banking, parasites tend to dominate.

The "parasitism %" of the US economy is increasing.

Anonymous said...

I do not believe that Toyota has an accelerator problems. Even if they do, this is just a minor bug. If one looks up NHTSA complaints file he/she finds quite a few similar or more serious issues for almost any car manufacturer. The real question what has Toyota done wrong to trigger such a massive attack of parasites? Why Toyota was singled out? I do not know - maybe they just did not make enough campaign contributions...

This Blog Has Moved!

My blog has moved. Check out my new blog at