Schansberg: The ‘Tragedy’ of Repair-Free Cars

January 7, 2016

by Eric Schansberg, Ph.D.

Imagine a world where cars no longer require repairs and maintenance. Would this be good for the economy and society?

For individuals and the economy, the costs of this improvement are obvious. Producers of auto parts and engine fluids would go bankrupt, with job losses and investment failures. Service providers of oil changes and timing belts would be out of work. This would be difficult for these folks, especially if they could not easily move into a job field that used their skills. With industries disappearing, towns and even regions would face tough times if they depend on these industries. The benefits to consumers are obvious: less time and money on repairs and maintenance. Wouldn’t this be awesome?! The benefits to the economy are relatively obvious, but difficult to quantify: The freed-up time and money would be used for other beneficial and profitable activities.

How do we decide how to weigh these costs and benefits? The first question is ethical: When do we have the right to prevent advances in technology? (Rarely.) The second question is practical: What are the effects of the advance in technology — or in contrast, efforts to restrict it using government?

In his book, “Fair Play,” Steve Landsburg relates a parable developed by another professor. An entrepreneur developed a new way of making low-cost, high-quality cars. He built a facility on the West Coast, kept his process secret, and started to turn grain into cars. Consumers were thrilled with the improvements. Farmers were ecstatic at the increased demand for their grain, even when used as an input for cars. Things were tough for our auto industry, but most people recognized that technological progress, always accompanied by growing pains, is a good thing on net.

Eventually, an investigative reporter figured out the entrepreneur’s secret. The factory is an empty building with the back door leading to a shipping dock. Grain came in the front door; it went out the back door; and it was sent to foreign countries in exchange for cars. Well, as you might imagine, the revelation turned the popular perception of the entrepreneur from hero to villain.

As Landsburg puts it: “The moral, of course, is that inexpensive cars are a good thing, and equally a good thing whether we acquire them with technology or by trade. Cutting off trade is the same as closing the most efficient factories.”

The parable can be extended to other areas. Imagine if people suddenly had perfect health until they died. No more health care. Tough on health-care providers; great for consumers; and overall, good for the economy. Imagine if all people suddenly knew economics well. Tough on economics professors; great for people; and overall, good for the economy.

Usually, in real life, the effects are more modest than repair-free cars or repair-free bodies. But the same analysis holds true for international trade, technological advance and immigration of workers. More competition is good for buyers; tough for sellers; and good for society as a whole.

The flip side of this is that politics can be a potentially attractive strategy to restrict competition. In India, small textile operators have been able to limit large textile companies— in the name of protecting inefficient, family production. In the 1930s, Ma and Pa grocery stores in the U.S. wanted a special tax on larger grocery stores to restrict their competition. In the U.S. today, wealthy sugar farmers use the government to enrich themselves and lock out foreign competition. And so on and so on.

If I can limit competition, consumers are unlikely to see or imagine the benefits they’re missing. And I gain by having more market share, higher profits, more job security and so on — whether in K-12 education, international trade, farm policy or labor markets. Repair-free cars may not be in our near future but policy reforms that would reach the same ends are available to us — if our politicians have the wisdom and the courage to implement them.

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Indiana University Southeast. Contact him at dschansb@ius.edu.



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