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Mrs. Groovy here. Today we welcome I Vigilante. IV is a millennial attorney who amassed a lot of debt but is now on a fast track to financial independence. He writes about money, investing, the virtue of unapologetic selfishness—and shares his philosophy on how to enjoy life. And one of his joys just so happens to be whiskey, as evidenced by his recent post on Stock Street Blog.
If you’re unfamiliar with IV’s blog I suggest you begin with his Basic Training, Volume 1: You’re Insignificant. Also check out a previous guest post he’s written for us about working out without paying a hefty price tag. Our audience connected so well with IV that we brought him back for round 2. Take it away IV!
In 1973, the Environmental and Safety Engineering division of Ford Motor Company drafted a notorious memo in response to proposed regulations that would famously impact its production of its oddly popular Ford Pinto. The proposed regulations would have required a change to the design of the Pinto—and other vehicles—adding an estimated $11 to the production costs of each individual car. The trade-off would be reduced risk of fire in the event of a flip, which could prevent serious injuries and save lives. In the memo, Ford compared the estimated aggregate cost to society of injury and death that would be prevented by the new measure to the estimated cost of complying with the new regulations. The verdict: The cost of compliance would be multiples the cost of injury and death, so we shouldn’t bother making the change.
Seriously.
Ford ended up being sued repeatedly in relation to accidents in which Pinto drivers and passengers were injured or killed, especially those in which this exact change might have made a difference to the outcome of the accident. Among the many lawsuits is Grimshaw v. Ford Motor Company, which resulted in one of the largest jury awards ever in a products liability case and forced the words “Pinto Memo” into the mouths of law students across the country for decades. Juries, it turns out, are easily offended by the idea that a company can put a dollar value to the expected cost of the loss of human life and limb.
This cold, corporate calculus may have—reasonably, it seems—offended your sense of decency, too. Did Ford just haphazardly place a value on human life and, moreover, value profit more highly? How could they do that? And how can we, as well-intentioned, educated, honorable citizens of the world choose to invest in the evil corporations that do this kind of thing?
Are big corporations too evil to invest in?
It’s easy to think of corporations as big, nameless, emotionless entities of oppression. But it’s only slightly more complex a thought to see how that is one hell of a Supernatural Source Fallacy, and that it’s too expensive for humanity not to cooperate through entities like this.
Take the Ford example. Yes, Ford chose to forgo a potentially life-saving measure for just a bit of profit. Yes, a life lost is a tragedy, and the ultimate tragedy to those whom the Pinto Memo directly affected. But before we react too harshly to Ford: What exactly is the standard that we are holding Ford to? Do they have to build the ultimate, 100% safe vehicle that would not cost any lives? If so, what would Ford have to do? Put a twelve-foot buffer of bumpers on all sides of the vehicle? Throttle its top speed to 25 miles per hour? (About 40 kilometers per hour, for the non-free.) Encase the entire body in a layer of diamond, surrounded by thick memory foam padding to ensure pedestrian safety?
Would you be able to afford—and would you even want—such a vehicle? Of course not! But that means you don’t believe a human life is worth that cost, either. Just like Ford, you draw the line somewhere.
It’s a matter of risk. You and Ford share the belief that assuming some risk in the purchase and use of your vehicle is ok, as long as the returns you expect to gain are better. In this case, you assume your vehicle will provide so much good in your life—getting to work, visiting loved ones, cruising and listening to Journey—that the small additional risk you take by driving a vehicle that is not “perfectly safe” is worth it. In effect, you’re doing a cost-benefit analysis and placing a dollar value on human life—just like the evil corporations! To paraphrase the immortal words of Jack Sparrow: We’ve established Ford’s proposal as sound in principle; now, we’re just haggling over the price.
This is where the Supernatural Source fallacy comes in: We assume we know where to draw that line better than Ford because we have some special human intuition that a heartless corporation doesn’t have. But that’s not necessarily true. Corporations are made of people: They can have heart, can make mistakes, and are trying to walk the exact tightrope of morality that we all walk every day. We’re making the same decisions every day: we just aren’t always recording them in detail in memos. It’s easy to fact-check and second-guess a corporation, but it’s hard to review your own risk assessments with the same ferocity.
You might feel that the line was drawn in the wrong place. And you might be right. But you can’t write off Ford and all corporations that easily as corrupt institutions without doing extensive homework and knowing where you can justify drawing the same line. To take that hard of a stance is to succumb to the Villainous Fallacies, and that kind of mental shortcut isn’t a very heroic (or groovy!) thing to do.
How can we invest in “evil corporations” without feeling guilty?
The realization that perfection is unattainable and undesirable is necessary for an understanding of why investing is not an immoral or amoral practice, but rather a clearly good thing for the world.
Investing works because companies can sell an imperfect product without fear that it will ruin their brand. Shaving little bits of perfection off the top—even when it’s safety related—in exchange for profit is a big incentive. But there are competing incentives pushing for more safety as well: Presumably, there would be more buyers for a safer vehicle, all other things equal. Public relations disasters from selling unsafe vehicles can severely damage a company’s reputation and its bottom line. A balance must be achieved. Sometimes it’s an imperfect one, but it’s an ever-improving one if a company wants to have continued success.
The profit motivator is not only the driving force behind new businesses, inventions, and innovations, but also the driving force behind markets for ownership of businesses. Without a corporation generating such profit and promising return to the shareholders, you and I wouldn’t want to own a little piece of Ford. Without your desire to own a little piece of Ford, we wouldn’t have stock markets. Without stock markets, it would be a lot harder for the young, upstart-with-a-plan to mass produce electric cars to compete with Ford, because the initial funding would require either selling your company stock directly to individuals, door-to-door, or amassing a gigantic fortune elsewhere (cough, Elon Musk, cough).
Stocks aren’t inherently evil evil. Corporations aren’t inherently evil evil. Business decisions based on supply, demand, and the bottom line are not inherently evil evil. It’s just the reduction to paper of a process that should occur in your mind every day. Invest happily, knowing that you are contributing to a mess—but the most efficient and most beneficial mess of human interaction that has ever been devised by man: capitalism. And there’s no shame in that.
Mr. Groovy here. Oh, man, did I get a CMLT reading this post. Thank you, IV. I love your analysis and couldn’t agree more. If anyone would like to explore this topic further, I strongly suggest you read Knowledge and Decisions by Thomas Sowell. You’ll discover a new-found appreciation for the decision-makers of all ranks and the tragic trade-offs they must make to advance the human condition.
Okay, groovy freedomist, I’m almost done. Before I go, I just want to alert you to my appearance on the Chain of Wealth podcast. Yes, the fabulous Denis and Katie were gracious enough to have me on their show and we had a rollicking good time. In fact, I was having such a good time with Denis and Katie, I let slip a very unsavory detail from my past. As the immortal Boon Schoenstein would say, “A new low. I’m so ashamed.” Anyway, here’s the link. Have a great weekend. Toodles.
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