Daniel Fisher – not otherwise known to me – writes for Forbes, covering “finance, the law, and how the two interact.†Naturally, given where he works, he hates plaintiffs’ lawyers, which is his right and privilege in this great and free country of ours. So his first reaction to the VW emissions-cheating scandal was to criticize - not VW - but a class-action law firm threatening to sue VW on behalf of consumers.
His point is that the buyers of the supposedly-clean-but-actually-filthy-dirty VW diesels weren’t in any direct sense harmed by VW’s fraud. By disabling pollution controls except when the car was being tested, VW managed to pack more performance and fuel economy into a car than it could have done while also actually meeting the emissions targets. So when VW issues a recall notice it will in effect be asking consumers to trade their existing car for one that performs worse and gets lower miles-per-gallon. So, he says, except for a few Marin County cranks, they’re mostly going to ignore the recall.
Therefore, the plaintiffs’ lawyers are being silly again.
Tort reform, tort reform, sis, boom, bah!
Now, I don’t know what it is you need to know to be a Certified Financial Analyst - that’s the credential Fisher claims – but apparently it isn’t logic or economics.
Of course an individual car buyer isn’t directly harmed by driving a car that pollutes a lot, unless that buyer is burdened with a conscience (problem that does not seem to afflict Mr. Fisher). That’s the reason we have pollution-control laws: to prevent the selfishly rational behavior of each of us from poisoning the air for all of us. So the direct victims of VW’s fraud weren’t the buyers, but the people breathing the air.
Now, the buyers may still wind up with a problem if they live in states that do smog checks, because their cars won’t pass. And of course if they do respond to the recall, they will wind up with worse-performing, lower-mileage cars than the ones they were sold. So in fact the law firm Mr. Fisher makes fun of has a perfectly good cause of action on behalf of the class it no doubt hopes to assemble.
But even if that weren’t true, it would still be true that VW managers had committed a rather horrible set of crimes. Since they apparently also don’t teach chemistry or biology in CFA school, Fisher offers an ignorant sneer about the health effects of what VW did: “The Volkswagen defeat software is hardly deadly, unless one thinks the marginal nitrogen oxide it allowed into the atmosphere was enough to kill innocent bystanders.â€
Well, actually, “deadly†is precisely the correct word. Increasing NOx increases particulate emissions, and particulates kill. (As far as I know, innocent lungs react about as badly to PM10 as guilty lungs.)
It’s hard to say precisely how many people have died or will die as a result of VW’s crimes. You’d have to know where the excess emissions took place and what other pollutants were in the air. The environmental-epidemiology models have lots of non-linearities, so you can’t just multiply total excess deaths due to particulate (about 140,000 a year at the most recent estimate) by the contribution of the excess pollution from those half-million VWs to the overall particulate burden (probably some fraction of 1%) to estimate excess deaths. Still, according to one expert I talked to, somewhere between 50 and 150 deaths per year (times six years) seems like a good first approximation, well above any single mass-murder incident in the U.S. save 9/11. Even the much lower estimate Brad Plumer came up with (5-27 excess deaths per year) would dwarf the nine known deaths from samonella-infected peanuts for which the CEO of the Peanut Corporation of America just drew a 28-year sentence. Kevin Drum, using a different approach, guesstimates about a dozen deaths (over six years) in Southern California alone, roughly consistent with the Plumer figures.
But of course those are statistical deaths, which don’t feel as “real†as identified deaths. You can’t point to a specific case where someone died of COPD (which, let us note, is among the very bad ways to die) and say “George Jones died of VW’s illegal air pollution.â€
By contrast, when GM let cars stay on  the road with known-to-be-defective ignition switches, there were specific wrecks with specific corpses inside them. That may well matter in a courtroom. But it shouldn’t matter in conscience or in policy. Both at GM and at VW, executives decided to kill a bunch of anonymous strangers for money, just like Harry Lime in The Third Man.
That’s not as bad as an ordinary murder, where the killer picks out a specific victim, because being personally singled out to be killed is somehow worse than dying as a mere statistical side-effect of someone’s money-making efforts. But in both the GM case and the VW case, people wound up dead (or injured, or sick) because a company decided it was more advantageous to let them die. In the GM case, the company’s culpability was mostly passive: the company made a design or manufacturing mistake and then didn’t disclose it or act promptly or adequately to fix it. What VW did was much worse: the “defeat software†wasn’t a defect, but a deliberate decision to break the law with the predictable consequence of killing substantial numbers of people, probably twice as many as died of GM’s malfeasance. I don’t think you need to live in Marin County to find that objectionable.
I’ve seen some comparisons between VW’s actions in this case and the actions of food-company executives whose strategies promote bad eating habits. Those people, too, kill strangers for money, and their culpability shouldn’t be minimized. But there are two huge differences between the cases. First, people who eat at McDonald’s choose to eat at McDonald’s, while VW’s victims didn’t have the option of not breathing. Yes, tempting someone into self-damaging actions is very wicked, but it’s not on a par with damaging someone without that person’s consent. Second, it is – perhaps regrettably – the case that what McDonald’s does is legal, and it’s certainly open. By contrast, VW acted illegally and surreptitiously. That matters.
I’m still puzzled about how it came about that a bunch of well-educated, well-paid people at VW were able to live with themselves while engaging in what amounted to a conspiracy to commit mass murder. We know that GM and Toyota got caught playing similar games a few years ago, and apparently the buzz in the automotive world is that “everyone†was doing it; BMW has already been singled out for attention, and it seems that VW’s European operations were involved a well as its U.S. operations.
Reading the Fisher essay may provide some clues to the nature of the moral universe in which all these people live. And the essay itself helps constitute that moral universe. It calls VW’s decision to cheat “ethically questionable.†That’s a very nice way of saying “murderous.†And of course all the “Business Good! Government Bad!” chanting from Republicans and their tame media outlets and think tanks also contributes.  As Paul Krugman points out, the scandal makes a nice counterpoint to Jeb Bush’s latest “anti-regulation” rant.
That’s why it’s so important that VW not be allowed to settle this case for civil penalties, even heavy ones. There need to be criminal charges, against the company as an entity and against the individuals involved: not just the people who made the decisions and did the design work but everyone who participated in keeping it quiet. (The technical term is “conspiracy.”)
It may well turn out that the higher-ups managed to protect their deniability. If so, relatively low-level folks will mostly wind up taking the fall. At some level, of course, that’s unjust.  Still, it’s worth establishing the principle that when you break the law in a way that kills people you do time for it, even if you break the law in an office rather than on a street-corner, and even if there were other, more culpable, people who can’t be convicted because they didn’t leave a paper trail.
And of course it’s always possible that one or more of the lower-downs, facing hard time, will suddenly remember the actions of one or more of the higher-ups. In drug and organized crime enforcement, that’s called “working up the chain;” it’s how Archie Cox finally got to Richard Nixon.
If the result of the case is that VW disappears as a corporation, lots of innocent people will be hurt; those costs can’t be simply ignored. But lots of innocent people get hurt every time a bad business decision brings a firm down. At some point we need to convince managers that breaking the law in ways that kill people is a very bad business decision.
Update Tyler Cowen also feels compelled to demonstrate his contrarian cleverness by arguing that deliberately breaking the law, leading to predictable deaths,  is really no biggie. He pretends that there’s no morally significant difference between corporate executives designing cars to fool emissions tests and a car owner slipping a smogging station $20 for a “pass” result.
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Mark-The passage "As Paul Krugman points out" links not to PK, but to a Brad Plummer Vox article. I assume that you wanted to link to PK's column in this AM's NYT.
BTW, you may want to point to this Jeb! Tweet: http://bit.ly/1gVFixr I think that he may have set a record for the total number of horribly bad policy positions that one can advocate in 140 characters or less.
Thanks. Fixed.
Couple of side bar comments:
…and apparently the buzz in the automotive world is that “everyone” was doing it…
Anybody who thinks Mr. Cook and Apple can't disrupt the automobile industry clearly isn't paying attention to the automobile industry. It seems designed more by cads than CAD. Smart elegant design? The auto industry is retrogressive: low hanging fruit. The whole damn kit: from CEOs to Dealers to Mechanics you can't trust. It's a moral atrocity.
Apple can and will seize the wheel and make a ton of money doing so…
As Paul Krugman points out, the scandal makes a nice counterpoint with Jeb Bush’s latest “anti-regulation” rant.
Another nice counterpoint: https://www.newscientist.com/article/dn27867-cod-…
Of course there are many others. And of course there are also many cases of over-regulation. But you don't win an argument for smart regulation unless you have plenty of examples to draw from. I suspect Mrs. Clinton will be well-armed that way come the big time debates with Jeb!
Fisher's reaction is so typical for many economic libertarians that I've met. They can't really dismiss environmental problems altogether, so instead they diminish and minimize - "Oh, it's just some marginal emissions/a small amount of forest land/a little pollution into the river! What's the harm? And do you really want to hurt an important company that employs thousands over it over a little bit of dirty air?"
Yeah, in grad school in the late 80s, the rare self-decribed Libetarian was dismissed as "oh, you mean a NORTHERN racist?", or "yeah, you mean a Republican who smokes dope and has pre-marital sex". It was simply what the same old Strom Thurmond/Jesse Helms types called themselves in a well-educated demographic. But now that the Galt fetishists run the planet, it's increasingly annoying to hear these self-anointed "deep thinkers" bloviate with their three dollar words saying the same halfwit TeaParty Christian jihadist bullshit, just in a more convoluted fashion. As they said about Newt Gingrich, he's how stupid people think a smart person would sound. But here's what kills me about these Randian homesteaders on ethical and logical quicksand: not a one of them has ever learned the word "externality".
Mark is too easy on both VW and GM in this paragraph:
"That’s not as bad as an ordinary murder, where the killer picks out a specific victim, because being personally singled out to be killed is somehow worse than being a random victim. But in both the GM case and the VW case, people wound up dead (or injured, or sick) through the choice of someone else. In the GM case, the company’s culpability was mostly passive: it made a design or manufacturing mistake and then didn’t disclose it or act promptly or adequately to fix it. What VW did was much worse: the 'defeat software' wasn’t a defect, but a deliberate decision to break the law with the predictable consequence of killing hundreds of people, at least twice as many as died of GM’s malfeasance. I don’t think you need to live in Marin County to find that objectionable."
The pertinent question is whether VW or GM knew that people would die as a result of their actions. If they did, then they are as culpable as an ordinary murderer, despite not having picked out a specific victim or having acted "passively" in deciding not to disclose their mistake. They are comparable to a person who randomly fires a machine gun in a crowd.
If the hacks of the plutocracy complain about class actions, imagine the fits when the EPA fine and Californian criminal prosecutions get going.
"Increasing NOx increases particulate emissions." No. Separate pollutants, separate pathways. This British government estimate therefore splits NOx and particulate deaths. The NOx research is recent; VW may have a defence that when they wrote the software the risk was not known, or thought to be minimal. I've not seen anything to suggest that particulate emissions were affected at all, but may well be wrong.
Hey, I tried my hand at a death estimate too on this blog!
I'm surprised that keeping the old software is even an option for owners. Surely the corrective update can be made compulsory? At least in US states run by human beings. The monetary damage to purchasers of VW diesel cars includes the fall in their second-hand value, as they are now less nippy and economical, and the brand is now damaged.
The tricky issue for me is whether bankrupting VW is desirable (it’s clearly infeasible). There were good comments on your earlier post and mine. I reckon that criminal prosecutions, plus the in-house purge that is presumably going on in Wolfsburg, would send the message to the mid-level engineers and marketing people. The question is how much of a hit the negligent shareholders should take: in my current humble opinion, a large but not bankrupting one, several years of profits (ca. $10bn pa). Incidentally, the scandal is a failure of the German co-management model of corporate governance: the Supervisory Board is supposed to reflect the range of stakeholder interests, and signally failed to do so.
One of the ICCT engineers who uncovered this seems to be telling every news shop that will listen that people should be checking other automakers for the same problem. VW’s behavior is so appalling and frankly stupid (destroy a company to sell a few diesels? It’s not even their biggest product line) that it’s hard to understand what they could have possibly been thinking. The general amorality of corporate culture may be part of it. But I wonder if there was a bit of “everybody else is doing it” going on here too. (BMW must be pretty happy that their car passed.)
Mark: "Update Tyler Cowen also feels compelled to demonstrate his contrarian cleverness by arguing that deliberately breaking the law, leading to predictable deaths, is really no biggie. He pretends that there’s no morally significant difference between corporate executives designing cars to fool emissions tests and a car owner slipping a smogging station $20 for a “pass” result."
I've gotten in trouble over on Crooked Timber for this, but I'll say it anyway - Cowen has loooooooooooong since passed the line where he should be regarded as a Koch-funded propagandist first, and an economics professor only a distant second.
As for the original Forbes article, Mark - to paraphrase a movie, 'Forget it, Mark - it's Forbes'.
Perfect movie reference. The sociopathic black marketeer Harry Lime is played by Orson Welles and his moral American friend Holly Martins by Joseph Cotten. As they ride in a Ferris wheel far above the people of Vienna, this exchange occurs:
Martins: Have you ever seen any of your victims?
Harry: You know, I never feel comfortable on these sort of things. Victims? Don't be melodramatic. [gestures to people far below] Tell me. Would you really feel any pity if one of those dots stopped moving forever? If I offered you twenty thousand pounds for every dot that stopped, would you really, old man, tell me to keep my money, or would you calculate how many dots you could afford to spare? Free of income tax, old man. Free of income tax - the only way you can save money nowadays.
Clip: https://vimeo.com/76843899 . 2 minutes in.
Ok. This may be an extremely stupid question, but how do we know that this was illegal? Many regulations of this type in the electronics/telecommunications field are overspecified and everybody knows the tests (and they cheat in similar fashions if not so explicitly and in such wholesale fashion). If the regulation was written to state that an engine will pass the following test then that's what would be built. Unless there was an explicit prohibition in switching modes or a requirement that the test mode be comparable to driving mode then the engineers may have just seen it as a game. So I'm not defending the amorality of this, but the question of conspiracy is harder to prove if it may not be illegal except under the EPA's theory. And if it wasn't obviously illegal, then what is the moral obligation of the worker to trade-off their livelihood for exposing the fraud.
A drug company submits a real pharmaceutical to the FDA for tests, but on the production line replaces it with sugar. Are you saying that might be legal?
No but for the longest time drug companies submitted favorable test results to the FDA and buried forever unfavorable results.
The question of whether the practice was illegal will be determined in court. No doubt the lawyers defending VW employees will make this technical argument as part of their case.
Actually not getting the answer here, I found the relevant EPA guidelines that indicated software control of engine parameters in test mode is a defeat device. I don't know if this has ever been tested in court, but that has been the guidance for years (the first hit on google came from 1998 and directly addressed this question - so yeah, I should have just googled it).
Yeah, the problem is that VW was prepared for the typical post-2001 emissions “test” in which the computer sensor is hooked up to the car’s computer port, but not prepared for the good old-fashioned “tailpipe wand” brand of testing. This was ultimately how the scheme was discovered. It is most definitely illegal, because the car companies are supposed to adhere to pollution particulate guidelines, and also because specifically installing something to beat the test without actually physically meeting those guidelines is against the law.
I agree. Jail time for real people - not Scalia's corporation people is the only answer. "Acceptable risk" is something that lawyers and finance execs can price and management can decide if the costs are worth the benefits - to them and shareholders. That's in part because they're playing with other people's lives and - to a large extent - other people's money. It's also easier to justify anti-social behavior in an organization with distributed decision making and a culture that elevates shareholder value to be the highest corporate purpose. It's more amoral than immoral behavior. Hard time stands this situation on its head.
NOBODY wants to go to prison. If management believes the threat is credible, they will do what it takes to put out safe products. If they don't take the threat seriously, safety will often take a back seat to profits.
No, the law refers to tailpipe emissions of NOX pollutants, defined with extreme precision (parts per billion, PBM) and not to passing a some test. In the VW case, a court would have little difficulty in establishing mens rea since there is actual evidence – for instance, the VW President immediately made an admissible admission.