I really, really hope this isn't necessary. We're currently in one of the longest (if not the longest) periods of continued economic growth in US history, and the knock-on effects from a halt to 737 production could help put an end to that. (not just from the direct hit which was estimated at of 0.6% of GDP, but the confidence hit that would cause)
EDIT: To be clear, I think the best outcome is for the 737 Max to be made safe and to fly again. If it can't be made safe, obviously cancelling production of useless planes is a good idea.
One thing, however, that bothers me lately is the pursuit shareholder value above all else. The commentary always arrives at that end (shareholder value) in order to justify the means every time a company's direction might not translate so nicely for customers: YouTube ads, Uber rate increases, Boeing cutting corners, etc.
Being a profitable company is one thing, but I can't help but watch and think, I don't feel any sense of compassion for shareholders losing a few bucks because they were impatient or made a bad investment. Of course Boeing's shareholders want <insert new Boeing thing> delivered yesterday, but the "bloody ROI"[1] can't be what drives Boeing development.
This should be easy to change. Make shareholders culpable for management failures. Balance this with an oversight structure that gives shareholders a direct influence on corporate ethics, with the power to investigate and terminate management malpractice and systemic abuse.
Of course the whole point of public share ownership is profit without responsibility. The distancing of benefit from external consequences is considered sacrosanct. So this suggestion is the the worst kind of heresy.
But why should share ownership somehow magically excuse consequences that would be considered criminal in other contexts? If management has to justify its actions to people who share the risk and the blame, it's going to pay a lot more attention to consequences.
Two additional datapoints - shares are used as part of the incentive structure for senior management, and can dwarf salary. Share gains are also taxed less.
It's a simple feedback loop. It gets pretty silly when you look at the share buyback plans many companies operate, huge sums are "invested" in the company's shares for a relatively small - a few million - return to individual management.
Pierce the corporate veil and go after the management. When there are consequences for their beancounting at the expense of human lives, maybe they'll think twice about profit over people.
If the plane isn't safe and can't be made safe then it's necessary. Also, the claim that Boeing halting 737 Max production will cause a recession seems like FUD to me.
The US's economy is projected to grow 2.1% in 2019 - reducing that by 0.6% would wipe out a major portion of that. And I am inclined to believe that number - 52 planes / month for 12 months at $100m is $62.4 billion directly, and the US economy is ~$20T - 0.6% of that is $120 billion. (so with knock-on effects, I find 0.6% a very reasonable estimate for the cancellation of a year's production. Probably not so reasonable for the 5 months left in 2019, though)
Not spending on A means more is left over to spend on B, C, D, etc. It is not a direct subtraction effect. Just like if you were hungry and the pizza joint was closed, you're still hungry and will end up eating something else.
Political concern would be the micro engineering of small towns focused on single product industries and promises made to them.
Edit: Of GDP refers to a stock. Of GDP Growth refers to a rate of change. These are different.
B, C, and D for small airliners are Airbus, Bombardier and Comac - EU, Canada and China. Yes, there will be some substitution, but it'll still hurt the US economy to lose those sales overseas.
EDIT: Also, "0.6% Of GDP growth" typically means 0.6% as relative to total GDP, not to whatever growth was expected to be. Yes it's stupid, but it's also the standard nomenclature.
And the direct quote from the article is "By one estimate, a production halt would shave about six-tenths of a percent off the gross domestic product growth rate, the financial equivalent of a prolonged government shutdown or a significant natural disaster", which clearly intends for 0.6% to be relative to GDP and not GDP growth.
Not spending on A means more is left over to spend on B, C, D,
That's not how economies work. The people who work at Boeing take home money and spend it in the local economy. That effect happens several times for each dollar taken home. Same thing happens for Boeing suppliers, they pay their people and those people spend in to the economy with a multiplier effect. This, spending money earned by workers, is how the engine of the economy is fueled when it is healthy.
Who do you think is going to be paid the dollars that Boeing workers are spending now, if they shut down?
There's more to the aerospace industry than Boeing alone. Aerospace is 1.8% of the GDP, whereas Boeing is 0.6% of the GDP. Damn impressive to be sure, but considering hundreds or thousands of lives lost are the cost to avoid a slump in that area, I'm pretty sure it's the right choice.
I don't care if Boeing gets hurt for their reckless decisions - I just worry this will pressure the FAA putting the Max back into service to protect Boeing (as they seem wont to do)
This feels more like the issue we had in the 80's, where companies would source from the lowest cost regardless. And then they paid for that in the 90's, NEC is a good example of this. The companies that can improve quality without cutting corners should be the winners. Airbus should really push on their advantage.
Boeing's 2018 revenue was ~0.5% of US GDP. Assuming that the 737 Max is a sizable percentage of that revenue, and that there's a decent GDP multiplier (Boeing pays employees who themselves spend money, etc) it could very easily be 0.6% of GDP, not of the growth rate.
Impacts to GDP growth are almost always measured relative to total GDP, not to expected growth.
Comments
I really, really hope this isn't necessary. We're currently in one of the longest (if not the longest) periods of continued economic growth in US history, and the knock-on effects from a halt to 737 production could help put an end to that. (not just from the direct hit which was estimated at of 0.6% of GDP, but the confidence hit that would cause)
EDIT: To be clear, I think the best outcome is for the 737 Max to be made safe and to fly again. If it can't be made safe, obviously cancelling production of useless planes is a good idea.
Alternatively, I’d like to see companies like Boeing feel the effects of cutting corners recklessly.
I am a sharerholder, but I think management is at fault and should be sacked with no severancee
That'd be a good start.
One thing, however, that bothers me lately is the pursuit shareholder value above all else. The commentary always arrives at that end (shareholder value) in order to justify the means every time a company's direction might not translate so nicely for customers: YouTube ads, Uber rate increases, Boeing cutting corners, etc.
Being a profitable company is one thing, but I can't help but watch and think, I don't feel any sense of compassion for shareholders losing a few bucks because they were impatient or made a bad investment. Of course Boeing's shareholders want <insert new Boeing thing> delivered yesterday, but the "bloody ROI"[1] can't be what drives Boeing development.
[1] https://www.forbes.com/sites/stevedenning/2014/03/07/why-tim...
This should be easy to change. Make shareholders culpable for management failures. Balance this with an oversight structure that gives shareholders a direct influence on corporate ethics, with the power to investigate and terminate management malpractice and systemic abuse.
Of course the whole point of public share ownership is profit without responsibility. The distancing of benefit from external consequences is considered sacrosanct. So this suggestion is the the worst kind of heresy.
But why should share ownership somehow magically excuse consequences that would be considered criminal in other contexts? If management has to justify its actions to people who share the risk and the blame, it's going to pay a lot more attention to consequences.
Two additional datapoints - shares are used as part of the incentive structure for senior management, and can dwarf salary. Share gains are also taxed less.
It's a simple feedback loop. It gets pretty silly when you look at the share buyback plans many companies operate, huge sums are "invested" in the company's shares for a relatively small - a few million - return to individual management.
Was the current leadership in charge throughout the development of the MAX?
It doesn’t matter; they allowed it to be released.
And if they've creatively made a way so that no one is responsible for sign off, that entire level of executives needs to go.
Sure.
But the question still stands, hopefully someone who actually knows the answer comes along.
Pierce the corporate veil and go after the management. When there are consequences for their beancounting at the expense of human lives, maybe they'll think twice about profit over people.
If the plane isn't safe and can't be made safe then it's necessary. Also, the claim that Boeing halting 737 Max production will cause a recession seems like FUD to me.
The US's economy is projected to grow 2.1% in 2019 - reducing that by 0.6% would wipe out a major portion of that. And I am inclined to believe that number - 52 planes / month for 12 months at $100m is $62.4 billion directly, and the US economy is ~$20T - 0.6% of that is $120 billion. (so with knock-on effects, I find 0.6% a very reasonable estimate for the cancellation of a year's production. Probably not so reasonable for the 5 months left in 2019, though)
Not spending on A means more is left over to spend on B, C, D, etc. It is not a direct subtraction effect. Just like if you were hungry and the pizza joint was closed, you're still hungry and will end up eating something else.
Political concern would be the micro engineering of small towns focused on single product industries and promises made to them.
Edit: Of GDP refers to a stock. Of GDP Growth refers to a rate of change. These are different.
B, C, and D for small airliners are Airbus, Bombardier and Comac - EU, Canada and China. Yes, there will be some substitution, but it'll still hurt the US economy to lose those sales overseas.
EDIT: Also, "0.6% Of GDP growth" typically means 0.6% as relative to total GDP, not to whatever growth was expected to be. Yes it's stupid, but it's also the standard nomenclature.
And the direct quote from the article is "By one estimate, a production halt would shave about six-tenths of a percent off the gross domestic product growth rate, the financial equivalent of a prolonged government shutdown or a significant natural disaster", which clearly intends for 0.6% to be relative to GDP and not GDP growth.
That's not how economies work. The people who work at Boeing take home money and spend it in the local economy. That effect happens several times for each dollar taken home. Same thing happens for Boeing suppliers, they pay their people and those people spend in to the economy with a multiplier effect. This, spending money earned by workers, is how the engine of the economy is fueled when it is healthy.
Who do you think is going to be paid the dollars that Boeing workers are spending now, if they shut down?
Aerospace is a sizable part of the US economy. It really isn't FUD at all.
There's more to the aerospace industry than Boeing alone. Aerospace is 1.8% of the GDP, whereas Boeing is 0.6% of the GDP. Damn impressive to be sure, but considering hundreds or thousands of lives lost are the cost to avoid a slump in that area, I'm pretty sure it's the right choice.
Oh shit, let's bail them out!
This has been recently discussed: https://mattstoller.substack.com/p/the-coming-boeing-bailout
https://news.ycombinator.com/item?id=20353342
Nationalize them.
Wait, I remember hearing this before. “Too big to fail”, more like “too big to fly!”
I don't care if Boeing gets hurt for their reckless decisions - I just worry this will pressure the FAA putting the Max back into service to protect Boeing (as they seem wont to do)
This feels more like the issue we had in the 80's, where companies would source from the lowest cost regardless. And then they paid for that in the 90's, NEC is a good example of this. The companies that can improve quality without cutting corners should be the winners. Airbus should really push on their advantage.
This is assuming that airbus isn't doing the same things that Boeing was doing....
0.6% of the growth rate, which is very different from 0.6% of GDP...
Boeing's 2018 revenue was ~0.5% of US GDP. Assuming that the 737 Max is a sizable percentage of that revenue, and that there's a decent GDP multiplier (Boeing pays employees who themselves spend money, etc) it could very easily be 0.6% of GDP, not of the growth rate.
Impacts to GDP growth are almost always measured relative to total GDP, not to expected growth.