Toyota’s CEO Makes A Disingenuous Call For Free Markets & Consumer Choice

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In a recent opinion post at the Wall Street Journal, Toyota’s North America CEO, Jack Hollis, wrote about how Trump can get EVs “back on track.” The article is paywalled, but the sub-head and the introduction paragraph tells us about all that we need to know. It’s the old “consumer choice” argument for EVs that Toyota has been pushing since working to abort the EV revolution in the late 1990s and early 2000s.

“Federal and state governments have been trying to persuade Americans to buy battery-electric vehicles using mandates and taxpayer-financed incentives,” Hollis started. “These policies aren’t working, and the sale of EVs has stalled.”

The use of the word “stalled” is vague enough that it could mean anything from stopping entirely (which would be completely untrue) to slowed down (also untrue). The real truth on the ground is that EV sales haven’t stopped or lowered. They just didn’t hit growth projections. Sales are still on the way up, just not as fast as many of us had hoped.

But this false presentation of the facts isn’t the core problem with the opinion piece. The problem is apparent a little higher up, just under the headline, where the piece is summed up thus: “Ditch the mandates and subsidies. Let consumer choice drive the market.”

So, let’s tackle this central argument.

Understanding The Free Market and “Consumer Choice”

As an old school liberal (aka “classical liberal”), I see people talk about the free market, consumer choice, and misallocation all the time. And I roll my eyes. The wisdom of the markets is very real, and allowing people and the companies they own the freedom to choose really does work. But, to understand why Hollis and his fossil fuel buddies are wrong, we have to review the basic concept of free market economics first to see if they’re actually following it.

Let’s start with the classic Milton Friedman speech about pencils:

In short, he explains that there’s no “Pencil Kommissar” who makes sure the pencils get made. Materials needed for the pencil, the tools needed to obtain those materials, the factories and facilities that process the materials into pencil components, the final assembly, the packaging, the distribution, the sales, and everything each of those things depends on — what a vast and complex system! Thousands of people from all over the planet worked together to get the pencil in your hand, but nobody played the role of conductor arranging this labor and economic symphony.

Why did they all work together to make pencils? Because the price was right. The free market allows every player in it, from the worker at the very bottom to the heads of corporations and governments, to make decisions without knowing everything. When you hear that someone wants a certain sum for a certain product, material, or for their time, that little bit of information is a signal that tells you about the rest of the market in the most distilled and brief way.

When everyone is sending and receiving these price signals, it allows everyone’s brain power to add up to something greater than the sum of its parts. We all become a collective consciousness, or as Adam Smith would say, “an invisible hand” that guides the economy. It’s an example of emergence.

Obviously, this system is imperfect. We have to put guardrails around it to keep the collective economic mind from pushing some people into slavery or indentured servitude, destroying the environment, and creating tragedies of the commons. But, we have to be careful when tinkering with these price signals. Minor changes will only have minor side effects, but major changes will have big side effects as the system responds to having the signals manipulated. When too much intervention happens in the market, we end up with misallocation, or resources that weren’t put to their most productive use in the economy.

Let’s look at two examples of overly eager regulations that seemed like a good idea at the time but failed because economic forces weren’t considered.

A great example is Prohibition. When I say “Prohibition,” I’m talking about the time that the United States decided to ban alcohol. Many bad things accompany the consumption of alcohol, including drunken violence, drunken driving, people who become unproductive, and people who drink themselves literally to death. But banning the stuff didn’t eliminate it from the surface of the planet. It just caused the price to go up. Black markets emerged to provide the drinks, so the problems associated with it didn’t go away, but the black markets created new problems, like gangsters shooting at each other in the street with .45-caliber submachine guns.

Today, we’re seeing the same thing with the “War on Drugs.” Again, substances were banned. Again, black markets emerged to provide the stuff. The harder the enforcement got, the harder the drugs got (the Iron Law of Prohibition) because making drugs smaller is better for smuggling. The result has been not only the violence of 1920s prohibition, but increasingly dangerous drugs like fentanyl emerging to respond to the price signals government officials unwittingly sent.

These are two extreme examples, but the basic idea that government intervention can cause chaos in the markets and on the streets is well supported. We don’t live in a world where governments can go completely hands off, largely because there are other governments that would still manipulate and use the market against us.

Basically, manipulating to the minimum extent necessary makes sense.

Hollis Isn’t Really Defending This Principle At All

Hollis is appealing to this concept to justify a call for eliminating EV subsidies. With the above in mind, he’s claiming that governments are mucking up the price signal system when they introduce EV tax credits (including point-of-sale subsidies), guarantee loans for clean technology companies, and require companies to meet efficiency standards or make a certain percentage of vehicles be EVs. He’s saying that EV sales have “stalled” because government is playing with a system it doesn’t understand and couldn’t achieve the goal of selling more EVs.

Early in this article, I explained that the second part of this article is false because it relies on a falsehood. EV sales are still on the rise and don’t meet most people’s definitions of “stalled,” so the idea that governments didn’t get what they wanted is weak to completely false.

But, the first part of the argument, that we’d set the invisible hand free and let it do its best work by ending EV subsidies and mandates, fails when you consider more context. He’s right that subsidies and mandates manipulate price signals, but he very conveniently fails to mention that the current system that consumers choose isn’t one free from this kind of interference. Oil companies get special treatment from the government, including:

• Extra tax write-offs
• Cheap leasing and access to public lands
• Limited responsibility to clean up after themselves
• The ability to escape liability when they harm property owners
• Free access to transportation infrastructure at the expense of local taxpayers, who then face dangerous conditions they can’t afford to remedy
• No requirement to mitigate negative externalities (pollution, climate change, etc.)
• A customer base that receives generous subsidies (LIHEAP, lower sales taxes on some fuels, multi-tiered pricing for residential electricity, and much more)

Ultimately, these subsidies and manipulations disrupt and change price signals a lot more than anything that’s being done for EVs. If anything, the EV subsidies are designed to partially cancel out some of the fossil fuel subsidies to encourage people to change over without spiking fossil fuel prices and causing unrest.

To bring up EV subsidies without also calling for an end to the far larger set of subsidies fossil fuels get is disingenuous at best and blatantly dishonest at worst.

Featured image by Kyle Field, CleanTechnica.