WoFs, frogs, and broken windows

Published in Insights, The New Zealand Initiative’s newsletter, 1 February 2013

Broken windows and Warrant of Fitness (WoF) checks have more in common than first meets the eye. And no, we’re not talking about cracked windscreens.

In reducing the intervals between WoF inspections, the government calculated that switching to yearly checks for cars older than three years would save NZ motorists $159 million a year. The Motor Trade Association (MTA) quickly hit back claiming this would lead to 2,000 job losses in the industry.

If that were true, each vehicle testing inspector job would actually cost $79,500 per year – way more than roadworthiness inspectors actually earn. Their median hourly wage is only $22.

But even if the MTA’s job losses figure was correct, it would still not be a good argument for keeping WoF inspections at their current six-monthly intervals. And this is where the broken windows analogy comes into play.

The great nineteenth century economist Frédéric Bastiat nicely described the fallacy behind government-mandated ‘job creation schemes’ in his famous essay Ce qu’on voit et ce qu’on ne voit pas – ‘That Which is Seen, and That Which is Not Seen’.

In Bastiat’s story, a shopkeeper’s window is broken by accident. This forces the shopkeeper to pay a glazier to install a new window. Some of the spectators try to console him by pointing out that his misfortune was serving a purpose: keeping glaziers employed.

This employment effect is clearly visible. What is not visible, however, is what the shopkeeper would have done with his money if he did not have to repair the damaged window. Maybe he would have had his shoes repaired or bought a book.

In the end, the shopkeeper’s money would have been spent on other things – creating employment elsewhere – and he would still have had an intact shop window.

The WoF’s alleged employment effects are the same as in Bastiat’s parable. If motorists save $159 million a year by not having their cars inspected every six months, they can spend that money on other things – and create other jobs. Since the average salary in New Zealand is around $48,000, this would create more jobs than the MTA claims will be lost in the vehicle testing industry.

To understand how ludicrous the MTA’s jobs argument is, imagine the public outcry if for the sake of creating jobs the WoF frequency was increased to every three months.

The purpose of vehicle testing is safety – not creating employment. But as one of my favourite German proverbs goes: “If you want to drain a pond, you shouldn’t ask the frogs for permission.”