The Distortionary Effects of Taxes and Regulations

Several times a month, Transit Connect vans from a Ford Motor Co. factory in Turkey roll off a ship here shiny and new, rear side windows gleaming, back seats firmly bolted to the floor. Their first stop in America is a low-slung, brick warehouse in Baltimore where those same windows, never squeegeed at a gas station, and seats, never touched by human backsides, are promptly ripped out. The fabric is shredded, the steel parts are broken down, and everything is sent off along with the glass to be recycled.

Workers cut out the rubber window seal with a special knife and popped out the glass using suction cups. The space is plugged with a metal panel that cures for 15 minutes before being tested outside for waterproofing. Another worker unhooked a rear seat belt as easily as he would pop the top off a soda bottle. Using a drill, he quickly unscrewed six bolts to free the seats. Workers at the other end dump the seats into cardboard boxes, which are hoisted onto an open tractor-trailer and shipped to Ohio. Ford says the shredded seat fabric and foam become landfill cover, while the steel is processed for other uses.

Reason? Find out here in the WSJ article "To Outfox the Chicken Tax, Ford Strips Its Own Vans," although you probably guess that it has nothing to do with economics and everything to do with politics. Thanks to Michael Kelly.

MP: This story perfectly illustrates why taxes and regulations are almost always distortionary: because people and companies can change their behavior to avoid or circumvent them. Other examples include free food on airlines to circumvent ticket price-fixing by the government, employer-sponsored health insurance to circumvent price/wage controls during WWII, free "stuff" (toasters, etc.) at banks in the 1960s and 1970s to avoid interest rate controls, etc.

Update: As Greg Mankiw points out, this story also illustrates the "deadweight loss" (loss of economic efficiency) of a tariff.