Monday, April 25, 2005

All I Ever Needed To Know I Learned From Watching Prices

I just finished watching an episode of Penn & Teller’s Bullshit of which they debunk the myth that recycling is good for the planet. The reality is it takes more resources (time, energy and so on) to recycle trash than to simply throw it away and make stuff from scratch. I’m not sure if P&T realize it or not, but they offered two pieces of evidence that alone demonstrates this truth.

This first one is as follows: It costs $50-$60 a ton to throw garbage away in a landfill. It costs $150 a ton to recycle it.

Prices are determined by supply and demand. If an input has a high demand and/or a low supply (compared to alternatives), its price will be higher. But we don’t care about just one input (like energy costs or landfill space); we care about all of them. The price for a good captures all the scarcity of the inputs for that good. The higher the price, the scarcer the inputs as a whole are, and the more society looses when the good is produced. (This only works if inputs come from privately-held property, and for the purposes of the topic, this holds true.)

Note that if one input becomes scarcer, the overall price increases (all things held equal). If it becomes dangerously scarce, the price will increase a lot. Thus when environmentalists say we are incredibly low on landfill space, we know they are lying. If it were true, the price of throwing away garbage would skyrocket beyond recycling. It has never done that.

The second bit of evidence involves the other side of recycling: material creation (as opposed to disposal). It costs more to create resources from recycled inputs than from virgin inputs (except for aluminum cans).

Again, this difference in price tells us all that we need to know. The key distinction between recycled products and virgin products is the origin of the core material (such as trees versus paper to make paper). Since the other factors of price are so similar, comparing prices is the same as comparing the costs of each strategy to society as a whole. If one of these valued virgin inputs becomes dangerously scarce, the price will reveal that by becoming more expensive than recycling.

The main input for paper, for example, are trees (the vast majority of which are grown on private land just so they can be turned into paper). If trees were as scarce as environmentalists claim they are, then the price would be so high it would be cheaper to recycle newspaper. The same goes for just about anything else.

Aluminum, on the other hand, is comparatively more expensive to extract and manufacture, which is why recycling those cans isn’t only cheap, it nets a profit. It’s not a coincidence that this is the only aspect of the recycling phenomenon that didn’t need some of the eight billion dollars of subsides that recycling programs require every year to stay afloat.

Recycling isn’t profitable, thus it doesn’t add anything to the economy or to the environment.


Sunni said...

Good stuff, David -- but that truth is a very hard sell, especially in Europe (based on what I've seen in news coverage of attempts to educate Europeans on this issue).

I watched just a few episodes of Bullshit! ... maybe it took them a while to warm up, but I found the program overly repetitive, and sometimes engaging in the same hyperbole they like to point out in their targets.

Hamel said...

I'd argue that economics are not the only indicator of the true cost of things. It's like telling someone that not paying their taxes will save them money. And while you're at it, why change your oil? It's long term vs. short term. We need to think of both.

David said...

I wouldn't call it repetitive--they cover a wide range of topics--but I agree that some of their hyperboles get rather annoying (not to mention Penn's yelling). I can't watch a lot of it at once.

Europe is a rather silly continent. They love boasting their "worker rights" laws (live time off and minimum pay and so on) but quietly ignore their 20% unemployment, or at least refuse to acknowledge the two are linked.

Well, telling people not paying their taxes will save money (assuming they don't get caught) is true and of course not everything is captured through prices discovered in a culture of private property (I don't think we could ever assign a dollar amount to human life) but they relay more info than you think.

Let's take your example: why change your oil. Well, from what I understand, oil (of this type) lubricates your car parts, lessening the wear and tear they experience from grinding together. It also absorbs nasty byproducts of combustion. Not changing your oil can lead cause your engine to wear out rather quickly.

The cost of regular changes is rather cheap ($10-20 ever 5000 miles). The cost of not doing it is rather expensive (several thousand dollars, not to mention labor). Because everyone thinks and considers the future (at least more often than not), lots of people get oil changes. If engine blocks costed, say, $10, very few people would change their oil.

Time is definately factored into price for the very reason that it's so important. Because it's important, its one of those things (including quality and quantity) that people consider when determining the value of a good. (Note sometimes time is embodied in quality--how long will this last--while other times it manifests separeately--when will I get it--but it's always a factor.)

Sunni said...

David, I meant that within a given show, the rhetoric tends to be repetitive. I must've repressed the yelling -- I can't stand to be yelled at.

Hamel, I'm not sure I understand your first sentence ... it makes more sense if I substitute "price" for "economics", but that makes the assertion wrong. Every exchange is rooted in economics -- many individuals seem too fixated on money to recognize that; and some refuse to acknowledge that such things as friendship and love are economic exchanges -- giving value and getting value.