Tuesday, June 5, 2012

See my question to the author of "Garbology: Our Dirty Love Affair with Trash" and his response. His answer was more than I could hope for!

At the Freakonmics blog they asked people to submit questions for Edward Humes the author of Garbology: Our Dirty Love Affair with Trash.  Go here to see all the questions and his answers.  My question was one of many he answered (I edited my question here to correct for bad grammar in the original question):

Q. In your opinion, what (if anything) do we recycle now that after all the costs and benefits are weighed we would be better off just putting in a landfill and be done with it? -Gene Hayward 

A. Your question turns reality on its head. We don’t recycle anything where the costs outweigh the immediate profitability of the reclaimed material — that’s the problem! The manufacturers of wasteful products get a free ride — the cost of the waste they create is born by taxpayers and consumers (junk mailers are the obvious example here, subsidized at every turn, yet freed of having to deal with the tidal wave of waste they create). If the makers of wasteful products had to share in the costs of cleaning and recycling the waste they create, they would begin to make less wasteful products, and the economics of recycling would shift in a more favorable direction. 

Meanwhile, I would argue that we are putting things in landfills that should not be there, such as:

  • Items that are still useful, such as furniture, construction materials, clothing, all sorts of durable and still useful intact products. You’d be shocked if you spent time at a landfill, as I did to write Garbology, or see the masterpieces produced by the artists in residence at San Francisco’s dump, who find treasures every day in the trash.
    • Immense amounts of edible food that could have gone to food banks, and food scraps that could be composted
    • Plastics and paper that could be recycled or used as fuel in waste-to-energy plants.
His answer to my question helps explain an important AP Microeconomic concept---"Negative Externalies".  Negative Externalities occur when the production of a good imposes an explicit (regardless of how remote) cost on a third party that the producer and/or consumer of the good DONT pay for in the market price charged for the good. 

He uses the example of junk mail.  When businesses have junk mail printed up and mailed they are only paying for the productive resources and profit that go into making the mailer (land/natural resources, labor, capital and entrepreneurship) and the postage paid to send it out.  Once it hits my maibox, they are done with it.

The costs of the junk mail have stopped for the producer and consumer BUT have they stopped for "society" (the Third Parties in our story)? No!

Worst case scenario, the paper goes into the trash and to the landfill.  Are there costs associated with this? Yes! Who pays those costs? We can start a list BUT we know for sure it is not the producer of the mailer or even the business that sent it out--they are no where to be found at this point!

Humes suggests that the total cost of the mailer from creation to destruction/disposal should be borne by the producer and consumer--the two most interested parties to the transaction. In other words, the negative external costs created by junk mail need to be internalized (included in the market price) between the producer and consumer. 

One way to internalize (between producer and consumer) this external cost is to impose a tax equal to the cost of disposing junk mail. So the true cost of the mailer will include the cost of the private resources used AND the compensation for the social costs imposed on society by the mailer.

What do you think. Would a tax be beneficial? Detrimental? Can you think of other third parties who would benefit and ones that would be hurt?

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