The use of the word ‘price’ in the title of this post is about “free markets and environmentalism” and also the use of the word price as a substitute of cost.

Bryan Caplan links to Micheal Munger who writes about the economics of recycling. As with free market economists, Munger tries to understand the need for recycling and the best way to recycle from the point of view of markets and prices and in the end, the value of recycling.

…does it make more sense for (a) a few workers, and specialized equipment, to separate waste streams, or for (b) all the rest of us, with far more valuable uses of our time, to spend time, gas, and effort separating “recyclable” materials and feeling good about ourselves by putting them in little separate slots in some expensive facility dedicated to this purpose?

Trick question! The answer is: Neither. It makes no sense for either the waste worker, or the homeowner, to separate waste streams, because the price system is telling us this is an inefficient and wasteful activity. If recycling were efficient, someone would pay you to do it. Disguising the costs by forcing citizens to do the labor, instead of paid government employees, changes nothing. It just reduces the explicit budget of the recycling program, and raises implicit taxes on the people.

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There is a simple test for determining whether something is a resource (something valuable) or just garbage (something you want to dispose of at the lowest possible cost, including costs to the environment). If someone will pay you for the item, it’s a resource. Or, if you can use the item to make something else people want, and do it at lower price or higher quality than you could without that item, then the item is also a resource. But if you have to pay someone to take the item away, or if other things made with that item cost more or have lower quality, then the item is garbage.

If yard waste were a resource, then trucks would drive up and down streets in your neighborhood, bidding up the price of your bagged grass clippings. That doesn’t happen. Ipso facto, yard waste is garbage. No amount of wishful thinking, or worship of nature as a goddess, can change this basic calculus.

It’s can be easy to say that price is not everything. But consider the information encapsulated in the price. The collection of rubbish, the sorting and categorization, transportation, recycling into something valuable that a market will buy and the opportunity cost of doing this against say creating something from scratch.

Munger gives the example of recycling glass bottles.

The difference between cullet (glass ground up by machines, using electricity) and sand (rocks ground up by nature) is clear: most cullet is full of additives, contaminants, and impurities. These contaminants are trapped in the cullet, inert and harmless. But if someone melts the cullet, an important step for making new glass, the contaminants can become toxic releases into the atmosphere, water, or soil. The impurities introduced by even small amounts of merged colors or types of glass in waste streams make mixed cullet nearly useless.

Sand, by contrast, is cheap and can be made into glass without extra steps, extra expense, or extra danger to the environment.

So why do we recycle glass? Why is it against the law, in many cities and counties, to dispose of glass as garbage? The fact that glass made from cullet is much more expensive than glass made from sand should be a hint that recycling uses more resources and more energy. (Emphasis in original)

According to the waste mantra, its reduce, reuse and then recycle. Economic incentives should be directed towards reduction than recycling. Jane Shaw’s introduction to the economics of recycling in EconLib has more.

A major deterrent to recycling is that the prices of local garbage disposal rarely reflect the actual cost of disposal. Most collection systems are controlled or owned by governments, which assess a flat sum for garbage collection, sometimes as part of municipal taxes. The trash collector picks up whatever waste people leave at the curb, and people are not rewarded for discarding only a small amount or penalized for discarding a lot. Thus, they have no incentive to reduce their waste. In contrast, privately owned systems, operating without municipal price regulation, would have to accurately price garbage disposal to stay profitable. Accurate pricing—that is, high prices for people who generate more waste—would encourage people to reduce their waste.

This was an interesting discussion of recycling and shows that economic principles will work  if applied correctly. Do check out both the articles.