DOES RECYCLING WASTE RESOURCES?

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DOES RECYCLING WASTE RESOURCES?

• W. Robert Reed
• Department of Economics
• University of Oklahoma

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My Main Point

• When recycling loses money
• it wastes resources and makes society worse off.

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Therefore

• Government should not subsidize recycling
  efforts.
• Public interest advertising that encourages
  unprofitable recycling lowers societys welfare.

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A Little Background

• Professor Reed wrote a column on recycling
  entitled Recycling Does More Harm Than Good
  that appeared in the Oklahoma Daily, March 26,
  1999.

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Responses to Prof. Reeds Column

• Robert Reed has over-simplified the issue of
  recycling to an economic issue. This
  conservative writer is very naïve and only seems
  to care about production and profits.
• Dr. Reeds point that recycling wastes
  resources or denies more good for society is
  absurd.
• W. Robert Reeds column on the evils of
  recycling troubled me. His idea that recycling
  is harmful because it costs more money grossly
  misses the point.
• Professor Anex wrote a response entitled
  Recycling Equals Smart Economics that was
  published in the Oklahoma Daily, April 9, 1999

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Prof. Anexs Counter Argument

• it is much less expensive to use recycled
  aluminum and cardboard than to tear the tops off
  of mountains in Jamaica for Bauxite or grow trees
  for wood pulp.
• Recycled materials are so valuable that they are
  traded on the Chicago Board of Trade.
• Manufacturing firms such as Lucent Technologies
  have implemented extensive internal recycling
  programs because they reduce costs.

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The Main Point Restated

• When recycling loses money
• it wastes resources and makes society worse off.

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Definition of a Resource

• A resource is anything that has the potential to
  contribute to societys well-being.

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A Happiness Test

• Question How could we tell what would make you
  happier? Having a new pair of Nike athletic
  shoes? Or having a new pair of Old Navy jeans?
• Answer By observing how much money you are
  willing to pay for these items.

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Another Happiness Test

• Question How could we tell what would make
  SOCIETY happier? Having one more pair of Nike
  athletic shoes? Or having one more pair of Old
  Navy jeans?
• Answer By observing how much money SOCIETY is
  willing to pay for these items.

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Prices and Information

• The price of a good tells us how much society is
  willing to pay for it.
• Given certain assumptions, the price of a good
  measures the approximate contribution of that
  good to societys happiness.
• We will discuss these assumptions later.
• Thus, the fact that PT-BONE STEAK gt PMcDONALDS
  HAMBURGER tells us
• The fact that PBMW 528 gt PFORD ESCORT tells us
• The fact that PHOME CLOSE TO CAMPUS gt PHOME AWAY
  FROM CAMPUS tells us

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The Application to Recycling

• Professor Anex It takes resources to recycle
  resources
• Question Are the resources used up in
  recycling more or less valuable than the
  resources that recycling saves?
• Answer Thats exactly what prices tell us!

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The Profit Table
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The Profit Table Applied to RecyclingRecycling
Paper at UCLA
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Interpretation

• Recycling paper at UCLA lowered societys
  welfare.
• That is, the resources destroyed in recycling
  paper (labor, energy, machines) were more
  valuable to society than the resources saved.
• In other words, UCLAs recycling program
  wasted societys resources.

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Using the Profit Table to Evaluate Recycling
Arguments I

• The revenue from recycling doesnt offset any of
  the costs of recycling, because right now the
  market price for materials is at an all-time low.
  We are in an over-supply situation. The market
  is saturated, and prices are sinking.-Carl
  Hultberg, NYU recycling coordinator.

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Case Study I The Price of Recycled Paper is Low
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Using the Profit Table to Evaluate Recycling
Arguments II

• Our goal is not to make money. We are trying to
  reduce the amount of trash that is taken to
  landfills, regardless of the cost.-E.J. Kirby,
  Recycling Director, UCLA

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Case Study II Recycling to Save Scarce Landfill
Space
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Using the Profit Table to Evaluate Recycling
Arguments III

• We need to recycle paper in order to save
  Americas valuable timber resources.

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Case Study III Recycling to Save Scarce Trees
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Sufficient but Not Necessary Assumptions

• Social Welfare Function Utilitarianism with
  Constant Marginal Utility of Income Across
  Individuals.
• Louis Kaplow, A Fundamental Objection to Tax
  Equity Norms A Call for Utilitarianism,
  National Tax Journal Vol. 48, No. 4 (December
  1995) 497-514.
• Prices are market-generated prices.
• Relevant markets are not characterized by market
  failures such as externalities, public goods,
  or monopoly/monopsony.

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Failure of These Assumptions to Hold is a
Necessary But Not Sufficient Condition to
Invalidate the Argument

• That is, if one or more of these assumptions do
  not hold, they could make the argument against
  subsidized recycling stronger, not weaker!

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Conclusion

• When recycling is good for society, it will not
  lose money. When it does lose money, it is not
  good for society.