Recycling Jevons Paradox

I have previously argued (here, here and here) that cost effective recycling actually leads to an increase in the demand for the resource being recycled. This is the opposite of what most environmentalists, and even most economists, believe.

What I probably didn't explain is that not only can recycling increase the demand for the resource being recycled, but it can also increase demand for all other natural resources used in the economy. Yes, a new technology that makes recycling car tyres cheaper than manufacturing new car tyres would increase our demand for tyres (because they are cheaper) and for other resources, like oil. The reason is simple. Automotive transport just became slightly cheaper due to the recycling technology, and the response to this price reduction, however slight, is to increase the demand for automotive transport and all the other resources required to provide it.

This result usually seems counter intuitive at first. But we all accept that improving labour productivity does not decrease the demand for labour. And we all accept that improving agricultural productivity leads to an increase in land under cultivation, due to marginal lands becoming economically viable. So why not recycling? After all, if recycling is cost effective, isn't it also an example of improving the productivity of the material?

At the risk of being painfully repetitive (this is my fourth post on the matter), I will use the 'recycling of labour' as an example.

Suppose there is a task that takes two labourers a month to complete. Given the nature of the task, suitable labour can be found at $1000 per month per man. Now, a new technology allows us to 'recycle' the first mans labour at a cost of $500 per month. Given this is half the cost of employing a second man, recycling is an obvious profitable choice to get the work of two men achieved in a month with only one man. This new technology might comprise new equipment (power tools etc.), or simply the investment in teaching the man new skills.

In any case, one man is achieving two men’s' work for less cost. If I changed the terms a little it is clear how this is actually an example of 'labour recycling'. "Two bottles of cola can be provided with one bottle for less cost" would be a simple summary of the net effect of plastic bottle recycling.

But we know from centuries of experience that recycling labour increases demand for it. And we know that it leads to productivity gains elsewhere in the economy, since you can't improve economic productivity in isolation of the rest of the economy. As Len Brookes once elegantly noted, the 'principle of the indivisibility of economic productivity' means that any technology that improves the productivity (aka efficiency) of one resource, improves the productivity of ALL resources in the economy.

This post was partly inspired by one of Don Boudreaux's blog posts (originally published here). In it he describes recycling more broadly -

After I awaken, I shower and dry myself with a towel that I’ve had for a few years. I don’t discard it after one use. When it gets dirty, I rejuvenate it by processing it through recycling machines that my wife and I own: a washing machine and clothes dryer.
Then I brew coffee and fix breakfast. Each day, I use the same coffee maker that I used the day before. I clean it after each use, recycling it for the next brew. My wife and I drink the coffee from mugs that have been used many times in the past. (One set of our coffee mugs was handed down to us after my wife’s parents used them for several years.)
We also eat our breakfasts using dishes and utensils that are recycled from countless past uses. After breakfast, we recycle our mugs, dishes, and utensils with the help of another recycling machine: an automatic dishwasher.
After breakfast, I dress in clothes that I’ve worn before and that I will wear again. My underwear, my pants, my shirt, my necktie, my belt, my coat, my shoes – all are recycled from previous uses. Indeed, I take my suits and coats to a store specializing in recycling such garments: my local dry-cleaner.

And from a later post -

When materials are worth recycling, markets for their reuse naturally arise. For materials with no natural markets for their reuse, the benefits of recycling are less than its costs – and, therefore, government efforts to promote such recycling waste resources

His use of the term waste in the final sentence is misleading. He means that no consumers will gain from government efforts to promote costly recycling, therefore the resources utilised in recycling are wasted, as they could have been employed elsewhere to better satisfy consumers. However, from a macro viewpoint, it is this very cost-ineffective recycling that reduces economy wide productivity (aka efficiency) and resource demand.

That is the key lesson here. If an activity in uneconomic, it decreases our total level of economic activity and our total demand for resources. If it is economically justifiable, it increases our demand for natural resources. Indeed, if we are concerned about the externalities associated with using our natural resources we need to restrict the supply of these resources at the source - restrict sand mining locations, reduce allowable mining rights to coal etc. Trying to achieve these environmental outcomes by the most indirect route possible, through the consumer and far upstream production processes, is completely misguided.