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Source link: http://archive.mises.org/15589/drink-and-be-merry-styrofoam-paper-and-prices/

Drink and Be Merry: Styrofoam, Paper, and Prices

February 7, 2011 by

As I argued in my last Forbes article, most of our expressions of conscience have more to do with signaling to others like us that we are righteous than they have to do with fixing problems. Things we do to Save the Earth are shining examples; to paraphrase Thomas Sowell, most kinds of “going green” are about showing that we are on the side of the angels rather than actually improving environmental quality.

Take paper cups and Styrofoam cups, for example. A lot of people think that paper is the “green” choice. It isn’t. If I remember correctly, styrofoam cups take a lot less energy to produce, and they might be easier to recycle (here’s a Google search to get you started if you want to learn more; PERC has even more).

The discussion illustrates a much broader point, though. As I argue in my paper “Economic Calculation in the Environmentalist Commonwealth” and an accompanying article (my first Forbes.com contribution, for what it’s worth), economic accounting is necessary for moral or environmental accounting. Why is this? Without prices, we can’t know precisely what we’re giving up in order to do something. Therefore, we can’t know whether (for example) Styrofoam cups or paper cups are better. When private property rights are secure and when interventions don’t distort the market outcome, all of the relevant costs and benefits will be reflected in the prices of the cups. If the Styrofoam cup from which I’m currently drinking is in fact wasteful relative to a paper cup and cardboard sleeve even though the price suggests otherwise, we have to search for areas in which private property rights are not secure or other sources of distortion. For all of my objections, President Obama scored a point with me during the State of the Union Address when he suggested getting rid of oil subsidies.

Profits and losses are also essential sources of the knowledge we need if we are to decide whether we have chosen wisely or not. Profits and losses measure the value of what has been produced net of the value of what had to be foregone in order to produce it. A firm earns profits when it uses resources to produce something that is of greater value than anything else that those resources could have been used to produce. A firm earns losses when it uses resources to produce something that is of lower value than anything else those resources could have been used to produce.

It is important to note that prices and profits are not normative guidelines in any cosmic sense. There is nothing in economics that says you should devote all of your time and energy to the activities that generate the highest profit as measured in money. Prices, profits, and losses do, however, make the opportunity costs of our actions very explicit. If we know the going wage–the price of our labor, for example–we can know what we’re giving up by spending time sorting our garbage. If we know how profitable different enterprises are, we can know what we’re giving up when we give our money away.

With that in mind, I’ve written in defense of disposable diapers. Recently, we’ve switched from disposable to reusable diapers for home use after deciding that after taking everything into consideration, the reusable diapers were the best choice for our family. I don’t worry about landfills being filled with petroleum products, however, in part because of Mike Munger’s hypothesis that someday, people will be strip-mining old landfills in order to refine discarded plastics into fuel. Here’s the EconTalk podcast in which he talks about it. While I’m putting up links, here are links to resources from my “Environmental and Resource Economics” lecture at Mises U 2009, here’s the talk itself, and here are other talks of the same name from other Mises Us by Timothy Terrell, Walter Block, and George Reisman.

Economics as such doesn’t prescribe a particular course of action. However, no matter what our values are, we can’t make wise choices if we don’t know our options. That’s where prices, profits, and losses are essential.

Updated 2/9/2011: A commenter took issue with my claim that Styrofoam is easier to recycle than paper cups. I’ve changed the text above to provide my source, which was a few notes on a conversation with a coffee shop owner who says that they recycle a lot of their Styrofoam cups and that a lot of their customers bring back their used cups for recycling. Note, though, that the same source points out that the coffee shop has to spend a lot of time and energy washing reusable cups that they use for eat-in business. This might actually be worse: after all, ceramics require a lot of energy and materials to manufacture, and they require a lot of energy to wash. The point, though, is that prices, profits, and losses are reliable guides to action.

{ 14 comments }

CRC February 7, 2011 at 3:34 pm

RE: “President Obama scored a point with me during the State of the Union Address when he suggested getting rid of oil subsidies.”While I’m totally with you in supporting the elimination of all subsidies (to industry or others), I'd caution anyone in interpreting politician-speak the same way you would interpret plain English.I've heard tax breaks and tax cuts referred to as "subsidies." I've also heard politicians use omission as a way to tell the "truth" while grossly misleading their audiences. An example of this would be to refer to the large "subsidies" and tax breaks given to the oil industry (true) while (possibly) neglecting to mention that some or all of these are not specific to that industry and available to and used by other industries. It’s a clever rhetorical trick.That said, yes, we need to end all special treatment for all special interests.

jl February 7, 2011 at 4:00 pm

Yeah, I think oil subsidies is Democrat code for charging oil companies lower royalties than what _could_ be charged!

Michael A. Clem February 8, 2011 at 1:08 pm

One wonders who wrote that particular speech, and if Obama even understood the implications of what he was saying?

Château de Gisors February 7, 2011 at 4:19 pm

yes it’s right CRC !

Brian S February 7, 2011 at 5:08 pm

I’d assume you are probably right in that styrofoam cups require less energy in production than paper cups though from my experience in the valuable resource recovery (read: recycling) industry, I must say they are certainly not easier to recycle. Most regional markets do not recycle polystyrene products at all because the commodity is so difficult to transport and process. It’s low density allows it to disperse everywhere when handled and results in high transportation costs considering its volume to weight ratio. The density of a commodity strongly correlates with its price in the recycling industry, considering that generally the price of: metals > paper > cardboard > plastics.Eventually, I think styrofoam cups will be replaced with cups made of input-efficient forms of biomass because of environmental health concerns regarding the release of aromatic compounds during styrene’s degradation (see here).

I’d assume for the shift in market to be very similar to the recent phasing out of polycarbonate water bottles and other products due to concerns of bisphenol-A’s leachability. There is now an entire new line of “BPA-free” plastic products being marketed. This particular case provided an excellent example of the markets’ ability to very quickly receive and answer consumer’s health/environmental demands – all before the FDA had even released a statement regarding the topic other than that it was simply “under review”.

Art Carden February 7, 2011 at 5:49 pm

Thanks for the note. Your point about recycling is duly noted: one of the websites on the “styrofoam or paper” search said that this was part of one coffee shop’s business: their styrofoam cups were easier to recycle than their paper cups.

Sarah February 7, 2011 at 5:57 pm

Good for you, Art, for making your own decision. I have no doubts too, that you’ll be aware of other, better options should they come about. I’m jealous that EPS (styrofoam) is economically viable in your area!

Last year, Whole Foods mandated the use of glass in its packaging whenever possible. Nobody imagined what a pain that would be for the WF stores in Albuquerque, where (at the time), there was no market, and therefore no recycling centers that would accept glass. There’s now a market for about 10% of what’s produced in the city, but not much else in the state.

Same goes for the compostable plastic cold-drink cups. I think these things are great! Unfortunately, they’re not a common recyclable plastic, and I question if there are enough local municipal food-waste pickups to actually divert these cups from the landfill (backyard composting leaves you with a thin white cookie after a year or so).

Free up IP, and more people will know what things are made of (and how), and be better-equipped to make these decisions themselves. Government rules can make jobs, but people thinking about such things can create wealth.

Daniel February 7, 2011 at 9:41 pm

I get 40 mpg and plan all my trips to avoid wasting gas not because I’m “doing my part” but because I’m cheap and lazy

My vice is true virtue

RTB February 7, 2011 at 10:19 pm

I sometimes plan my trips along the scenic route if time permits. And my car only gets 36 mpg. I’m not doing my part, not giving back, and not socially or environmentally conscious. I’m a bad man.

Michael A. Clem February 8, 2011 at 1:23 pm

Part of the point of a good, free market, is, as Art said, prices would fully reflect the costs involved. The average consumer shouldn’t have to become an expert in plastics, paper, and recycling to make a good choice. It’s the government’s rules and regulations that interfere with pricing and make it more difficult to make good consumer choices.

Brian S February 8, 2011 at 11:32 pm

The free market would better reflect cost involved of such commodity markets such as plastics and paper – yes, of course. But would they “fully reflect” the costs? Even in a entirely free market externalities will exist as property rights of air or groundwater cannot be well-defined. And even if property rights of such commons could be well-defined, the injuries of such cost are typically physically and temporally distant.

Michael A. Clem February 9, 2011 at 12:41 pm

Well, it wouldn’t be perfect, but the existence of an externality on the market is an opportunity for an entreprenuer to step in and solve the problem. It’s much more likely to be resolved that way than by politicians or bureacrats declaring a “market failure” and passing silly legislation with unintended consequences.
Of course, that’s assuming that an externality is a problem for someone. Some externalities are beneficial and not enough of an issue to work too hard at resolving.

Sione February 8, 2011 at 2:34 pm

I read an analysis of oil prices where it was demonstrated that if the US Navy departed the Gulf, the price of oil would eventually fall to around the US$5/barrel mark. Now that suggests that subsidies to the US Navy should immediately cease as those ultimately have the consequence of pushing the price of oil far higher than it would otherwise be- for non-US based consumers as well as for US based consumers. Reckon Obama should get honest and remove ALL the govt interferences in the market.

Sione

Plastic Container June 4, 2011 at 3:06 am

Thanks very much for the help, it worked like a charm!

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