Indulging romantic fantasies is a human inclination, but when legislators do so while shaping public policies, it can harm society. As the Minnesota Legislature tackles the problem of junked electronic equipment, both parties risk letting their particular fantasies about how the world works counter sound policy. (Of course, some economists live in a world of abstract fantasy that is equally treacherous, but that’s another column.)
Modern electronics contain materials that harm the environment if not properly disposed of. This is particularly true if waste is incinerated. These materials include large amounts of lead in cathode-ray tubes, plus mercury, lithium, cadmium and brominated fire retardants in virtually all other devices. Such substances harm people or animals that ingest them, posing the greatest risk to the atmosphere or water supplies.
Waste electronics thus pose genuine hazards to society. Most households find these devices highly desirable, even essential. Life would be less pleasant, and our economy less efficient, without computers or mobile phones.
Faced with pollution, economists focus on efficiency – how to secure the greatest satisfaction of society’s needs, including those for health and environmental protection, while using as few resources as possible. Fairness may be secondary.
So might be considerations of practicality. Some theoretical economists assume society has reliable information about the costs and benefits of alternatives they face – including the harm caused by pollutants. Moreover, “transaction costs” of acquiring information and administering a program are zero.
Democratic lawmakers often place great emphasis on fairness. Any costs of environmental protection should come out of the profits of corporations, but should not burden households in any way, they say. They tend to blame pollution on businesses that cut corners to increase profits. Economic efficiency is not a high priority for this party.
Republicans historically placed great emphasis on letting market forces work when possible and on economic efficiency. But in the contemporary Republican party any policy involving “taxes” is taboo, even if it is the most efficient or just alternative.
So what do we do about damage to society posed by electronic waste?
“Tax whatever creates external costs” is economists’ mantra. If cadmium, lead, TVs or iPods harm the environment, tax them by the amount of such damage. That will give society proper signals about how much of these materials to use. Economic efficiency will be restored.
Unfortunately, harm from a particular substance varies with use. Cadmium coating a bolt in a farm shed that stands for 60 years causes less damage than does the same amount in a disposable battery. A uniform tax on cadmium makes bolts too expensive and leaves batteries too cheap. Graduating the tax to match the exact harm from each specific end use may entail endless complication.
Republicans reject this option simply because it involves a tax. Democrats fear being tarred as tax-loving liberals. Moreover, for them such taxes don’t place costs squarely where they belong – on greedy businesses.
Some Democrats like schemes where each manufacturer or retailer has to take back the waste from every item they produce or sell. Germany introduced such a system for packaging in the early 1990s, and Al Gore applauded.
Republicans fret such programs are extremely expensive and the costs eventually get passed to consumers anyway. Economists agree 100 percent. Moreover, they note, such programs are not “scale neutral.” The cost per unit to small manufacturers or retailers is higher than to big companies. It tilts the playing field against the little guy.
Many Democrats like programs where manufacturers or retailers pay to fund some government-structured recycling. They believe this does not burden households. Or each producer must accept back discarded items in some proportion to sales. This seems to be where we are going in Minnesota.
It’s acceptable to many Republicans because it does not involve taxes. Economists scoff at the very feature that is attractive to Democrats – the idea that businesses bear the costs of the program and that households are not affected. Introductory economics demonstrates that such costs get incorporated in product prices. Consumers pay, but the cost is hidden. Business profits are largely unaffected.
Programs that tack a substantial deposit onto newly purchased items have advantages. When an item is discarded, someone can bring it back to a recycling station and be repaid most of the initial fee. If the original owner is too busy, scout troops and marching bands could handle such items as a fund-raising program. If any phone can be turned in for $5 and any TV for $30, entrepreneurs will soon go door to door, just as empty-bottle buyers do in impoverished countries. The recycling system can be run by government or by private businesses on a contract or concession basis.
© 2007 Edward Lotterman
Chanarambie Consulting, Inc.