Mises Wire

Do Free Markets Create a Wasteful “Landfill Economy”? Definitely Not

In a recent article, Charles Hugh Smith claims that the landfill economy has put our society in crisis. Here’s how he describes the “landfill economy”:

For the hundred years that resources were cheap and abundant, we could waste everything and call it growth: When an appliance went to the landfill because it was designed to fail (planned obsolescence) so a new one would have to be purchased, that waste was called growth because the gross domestic product (GDP) went up when the replacement was purchased.

Put more succinctly, Smith describes the landfill economy as a “waste is growth” mentality. However, this logic has a major flaw. This is not growth because some flawed GDP statistic has gone up. It is growth because all the people that threw away some product—planned obsolescence or not—did so precisely because they genuinely believed they would benefit from this. The consumers would not have made the new purchases if they hadn’t believed that they would be better off with the new products—even if that meant throwing away the old products. As Ludwig von Mises said in The Ultimate Foundation of Economic Science:

He [a consumer] buys because he believes that to acquire the merchandise in question will satisfy him better than keeping the money or spending it for something else.

When consumers buy new microwaves knowing that their old microwaves simply will not sell on the market and will have to be thrown away, the old microwave is simply part of the cost of the transaction. The consumer subjectively values the gain of a new microwave more than the cost of the money spent on it and of losing the old microwave. As a result, consumers are demonstrably better off than before.

This is the reason there has been growth. It’s not the waste that has caused the growth. Rising GDP is not the economic growth. It is the increase in value to each consumer through exchange.

However, Smith proceeds to say that because of this supposedly false growth, “we’ve consumed all the easy-to-get resources, all that’s left is hard to get and expensive.” He further explains that we just assume we will have cheap resources available because

humans are wired to want to believe that whatever we have now will still be ours in the future. We don’t like being told we’ll have less of anything in the future.

This misses the point of economics as well. Human beings do not economize in spite of resources being scarce but rather because resources are scarce. Again, as Mises says, this time in Human Action:

The primary task of reason is to cope consciously with the limitations imposed upon man by nature, to fight against scarcity.

Smith may be correct that we face new issues of scarcity, but even if true, this is not something that should strike fear into our hearts. Elsewhere in Human Action, Mises reminds us:

We do not assert that the capitalist mode of economic calculation guarantees the absolutely best solution of the allocation of factors of production. Such absolutely perfect solutions of any problem are out of reach of mortal men. What the operation of a market not sabotaged by the interference of compulsion and coercion can bring about is merely the best solution accessible to the human mind under the given state of technological knowledge and the intellectual abilities of the age’s shrewdest men.

So yes, we may be in a new age of different kinds of scarcity. But the age’s shrewdest entrepreneurs are on it. This all being said, Smith’s final point on the matter is exactly right about what we should, in fact, fear:

Playing hyper-financialized games—creating money out of thin air, borrowing from tomorrow to spend more today and inflating speculative bubbles in stocks, housing, etc.—won’t actually create more of what’s scarce….

The economy has reached an inflection point where everything that is unsustainable finally starts unraveling. Each of these systems is dependent on all the other systems (what we call a tightly bound system), so when one critical system unravels, the crisis quickly spreads to the entire economic system: One domino falling knocks down all the dominoes snaking through the global economy.

Here at the Mises Institute, we are very familiar with how hyperfinancialized games can cause this devastating domino effect. When a price system allocates goods, they are put to their best uses. However, when these games are played, even the age’s most insightful entrepreneurs cannot build correctly—they don’t know what building blocks they really have.

We then find ourselves under the skyscraper curse. If we want to take on the economic crisis that is staring us down, then we must allow our entrepreneurs to accurately evaluate what is scarce and what is not through genuine price signals. As Smith says best: “Easy money isn’t the answer.”

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