Forgetting New Ice

So according to a recent NYTimes piece, New York City has a 23-year, $1.5 billion contract with an entity called Sims Municipal Recycling of New York L.L.C. Among other things, the company recyles appliances that are picked up from the curb by the Department of Sanitation. I saw this article because Gregg Easterbrook linked to it and commented on the fact that thieves have been stealing appliances from the curb:

This issue is not the cleanliness of streets or the environmental benefits of recycling -- it's control of money. The New York City Sanitation Department pays a company called Sims Municipal Recycling about $65 million annually to pick up and recycle metal, glass and aluminum. Notice what's happening here? Recycling is supposed to make economic sense. If it did, the recycling company would be paying the city. Instead, the city is paying the company.

. . .

Notice what else is happening here -- New York City pays a company millions of dollars to do something "thieves" will do for free. The "thieves" harm no one, and could save New York City taxpayers considerable money. But then bureaucrats wouldn't be in control. And surely no-show jobs and kickbacks have nothing, absolutely nothing, to do with New York City sanitation contracts.

So, first of all, it does not appear that Sims picks up the appliances. The Department of Sanitation does that.

But much more importantly, the assumption that this could all be handled by the market, instead of those nasty bureaucrats, is wildly implausible. The key thing to recognize is that this is not merely a market for recyclable materials. It is a hybrid of a market and a government service (responsible, reliable disposal of waste material). If you focus on only one aspect of the service, you will go badly astray. For one thing, the NYTimes article clearly states that, per EPA requirements, city employees first drain CFCs (ozone-depleting chemicals) from appliances and then haul them to the recycling facility. I have a hunch that appliance thieves only do this some of the time - maybe never.

Another thing the appliance thieves don't do is haul away every appliance that is left on the curb. The thieves almost certainly cherry-pick the appliances that are most valuable to recycle and leave the remaining appliances to be handled by the dread bureaucrats. But New Yorkers presumably want all appliances removed, and are thus unwilling to rely on the tender mercies of the free market.

I have no idea what the contract with Sims provides, but I'm guessing that Sims doesn't get to pick and choose which appliances to recycle. The city produces a stream of recyclable trash, some of which is valuable and some of which isn't. Assuming the city is halfway decent at negotiating contracts, it saves money by providing the entire stream to a recycling company, which has to take the good and the bad. If you let individuals take all of the valuable items, then your stream of trash is worth less, and the city's recycling contract will get more expensive.

So I think Easterbrook is making far too much of the purported market evidence - of course entrepreneurs are happy to take the profitable segment of the market, as long as they don't have to take on any of the CFC disposal obligations or provide a service when it isn't profitable to do so. But beyond a strange, blind affection for markets, I think another problem here is the failure to recognize the complexity of market structure on the borderline between government services/utilities and market products and services. Sometimes a monopoly is essential as a way of cross-subsidizing a particular activity, and if you're going to rely on that mechanism, then you have to guard the monopoly against entrants who seek to pick off the profitable bits. This is one of the lessons of New State Ice Co. v. Liebmann (in which Brandeis issued a famous dissent, including the classic line: "It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.").

So, let's not fire those bureaucrats just yet. For less than $10/citizen/year,* they allow New Yorkers to dispose of their appliances in a convenient, environmentally responsible way. I'm sure the system doesn't work perfectly, but it is far from the worst-functioning aspect of NYC government. And the entrepreneurs are making it worse, not better.

* EDIT: that's the cost of the Sims contract, presumably the overall system costs more.