Nobody understands the economy. But more money is more better, right?

That’s how you measure the economy after all. If more money is moving, then more goods and services are being purchased, and society benefits.

So it follows that it’s good for society to increase money. Consumer credit. Corporate financial engineering. Making the money printer go brrrr. Stocks, and derivatives. All these and more function to increase the amount of money in the economy, and as such are incentivised by the government, which prioritises the economic figures above almost all else.

Trouble is, it actually takes real effort to make money. It takes work to make that number on the screen go up. You have to employ accountants, lawyers, marketers, build offices, lobby the government, get debt collectors and many things more. And all these need complicated infrastructure, expensive education and a big city in which to do all the hard work.

And this is very different from the old economic model, where you make money by making things that people want, or doing things people want. It requires different infrastructure, different raw materials, different education and different management. And an economy cannot be based on the creation of money alone. The financial economy of money creation must coexist with this real economy.

So there is a choice, if one has money, to spend it on making oneself happy; to invest it in the real economy; or to invest it in the creating of money itself ¹.

Spending it is right out; after all what is there to buy? Manufactured goods are cheap (they come from abroad), and there’s only so many services one can use (if one’s moral code even allows unbounded service consumption ²). So it’s investments, the only choice is which ones.

And that’s the trouble with information technology. If there’s one thing computers are good for, it’s calculating that number on the screen. But a computer can’t interact with the real world in any meaningful way. Computers increase the efficiency of making money far beyond the amount they increase the efficiency of the real economy.

So the information age has accelerated the existing transition, further tipping the balance of investment from the real economy to the financial economy. And with further technological development, the balance shifts further and further; compounded by the extrapolative tendency of the market expecting the rapidity of recent technological advances to continue far into the future.

So the real economy stagnates from underinvestment while the financial economy grows. It’s worse than that, of course, because participation in the money-making economy is predicated on the non-universal trait of already having lots of money, while the real economy often requires little money to participate. Therefore it’s possible to make more money by hurting the real economy (as in the case of loss-making ‘disruptive’ startups which ruin functioning economic sectors but have high valuations).

And that’s the stage we’re at. The real economy is stagnating, and our standards of living with it, because people have too much money, which they’re just using to make more money.

Well, that’s just today’s thought. I’m not an economist; I haven’t done any research, I don’t have any figures and I can’t think of any way to measure whether this is right or not anyway… But some time out in the public air will do it some good.

Footnotes:

Bottle Deposits, i.e. a government-mandated deposit placed on disposable drinks containers refundable upon return to the place of purchase, are a popular environmentalist policy worldwide. The aim of such a policy is generally to reduce the polluting impact of littered drinks containers while simultaneously increasing the recycling rate of the same.

Bottle Deposits are universally bad policy, imposing outweight costs on society while barely helping the problems they are intended to. This occurs notwithstanding the purported success of a deposit policy in terms of return rate.

Simulation

A simple economic analysis of a bottle deposit system gives the cost to society per bottle that is no longer littered as approximately £10.

Let’s construct a simple system where our hypothetical country of 1 million people proposes a bottle deposit system:

• There will be a 20p deposit levied on all sealed, disposable drinks containers.
• This will be collected by local beverage distributors, and passed on by retailers.
• Containers can be returned to the point of purchase (or other participating location) for a full refund of the deposit.
• Retailers are responsible for disposing of the collected container and can claim funds back from the government for refunds issued, as well as 5p per bottle for disposal and administration.
• Any shortfall (or surplus) is covered by (returned to) the general fund of the government.

Making the following realistic assumptions:

• Each citizen uses 300 bottles per year, for a total of 300 million bottles.
• 7.5% of all drinks containers were littered before the deposit.
• 90% of issued containers are returned for a refund once the system is operational.
• There is an average wage of £30.
• Property rental costs are £200 per square meter per year for homes, and £1000 for shops.
• 80% of bottles are returned using reverse vending machines and 20% manually by an attendant.
• RVMs cost £4000 per year to rent, service and empty, can process 150000 bottles each. and take up 2 square meters of floor space.
• It takes an cashier 10 seconds to process the return of a bottle.
• People store their bottles at home prior to return. This takes up 0.1 square meters.
• It takes 30 seconds per bottle in overhead to sort, collect and transport for consumers.

Costs

Now we can calculate the costs. The direct cost to the government is simple, calculated as the costs of administration less the unreturned surplus:

• 300000000 * 0.9 * 5p - 300000000 * (1 - 0.9) * 20p = £7,500,000

Costs to consumers are more challenging: as well as direct losses from unreturned bottles, one must also account for sorting, storage, transportation and return overheads. Transportation costs can be ignored as return is always combined with a trip to buy more bottles.

• Unreturned bottle cost: 300000000 * (1 - 0.9) * 20p = £6,000,000
• Storage cost: 1000000 * 0.1 * £200 = £20,000,000
• Administration time: 300000000 * 0.9 * 0.5/60 * £30 = £67,500,000
• Total cost to consumers: £6,000,000 + £20,000,000 + £67,500,000 = £93,500,000
• Total cost to an individual consumer = £93.50

It is tempting to ignore costs to retailers as costs are subsidised by the administration fee. However, as retailers legally must collect bottles, and the fee has not necessarily been set correctly, their costs must be considered anyway.

• Human time for bottle redemption: 300000000 * 0.9 * 0.2 * 10/60^2 * £30 = £4,500,000
• RVM Costs: 0.9 * 0.8 * 300000000 / 200000 * (£4000 + 2 * £1000) = £8,640,000
• Administration remittance: 300000000 * 0.9 * 5p = £13,500,000
• Ignoring accounting costs, there is a small residual benefit of £360,000 to retailers.

The total net costs of the proposed system would therefore be: £93,500,000 + £7,500,000 - £360,000 = £100,640,000, or £100.64 per citizen. It is notable that at 33.5p per bottle, this is much higher than the bottle deposit itself!

Benefits

Marginal benefits from recycling can be assumed to be zero, as the market for recyclate in developed countries is saturated, with negligible residual value. Excess sorted waste is dumped, stockpiled or exported for disposal by countries with lower standards. In fact, since consumers of recycled material are subsidised both by the market (consumer demand for recycling) and governments, encouraging additional recyclate collection may in fact be a net negative for society - even if it appears to be economically neutral.

Higher value recycling may be possible with additional regulation - for instance standardisation of bottle shape and adoption of refillable bottles. However, this is not economically viable, and therefore countries like Germany that formerly reused the majority of its bottles now prefer to crush and recycle: the economic and environmental costs of collection, transport and cleaning exceed the benefits.

Nevertheless, bottle deposits may still have benefits in reducing litter. Although drinks containers are only one component of litter, they are a significant component.

It does not follow, though, that a 90% return rate reduces litter by 90%. Littering is a crime of convenience and does not occur when beverages are consumed at home - it will always be easier to put the container in a bin than to throw it on the ground outside. If 60% of drinks are consumed at home where their containers will always be returned, the remaining 40% of drinks consumed away from home can still be littered at a 25% rate and 90% return will be maintained overall.

If we assume the bottle deposit reduces container litter by 50%: 7.5% of bottles were littered before the policy, and 3.75% would be after. That’s 11,250,000 less pieces of litter on the street than before the policy. That sounds like a win until you realise that the bottle deposit policy costs more than £100,000,000.

That means our hypothetical society will be paying £9 per bottle to clean up litter! Even if you assume the complete elimination of littering, the cost per bottle only reduces to £4.50, which is plainly ridiculous. For £4.50 of a litter picker’s time, far more can be achieved than collecting a single bottle.

If you want to have a go with your own simulation, download my spreadsheet and have a go.