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YOU DECIDE: Is waste relative?

March 07, 2008

MEDIA CONTACT: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

Dr. Mike Walden
Media representatives: For a black-and-white or color copy of this photo, call 919.513.3127 or e-mail dave_caldwell@ncsu.edu.

Waste is on the cutting block today.

Businesses and consumers alike are being told to reduce it, and for several reasons.

One is the slowdown in the economy. With income and job prospects dimmer - at least in the near future - companies are trying to tighten their belts and eliminate "unnecessary" spending to maintain profit margins. Household budgets are feeling the same pressure, so many are cutting back on "luxury" and non-essential expenditures.

We're also being told to eliminate wasteful use of energy to reduce our dependence on foreign oil and to moderate adverse impacts on the environment. Turning off lights when rooms aren't being used, unplugging TVs and computers at night and using more fuel-efficient cars and mass transit are all recommended as smart decisions for today's green world.

Then, of course, in North Carolina we have the on-going drought, so conserving water has become a new theme. Public officials want leaky water pipes fixed, low-flow faucets installed and drought-resistant plants planted in our yards and landscapes.

So wasteful spending, wasteful energy use and wasteful water use are now public enemies. But this raises a larger question.

If wasting resources is bad now, shouldn't it have been bad earlier? Shouldn't businesses and households always be on the lookout for wasteful spending? And shouldn't we always look for ways to cut back on energy and water usage?

Well, let's see.

First, think about this situation: In 1999 Hurricane Floyd hit Eastern North Carolina. Reservoirs and rivers overflowed and many communities were underwater. Did we worry about water conservation then? Of course not: Our problem then was we had too much water. Leaky pipes and automatic sprinklers were actually good things because they helped reduce the oversupply of water.

Or think about energy conservation in the 1960s.

Few people then worried about miles per gallon and home insulation. Why? Because gasoline and electricity prices were so low. It just didn't pay to install insulation or buy a car that got more miles-per-gallon.

This is just the point. Waste is a relative term, and avoiding waste doesn't always pay dividends. When the cost of reducing waste is more than the derived benefits, then engaging in wasteful behavior can actually be the smart choice. So, if in 1968 it would have cost me $2,000 to add insulation to my home, but if by doing so I only saved $50 a year, then adding that insulation wouldn't have been wise.

Or in a booming economy, most business managers will find reaching new clients and establishing new accounts to be a more profitable use of their time than monitoring the staff's use of supplies and equipment.

What, then, motivates the company CEO, city water utilities and you and me to turn away from ignoring waste to making the reduction of waste a top priority? Simple: It's when the resource being "wasted" becomes more valuable, thereby increasing the benefits from using less of it.

So as electricity rates have climbed, adding insulation now pays off. As water has become scarcer, each gallon saved is more valuable. And as new clients have dried up during the slow economy, managers turn their attention to lowering company operating budgets.

This means our focus on eliminating waste can be a passing fancy. If rains restore our reservoirs, water will become more plentiful, and we'll use more of it. Or if oil prices plunge to $50 a barrel, SUVs will make a comeback.

This creates a challenge for public policymakers. If it is decided that conservation - especially of resources like water, gas and energy - is in our best long-run interest, then how can we keep up the pressure for reduced use at times when supplies might be plentiful and prices much lower?

It's a matter of what we decide today having a big impact on where we are tomorrow.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University's College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The Department of Communication Services provides his You Decide column every two weeks. Earlier You Decide columns are at http://www.cals.ncsu.edu/agcomm/writing/walden/decide.htm

Related audio files are at http://www.ncsu.edu/waldenradio/

Posted by Dave at March 7, 2008 08:24 AM