Grab Bag: Mike Munger and Russ Roberts on Recycling, Peak Oil and Steroids 9/24/2007
What this covers
Russ Roberts and Michael Munger of Duke University work through three loose ends from economic life: whether recycling makes sense, whether buying local reduces environmental harm, and whether peak oil should alarm us. The conversation closes by applying their economic framework to steroid use in baseball—specifically the Barry Bonds and Rick Ankiel stories. Throughout, they argue that the price system, operating under competition, correctly guides all three decisions by converting diverse resources into a single comparable metric, making central planning or single-issue reasoning (like carbon footprint alone) counterproductive.
The core claim rests on human ingenuity as the ultimate resource. They cite the Simon-Ehrlich bet—where five metals Ehrlich predicted would grow scarce actually fell in price despite massive population growth—to argue that we never truly run out of anything because rising prices trigger both substitution and innovation. Recycling, they contend, is only rational when the recycled material commands a market price; otherwise it wastes resources. Local sourcing looks worse than imports when you account for lower labor and land costs offsetting transportation. Peak oil poses no catastrophe because price increases spur efficiency and alternatives. The steroid discussion extends this logic: athletes face genuine competitive incentives to use performance enhancers when rules go unenforced, and the drugs themselves—particularly their role in recovery rather than raw ability—explain only part of elite performance. The analogy to cosmetic surgery in entertainment highlights what they see as inconsistent moralizing about enhancement.
The pair do concede one boundary: pollution affecting large regions without assignable property rights lacks price signals to guide behavior, so policy can matter there. But they are skeptical of resource-scarcity panics divorced from prices, treating most such warnings as failures to understand how self-interest and incentives solve problems that appear engineering-based but are actually economic ones.
Roberts and Munger argue that the price system, by converting all kinds of resources into a single comparable metric, correctly guides decisions about recycling, local sourcing, and resource scarcity—so environmental and 'peak oil' panics that ignore prices and human ingenuity are misguided, and similarly that steroid 'cheating' in sports is overblown given competitive incentives.
- Prices accurately reflect the full cost of resources under competition, so getting prices right—not single-metric reasoning like carbon footprint—leads to correct decisions
- Human creativity is the 'ultimate resource' that outstrips scarcity, so we never truly run out of anything (Simon-Ehrlich bet as evidence)
- Athletes responding to competitive incentives (including steroids) is largely rational and the resulting performance benefits consumers
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The pencil/graphite example shows the price system handles massive shifts automatically: hundreds of millions of Chinese migrating to cities and using more pencils could in theory cause graphite shortages cascading into fishing rods, tennis rackets and brake linings, yet this migration already happened unnoticed because prices signaled substitution and conservation without any central planner.
“that migrations already taken place and we didn't notice it we didn't even notice we didn't appoint a czar for graphite we didn't have a study... the price system signaled to people to try to find substitutes for graphite”
Prices are a 'magic conversion metric' that allow comparison of fundamentally different resources (e.g., gallons of gasoline vs. kilowatts of electricity), and under a competitive market they accurately reflect the value of resources—so even people who don't care about the environment make the environmentally correct choice by choosing the cheaper of two equal-quality options.
“for those of us in economics we have a magic conversion metric called prices which is the two alternatives that have the same quality is cheaper... people who don't care at all about the environment are still going to make the environmentally correct choice provided that prices accurately reflect the value of those resources which they will under a competitive market”
In the 1980-1990 Simon-Ehrlich bet, Ehrlich's chosen five metals (chromium, copper, nickel, tin, tungsten) all fell in inflation-adjusted price—and three fell in nominal terms—despite high inflation and an 800-million-person population increase (the largest of any decade), demonstrating that human ingenuity outstrips scarcity.
“the five things he picked were chromium copper nickel tin and tungsten and ten years later not only hit the price of all of them fallin in inflation-adjusted terms some of them had fallen in nominal terms”
The slow-food argument that a New Zealand apple uses 30 calories of fuel per calorie of nutrition is relevant but not decisive: if the imported apple is cheaper at equal quality in a competitive market, it must have lower total costs—the higher transportation cost is offset by lower labor, land, and distribution costs, and transportation is only one resource among many (including human time) worth conserving.
“the New Zealand Apple has higher transportation costs that is true almost certainly but it has lower other kinds of costs and those other kinds of costs are the labor costs and the land costs”
Simon won the bet because you don't need to know the specific means by which human ingenuity will devise new ways of harvesting resources—self-interested people will find them whether or not the mechanism is understood or planned; many problems that look like engineering problems are actually economic problems.
“you don't have to know the means by which human ingenuity will devise new ways of harvesting and creating resources... a lot of problems that look like engineering problems are actually economic problems”
When landfill disposal is free at the margin (paid from general tax revenue), the cost signal to the household is zero, which leads people to throw away too much and recycle too little—if disposal is artificially subsidized you will almost certainly make the wrong decision.
“if dumping is artificially low the cost of dumping is artificially low due to a subsidy then you might make the wrong decision almost certainly will at the market right you'll you'll recycle too little dump too much”
We are only close to running out of light sweet crude (less than 1% sulfur), which is valued because it cracks easily into gasoline; vast amounts of cheaper sour crude (2-4%+ sulfur) remain available and require only more processing, so claims of running out of oil are misleading.
“the only thing that we're even close to running out of is light sweet crude sweet crude is crude oil that has less than 1% sulfur... There's an enormous amount of sour crude that's available at lower prices”
Peak oil need not be alarming: a finite, declining reserve only means prices will rise more rapidly, and that price rise is offset by human ingenuity finding ways to use remaining oil more effectively—so the effective price of energy could actually fall even as oil prices rise.
“if we got to a world where we'd found all reserves and the only thing that was happening was that we were using up those falling reserves the price would start to rise more rapidly... offsetting that potential price rise is the opportunity for human ingenuity to find ways to use the remaining oil more effectively”
Carbon offsets function analogously to medieval Catholic indulgences: by capturing a deadweight loss they let the buyer 'sin' (e.g., drive a Hummer) while transferring value, but treating carbon as a unit that trumps all other resources doesn't override the price system's ability to convert between resource types—a critique made from within the environmental movement itself.
“I wonder if carbon offsets aren't something that... if I buy carbon offsets it's as if I bought an indulgence and I can go ahead and sin”
Cities deliberately charge too little for disposal to deter illegal dumping, because pricing all the way up to the marginal cost of landfill leachate and pollution would push people to dump bags off pickup trucks in secluded spots—an even higher social cost.
“we want to make sure that people don't engage in illegal dumping which has an even higher cost for the rest of us so if you charge all the way up to the marginal cost of landfill leachate”
We have never run out and will never run out of any resource, for two reasons: as price rises people find more of it, and as price rises people find ways to do without it and switch to alternatives that become economic—so resource exhaustion is essentially impossible.
“we have never and will never run out of anything we can't run out of anything... as the price go up goes up people will find more ways to do without it and as it becomes profitable to find alternative ways”
Steroid use in baseball should not carry the cheating opprobrium it does, because hitting and pitching are skills and raw power/size from drugs has little to do with them—unlike sprinting or weightlifting where pure power matters.
“hitting a baseball or for that matter pitching a baseball our skills and I don't see that the sort of raw power or growth of size that you get from using these drugs should have anything to do”
Cheating that everyone agrees is cheating (like Bobby Thompson's stolen-signs home run via binoculars and a buzzer) is distinguished by shame—Thompson hid it for decades—whereas steroid users like Sosa, Palmeiro, McGwire, Bonds and Giambi refused to answer, answered evasively, or expressed shame, indicating they too knew it was a form of cheating.
“Bobby Thompson kept that secret for decades because he was ashamed because he knew he had cheated and most of these steroid people... they've either refused to answer the questions they've answered the questions in elusive ways”
Pollution that makes vast portions of the environment unusable is a genuine danger that markets won't automatically fix, because there is no property right or price in place to send the scarcity signal the way there is for crude oil—so policies do matter, but planning for shortages of priced resources is a red herring.
“suppose it's some pollution of the environment that over time makes vast portions of the environment unusable... that's not something that will automatically fix itself because there's no property right or price in place that's going to send that signal”
When a rule is unenforceable and unenforced (as with undetectable HGH/steroids in that era), a competitive athlete who watches rivals openly benefiting—winning MVPs and acclaim—faces strong incentives to do the same just to level the playing field, illustrated by an analogy of a commission-based salesperson who watches sleep-deprived competitors break an unenforced eight-hour-sleep rule and steal his rankings and income.
“you have a rule that is on the books... that is not enforced it may not be enforceable... you're a competitive person you're in a competitive sport and you watch McGwire you watch Sosa”
Steroid use is analogous to actors using cosmetic surgery to enhance appearance: we don't strip Academy Awards or add asterisks for facelifts or implants, so the differential shame attached to steroids reflects a romanticized double standard rather than a principled distinction.
“actors and actresses use surgery to enhance their appearance we never say he didn't deserve that Academy Award because you know he got at that surgery”
Human growth hormone, contrary to common belief, makes you literally larger but not stronger and there's evidence it does not help athletic performance; steroids combined with weightlifting do help—primarily by speeding recovery from injury and reducing soreness—and can turn a 340-foot warning-track out into a 380-foot home run.
“HGH by the way human growth hormone there's evidence that it does not help it only makes you literally larger not stronger”
Since many players (perhaps 20-60%) were using steroids yet only Barry Bonds hit 73 home runs, either Bonds is an extraordinarily gifted athlete or had an unusually effective regimen—implying the drugs alone don't explain elite outliers and the achievement isn't simply attributable to cheating.
“Barry Bonds is the only guy who hits 73 home runs on the steroids all these other people we know lots of people... were desperately doing something to get a competitive edge and yet it didn't make a difference for them”
Even clean players like Shawn Green and Jeff Bagwell benefited from the steroid era because the home-run explosion made baseball incredibly popular, driving up salaries for everyone—while users like McGwire paid a price with permanent injuries (e.g., no cartilage left in his knee) and Bonds may end up in a wheelchair from unknown health effects.
“baseball became incredibly popular and as a result salaries have been driven up tremendously not just for them but for Bagwell and Shawn green and others”
If people are willing to pay you for something it's a resource; if they're not, it's garbage—and if you have to pay someone to take it away, that's the definition of garbage.
“you argued that if people are willing to pay you for something it's a resource if they're not it's garbage”
If recycling costs more than landfilling, not only is the item garbage but the recycling policy itself is garbage—recycling in that situation is actually wasting resources.
“if I have to pay more for recycling than it costs to put it into the landfill not only is it garbage but the policy itself is garbage”
Resource pessimism is not always foolish—Jared Diamond's 'Collapse' describes societies that used up resources and collapsed, but they lacked an efficient price system to signal opportunity costs; collapse remains possible where there is no property right or price to send scarcity signals, so policy matters.
“some people raised Jared Diamond's book collapse where he talks about societies that used resources and use them up and ended up collapsing but they didn't have an efficient price system that gave them signals accurate signals about the opportunity cost”
Recent rising gasoline and crude prices are mainly a result of instability in the Middle East rather than a permanent peak-oil-driven change, and could well resume their long-run downward path; real resource costs generally decline as people become more creative, with deviations only from geopolitics, policy mistakes, or bad luck.
“my view is is that it is mainly a result of instability in the Middle East and that it very well could go back on its path of decline”
Buying a Prius functioned as a matter of religious-style conformity among the faculty—even the chemistry chair who understood the science against hybrids drove one to avoid social opprobrium and signal environmental commitment.
“it was a matter of religious conformity... I Drive a Prius but that's just because you have to if you're going to be a faculty member”
The drive behind steroids, plastic surgery, weightlifting and legal supplements is the human desire to excel and strive, which will only increase—and most of it leads to good outcomes.
“all this stuff is about the human desire to excel... we're gonna see more plastic surgery... we're gonna see more weightlifting... it's the human desire to strive and I most of it leads to good stuff”
Sports 'ain't what it used to be' because the stakes and money are far higher; as enormous money enters (as in acting and moviemaking), people look for an edge and cheat—but this is not necessarily bad, since athletes are largely responding to incentives consumers create, and most of the resulting performance enhancement produces overwhelmingly good, more entertaining outcomes.
“when enormous amounts of money or stake as is at stake as as those amounts are in acting... people look for an edge they compete and I think we should just be a little more realistic about what's plausible”
Hybrid cars like the Prius may be a net waste of energy resources because the electricity required to manufacture the batteries and the environmental cost of disposing of battery chemicals can make them at best a wash, and probably worse than an equivalently sized efficient internal combustion engine.
“those hybrid cars actually probably are a net waste of energy resources because the amount of electricity that's required to create the batteries and then the impact on the environment of disposing of all those batteries that are full of really dangerous chemicals means that hybrid cars are at best a wash”
Rick Ankiel, once a star 20-year-old left-handed pitcher who collapsed in the 2000 playoffs by throwing five wild pitches in one inning, reinvented himself as an outfielder and was hitting over .300 with multiple home runs in a pennant race—then news broke he had a 2004 human growth hormone prescription, after which he went 1-for-23 and the Cardinals went 1-9.
“he threw five wild pitches and walked four batters in a single inning... Ankiel had a prescription of a slightly unsavory kind for a human growth hormone... since then he went 1 for 23”
Some Northeastern cities require garbage to be placed in specially printed bags costing three or four dollars each, a volume-based pricing scheme to make people pay attention to disposal costs.
“a lot of cities in the Northeast have bags with a special print on it and it cost three or four dollars per bag”
The host drives a 1997 Dodge minivan with over 200,000 miles getting about 24 miles per gallon, paid off for ten years and very low cost.
“I Drive a 97 Dodge minivan was 200,000 miles on it it gets about 24 miles a gallon”