Monday, May 1, 2017

The Folly of Legislating Behavior

A Flint, Michigan man has been ordered to pay the state $400,000 in restitution.  Between 2012 and 2016, he and a partner were in the business of smuggling aluminum cans from Indiana to Michigan to cash in on the 10-cent deposit.  (Quick math tells us that amount represents refunds on 4 million cans!)

When you buy beer, soda, etc. in Michigan you leave a 10-cent deposit per can or bottle.  This is refunded upon return of the cans and bottles.  The intention is to keep people from throwing them away, especially littering on the sides of the road.  The process seems simple enough, but it’s a perfect example of “looks good on paper.”

This news story is of particular interest to me.  I lived in Michigan for over six years and this is one of the things I was grateful did not follow when I moved out of the state. 

Here is how it works in reality.  You buy a 12-pack of soda on sale for $3 and are charged a deposit of $1.20.  That’s money you won’t see again until you return the cans.  If you bought them at a small store, you usually return them in person to a clerk whose additional duties include processing returns.  This state-imposed extra service surely comes at an extra cost.  And all those who have an inkling of economic understanding know that any across-the-board cost imposed on an industry is easily passed to all customers without fear of losing competitive advantage.

If you return them to a large grocery store, there are no clerks to deal with.  Instead they have large machines where you must feed the cans and bottles in one at a time.  The machine reads the barcode, so the items cannot be crushed to make them easier for you to store and transport.  You have this big bag of cans, wait in line for a machine, because half of them are broken down.  The ones that are working are all sticky, gooey and smelly from beer and soda residue, because the other patrons don’t rinse out their cans before returning them.

Since it is reading the barcode, it will reject any can or bottle not bought at that store leaving most people to throw them out anyway rather than try to remember where this orphan came from.  After wasting your valuable time, you are ready take the credit slip from the machine into the store to do your grocery shopping – after you find a place to wash your hands – where you will pay a little more to cover the initial cost and maintenance of those big machines.

As I noted back in September 2011, the roadsides in Michigan don’t seem to be any cleaner than those in the neighboring states without this law.  But each time the law comes up for renewal it passes, and everyone goes home feeling the warm glow of being green and environmentally friendly.

An unintended consequence is the smuggling operations like the one mentioned above, a problem that was noted 4 years ago by the USA Today when they reported:  “Michigan lawmakers want to crack down on can and bottle smugglers they say are scamming Michigan for undeserved recycling refunds.”  Not only were Michigan citizens paying more at the store to cover the added operational cost, they were paying more taxes to enforce the law against those driving cars and trucks of cans from Indiana, Wisconsin and Ohio.

And five years before that we heard that the practice of smuggling was “common in border areas [costing] a state environmental cleanup fund $10 million a year.”  When the containers are not returned, the money not refunded goes to a state cleanup fund.  That means people are not returning containers despite the law and the state keeps the money to pay bureaucrats to oversee a cleanup fund.  In addition to not getting the desired behavior, math tells us that a fund shortage of  $10 million translates to 100 million cans or bottles smuggled in across the border – 100 million!)  Is this a great law or what?

With so many unintended consequences and inconveniences this is yet another symptom of weak critical thinking and poor economic understanding.  As I published here over five years ago – “If this were such a great idea and accomplished more than adding costs and pushing dimes around in a circle, wouldn’t everyone be doing it?” I pray they don’t start it in my state.

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