Trash as an Economic Indicator

by Darwin on August 26, 2012

We throw it out every day of the week, but the data we glean from it might just be good as gold.

This week I stumbled upon an article at Free Republic about the relationship between trash and economic output. It’s almost scary how well these two data points come crashing together:

America’s Consumption Economy

It’s no secret that the United States is the world’s largest consumer economy. Businesses thrive on the American way of life. We’re one of the few economies in the world where raw consumption – literally the destruction of wealth – is such a large part of daily life.

Consumption makes up 70% of the total US economy. The US economy is based on the simple fact that we buy and consume a lot of stuff.

So this economic relationship makes a lot of sense. When the economy is performing well, Americans buy stuff to replace stuff we already have. Think about the sheer number of television sets, cell phones (thrown out every two years), countertops, and a whole slew of stuff gets thrown out each day.

It’s only natural that the amount of waste Americans produce would fall during recessions. In our incredible consumption economy, rarely is anything replaced because of utility. Kitchens work the same regardless of how new the granite countertops are. Big bulky televisions show the same show, regardless of how thin the screens is. Even though I consider myself mostly frugal, I know I’ve replaced literally hundreds of things that worked just fine but were decidedly “out of date.”

I think most people are the same way. Think about your recent major purchases – I would venture to guess that most weren’t absolutely necessary. Most were probably necessary because there was something better out there, not because what you had to replace actually needed replacement.

Has the US Economy Really Peaked?

With each passing day it seems like the US economy is reaching a point of inflection – a point at which GDP growth could turn negative at any time. For what it’s worth, the Federal Reserve seems content on keeping growth numbers up with endless money printing and Congress seems happy to spend, just to add more to the government variable in the economic equation C+I+G=Y.

I think we’re in a dangerous cycle of consuming just to consume. The more that government can pour into the economy, the better the headlines look, and the better the chances are for an incumbent re-election. I’m worried we’re in the middle of a lost decade – maybe two – where the economy simply “wiggles” from recession to growth, boom and then bust.

Now it seems like we’re headed toward recession. Consumption is so very important to GDP numbers that any downturn in consumption – even a modest 3% decline – would be good enough to turn GDP growth negative. And as we know, two consecutive quarters of negative GDP growth is the traditional definition of recession.

What do you think? Is the relationship between waste and growth a reliable economic indicator?

Is the United States heading for recession?

{ 6 comments… read them below or add one }

Joe @ Retire By 40 August 27, 2012 at 11:52 am

I hope not. Another recession would really suck. I think a lot of people are still not spending a lot because of the high unemployment rate. When the news get better, people will start spending more again.


JT August 28, 2012 at 1:28 pm

I guess it wouldn’t be the first double dip recession in history, but it’d probably be the worst. Like you, I’m hoping for the best – we’ll have to see how well trash really works as an economic indicator.


krantcents August 27, 2012 at 7:46 pm

I think it is true with clothes. When I feel poor or strapped for cash, I will wring out every last once of my clothes/shoes. Maybe it is not only when I am strapped!


JT August 28, 2012 at 1:31 pm

A clothing budget is pretty easy to cut back. I still think it’s one of the few areas where you do get what you pay for – 10 cheap shirts are less enticing to me than 3-4 high quality, but more expensive ones.

At any rate, I definitely notice a change in my clothing purchases depending on my available cash.


Wayne @ Young Family Finance August 28, 2012 at 9:28 pm

I think that the most recent downturn caused people who weren’t used to frugality trying it on for size, whether out of necessity or situation. Our trash output has stayed the same, but then again so have we. I agree wholeheartedly that this country seems to consume for consumption’s sake.


101 Centavos August 29, 2012 at 6:05 am

In my day job as a procurement manager, I’ve been getting more cold calls from small steel fab or machining shops looking for work. They’re typically based in the east coast. Here in the southwest, we’re insulated in an oil and gas bubble (more gas these days) economy, which is going great guns. Not so much in the east. These cold calls always happen in a downturn. In 2009 it was an everyday thing. There you go, a totally anecdotal data point.


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