Doesn't this beget an economic feedback cycle? I.e., if it's more cost productive to send to a landfill, then more waste will be sent to a landfill, and so the costs to do so will go up as "demand" (waste) outstrips "supply" (landfill space). Then the cost effective pendulum swings back to recycling. Is that already happening?

In some ways, recycling should pay for itself. Consumers generate raw material for free, which through aggregation, sorting, and rectification (de-generating into raw-er materials) gains value for recyclers.