28 July 2014

Monday funnies

(via RM) What happens when you mix two religions? [click to enlarge]


Your groundwater accountant is calling

Six months ago, I suggested a few ways to deal with the drought in the western US. Besides raising prices to reduce demand -- my first suggestion, always -- I mentioned that California needed to end unsustainable groundwater pumping ("overdrafting") by farmers.*

I and others have called for better controls on groundwater since at least 2009. In that same year, Tim Quinn (head of ACWA, which represents big water agencies and many irrigation organizations) estimated that overdrafting would increase from the "normal" rate of 2 million acre feet (California gets 40MAF per year) to 4 MAF, so we're talking from bad to worse.

How are farmers responding to this existential threat? In 2008, the California Farm Bureau said:**
We encourage landowners in critically overdrafted areas to continue to devise and implement, under local control, groundwater management plans. We believe that local control over groundwater management is best accomplished through existing water entities or new water entities formed by local landowners for the purpose of groundwater management.
That policy position, as I predicted in a 2009 post ("Chronicle of a Death Foretold") has failed, as we see from this recent update:
A new study by University of California, Irvine and NASA scientists finds more than 75 percent of the water loss in the drought-stricken Colorado River Basin since late 2004 came from underground resources. The extent of groundwater loss may pose a greater threat to the water supply of the western United States than previously thought.
This story is based on the GRACE project led by Jay Famgletti at UC Irvine,*** which continues to reveal how deep a hole we've dug for ourselves. farmers have dug for themselves. GRACE data say that 75 percent of the 51MAF overconsumption of water has come from groundwater, i.e., 41 MAF in the last ten years.

Those numbers refer to the southern Colorado River Basin, not California. They are probably representative and may even be better less worse than California's numbers.

Why do we care? Groundwater helps in drought because we can draw on multiple years of storage when surface water flows and storage are below trend. That "dry-day fund" has allowed many people to ignore the current drought and helped farmers make money without surface water deliveries, but it's going fast and it's VERY HARD to replace.

Bottom Line: Groundwater depletion is a precondition for environmental collapse, economic disruption and outbound migration. Plan accordingly.

* I repeated that advice two weeks ago at my Reddit AMA.
** I'm quoting from the blog post, but the source -- CFBF's "policy guide" -- is NOT posted online
*** Read this great interview with Jay. Then pack your bags to leave California.

H/Ts to DPG and RM

26 July 2014

Flashback: 21-27 July 2013

A year later and still worth reading...

25 July 2014

Friday party!

Party hard, but don't die from stupidity.



(For extra safety you may want to check out these airline announcements... by Sports Illustrated models)

The Starfish and the Spider -- a (mini) review

Over-controlling CEO or empowering Catalyst?
CH sent me this book by Brafman and Beckstrom, which I started -- and stopped -- this morning.*

I stopped because the prose was far too excited for the authors' point, which is that a starfish has a decentralized "leadership" that allows individual arms (even polyps) to "decide" what to do, without consulting any center. A spider, OTOH, needs to keep the entire web in order if it's going to eat. The obvious figure at right "explains."

This analogy is meant to apply to organizations (hence all the CEO endorsements) that want to balance between centralized and delegated control.

I get it. You get it. The main question, then, is HOW to find that balance.

When it comes to water, for example, we can leave a farmer with a well or reservoir to decide how much of his private water to use. He knows how much there is and how much he wants to use, and his decisions do not affect the water of others.

Change that scenario to a bunch of farmers sharing the same aquifer or reservoir, and there's a need to coordinate their use. This can happen by allowing each the same quantity of water, auctioning rights to the "sustainable" yield, etc. A "spider" needs to keep track of aggregate use, but there's no need to track the "why" of use (trees, row crops, pools, etc.) because we can assume the farmers know what they're doing.

Take it one step further, to water prices in cities. Water managers can try to tell people how much to use, when and for what. Or they can move towards a starfish type of management by setting a price that will keep total consumption within an acceptable range. The managers will not know who uses how much water for what (except when sending bills), but their ignorance does not matter. They don't know who should use how much water, and they should not try to understand. They only need to keep aggregates in balance.

If you like airport business books, then check out Starfish. If you want better perspectives on these ideas, then read Two Cheers for Anarchism or the founding papers on these topics: Hayek's 1945 "Use of Knowledge in Society" [PDF] or Coase's 1937 "Nature of the Firm" [PDF]

Bottom Line: I give this book TWO STARS for lacking anything sticky to hold me.

* This is a mini-review because I didn't read the whole book. I may have missed a masterpiece (correct me, please), but I cannot spend too much time looking when one may not be there.

24 July 2014

Ronald Coase, institutions and water

A LONG time ago, TS sent this:
Ronald Coase died this past week at age 102. I think many people continue to misinterpret/misuse his core ideas and theories, i.e., the hard core right using his stuff to support the argument that any government regulation or intervention is bad. As you know, he advocated for property rights (which government would facilitate) to help us efficiently manage our environmental challenges, among other things.

I think you've applied some of his insights to your writing on water, e.g., setting up water rights for people so they could sell some of their unused allocation to people who need water (example, farmers to urbanites).

I'd love to see a post applying Coase's ideas to water management.
I'll leave the summaries of Coase's work to Wikipedia, the Nobel Committee, Encyclopedia of Economics, this podcast, and this application of Coase to environmental issues. Go read more if you want a better view of one of the more original minds in economics.

Now why was Coase original? First, because his formal education only extended to his BSc in Commerce. Second, because he insisted on looking into the "real world" for problems and solutions. Third, because he brought a clean ("outside the box") perspective to economics.

Coase was an accidental iconoclast who used common sense to make a difference.

So, how can we apply his ideas to water?

Let's begin by defining the words that he used to establish entirely new dimensions of economics:

"Transaction costs" occur in the course of finding a trading partner, making and completing a deal. Economists who assume "zero transaction costs" have never bought a used car or gone on a date. Matching takes time; information is buried or obscured; some deals cannot be pursued to their conclusion.

"Property rights" don't just define who owns what in terms of private goods. Their absence or mis-specification affects club, public and common pool goods. Many problems, Coase would argue, arise from poorly-specified property rights.

"Institutions" are the informal norms and formal rules that affect our interactions. Good institutions clarify property rights and lower transaction costs. Outdated or missing institutions mean that property is mismanaged (inducing anything from litter to war) and transaction costs are high -- often leading to "missed opportunities."

I use Coase's ideas everyday. Sometimes, I decide it's not worth "spending" more time to get slightly cheaper fruit (maybe). Sometimes, I leave my bike unlocked because I am among property-respecting types (or community-minded types that will catch out thieves). Sometimes, I wonder why my roommates leave dirty dishes in the sink.

I can also apply Coase's ideas to water. You cannot have a water market without clear rights, low transaction costs, and an "institutional" acceptance of trading commodity water.

You cannot police water pollution without assigning the right to pollute (or be free of pollution). Even with those rights, you cannot enforce them when the transaction costs of finding the polluter or measuring pollution are too high. These will be even higher if there's no authority in charge of measuring pollution, since an individual may not have the incentive (costs>benefits) of measuring pollution that affects other people. Coase, thus, codified "the logic of collective action."

Taking Coase from a different angle, you might oppose over-complex water tariffs that require lots of measurements (transaction costs), violate property rights (lawns versus people), or fail to integrate with systems handing water before or after it's diverted into taps.

All of these examples have the same things in common. They bring a pragmatic, problem-solving perspective to issues that cannot be "solved" with the same global algorithm. Coase always began with the foundation of how things really worked (or failed) -- not an academic "simplification" that threw out the baby with the bathwater.

Bottom Line:It doesn't matter what Coase said. It matters that you apply his pragmatic perspective to identifying and removing the barriers to outcomes you want.

23 July 2014

Booze, cigarettes and sweets?

We regulate the sale and consumption of alcohol and tobacco to under-18s for their own protection, but why do we allow unlimited sales of candy bars, soda, energy drinks and so on?

Those concentrated sources of sugar lead to cavities (I've got plenty), obesity, immuno-suppression, learning problems, etc. They do little or nothing positive for someone's health.

I'm proposing a regulation that limits the percentage of calories from sugar in prepared foods, not a ban on sugar, home baking, etc.

Thoughts?

Speed blogging

  1. Five things hippies get wrong about water -- a guest post I wrote for the (leftie) Angry Bear blog, featuring many disagreeing comments...

  2. Nice post on Israel's water complication (Palestine)

  3. We will not reach "the technical potential for water savings [on farms, in homes] without significant institutional and political change". Related: institutional inertia and the difficulty of change

  4. Miami: home prices up, sea levels up. Can growth overcome facts? Related: The Atlas of Loss and Death tracks an increasing frequency of natural disasters

  5. Reasonable: The US government may start to tell states to manage stop mismanaging their water

  6. A VERY useful paper [pdf] "reviews the cost of different water supply and water treatment options around the world"
H/T to BG

22 July 2014

So what about Detroit?

I have followed Detroit's fall with interest, mostly because I am hoping that an entrepreneurial government will allow a thousand flowers to bloom in the hollowed-out city (population has dropped by 60 percent; 200,000 properties are vacant). That process will take time, even if it's going in the right direction.

In the meantime, the city is bankrupt, and one-third of its debt ($5 billion) is linked to the Detroit Water and Sewerage Department (DWSD), which is trying to collect $175 million in past-due debt from its customers.

This action is sensible but controversial in two ways. First, DWSD is cutting service to customers who do not pay their bills. Second — and far worse — DWSD is going after debts of as little as $150 from 150,000 residential customers even as it waits for repayment from 11,000 larger customers who owe half the total.

These actions have led to a petition from the human-right-to-water crowd, asking the President to declare a human health crisis, i.e., to prevent DWSD from charging customers. That's a terrible idea because it undermines the utility's finances now AND later. Why would anyone pay for water they can get for free?

My opposition to the petition does not mean I oppose financial help for the poor or their continued access to drinking water. Here's how I'd handle the situation:

Whereas:
  • Drinking water SERVICES should NOT be a human right (=free) because they — like electrical services — cost money
  • Detroit has mismanaged many dimensions of life, including poverty, jobs and water management
  • The utility MUST continue to operate, and it needs money for that
  • Past debt may not be customers’ fault, since the utility may have over spent, etc.
  • Therefore:
    1. The poor should income support to pay for food, rent and water. They should NOT be given free water
    2. The utility should go after biggest customers FIRST, as the cost per $1,000 of debt recovery will be MUCH lower
    3. The government may face a welfare burden, but welfare works through income transfers, not cheap — or free — water
Bottom Line: The government (and taxpayers) should bail out the poor. Bigger customers should be chased for repayment. All customers should pay their future water bills.

H/Ts to BB, DC and RM

21 July 2014

Monday funnies

Why are people taking selfies in ALL the wrong places?

Anything but water

  1. If you want a great introduction to institutions (the ones that determine the difference between economic development and stagnation, for example), then read this 1991 paper [pdf] by Douglass North, Nobel Laureate

  2. I'm happy to find that Simon Kuznets (inventor of GDP)...
    ...was inclined to include only activities he believed contributed to society’s wellbeing. Why count things like spending on armaments, he reasoned, when war clearly detracted from human welfare? He also wanted to subtract advertising (useless), financial and speculative activities (dangerous) and government spending (tautological, since it was just recycled taxes). Presumably he wouldn’t have been thrilled with the idea that the more heroin consumed and prostitutes visited, the healthier an economy. [Unfortunately,] Kuznets lost his battle. Modern national income accounts include both arms sales and investment banking services.
    It's sad that his fears of distortions came true, as I described in "Economists owe ecology an apology"

  3. Read this very insightful article on monopoly regulation. The earliest laws encouraged diversity and competition. Later laws "harnessed" the efficiency of monopolies... until the monopolies took over politicians, regulators and markets. Too bad for the US

  4. Best way to invest $1? Read these deep -- and shallow -- responses

  5. Read this interview with a 15 year old who's been to Burning Man 12 times:
    What about the people who say that Burning Man is not as cool as it used to be?
    A: There’s a lot more people recently who have been going just for the party, and not for the art. It’s an ART FESTIVAL. If you just come to party and get wasted, that’s not what Burning Man is about. If you’re seeing it as a big party … it sort of is, but it’s an ART party. It’s not just for coming to drink.

    Is there anything else you’d want to say to people attending Burning Man?
    A: Take risks. Don’t take BIG risks, but take … a good amount of risks. If you’re going to go to Burning Man, be open-minded. Push your boundaries. If you’re not comfortable with something, try it anyway. Explore, experiment, try new things. Get to know yourself.