California is already in water shortage, if the reductions in deliveries to farmers (the canaries in the mine) are indicative of what's coming down the pike.
Farmers, predictably, are reacting with indignation and fear:
Mike Wade, Executive Director, of the California Farm Water Coalition claims that farmers use "only" 41 percent of California's water (not 80 percent, as I and others claim) because environmental flows get 48 percent of the "controlled" water. His claim is silly, as environmental flows are not just required by law, but required to keep our ecology intact. Cotton and alfalfa -- crops he claims "are in demand in the marketplace" -- are water hogs that should not enjoy special protection. This guy clearly misunderstands supply and demand: Everything is in demand in the marketplace -- the only question is the price, and cotton and alfalfa would not be in demand if their prices reflected the true costs of water.
More relevant is the quandary that avocado farmers face in San Diego county: Because they get subsidized water prices, they face cuts of 30 percent in their deliveries when water is short. It's short now, and they face the prospect of low yields and/or dead orchards. If given the chance, a number would probably want to buy water to get a better harvest and/or protect their investment.
Bottom Line: Farmers pay too little for water they claim to "use wisely", but they cannot get water when they actually are willing to pay for it. Water needs to be allocated in markets -- regardless of the final use.
6 comments:
The usual boundless faith in markets to solve resources problems. Disregards that farmers were here (in the West) first and properly vested their rights in water under California law and active federal reclamation policy; disregards the economic costs of "shock therapy" to water system and stakeholders.
Also completely internally consistent in arguing for marketizing resources when it comes to stripping away ag water, but says "environmental" water is "required by law". Why the sudden faith in law when it comes to the environment? If markets are so darn good at allocating resources, then maybe we ought to leave the "environmental" component of California water demand to what it has the ability to pay for!
New bottom line: if farmers pay too little for water, the fish really pay FAR too little. If the truism you state is so good, "regardless of final use", then the Endangered Species Act either needs to be publicly financed as a way of allocating water resources, or axed completely. The usual enviro blind spot, I guess.
anonymous: I did not say that farmers should have water rights stripped away. I am happy for them to reap the benefits of their prior actions, even if others dispute farmers' "rights" to water that "belongs to the people" or was "oversubsidized".
I disagree that fish should pay for their water. First, because nature provides public goods that cannot be monetized (as ag crops can); and second because death of a river in an area has far more drastic consequences than end of farming in an area (other activities are possible/crops & food can come from elsewhere).
I agree with you that the ESA is a strong on the takings and weak on the cost-benefit. Enviros that use it to get control over a situation might abuse it -- especially if they use their "right" to shut down all uses. There is some middle-ground for water allocation that markets can mediate far better than lawsuits. I'd give some rights to farmers (historic use) and some rights to fish (enviro constraint) and allocate the rest of the water (30-50%, if 89% is ag/enviro) in a market.
Great comments.
The idea that the water "belongs to the people" is only a half-truth, as a matter of law. Indeed the corpus of the water belongs to the people, and that is right out of the California Water Code. However, rights to use the water are in every sense protectible private property interests, and are considered by the courts to be a species of real property interests. So to toss out "the water belongs to the people" is really not meaningful in the context of who gets to use it and how. Water rights are property rights, held by individuals to the exclusion of others. In the eyes of the law, just like your house or your bike.
Second, it is not a matter of farmers' "prior actions", as if they came along and unfairly (from a retrospective view) locked up all the water. The West was settled by farmers as matter of active federal policy. Laws were passed, after all due public process and debate in the Congress. Nobody was hoodwinking anybody. The Reclamation Act of 1902, as well as other laws in the late 19th century, were specifically enacted to get FARMERS to settle in arid areas of the West. Similarly, in terms of legal doctrine, states in the West adopted the principle of prior appropriation, which was encouraged to get folks to come here and put the water to use. Farmers did. They are entitled to rely upon the edifice of law as it was erected.
The charge of "subsidy" applies mainly to contract water rights, received through federal (mainly) and state reclamation projects. The laws that erected the "subsidies" were passed like any other law the government passes to intervene in markets, and if the "subsidies" are going to be undone it needs to be with all due consideration for the folks that were encouraged to develop lives and livelihoods around a system not entirely their fault.
The subsidy argument does not apply to the vast remainder of water rights in the West, which are appropriative or riparian rights. If you have a beef with those water rights, you have a beef with the law and not markets.
Finally, why the sudden breakdown of faith in the ability of markets to monetize the value of the environment? Isn't that just a copout, especially pernicious coming from an economist? Be braver than that. If the environment provides important "public goods", quantify them and build them into your model. Similarly, if drying up a river has "drastic consequences", Jesus, let's build it into the model so that markets can help us avoid that. Let's build a coherent and comprehensive market mechanism and not one that suspiciously jibes with a certain political orientation.
anonymous: Your first four paragraphs elaborate on views that I agree with -- that's why I put "subsidy", etc. in "" marks.
That said, I am happy to resort to taking the water "back to the people" using eminent domain -- and paying the capitalized value using the price of ag water. (Farmers cannot claim the urban value of water in the same way they cannot declare their land re-zoned into commercial.) The goal of that law is to move assets into another use that benefits the public. I am not invoking the Kelo mess, but the same argument used to seize land for a road or school.
If farmers are allowed to trade their water, I am sure there will be no need for eminent domain, since urban value is far higher. As I have said before, I prefer to let farmers sell their water. ED is only a last resort if they will not (and that's highly unlikely!)
As to a model or market to monetize the value of the environment, I say two things: A model and the values it produces is subject to manipulation, and markets do not capture externalities or public goods. So this economist is not going to make that "model mistake." Safer to set aside some water for the environment and let everyone fight over the rest -- as I said before.
Better comments still!
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