31 Jan 2008

Growth versus Nature

The Sacramento City Council voted unanimously...
Tuesday evening to annex and rezone 577 acres of North Natomas farmland just outside the city limits and allow construction of 3,500 houses and apartments."

Building is unlikely to begin before 2010, however, because the federal government has announced it intends to designate North Natomas a flood hazard zone, essentially halting construction.

The Sacramento Area Flood Protection Agency has said it expects to complete sufficient levee improvements by 2010 to ensure the minimum level of 100-year flood protection required by the Federal Emergency Management Agency, which would allow growth in the Natomas basin to resume.
Thank God that growth in Natomas can continue -- otherwise the city council couldn't get those developer donations, tax revenues and MORE HOUSES BUILT IN A FLOOD ZONE. I see a problem of mortgaging the future here, and the taxpayers who "bail in" Natomas (by paying for levees) are probably going to "bail out" Natomas (by paying for flood cleanup). Too bad for us.

A related story reports a collapse in the salmon population:
In his e-mail to members of the fishery management council, Executive Director Donald McIsaac offered "an early alert to what at this point appears to be an unprecedented collapse in the abundance of adult California Central Valley ... fall Chinook salmon stocks."

About 90,000 returning adult salmon were counted in the Central Valley in 2007, the second lowest number on record, the memo said. The population was at 277,000 in 2006 and 804,000 five years ago.

More worrisome is that only about 2,000 2-year-old juvenile chinooks returned to the Central Valley last year, by far the lowest number ever counted. On average, about 40,000 juveniles, or "jacks," return each year.
Bottom Line: Nature moves last. We are seeing the impact of poor policies towards fish. Can we imagine any different from building behind levees? The trouble -- as always -- is poor property rights: Nobody owns the salmon, so they are overfished; the public pays for levees and floods, so developers build in stupid places.

30 Jan 2008

8 Glasses Myth

Myth: You should drink at least eight glasses of water a day. According the recent issue in the British Medical Journal:
"There is no medical evidence to suggest that you need that much water," said Dr. Rachel Vreeman, a pediatrics research fellow at the university and co-author of the journal article. Vreeman thinks this myth can be traced back to a 1945 recommendation from the Nutrition Council that a person consume the equivalent of 8 glasses (64 ounces) of fluid a day. Over the years, "fluid" turned to water. But fruits and vegetables, plus coffee and other liquids, count.

29 Jan 2008

Pollution in China

The Economist reports that growth at all costs means that air, water and soil get short shrift:
SEPA [China's EPA] is so weak that its officials admit it has little grasp of the impact of agriculture on water and soil pollution. The Ministry of Agriculture has discouraged it from gathering data even though, as one SEPA official sees it, Chinese agriculture pollutes as much as its industries.


Last year officials reportedly asked the World Bank to remove estimates of pollution-related deaths in China from a report published jointly with SEPA. But SEPA's website still shows a little-reported speech by Mr Pan in 2006 in which he said cancer experts believed that 70% of China's more than 2m annual deaths from the disease were pollution-related. The World Bank had been planning to blame pollution for just 750,000 deaths from various causes.

Chinese officials were worried that the World Bank's figures would cause unrest. But environmental awareness—and anger—is mounting anyway. Of complaints submitted to government departments, 13% relate to pollution, up from fewer than 6% three years ago. And SEPA officials say pollution-related disturbances are also becoming more common—51,000 in 2005 and more than 60,000 in 2006.
Bottom Line: A dictatorship may be good at directing growth buit it is not good at serving the needs of people. China is walking a path beaten long ago in Soviet Russia. Then, as now, those who protested against waste, pollution and destruction were called enemies of the Capitalists State. China will have a hard time reigning in pollution while there is money to be made. In the meantime, the poor (and olympians) will suffer.

28 Jan 2008

Europe Cuts Biofuels Subsidies

...and it's about time (NYT story). We've seen the havoc that government subsidies caused to U.S. Agriculture (often with farmers' permission and ag processors lobbying $$), but biofuel subsidies have often resulted in "solutions" that are worse than the problem:
Under a proposed Swiss directive, for example, a liter of biofuel would have to produce 40 percent less in emissions than fossil fuel to qualify for special treatment. It will be hard to make corn ethanol or even rapeseed (used to make canola oil) meet the standard, said Lukas Gutzwiller of Switzerland’s Federal Energy Office.

With a fuller picture of “the pros and cons of various biofuels, it was very obvious to us that we should not just push forward blindly,” Mr. Gutzwiller said. “We had to base the political debate on environmental analysis to make sure that biofuels were having a positive effect.”


Corn ethanol from the United States, for example, will have trouble meeting the standard, because its carbon dioxide reduction is 10 to 20 percent from the level of regular gasoline, said Jürgen Maier, director of the German Forum on Environment and Development, a nongovernmental organization.


While Western subsidies and tax breaks were begun to benefit the environment and to help reduce the West’s dependence on foreign oil, they have been a boon for farmers around the world. Nascent biofuel industries in many countries, including in the West, are resisting cuts in such payments, without which they fear they cannot be profitable.
Bottom Line: That last bit is precious. It seems pretty obvious that companies like subsidies and that many subsidized companies would not exist without them. It's the old "infant industry" argument all over again, and it's just as wrong now as it was when other industries claimed they "just need a little time (and a lot of taxpayer money) until they can get on their feet."

The government should not pick winners or losers: The best carbon policy is a simple tax on all carbon emissions. Companies that pollute will pay more tax; those that innovate will avoid the tax (or get rebates). Picking winners (or letting them bribe you) is bad for the environment.

Thanks to AG for the pointer.


The LA Times writes on girls maturing earlier than in the past:
Earlier breast development is now so typical that the Lawson Wilkins Pediatric Endocrine Society urged changing the definition of "normal" development. Until 10 years ago, breast development at age 8 was considered an abnormal event that should be investigated by an endocrinologist. Then a landmark study in the April 1997 journal Pediatrics written by Marcia Herman-Giddens, adjunct professor at the School of Public Health at the University of North Carolina, Chapel Hill, found that among 17,000 girls in North Carolina, almost half of African Americans and 15% of whites had begun breast development by age 8. Two years later, the society suggested changing what it considered medically normal.


"The explanation for which there's the most evidence is that it's related to the trend in increasing obesity," he says. "There are other factors, such as if your mother matured early. Sometimes we simply don't know. But overall, the biggest single factor is the trend toward obesity." Fatty tissue is a source of estrogen, so chubbier girls are exposed to more estrogen.

"With environmental influences, there has been a lot of speculation, but little hard data. I'm not suggesting there's no connection, but it's very hard to say there's a proven connection. I think it's environmental mainly in the sense that overeating and lack of exercise is environmental," Kaplowitz says. "I've tried to take the view that we shouldn't be alarmed about this."
Bottom Line: We change our (social and physical -- obesity and chemicals) environment and it changes us (social and physical -- younger maturity in girls), and that affect the environment. Remember: Nature Moves Last.

27 Jan 2008

Water Prices up?

Water shortages in California have resulted in higher prices for agricultural water: "Prices have jumped from the $50 per acre-foot typical in wet years to as much as $200 per acre-foot." [These are Northern California prices. Prices in the south are double] Some farmers are have decided to "farm water" instead of food -- it's more profitable and less uncertain.

Meanwhile, rationing plans in Southern California appear to be hitting some places harder than others:
Under the proposed formula, cities heavily dependent on MWD water and growing cities would receive preference, while cities such as Long Beach with a significant local water supply would both receive less water and pay more. Big winners in the plan would be Los Angeles and San Diego — both heavy users of MWD water. San Diego in particular has little local water available.

A letter sent Jan. 3 from the Long Beach Board of Water Commissioners to the chair of the MWD board says that the MWD would be violating its own guiding policies if it approves the new policy. The guided principle cited is to work first with agencies that have helped develop conjunctive use (shared storage) projects.

The same letter says that MWD plans to continue to provide water to agricultural users even if there is a shortage. Long Beach contends that state law requires MWD — and any other water delivery agency — to provide domestic and municipal water before offering any surplus water to agriculture.
Bottom Line: Market forces do not have a strong impact on water allocation, and unfair outcomes still result from political power. If California is going to use its water efficiently, farmers should be able to sell water and cities should be able to compete with farms to get water. No more special privileges.

26 Jan 2008

Poison Organic

In a short essay, Szasz points out that a large share of people worried about the environment react by "buying" the solution -- instead of going to the source and fixing the problem:
I think what we are witnessing here is a distinct form of, or expression of, environmentalism. Bottled water, water filters, the wish to eat organic, to use "nontoxic" cleaning products in the home — all that is evidence that the environmental movement has been partially successful. Environmentalism raised people's awareness of toxic hazards. But it turns out that the awareness — that feeling of vulnerability, of being at risk — does not necessarily lead people to political activism to reduce the amounts or the variety of toxins present in the environment.

Environmentalism strives to fire citizens up, get them to act collectively, politically; to organize and force real change. Environmental awareness does push many people toward activism, for sure, but we now see that environmental awareness can also lead to this other response, in which people act not as political subjects, not as citizens, but as consumers who seem interested only in individual acts of self-protection, in trying to keep contaminants out of their bodies.


The consequence, here, is the effect I have called "political anesthesia." Feeling that one has successfully insulated oneself from an environmental threat, one feels no pain, no fear, no anxiety (maybe I should have called it "political anxiety relief"). It follows that one feels less urgency to do something about that particular threat.

Take water, for example. It is estimated that hundreds of billions of dollars will have to be spent in the next decades to keep the nation's public-water infrastructure in good repair, to keep up with growing demand, and to upgrade water purification to deal with new pollutants. With a substantial portion of the population drinking bottled water and/or filtering their water, what is the likelihood that politicians will hear from their constituents that they should be voting to make that necessary investment?
Bottom Line: Collective action is the most powerful way to change our environment, and water supply is one place that requires collective action. If we want to save ourselves AND save the environment, the solution is NOT more bottles of water, but a community water system that brings good water to all of us, rich/poor concerned/oblivious. Note that I do not say "public" or "private" water system: Ownership is not the issue, but regultion, oversight and standards. The bottled water business has made billions of $ off of environmental fear and paranoia, and little of that money has gone towards solving environmental problems.

Drink from the tap, call your water agency, read test results, talk to your neighbors, vote in elections, and make your voice heard. That's how to save the environment. Sure, it's more work, but it's also more effective than opening up another bottle of Fiji water.

Cellulosic Ethanol NOW?

One company claims it can make ethanol from any biomass for <$1/gallon. I sure hope they can before corn ethanol destroys us all.

25 Jan 2008

Too much exercise for sex?

According to this story, farmers in Malawi claim that labour-intensive manual irrigation pumps make them too tired for sex. The government is "probing" the claim.

Given the fertility rate of 6.4 babies/woman in Malawui (vs 3.4 in India), they may have a point. 20 percent of men in Malawi have more than one wife (the practice is rarer in India; any good polygamy data out there?)

Another factor that may matter is that the men are working the pumps. It's not uncommon for men to grab "high tech" devices (think remote control), and these men may be working more in the fields than they usually do.

This "problem" sounds like a blessing for the women. I hope the government asks their opinion!

Bottom Line: There are tradeoffs between activities. If the pumps are decreasing fertility AND increasing productivity, fewer, better fed children will results. Now that's development!

24 Jan 2008

Oil on Water

The Durango Herald reports a bad end for Colorado's water:
No one has ever rowed a boat across Stillwater Reservoir. Or caught a fish at Fourteenmile Reservoir. Or stood on the beach of Roan Creek Reservoir.

These are all imaginary lakes. They exist only in the minds of oil company executives and attorneys.

But the oil companies own legal rights to build and fill these reservoirs, which would be in Garfield and Rio Blanco counties. And as the companies take another look at Colorado's oil-shale deposits, which would require vast amounts of water to develop, they might make those imaginary lakes a reality.

Their water rights are huge, and getting bigger. Shell has been buying large water rights on the Western Slope for the last five years and just completed a major purchase in July.

"I've seen estimates that oil shale, if it is developed, would consume 100 percent of the remaining water in the Colorado River system," said U.S. Sen. Ken Salazar.
Bottom Line: As oil gets more expensive, exploration goes to more-obscure sources, and it takes water to process shale into energy. Since water rights go with land, they can be bought cheaply and mined as part of an oil extraction operation. The result is terrible for the environment, but not unpredictable. The law governing water in the Western US ("beneficial use", meaning you can divert as much as you like as long as it's "beneficial".) was originally enacted to support strip-mining with pressurized water.

23 Jan 2008

SoCal Water Wars

MWD (the subject of my dissertation) is trying to put a formula into place that will allocate water among member agencies. There are winners and losers in the formula, which appears to have sufficient political backing. That's bad news for the losers and bad news for fair and efficient allocation of urban water in Southern California.

In the comments section of the article, the people bash growth, Mexicans, cotton farmers, et al., but nobody proposes an economic solution. Here it is:
  1. Allocate 100-200 gallons/person/day to everyone. That takes care of human rights, the poor, et al.
  2. Allocate the rest of the water (50-60%) via auction: Those who want it, pay for it. That takes care of the farmers, biotech, lawns, new growth areas, etc.
  3. Use auction money to pay costs, and rebate the rest on a per capita basis (more equity).
This solution doesn't need to consider history, weather fluctuations, low flush toilets, etc. Everyone will see how expensive water is (via price) and make their own decisions on how much to buy on top of their "lifeline" entitlement.

Simple. Hope it happens soon!

22 Jan 2008

Ethanol and Terrorism

NYT article:
The food price index of the Food and Agriculture Organization of the United Nations, based on export prices for 60 internationally traded foodstuffs, climbed 37 percent last year. That was on top of a 14 percent increase in 2006, and the trend has accelerated this winter.

In some poor countries, desperation is taking hold. Just in the last week, protests have erupted in Pakistan over wheat shortages, and in Indonesia over soybean shortages. Egypt has banned rice exports to keep food at home, and China has put price controls on cooking oil, grain, meat, milk and eggs.

According to the F.A.O., food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen.

“The urban poor, the rural landless and small and marginal farmers stand to lose,” said He Changchui, the agency’s chief representative for Asia and the Pacific.

A startling change is unfolding in the world’s food markets. Soaring fuel prices have altered the equation for growing food and transporting it across the globe. Huge demand for biofuels has created tension between using land to produce fuel and using it for food.

A growing middle class in the developing world is demanding more protein, from pork and hamburgers to chicken and ice cream. And all this is happening even as global climate change may be starting to make it harder to grow food in some of the places best equipped to do so, like Australia.

In the last few years, world demand for crops and meat has been rising sharply. It remains an open question how and when the supply will catch up. For the foreseeable future, that probably means higher prices at the grocery store and fatter paychecks for farmers of major crops like corn, wheat and soybeans.
Bottom Line: US policies (on ethanol, trade, etc.) to make farmers richER are driving up food costs for the poor in developing countries. The poor get frustrated and turn on their lousy governments (often lousy because they have friends like the US who give aid and can ignore their people). Frustration means terrorism, and thus we can say that ethanol programs promote terrorism! End the stupidity!

20 Jan 2008

More Scandal on Ethanol

The economist points out another reason why Ethanol is popular:
The Energy Policy Act of 2005 requires that 7.5 billion gallons of renewable biofuel be blended into petrol by 2012. To make that happen, the federal government has been subsidising refiners of E85 with tax credits to the tune of 51 cents a gallon. Meanwhile, to keep the corn-growers well fed, the government has been levying a tariff of 54 cents a gallon on imported ethanol.

But, wait, that’s not all. Car companies in America get a fuel-economy credit for every flex-fuel vehicle they sell. The government rates the fuel economy of flex-fuel vehicles at about 165% the miles per gallon (mpg) they would get on straight petrol. In reality, vehicles running on E85 get 25-30% fewer mpg than their petrol equivalents.

As it costs only $200 to turn a conventional car or light truck into a flex-fuel vehicle, the industry can save itself billions in potential fines that would otherwise accrue for failing to meet the government’s CAFE (corporate average fuel economy) requirements. CAFE is the sales-weighted average mpg figure for all the cars or light trucks a manufacturer sells in any given model year.

The current CAFE of 27.5 mpg for cars and 21.6 mpg for light trucks is set to rise to a combined 35 mpg by 2020. Subsidised corn-based ethanol is therefore a nifty way of meeting America’s mandatory fuel-economy requirements without having to invest billions in new technology. Between them, General Motors, Ford and Chrysler now offer over three dozen models that can run on E85 as well as petrol.

Not that many actually do. There are only 1,200 gas stations in the whole of America that offer E85 (out of 175,000 nationwide). Most are in the Midwest, close to where the corn is grown and processed. California has fewer than ten. New Jersey none.
Bottom Line: The government (assisted by lobbyists) is pulling out all the stops for its corn farmers and car makers. Get ready for some bad accounting and ugly environmental problems

19 Jan 2008

A Few Things..

...you may want to read (from the Xmas Economist):

The story of an apocalyptic environmental disaster in which large numbers of people died -- in the 18th century. Useful to consider these consequences as a possible scenario today except that today's problems will last much longer.

>GMO grapes. Want fish-flavor in your wine? No problem...

18 Jan 2008

Farmers in Debt

Farmers who signed contracts to get water from the Central Valley Project got a great deal: subsidized loans to cover capital costs and water delivered at cost, or less. (Typical prices of $30-45/acre foot are far below the $300-$500/AF that farmers pay to get State Water Project.)

Now a report from the GAO says that CVP farmers still owe the government about $450 million:
The U.S. Government Accountability Office, in its first update in a decade on the debt repayment status of the Westlands Water District and several smaller irrigation districts, concluded Westlands still owes $372 million, the bulk of the $449 million owed by the districts. The debt, which dates to the late 1960s, carries no interest.

"If they were homeowners, they would be foreclosed on," said Rep. George Miller, D-Martinez, one of three lawmakers who requested the report.
In the past, I have said that Westlands would not exist without these subsidies and that it is trying to foist its own problems (toxic runoff) back onto the government. This story is just another battle in that war. Let's hope that we citizens win. Either declare bankruptcy (and go away) or pay off the debt.

Homes Yes, Water No

If you thought the real estate bust couldn't get any worse, you are lucky not to be the developer who now finds himself with 200+ lots ready for new home construction but no water. More interesting is that these lots are in Northern California, an area known for water abundance, not scarcity.

Bottom Line: Water is now, more than ever, a binding constraint on construction.

17 Jan 2008

Scary Fish Story

If you are looking for a good classroom example of feedback in biological systems, try this story: Invasive species shows up, eats plankton, local prey species collapses, their predators follow, and people starve. That's Lake Michigan -- without going to the foodcourt to get lunch. Biologists are betting the invasive species will collapse, but will it do so "on time"?

More on Dumb Ethanol

AG sent me this. It's slightly old, but Carter is in my department and his coauthor are looking prescient.
Colin A. Carter*, Henry I. Miller. May 2007

From pre-school to planning funerals, green is in. Very in. But green policies and decisions need to be based on more than a vague desire to save the planet. The principles of the natural sciences and economics must play an essential role -- a part of policy-making that often eludes politicians. The latest examples are the federal government’s efforts to reduce the United States’s dependence on imported oil (now more than 60 percent) by shifting a big share of the nation’s largest crop, corn, to the production of ethanol for fueling automobiles.

Good goal, bad policy. In fact, in the short- and medium-term, ethanol can do little to reduce the vast amount of oil that is imported, and the ethanol policy will have widespread and profound ripple effects on other commodity markets. Corn farmers and ethanol refiners are ecstatic about the ethanol boom, of course, and are enjoying the windfall of artificially enhanced demand. But it is already proving to be an expensive and dangerous experiment for the rest of us.

The U.S. Senate is debating new legislation that would further expand corn ethanol production. A 2005 law already mandates production of 7.5 billion gallons by 2012, about 5 percent of the projected gasoline use at that time. These biofuel goals are propped up by a generous federal subsidy – via tax credits -- of 51 cents a gallon for blending ethanol into gasoline, and a tariff of 54 cents a gallon on most imported ethanol, to keep out cheap imports from Brazil. This latest bill is a prime example of the government’s throwing good money after a bad idea, of ignoring science and economics in favor of politics, and of disdain for free markets.

President Bush has set a target of replacing 15 percent of domestic gasoline use with biofuels (ethanol and biodiesel) over the next 10 years, which would require almost a five-fold increase in mandatory biofuel use to about 35 billion gallons. With current technology, almost all of this biofuel would have to come from corn because there is no other feasible, proven alternative. However, it is unlikely that American farmers will be able to meet such demands: Achieving the 15 percent goal would require the entire current U.S. corn crop, which represents a whopping 40 percent of the world’s corn supply. This would do more than create mere market distortions; the irresistible pressure to divert corn from food to fuel would create unprecedented turmoil.

Thus, it is no surprise that the price of corn has doubled in the past year — from $2 to $4 per bushel. We are already seeing upward pressure on food prices as the demand for ethanol boosts the demand for corn: Nationally, food prices were up 3.9 percent in April, compared to the same month a year earlier. Until the recent ethanol boom, more than 60 percent of the annual U.S. corn harvest was fed domestically to cattle, hogs and chickens, or used in food or beverages. Thousands of food items contain corn or corn byproducts. A spokesman for one of California’s largest cattle ranches and feedlots noted that since the end of 2005, the company has experienced a 36 percent increase in the cost of feed, “which translates to an additional expense of $101 per head raised.” Reflecting these trends, the National Cattlemen's Beef Association has demanded an end both to government subsidies for ethanol and to the import tariff on foreign ethanol. The poultry industry is also squawking. The National Chicken Council is demanding remedies from senators who represent the big southern poultry states, and the National Turkey Federation estimates that its feed costs have gone up nearly $600 million annually.

The law of unintended consequences strikes again.

These effects may be only a hint of things to come. Any sort of shock to corn yields, such as drought, unseasonably hot weather, pests or disease in the next few years could send food prices into the stratosphere. Even Gregory Page, the CEO of agribusiness giant Cargill, a major beneficiary of the ethanol boom, shares these fears, “We just have to be sure that the more-is-better mindset [regarding ethanol] doesn't get way out ahead of the capacity of the land to provide the fuel . . . What we would like to see is some thoughtfulness about what we will do if we have a weather calamity.” Such concerns are more than theoretical: In 1970, a widespread outbreak of a fungus called southern corn leaf blight destroyed 15 percent of the U.S. corn crop, and in 1988, drought reduced U.S. corn yields by almost 30 percent.

Politicians like to say that ethanol is environmentally friendly, but these claims must be put into perspective. Although corn is a renewable resource, it has a far lower energy yield relative to the energy used to produce it – what policy wonks call “net energy balance” -- than either biodiesel (such as soybean oil) or ethanol from many other plants.

Moreover, ethanol yields about 30 percent less energy per gallon than gasoline, so mileage per gallon in internal combustion engines drops off significantly. Finally, adding ethanol raises the price of blended fuel because it is more expensive to transport and handle. Lower-cost biomass ethanol — for example, from rice straw (a byproduct of harvesting rice) or switchgrass — would make far more economic sense, but large volumes of ethanol from biomass will not be commercially viable for many years. (And production will be delayed by government policies that specifically encourage corn-based ethanol with subsidies.)

American legislators and policymakers seem oblivious to the scientific and economic realities of ethanol production. Brazil and other major sugarcane-producing nations enjoy significant advantages over the U.S. in producing ethanol, including ample agricultural land, warm climates amenable to vast sugarcane plantations, and on-site distilleries that can process cane immediately after harvest. At current world prices for sugar and corn, Brazilian ethanol production would remain competitive even if oil prices were to drop below $30 per barrel, but U.S. corn-based ethanol plants would be losing money at forty-dollar oil, even with the subsidy. Thus, in the absence of cost-effective, domestically available sources for producing ethanol, rather than using corn it would make far more sense to import ethanol from Brazil and other countries that can produce it efficiently — and also to remove the 54 cents-per-gallon tariff on Brazilian ethanol imports.

A still better strategy would be to encourage a more prominent role for nuclear power, which consumes no fossil fuels and emits no greenhouse gases. Good news on that front is that with electricity demand projected to soar more than 40 percent by 2030 -- not including the potential demand from greater availability of plug-in hybrids and other forms of electric cars -- the Nuclear Regulatory Commission expects applications for as many as 11 new units this year, and for as many as 28 by the end of 2009.

Our politicians may be drunk with the prospect of corn-derived ethanol, but if we don’t adopt policies based on science and sound economics, it is consumers around the world who will suffer from the hangover.

*Colin A. Carter is a professor of agricultural and resource economics at the University of California at Davis. Henry I. Miller, a physician and fellow at Stanford University’s Hoover Institution, was an FDA official from 1979 to 1994; his most recent book is “The Frankenfood Myth.”

A version of this article appeared in the Los Angeles Times on May 17, 2007.

16 Jan 2008

More Levees

The Feds quashed underwater development yesterday, by prohibiting new construction in areas "protected" by weak-levees.
The designation was greeted with anger and shock by Sacramento city officials who have supported bold levee repair plans but oppose restrictions on building.

City leaders questioned the evaluation conducted by the U.S. Army Corps of Engineers. They said they would seek "an act of Congress" to stop the federal action. And they said the new rules could cripple Sacramento's economy.

Natomas is a major economic driver for the city, which is facing a significant budget crisis. "I'm totally outraged," City Manager Ray Kerridge said Tuesday. "I don't know how the federal government can do this to this city."

North Natomas today accounts for 47 percent of the development in the city of Sacramento.
Let's get this straight: Sac politicians are getting permit and tax revenues by allowing developers to build below sealevel, and they are now upset that the government is not going to cover the costs of flooding, should that happen? Let's eat our cake and have it, shall we?

Bottom Line: Subsidies to unsustainable housing are stupid. If Sacramento residents and politicians want to build underwater, let them, but don't use other people's money to subsidize their silly ideas.

Dam Busting

just got a little closer. It appears that all the parties arguing over dams on the Klamath River have agreed to take down four dams. The bad news is that the owner of the dams wants big $$ to ensure that "the financial interests of the company’s customers are safeguarded." Total (removal, mitigation, etc.) costs are in the $1 billion range.

The rationale for a positive payment to the customers is that the dams have a replacement value (opportunity cost), but let's take the opposite tack: How about charging customers to remove the dams in the same way that customers of nuclear power plants are charged? They had the benefit of the dam, and now they should pay the cost of removing its carcass.

Even more evil, pay the depreciated value ($0, I bet) of the dams.

How's that for accounting judo?

Water Updates

This op/ed calls for "appropriate" landscape in Southern California, i.e., desert landscape to replace lush, water-wasting lawns.

The local water district will use federal money (why is it always someone else's money?) to pay for smart meters -- preventing that odious habit of watering lawns when it rains.

Meanwhile, the farmers claim that the drought will finally result in "better water policy" but then goes on to claim that dams and smaller environmental flows are the solution. That's rather rich, coming from a group that still grows alfalfa and switchgrass in the desert. I wish they mentioned better markets for selling water among and out of farm areas.

Bottom Line: Desperate times call for desperate measures; some are good, some are stupid, but at least people are questioning the status quo.

15 Jan 2008

Are Europeans Rejecting Economics?

In a scary and thought-provoking essay, Stefan Theil of Newsweek magazine discusses the "economics" content of French and German textbooks. What he finds is an abundance of paranoia of markets and faith in state-managed economies.

Textbooks say things like this:
"Economic growth imposes a hectic form of life, producing overwork, stress, nervous depression, cardiovascular disease and, according to some, even the development of cancer," asserts the three-volume Histoire du XXe siècle, a set of texts memorized by countless French high school students as they prepare for entrance exams to Sciences Po and other prestigious French universities. The past 20 years have "doubled wealth, doubled unemployment, poverty, and exclusion, whose ill effects constitute the background for a profound social malaise," the text continues. Because the 21st century begins with "an awareness of the limits to growth and the risks posed to humanity [by economic growth]," any future prosperity "depends on the regulation of capitalism on a planetary scale."
While I am not friend of unfettered capitalism (for that, look at China -- and then look at China's water crises), I also know that capitalism does create wealth and prosperity for workers, citizens, entrepreneurs and capitalists. Even bureaucrats need capitalism, if they are to gather (and spend) ever-larger chunks of money "for the public good".

It gets worse, laying out the tired fallacy that companies are the enemy of workers:
One 10th-grade [German] social studies text titled FAKT has a chapter on "What to do against unemployment." Instead of describing how companies might create jobs, the section explains how those without jobs can organize into self-help groups and join weekly anti-reform protests "in the tradition of the East German Monday demonstrations" (which in 1989 helped topple the communist dictatorship). The not-so-subtle subtext? Jobs are a right to be demanded from the government. The same chapter also details various welfare programs, explains how employers use the threat of layoffs as a tactic to cut pay, and concludes with a long excerpt from the platform of the German Union Federation, including the 30-hour work week, retirement at age 60, and redistribution of the work pie by splitting full-time into part-time jobs. No market alternative is taught. When fakt presents the reasons for unemployment, it blames computers and robots. In fact, this is a recurring theme in German textbooks—the Internet will turn workers into "anonymous code" and kill off interpersonal communication.
Oh really? Without companies, many people would be desperately poor. Not everyone has the character to be a self-made entrepreneur or petit capitalist, but many people are happy to work as a cog in the gears -- in exchange for a nice salary and enough time to "work" and read Dilbert.

This educational agenda, if as widespread as Theil says, is bad bad news. Besides creating a generation paranoid of capitalism, it creates a generation ignorant of economics. If there's one thing the world needs more of, it's economic knowledge. The economic ignorance behind many U.S. policies has impoverished the very people who support them and enriched politically-adept, "political" entrepreneurs presenting themselves as "public heroes". We need more, not less, sophisticated citizens, and these textbooks are going the wrong way.

Bottom Line: Citizens and voters support policies. The state educational systems in France and Germany are supporting education of children that favors the State over private enterprise. These children, as voters, will of course give more support to the State, increasing its role and diverting resources from the private sector. As Ayn Rand wrote in Atlas Shrugged, there is only so much burden that capitalists and entrepreneurs are willing to carry before they revolt and take their toys elsewhere. Even worse, they may give up, and we will all pay the price.

The End of Growth

...or at least the old-fashioned version of it; the LA Times reports:
Now, in a sign of growing water anxieties, the Skechers warehouse and six other large projects in western Riverside County are on hold until March or later because the local water agency could not promise to deliver water to serve them.

The dilemma shows what can happen when construction and global trade, key drivers of the regional economy, are reined in by a potential lack of water.

"Just looking at the raw numbers, we kept coming up short," said David J. Slawson, president of the board of directors of the Perris-based Eastern Municipal Water District, one of the largest districts in the state.

Slawson explains that his own livelihood as a land surveyor depends on growth, that no one on the board wants to hobble the economy. Still, he said, the restriction is "something we feel is necessary until we have some better numbers and we see some action statewide."

He says he's surprised that other water districts have not paused to review their own supplies.
Bottom Line: Under Business As Usual, the developers would build and the water would follow. That's not the case anymore: With stretched supplies, it's necessary to ration water in some way. The worst way is what's being proposed now: formulas for rationing. As I argue here, these are too rigid and fail to reflect changing circumstances or the dramatically different values of water under different uses. Time for markets.

14 Jan 2008

Plug-ins at Davis

UC Davis' Institute of Transportation Studies is doing a pilot project to measure consumer reactions to plug-in hybrids. Seems kinda like "duh" to me, but who knows what fabulous information they will uncover in two years at a cost of $3 million. Families that participate will supply feedback when using the cars.

Bottom Line: People are willing to use hybrids; it's just a matter of cost.

13 Jan 2008

Real Time Pricing

The retail electricity sector is light years ahead of the water sector, but their experiments with pricing are still instructive. On the one side, you have people who claim that homeowners will not use less electricity when prices go up, on the other side (with the economists) are people that claim homeowners will use less. This New York Times article reports the results of the "GridWise Olympic Peninsula Project":
The homeowners could go to a Web site to set their ideal home temperature and how many degrees they were willing to have that temperature move above or below the target. They also indicated their level of tolerance for fluctuating electricity prices. In effect, the homeowners were asked to decide the trade-off they wanted to make between cost savings and comfort."

This project provided homeowners with price-responsive thermostats (and, in some cases, water heaters), and importantly, provided them with the opportunity to choose the type of contract and how much price risk they were willing to take.

"Every five minutes, the households and local utilities were buying and selling electricity, with prices constantly fluctuating by tiny amounts as supply and demand on the grid changed.

"Your thermostat and your water heater are day-trading for you," said Ron Ambrosio, a senior researcher at the Watson Research Center of I.B.M."

The average participating household saved 10 percent over the course of the year, and households that were willing to participate in the real-time market saved even more. Not only did these individual actions lead to individual savings, though; in aggregate their willingness to respond to price signals reduced the strain on the congested distribution system in peak periods. The results of this project are strong evidence for how enabling end-user technology and dynamic electricity pricing can lead to consumer savings, increased system reliability, and reduced and delayed capital expenditures to expand distribution systems.
Bottom Line: Demand is a function of price, even for "essential" commodities like electricity (or water). Utilities can improve their efficiency by making greater use of price signals. The technology exists, but the regulatory structure -- and industry attitudes -- must be changed.

Lynne Kiesling sent me this; she was involved in this project. Read her report here

12 Jan 2008

Drought Update

The drought in the Southeast persists, but California's recent rainstorms are bringing precipitation totals upto "normal" levels. There needs to be a lot more rain to bring reservoir levels upto capacity.

Bottom Line: These short-term fluctuations in water flows should not be confused with a long-term solution to the misallocation of water resulting from poorly-designed institutions.

11 Jan 2008

Three Gorges Update

Not looking good:
Four years after the waters began rising in the 410 mile-long reservoir, villagers tell of warped foundations and fissures snaking along the earth. Pollution in the once fast-running river is building in the turbid reservoir. Landslides, common in the rainy region, are occurring more frequently.
Bottom Line: Big projects have big effects. Predicting these effects is harder when the projects are unique, and the government ignores criticism.

Peripheral Canal and Salt

The Peripheral Canal would increase salinity, damaging fish and farms in the Delta. Fish are already in trouble, for numerous reasons.

10 Jan 2008

When the Levee Breaks

Given my recent visit to New Orleans (T-shirt message: "FEMA Disaster Plan: Run, Bitch, Run!"), this piece caught my attention. A Nevada town was inundated when an irrigation levee broke:
Hundreds of homes remained under up to 8 feet of water Sunday as federal emergency workers were on their way to assess the flood damage caused when an irrigation canal's earthen levee ruptured in this rural town of 20,000 about 30 miles east of Reno.
The levee broke because it was weak. It was weak because it was not maintained.

I heard a good presentation by Ellen Hanak (of PPIC) on levees. (Her paper is still in draft form.) Her main exercise was to examine the change in real estate value as areas near Sacramento are declared "safe" or "vulnerable" to flooding due to the perceived strength of the levees protecting the area. (Sacramento is still more vulnerable to flooding than New Orleans but doesn't have to worry about hurricanes.)

Her preliminary results are mixed; some indicate that the values of people's homes drop when their formerly "safe" houses are declared to be in a flood plain. Perhaps people are not paying attention to flood risk because they think the government will bail them out (no pun) or they ignore Nature. Either way, they will get a nasty surprise if widespread, New Orleans floods drown Sacramento. Local warming makes that more likely, as I have said before.

Bottom Line: The reason that NOLA's French quarter was not flooded in Katrina is that people who built there took floods into account. We have pushed development too far into natural buffer areas -- partially because of government policies that subsidize that activity -- and Nature is just doing her thing. Remember that Nature always moves last.

9 Jan 2008

More on Ethanol

An entire issue of the Journal of Agricultural & Food Industrial Organization is devoted to biofuels:
Biofuels are prominent in current discussion both as a solution to problems and as a creator of problems. They have promise as a substitute for fossil fuels, particularly for petroleum as the raw material for transportation fuel. But biofuels also have pitfalls, especially when produced at a scale sufficient to replace a significant proportion of the world's use of petroleum. The articles in this special issue analyze key aspects of both the promise and pitfalls of biofuels. They address issues in the technology of producing raw materials for biofuels and converting these raw materials into fuel, resource constraints facing expansion of biofuel production, and the demand for fuels. Particular attention is paid to the relationship between expanded biofuel production and the cost of food. The economics of biofuels is inherently linked to policy issues as well as market analysis because biofuels in every country have received subsidies from governments. Consequently several articles address the welfare economics of governmental efforts to promote biofuels, with a focus on U.S. ethanol subsidies. These subsidies generate net social losses (deadweight costs) on a global scale, although not necessarily from the U.S. national viewpoint. Governmental promotion of biofuels can be justified on the grounds of externalities created by the use of fossil fuels, most notably in recent debates on global warming caused by the release of sequestered carbon in the form of carbon dioxide. This justification is weakened and perhaps even nullified by externalities in the production and use of biofuels. The articles in this issue consider a range of topics concerning these matters, and the welfare losses caused by biofuel subsidies absent net environmental gains from biofuels.

8 Jan 2008

MWD Mismanages Water

Southern California has water supply problems, and my PhD dissertation is about the organization that manages much of SoCal's water. This organization, MWD, is now proposing to use a "formula" to allocate scarce supplies among 18 million inhabitants in the region.

As I wrote in December -- after attending a meeting at MWD -- this formula will not please people because it is too rigid and fails tests of equity and neutrality. (At that meeting, I proposed that MWD allocate a large block of water on a per capita basis and then allocate the rest via auctions.)

Somewhat predictably, water officials and politicians are rationalizing the outcomes of the water formula, even crying crocodile tears:
Kightlinger said that MWD has not been able to confirm that the plan would disproportionately hurt lower income, largely minority cities.

"We haven't been able to verify that that's necessarily correct. There are parts of Riverside County that are very poor," Kightlinger said.

Much of southeastern Los Angeles County are not areas of high growth, meaning that cuts there would have less effect on the economy, he added.

"It's a very complicated social issue, and it's something that we're trying to work through."

L.A. Deputy Mayor Sutley said that she supports creating a plan now, before serious shortages occur.

As for lower-income cities, she said: "We really feel for them, and Los Angeles is in the same position. We have a lot of DWP customers that live below the poverty line."
Los Angeles will not suffer by the formula.

Bottom Line: This "carefully-considered" formula will not solve water allocation problems. It addresses neither equity nor efficiency very well. MWD needs a better solution. They are obviously trying, but the constraints of inertia and politics make it difficult to innovate.

6 Jan 2008

Market Imperfections in New Orleans

I saw $5 on the ground last night in the French Quarter. According to the old joke* about neo-classical economics, it should not have been there. If it was, there are either too many neo-classical economists about, too many drunk football fans, or markets do not work as smoothly as they could in NOLA. I wasn't sure of which, but I took the money.
*Two economists are walking down the street. One says to the other "Hey, there's a $10 bill on the ground." The other replies "There's no money on the ground. If there were, someone would have picked it up already."

4 Jan 2008

Why Conserve for Others?

The often-excellent North County Times writes that residents are not interested in conserving water while the local water utility continues to issue new hookup permits.
"There has been a fairly common response to the calls for voluntary conservation, and that has essentially been: 'Why should we conserve just so you can sell water meters so developers can build new homes?'"

In addition to the mandatory 30 percent cutback in water to agricultural customers beginning Jan. 1, all North County water districts have asked ratepayers to reduce their water use by at least 10 percent voluntarily, meaning shorter showers and limited sprinkler use.

Still, Seymour said he's not in favor of halting all development projects.

"Development and building is a huge part of our local economy as well, so we don't want to destroy that, either. Reasonable and responsible growth would be a good place to start," he said.
Bottom Line: Besides the important notion of equity (why cut back for others to use more?), this article highlights the "swimming-shark" mentality of many young communities: If housing growth (AKA sprawl) stops, the community will die. There is another way, a sustainable way, and that is to stop growth and focus on improving the lives of current residents.

2 Jan 2008

Local Warming!

This AP article explores the impacts of global warming on California. As I have said before, the proper label for the cause behind these effects is local warming. Why? Remember "think global, act local"? The emphasis is the same here: We need to work on local action to address local effects. From the one side, reduce energy consumption; on the other, change habits to reduce the harmful effects of local warming on our lives.

Bottom Line: People tend to ignore issues at a distance and pay attention as they get closer. Local warming will get local attention and local action, and that's what we'll need if we are going to stay above water.

The End of Cheap Food

Jan 1 Update: AG sent me another article on the increase in food prices from ethanol policies. Get this:
Mark W. Leonard, who raises cattle and corn in western Iowa and owns a stake in several ethanol plants, said it was "absolutely essential" that the government increase the mandate for ethanol, and he urged Congress to push up the deadlines.

"This is a national security issue more than anything else," said Mr. Leonard, noting the nation’s dependence on imported oil. "We need to quit sending money to people who want to blow us up."
National security? I love that one. Falls into the same category as those who would weaken the constitution[pdf] to save us from terror
Originally posted 12/8/07: On useful side effect of studying in a department of Agricultural and Resource Economics is a good understanding of the extent and perversity of government interventions affecting agricultural products in the developed and developing worlds.

Earlier this summer, at the annual American Agricultural Economics Association conference, I suggested to a fellow-attendee that U.S. subsidies to ethanol were going to drive up food prices by diverting corn into fuel. By how much? Ten percent, I suggested. This old hand suggested that I was hopelessly naive: He suggested that prices would be flat.

In fact, they went up by 4.5 percent, but this number masks several problems. First is the relative weights given to foods in the index (most rose by 3-5 percent, but eggs went up by 27 percent). Second -- and more important -- are the effects of food inflation elsewhere: As Fidel Castro predicted, America's ethanol program hurts the poor. (In the U.S., people spend about ten percent of their income on food; people in developing countries spend about half their income.)

This week's Economist has a piece outlining these "unintended" consequences. Try this:
The Economist's food-price index is now at its highest since it began in 1845, having risen by one-third in the past year...

The demands of America's ethanol programme alone account for over half the world's unmet need for cereals. Without that programme, food prices would not be rising anything like as quickly as they have been. According to the World Bank, the grain needed to fill up an SUV would feed a person for a year.
Bottom Line: Bold, government stupidity is (again) undermining our security. Like other examples of government-led famine (Irish Potato Famine, the Great Leap Forward, Stalin's dekulakization and the Ethiopian government's use of strategic famine in the 1980s), this one will starve the poor. Unfortunately, the U.S. government is exporting starvation. I doubt USAID will be able to cope.

Filed under "water" because food requires water :)