30 July 2008

Science Fiction

This article has this interesting bit:
Citing a 2004 study by the Southern Nevada Water Authority, the report said scaling back development to manage diminishing water resources could translate into a loss of $18.6 billion in tax revenue and $4.7 billion per year in lost wages. Water-based recreation bringing in more than $1 billion annually could also be damaged.
The crazy part of these so-called losses is that they are hypothetical; they are based on business as usual projections of what would have happened if Las Vegas continued to grow (at past rates) into the future -- presumably using more water in doing so.

The fallacy, as anyone familiar with Wall Street (or tax revenues) will know is that the past is a poor guide to future performance. SNWA has not experienced these losses because they were based on future projections.

In fact, the current real estate crash has probably resulted in far-larger losses in tax revenues than any "failure to develop" scenarios. (This article says that Las Vegas home prices have fallen by 28 percent in the past year.)

Bottom Line: Beware of anyone advocating policies based on extrapolated trends. They are just as likely to tell you that -- at "current rates" -- you are going to walk into a wall.


Mike Kole said...

Those 'potentially lost tax revenues' spiels irk me no end.

If the theoretical new development doesn't occur, the corresponding theoretical new demand for government services also doesn't occur, making the failure to capture these potential tax revenues irrelevant.

Scare tactics and BS.

Anonymous said...

So your alternative to using the past as a reference for future projections is??? a crystal ball, tarot cards. It is a broken system but the best there is. Also, the SNWA itself doesn't get money from "taxes" except a small amount of sales tax. It gets it from water bills. This is likely not changing as much as taxes. Property taxes are going down because property values are going down and less people owning homes. Water use will go down slightly but because the people are probably still living in Las Vegas just in an apartment instead of a home, still using water.

David Zetland said...

@anon -- no, My point is that all the lamentations (which are excuses to import water from rural areas, etc.) are based on projected fantasy, not reality. It's been true for many years that water managers have justified their capital budgets based on projected growth. If that growth did not materialize, they kept prices low enough until it caught up.

A more-reasonable version of water planning would charge users the marginal cost of developing new water. To the degree that demand exceeded supply (and funding were pouring in), water managers could extend supplies (in many ways). This version of policy would be more sustainable AND constrain demand to higher value uses.