A few weeks ago, Matthew Yglesias linked to this blog, noting that I was "a full-time water expert" he agreed with.
The comments on his post are pretty disappointing in their vague dismissal of using economics to manage water. One, in particular, caught my eye, not only because it was from Francis (who has commented here before), but also because it gives me detailed statements to rebut:
The author [Zetland] appears to be uneducable on the legal, political, and economic restrictions on re-allocating water from ag use to urban use. "Let the market decide!", he writes. He's also not been particularly clear as to whether he supports involuntary transfers from ag to urban.I don't support involuntary transfers -- except within the framework of sustainable withdrawals. Although I may be "uneducable," I've always made proposals with the intention that they would be adopted with respect to current or reformed law.
What market? Water ain't flour; you don't have a choice of competing brands for the water that comes through the water main. So there's no retail market. And at the wholesale level? All government. Water rights holders? Government. Infrastructure owners? Government. Power generators to move the stuff around? Government.Apparently Francis has a neoclassical conception of "markets" as places where all participants are price-takers. This world only exists in textbooks; real world markets are affected by different types of market power (governmental and otherwise), but people still use prices to make decisions within them. Read this post.
The single greatest restriction in easing the drought in Southern California is a lack of infrastructure around the swamp that lies east of San Francisco known as the Bay-Delta. Who's going to get that multi-billion dollar facility built? Government.No, the single greatest restriction is that water is too cheap. If the peripheral canal is built, it will take at least five years to come into service. By that time, people in SoCal will either be dead or merrily watering their driveways. Prices can change NOW.
Oh, and who put government in charge? We did. Us, the voters. When reading through Aguanomics, please note just how often voters get mentioned.Yeah, I don't mention voters because I think that they are vaguely (at best) aware of water policies. I'd love to have a direct vote on many water issues, but most of them are delegated to representatives who are told that reforms (i.e., markets and prices) are the Third Rail. The closest thing we get to asking the voters is asking them for $9 billion for more dams. A silly waste of money that - hopefully -- voters will reject.
In fact, it might be dangerous to ask voters. As Francis knows, many of them think that the "solution" to the water problem is taking water from farmers. When 95% of the population knows more about long showers than food production, you have to be careful about asking them to reallocate water. That's why most of my policies proposals are extensions and modifications of the status quo -- not revolutionary ideas -- e.g., complete water privitization with distribution of water vouchers to citizens.
Bottom Line: Francis, like far too many people "in the business," needs to spend more time considering others' views and less time assuming he is talking to idiots.
7 comments:
Gee, trolling for my comments?
I don't think you're an idiot. I think you have a policy goal of facilitating transfers from ag to urban uses.
I also think you cover your goal by using the word "market" in a way that no one who commented at MY's blog, or Kevin Drum's blog, or here, understands. Here in America, after all, everyone loves markets! Capitalism is great; we're a market-based society! Subsidies are bad!
But the government subsidy of water (especially after the Reclamation Reform Act) is really no different than the government's subsidy of cities by the building of highways. Gather enough votes and we will pay the infrastructure cost to move people/water from Point A to Point B.
And there's really no such thing as a "market" price for water, because the seller is the government and the buyer HAS to have the product -- life necessity and all that.
You can in theory elect a local government that will impose a rate structure that might look like your version of what you think the market should be: base rights set annually based on supply and tiered rates for conservation. But it's only a simulation. That pricing structure stays in place not due to any economic rule but only as long as those elected officials remain in office.
So, I don't think you're an idiot. I just object, strongly, to your use of the word "market" to describe water transactions.
I also find your contempt of California ag troubling. Farmers in Imperial Valley grow switchgrass or alfalfa because they believe they can sell that product for a profit. Yes, their water costs are extremely low. But as you are well aware, their water costs reflect their extremely high priority to Colorado River water and the fact that it's all downhill from Hoover Dam to Imperial Valley.
So why do you care what they grow? Is growing alfalfa inefficient? Lawns in Palm Springs are really inefficient; they need a ton of water and produce no economic value. Is it wasteful? That's a legal term; under current law it's not. If you want it to be, get the law changed.
And if we want to encourage "market" (actually, government-to-government) transfers, then rights need to be more solid, not less. Buyers and sellers need to be assured that the water being transferred is real and not subject to being stripped away by a third party.
Remember at the end of the day, the most important issue for water managers is certainty.
Francis:
"I think you have a policy goal of facilitating transfers from ag to urban uses."
Given that they are so difficult, I DO want to enable them. Of they are possible, some farmers will do them.
RE: Gov't subsidies. They may have been "good" in the past, but now they are unhelpful. Unfortunately, they persists (cf, ethanol)
RE: "market" price -- that's what others claim. I favor prices that are meaningful, even while defending "life necessity"
RE: Contempt for CA ag: I feel no such thing. It's sad to me that they are "driven" by cheap water to grow water intensive, low labor crops. I have the same "contempt" for them as I do for Cuban prostitutes -- they are coping with a messed up system. I am interested in changing that system (while recognizing and protecting their rights) so they can do more with their skills, water and land.
Bottom Line: I LOVE water rights. Yes, let's strengthen them AND allow them to be sold.
(You must be aware of the problem of irrigation districts that block transfers from members to non members? IID?)
"And if we want to encourage "market" (actually, government-to-government) transfers, then rights need to be more solid, not less."
Francis, don't look now, but I think you and David agree completely on this.
OK, let's see where we agree and disagree:
1. The current system of water allocation in California is a multi-billion dollar sunk cost.
2. Any movement away from the current system will require dealing with well-entrenched interests that have law, custom and infrastructure on their side.
3. The basic system for delivery of both ag and m&i water is that a government agency delivers water in the amount demanded at cost.
4. So, the current differential in price experienced by IID and City of San Diego is not driven by the cost of the water itself, which is essentially free, but the cost of delivering the water to the requested location in compliance with applicable law.
5. There is some evidence that the state is moving into a climatic drought, ie, low levels in Lake Mead and Oroville.
6. There is substantial evidence of legal restrictions on moving water across the Delta, ie, Judge Wanger's ruling.
7. The effect to date of the climate/legal drought is a cutback by MWD in the delivery of ag water, and Eastern MWD's refusal to issue a will-serve letter for one new commercial/industrial project in its service area. No other retailer in MWD's service area has declared a moratorium on new development or is refusing to annex new land on the grounds of a lack of water.
8. California has some of the most productive farmland on the planet.
good so far? Let's keep going.
9. California already has a water market. See Water Code section 1700 et seq. Reasons that the market isn't used more include: (a) needing to show that the transfer will not adversely affect junior rights holders; (b) a lack of desire to sell; (c) infrastructure deficits (which is the engineering solution to the legal no-harm problem); and (d) so far, a lack of need.
10. Because water is delivered by the government, prices are set by politics, not economics. IID, for example, is a public agency with an elected board. Because it holds the water rights in trust for the farmers, it quite possibly lacks the legal authority to raise the price of delivered water. And if it did so, the Board would be recalled overnight. More to the point, why should IID raise the price of ag. water? What possible legitimate public reason does that government agency have to run a profit on providing the service it is chartered to provide?
11. So, it appears to me that what you think should happen is that the City of Long Beach, which has declared a drought and imposed irrigation restrictions "should" buy out more of IID's water rights and lift the drought declaration, because the residents of Long Beach are willing to pay more for Colorado River water than IID farmers.
12. But there's nothing that legally prevents the City of Long Beach from doing so. The problem is the enormous institutional constraints, including politics, law and infrastructure.
13. There's nothing wrong with working to lift the institutional constraints on inter-governmental transfers of water. The QSA and the Monterey Amendments did not result in quick and easy transfers. But looking at the comments here, at MY's blog and at KDrum's blog, using the word "market" to apply to this process causes far more confusion than clarity.
cheers.
Francis -- I agree on all but:
4. The price differential is ALSO due to the separation of systems/rights. Although SD and IID both draw water from essentially the same intake, the fixed costs of MWD/SDCWA are spread across fewer units of water, so the water is more expensive.
8. And some land that's productive ONLY because 6-8AF of water are dumped on it, e.g., IID.
9. Water "markets" are strangled by regulation. Politicians are good at that (electricity deregulation)
10. Agencies need not run a profit at higher prices. "Profits" can be rebated. Higher prices serve a purpose because they prevent shortages AND allocate water to highest and best use, not last year's waster (i.e., percentage rationing).
13. I like the word "markets" and will continue to use it -- until water allocation starts to happen via some sort of market mechanism.
All that said, pricing based on willingness to pay (NOT cost) would end the shortage. That's what I've said and will continue to say. Cost-based pricing it too cheap to choke demand. When demand exceeds supply, a shortage results.
If water began to be reasonably priced in Cali, would that destroy the value of Cali farms? Would you be in favor of compensating the farmers? Pardon me if these are covered elsewhere; a link could suffice.
Incidentally, I did some research on this topic and came across an argument that increasing efficiency is actually inefficient, because there's some sort of positive externality associated with inefficient irrigation. I really didn't understand it, and I'm having trouble finding information about it. The paper was done by a PhD student at the University of Washington along with his advisor who'd published a lot of papers in Ag. econ.
undergroundman -- I'll put your first [excellent] question in a new post for tomorrow.
For your second question, read this post.
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