30 Nov 2009

Gazan farmers killing Gazan children

(via DL), we hear this bad news:
Water in the Gaza Strip is so salty that it is unfit for human consumption...

...the amount taken from underground aquifers last year to supply 1.5 million people with drinking water and for agriculture was 160 million cubic metres, but that natural replenishment was 80-90 million cubic metres.
Given that agricultural water users consume two-thirds of Gaza's available water supply (paying only 2–4 cents/m^3), that means that over 100 million m^3 are going to ag -- a number that exceeds the water deficit from overdrafting.

Thus, farmers are using so much water that the remaining water is getting contaminated with salt, leaving the children with nothing to drink, and they die. QED.

The solution to this problem is simple (to me):
  1. Quantify the total sustainable yield from the aquifer.
  2. Allocate that yield by willingness to pay. 
  3. Since drinking water is more valuable than agricultural water, that will mean adequate water for children and less water for farmers.
  4. Replace the missing food with imports (virtual water) from elsewhere.
  5. Do NOT build desalination plants to increase supply.
Bottom Line: Most water shortages are form mismanagement, and the most common source of mismanagement is prices that are too low.

Things to do, places to be

  • Six Federal agencies involved in the California Bay-Delta ecosystem want comments here by December 1, 2009 (tomorrow!)
  • Comment on price increases for the Las Vegas Valley Water District
    [or go in person to] 500 Grand Central Parkway (Las Vegas)
    Tuesday, December 1 @ 9 am
  • Fundraiser in support of Rock the Boat: the story of Los Angeles and the little river that could
    Eastman Kodak Screening Room (Hollywood)
    Thursday, December 3 @ 7 pm
    $25/$50. Tickets
  • California Water: Moving Beyond Myth
    Sheraton Grand Hotel, Gardenia Room (Sacramento)
    Tuesday, December 8 @ 9 am to 1 pm
    Free. RSVP required.
  • The New Delta & California Water Legislation: How will it affect the Bay Area?
    Marriott at City Center (Oakland)
    Thursday, December 10 @ 9 am to 3 pm
    Free. No RSVP required. Agenda [pdf].
hattips to DW and BP

Monday Morning Smile

Just $1 trillion/af. Wonder if users will pay?

Hattip to DW

Speed Blogging

  • Some clever researchers have found the source of arsenic contaminating well water in Bangladesh: human-built ponds. This is great news -- the first step to ending one of the greatest poisonings in history.

  • Put these guys in charge (they understand risk): "Citing fears of rising costs from climate change, insurance companies have begun changing the terms of their policies to encourage customers to act more green."

  • Hazardous waste in water and air, and how the government caused it. (22 pages -- take your time :)

  • A researcher has made a measuring device that indicates if industrial water is "clean enough," which promises to cut demand for water by up to 50 percent.

  • China is uprooting 330,000 people (and "paying" them) as it begins digging canals to bring water to Beijing (Delivery -- but not the end of their water problems -- in 2012) Sounds like they might like to do the Peripheral Canal!

  • Chris Brooks compares water use in New Mexico and Texas (same basin and dirt, different property rights) and finds [doc] that "significantly more water is pumped to irrigate lots more land under the rule of capture [TX] than under prior appropriation [NM]."

  • Field trials of (GMO'd) drought-tolerant maize have begun in South Africa. Speaking of that, here's a 3pp Economist article on Monsanto.
hattips to DL and DW

27 Nov 2009

Blowing Bubbles

Bubbles in financial markets [the image is a 1997 cover from the Economist] will not go away, and that's upsetting to "rational expectations" and "efficient market hypothesis" economists.*

Fortunately, experimental economists have looked into the question, reproducing bubbles in the laboratory and playing with the factors that drive bubbles.

Both Vernon Smith and Charlie Plott have contributed to this research.

In this 2003 paper [pdf], Porter and Smith review experiments that look at bubbles and conclude that:
bubbles seem to be due to uncertainty about the behavior of others, not to uncertainty about dividends... futures markets help to dampen (but do not eliminate) bubbles... limit price change rules make bubbles worse.
In this 2002 paper, Plott et al. [pdf] find... "that errors in decision-making [not speculation] are a primary source of bubbles."

In sum, then, bubbles form when someone guesses high (makes a mistake) and someone follows. They form for assets (not consumption goods), because asset values depend on people's opinions on future value. Note that short sellers can dampen bubbles, but only if they turn the market before they are buried by a wall of "dumb" money.

Bottom Line: We cannot ban bubbles in the same way as we cannot ban celebrity gossip. All we can do is protect ourselves (if you don't get in, you don't have to worry about getting out) and protect others (money managers should be fired -- or worse -- for trying to time bubbles with other people's money).

* (via BB), John Mauldin writes a scathing critique of EMH.

Speed Blogging

  • Israeli companies in leak detection and water meters.

  • A good post on the difference between drought (variations in supply) and shortage (the gap between supply and demand). Here's the picture:

  • Want people to use less? Water meters need to be easy to read; bills easy to understand; conservation easy to measure. Hear hear!

  • Mexico is enduring its worst drought in six decades.

  • A blurb on Planet Water: Investing in the World's Most Valuable Resource is written by the guy who created the first water-based exchange-traded fund.

  • Mexican drug lords face competition from... California pot growers. The DEA is making prices go higher, but local potheads are making them go lower. Guess which direction hurts drug gangs more? Fire the DEA and legalize it (like in Portland?).

  • Climate refugees. 10 million now, 25 million by 2050 (or earlier?)

  • An article on swoopo.com, an "“entertainment shopping" site [sic] that runs a version of all-pay auctions (see this post) for stuff. One person will buy a laptop for $23.27, but the losing bidders will pay $1,396. Entertainment? evil? a scam? Caveat emptor!

  • Information on drip techniques, pest control, etc. from these guys: "The Agriculture Guide Organization is an online organization that gets its power from TURKEY and of course, OUR READERS. Our task is to give TURKISH AGRICULTURE adequate publicity while at the same time, enlightening the PUBLIC regarding agricultural terms, techniques, background information, applications and methods."
Hattips to MB, MC, DL, CM, JWT and DW

26 Nov 2009

Thanksgiving and the American Dream

Americans often celebrate Thanksgiving by reuniting with their families, to break bread and share in the good fortune that we enjoy. While some see this holiday as an example of excessive eating, TV watching and shopping, I see it as a useful reminder of the bounty that we enjoy in life -- a bounty of food and freedom, friendship and family.

And so I am thankful.

It also reminds me of the American Dream, a concept that means many things to many people. To some, it means home ownership; to others, it means improving on the success of your parents.

To me, it means being free to do what you want.

Although our access to the American Dream has weakened in these past years (erosion of our civil liberties, our environment, and our governance), we are still doing pretty well, and we are struggling to restore this American Dream to its traditional place:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness
Bottom Line: My dream is going well, and I am working hard to extend it to others. And I am thankful that I can pursue this goal.

25 Nov 2009

Policies & Procedures: a good thing or bad?

I enjoyed this post from CRG, who occasionally blogs from Imperial Valley.
(NB: I read it months ago, so some echoes appear in this post on term limits for bureaucrats.)

Point: At some point in a company's growth, there need to be policies & procedures put in place to streamline processes, and to make the organization's activities efficient, consistent and systematic.

Counterpoint: If you have to spell out to your employees precisely how to do their jobs, then first, either you have the wrong people in these jobs or you are not managing them well; and second, you are encouraging the employment of drones rather than skilled, thinking people. Too many policies and procedures stifles the best employees by not allowing them to use their skills and abilities to make decisions. Conversely it allows the lazy, untalented and unthinking to flourish as all they have to do is follow the P&P manual and meet the "core competencies" delineated in their job descriptions to skate along and appear to be model employees.

Point: When your organization reaches a certain size, to protect yourself legally and publicly (particularly for public sector and publicly traded organizations), you have to have a structured set of systems in place to ensure you are treating employees, customers and situations consistently, and to defend against outside claims of inconsistent and inefficient processes.

Counterpoint: Hire well, give your employees the tools they need and the guidance they need, and manage your employees well. If you have done that, while you will always need basic P&Ps, you can rely on your employees -- and expect your employees -- to act in accordance with your direction, as long as you hold them accountable. It's not an easy way to operate - you have to think, and defend your actions rather than just relying upon the System to tell you what to do. You will have to defend your methods when consistency and efficiency are attacked. You will have to defend your employees and you will have to hold your employees accountable. But your organization will be more streamlined, more agile, and you will be more effective in your goals.

Legally you need to have systems in place for discipline, termination and employee review. However, even in these aspects, you need to allow your managers to use their discretion, and back them up when required. Again, this requires the guts to stand up for your management team, and it requires that you hold your managers accountable for their actions, rather than relying on systematic policies and procedures over management ability and responsibility.

Bottom Line: When you create strict and detailed policies and procedures, you will end up chasing away the best and most talented/skilled employees, and promoting the unskilled drones. Eventually, it will take four people to do the work of one: one person to write the manual, one person to train the manual, one drone to read the manual and follow the steps, and one manager to breathe down the drone's neck and make sure the work gets done. And when an unforeseen issue arises, it will choke the organization because the employees who have been trained to never stray from the manual will not be able to respond to an issue that is not covered in the P&Ps.

On the other hand, when you hire well and give your employees appropriate (but not overwhelming) guidance, tools and oversight, your operation will benefit greatly. Yes, there will be times when your employees will fail you, occasionally even in a big way. But in the long run it will be worth it, even with those occasional faults.

DWR's take on the water bills

...is here [pdf] (via ML and BP). It begins with:
Governor Schwarzenegger and state lawmakers successfully crafted a plan to meet California’s growing water challenges. A comprehensive deal was agreed to, representing major steps towards ensuring a reliable water supply for future generations, as well as restoring the Sacramento-San Joaquin Delta and other ecologically sensitive areas
So, problem solved. Imagine my relief. /sarc

Poll Results -- US Healthcare

Hey! There's a new poll (Family!) on the right --->
The US Healthcare System...

...needs more government involvement
...needs less government involvement
...is just fine
...is beyond my comprehension
...is what? I'm not American (but wish I had your healthcare system)
...is what? I'm not American (and I'm glad I don't have your system)

If there's one key result here, it's that people are confused. Note that a LOT of people may like it that way -- since confused people can be told what's "good" for them...

In this situation, I think it would be helpful to understand what's going on before we run around trying to "fix" it. As I explained here, I think the biggest problem is that we (consumers of health care) are not in charge of our decisions on doctors (our insurance company often decides who can be our doctor) or insurers (our work decides that). For me, the big one is getting work out of the equation -- we should buy our own insurance. After that step, our doctor choices will be much clearer.

Bottom Line You can't fix what you don't understand.

The customer is definitely right!

A loyal reader who works in a water agency send this customer letter:
Hi there,

I'm an avid water conservationist. Even have a large storage facility for capturing rainwater for my gardening.

I'm also an engineer and am adept at using a calculator. I see no good fiscal ($) reason to try to conserve on my water usage.

You have two rate tiers: "unlimited cheap water" and standard usage "cheaper water."

You need to take some lessons from PG&E; they've figured out how to encourage conservation. There is an entire industry setup to get people out of their tier 3 and tier 4 rates.

My analysis indicates that unless you make it more expensive to use more water, you are not going to really get the savings you could achieve.

I sincerely encourage you to replace your two cheap water rates with
  1. a slightly cheaper first rate for up to 9 CCF/month (Maybe $2.00) 
  2. a slightly more expensive 10-15 rate $2.40
  3. an even more expensive 16-24 rate $3.00
  4. a really expensive unlimited rate $4.00*
Then maybe there will be serious attempts at conservation. If not, at least the water district will have enough income to increase the rebates on low flush toilets, or maybe make cheap rain barrels available.
* That's nothing! Recall that Santa Barbara used tiers of $1.09, 3.27, 9.81 and $29.43 per unit (!!) to get 50 percent conservation during the last drought.

Bottom Line: Customers understand that water is too cheap to conserve, so they don't -- and that's why we have shortages. Any questions?

24 Nov 2009

Academic Water Economists

A few weeks ago, I attended a meeting of the International Water Resource Economics Consortium at Berkeley.

Many big wheels were presenting (Dinar, Hanemann, Howitt, Libecap, Olmstead, Zilberman and others who are probably more famous than I know :) and others were in the audience, giving comments, questions and suggestions. (All the best stuff happened between talks, of course.)

Here are a few notes:*
  • The penalty for illegal water diversions in California have increased from $500 to $1,000, but that doesn't matter if the SWRCB continues to not enforce them (via Hanemann)
  • In Tucson, there's a well that sends water in two directions. The water that goes to ag is priced at $33/ML (about $41/af); the water that goes to the city costs $5,532/ML ($6,826/af). Same water, different customer (via Libecap).
  • 17 percent of all irrigation water in the US goes to corn (via Madhu Khanna). Khanna is a critic of ethanol and says that tenure has been useful. (She's at U Illinois, Urbana-Champaign.)
  • Henning Bjornlund (U South Australia) gave a great presentation on water rights and markets in Australia. They have severed rights from the land, deliver "contracts" according to annual supply, and allow carry-over storage between years. The western US needs more of this. I'm excited to go learn more when I get to Oz in Jan 2010.
  • Alberta's tar sands have created an immense environmental problem waiting to happen (via Uijayant Chakravorty). The second biggest dam in the world (after Three Gorges) is holding back toxic tailwater left from processing tar into oil. Industry is promising to clean up, but wants government payments. (This is CRAZY; they profited from the mess!)

Overall, this meeting brought few a-ha moments to me. I updated some ideas, added some facts, and put faces to names.

Without getting into too many details, the meeting also made it clear to me why academics have such a hard time affecting policy/getting their ideas into the public debate. This meeting made it very clear that I need to spend more time in different countries (in the developed and developing worlds) and spend a lot of time and money on communicating (teaching and learning) with politicians, scientists and citizens.

That's why (if you didn't know it), I am going "into the field" to visit Indonesia, Australia and New Zealand for three months (Jan -- Mar 2010). I'll be blogging, of course.**

Bottom Line: We can learn from academics, but only when they take the time to communicate with us.

* These may not accurately represent what people said. Contextual notes are my own.
** It's a pity that few people at the meeting seemed to care about or understand the importance of blogging as a communication tool. What they do understand is academic publication, which furthers their careers, even as it remains inaccessible to 99.999% of the people "interested" in water. (If only one-percent of the people on the planet "care" about water, that gives them an audience of 6,500 people, which is probably high by an order of magnitude.)

Department of I told you so

DW sent this story:
Poway's residential users, who account for about 80 percent of all the water consumed in the city. They used 31.29 percent less water in July and August 2009 compared with the same two-month average from 2005-07

At Tuesday’s council meeting, several residents who use a lot of water to maintain their large properties complained how even though they had made significant cutbacks, their most recent water bills were still significantly higher than before. That’s because a new tiered rate structure penalizes large users, charging them more per unit of water once they exceed certain consumption levels.

Earlier this year, when the council voted to create the tiered structure and move away from a flat-rate scheme that the city had always used, the vote was 3-2, with council members Carl Kruse and Betty Rexford saying they thought it was unfair because smaller consumers would actually pay less than what it costs the city to deliver water to them, while large users were in effect subsidizing smaller users.

Mayor Don Higginson said at the council meeting this week that he now feels he made a mistake in voting for the tiered rate and will opt for a flat rate when and if such a vote comes before him again.
I suppose that Higginson would prefer shortages? Yes, heavy water users should pay more, and it's fine (given the fixed cost structure) that they subsidize light water users.

Bottom Line: People use less water when prices go up.


Someone asked my opinion on the theft and revelation of data and emails related to climate change research. From my brief readings, it appears that some academics were blocking the views (preventing publication) of others they disagreed with, as well as -- perhaps deleting "inconvenient" data.

Since the blocked people were climate change skeptics (not anti-deconstructivist poets), this is a big deal for NON-academics.

My opinion is that this kind of sabotage, censorship, backstabbing and favoritism occurs all the time (just look at the editors of a journal and how many of their students and colleagues publish there...)

My opinion is that this is going to give WAY too much impetus to the "climate change is not happening" crowd.

And, you may ask, how can I trust the CC scientists, now that they are revealed to be "typical" humans? Because the gains (in career, fame, money, etc.) to ANYONE able to show that climate change is NOT happening, is all a hoax, etc. are extreme. With that kind of reward on the table (from Exxon?), anyone with a plausible analysis showing that it's not happening would be a rockstar.

But there isn't anyone, because climate change IS happening.

Bottom Line Academics are people too. Some will sacrifice their integrity for fame or to support their opinions. They are not scientists as much as hacks. Scientists, like good intellectuals anywhere, are willing to consider all views and potentially change their own opinions in the face of new and useful evidence. That's the standard I aspire to, at least.

A fish here, a fish there. Who cares?

OO says:
I'm a law student researching Entergy v. Riverkeeper where the Supreme Court said EPA can use cost-benefit analysis when determining the best technology available standard for cooling water intake systems.

J. Breyer's concurring opinion posits that it's irrational in a world of stressed resources to force a power plant to spend a million dollars to save one more fish. Wouldn't it be more environmentally beneficial to apply those funds to some other environmental problem (e.g., river restoration, emissions filtering)?

I'd like to explore different institutional options for moving funds to the most environmentally beneficial use.

Your blog is pretty much the extent of my economics education. I'm trying to teach myself. Do you have any resource suggestions that might help me get up to speed? And of course, I'd love to hear your opinion on the case.
Well, there are two issues here:
  1. What should Entergy do to reduce harm at its plant, locally. Let's say that costs $10,000/fish life saved in situ.
  2. Can Entergy spend the same amount of money elsewhere, to get more bang for the buck, say $500/fish life saved in Brazil.*
Now, assuming that Riverkeeper has some sort of mandate (property right) to force the issue, there's going to be a certain amount of money on the table. What happens next depends (typical economist talk)...

If Riverkeeper wants to mitigate the harm to the local community, it will direct the money to option 1.

If Riverkeeper wants to do the world a favor, it will direct that money to option 2, but that option does nothing to redress the harm to the local community. (It also gets into the famous moral "dilemma" -- if you could save ten lives by killing one person, what would you do?)

So, we can see a dichotomy between efficiency and equity. If I had to make a judgment, I'd say go for option 1, because morals can trump efficiency.

Of course, I am not a lawyer, and I am only one opinion.

What do you aguanauts think?
* Let's assume that the marginal value of the fish is the same in both places. Big assumption, but I don't want to get into debates over species, ecosystem and extinction values.**
** Read this [pdf] for more on that (via LP): "The fishing-industrial complex -- an alliance of corporate fishing fleets, lobbyists, parliamentary representatives, and fisheries economists... secured political influence and... nearly $30 billion in subsidies each year -- about one-third of the value of the global catch -- that keep fisheries going, even when they have overexploited their resource base."

Oh, and read A Life Cycle Assessment of Global Salmon Farming Systems (Norway MUCH better than the UK)

Fishermen vs. Fishermen

Speaking of fish, DH sent an interesting article detailing the battle over fishing rights between sport and commercial fishermen in Florida:
The National Marine Fisheries Service (NMFS) is intensively promoting and implementing programs which grant exclusive access privileges [ITQs] to public fishery resources... Unfortunately, in mixed fisheries where there is a large and growing recreational sector, exclusive fishing rights proposals maximize benefits to the commercial fishing industry while ignoring the participation and beneficial economic impacts of recreational fishing. Damaging impacts on recreational fisheries are being disregarded.
He asked how sport guys can maintain their access to the fish, and I said:
There are two options:
  1. Get ITQs for sport fishermen, then split them into per fish permits -- like deer licenses.
  2. Buy them from the commercial guys
Economists do not favor either, but (1) is clearly cheaper than (2) for the sport guys.

Given the financial firepower of sport guys, they can afford to pay. Let's see if they have the same political power :)
Bottom Line It's not the efficiency that bothers people as much as the distribution of money that buys that efficiency. That's not economics, that's politics!

23 Nov 2009

Cleaner water

Walter Bauer contacted me with an interesting invention/process [pps]:
The Bauer Energy Design® Water Processor improves water quality through many fundamental phenomena: Zeta potential reduction, electrolysis, turbulence and cavitation. Zeta potential controls the growth of particles in water. Reducing Zeta potential allows for growth of particles therefore increasing particle size. This in turn increases filtering and/or settling capability. Lowering Zeta Potential affects the growth of both organic and inorganic particulate matter. The most important effect is that it will stop and reverse scaling.
What all this boils down to (in my non-scientist mind) is a water filter that works better because it makes contaminants bigger. The resulting cleaner water is better for watering livestock, washing contaminated areas, growing plants, etc.*

I suggest that you contact Walter if you want to know more. He has loads of site data and customer testimonials. Here's his blog.

Bottom Line: Water is an amazing molecule, and we are still learning how to "use" it.

* As usual, I am merely passing along these data; I haven't tested anything (and I am not qualified to!)

"Free" education taxes the poor & hurts students

One poor, "uneducated" resident of Watts, upon hearing Ralph Bunche say that he could not have had a college education unless tuition were free, opined, "Perhaps it's time he repay out of his higher income for that privilege granted him by taxes on us Negroes who never went to college." That reply spots the difference between educational opportunity and a redistribution of wealth.


WITH FULL COST tuition, competition among California colleges, and even among academic departments would change. Instead of competition for funds being negotiated among university committees, deans, regents, state college boards, and legislators, competition would rely more on classroom behavior of instructors who would be more dependent on student attendance vis-a-vis other departments and other colleges. This would enormously enhance the power of the student in the former zero tuition colleges.

Smile Bonus: China to US: "Stop fucking with us"

(via Coyote) The folks at SNL hit the nail on the head... many times!

Monday Morning Smile

Maybe this photo* explains "contamination" problems with food imported from China. It's normal to mix chemical products and food over there!

A reader sent this (kinda funny, kinda sad) piece:
In "Endangering People to Protect Fish", we learn:
....with some farms receiving only 10% of their previous water allocation, the human toll has been grave. Many in the highly skilled labor force that operate computer-based machinery and irrigation systems have been laid off.

Unemployment in some communities is as high as 40%, bankruptcies abound and many residents wait all day in food lines to feed their starving families.
Are you visualizing the lines of starving computer geeks at Best Buy with "will work for food "signs? Is there a comedian who will stand up and be spokesman for the "Nerds Water Coalition"?
DZ's comment: Although I sympathize with the real people who are suffering from the economic slowdown, drought and pumping restrictions, this kind of hyperbole ("residents waiting all day... starving families," etc.) does them no favors. Of course, the people spreading this propaganda are not starving.**

* My GF took this photo in a Xi'an mall.
** I could find no information on Levy, the author, but she's written a lot of anti-Democrat pieces.*** The article is from American Thinker, where "National security in all its dimensions, strategic, economic, diplomatic, and military is emphasized. The right to exist and the survival of the State of Israel are of great importance to us."
*** Not that I care, but she doesn't criticize Republicans, for ideological reasons.

Lies, damned lies and politics

As I warned in this post, Richard Howitt's research into the connection between water and unemployment continues to be abused by politicians who interpret things to suit their goals.

On October 30, Rep. Nunes said [PDF]:
DISTORTION: Farm jobs have increased during the past year.
FACT: According to a May 2009 study conducted by the University of California, Davis, 35,285 jobs and $1.6 billion in economic revenue have been lost as a result of the man-made drought.
In May, Howitt et al said:
90-percent exceedence forecasts are summarized and employment losses are broken down by income group using a set of REMI multipliers... Employment Loss: 35,285
I have three things to note:
  1. Nunes used the highest figure for losses that ranged from 31,178 to 35,285. This is a forgivable, partisan action.
  2. Howitt et al. updated their forecast in Sept to 21,000 job losses. Nunes used outdated numbers. This is sloppy (and maybe forgivable)
  3. Howitt et al. said "forecast" (with simulations, etc.) and Nunes says "have been lost." This is an unforgivable fabrication.
I have asked Richard if he has asked Nunes's office to retract this fabrication distortion (oh, the irony!). I'm not holding my breath (but Howitt has not replied).
Oh, and while we are discussing job losses in the Central Valley, let's take a look at one other factor (no, not the crash in housing; no, not the general economic slowdown) -- the crashing price of almonds. California supplies about 80 of the global market, and it appears that California's farmers went too far into this market [pdf]:
As a result of three record California crops in a row, supply has temporarily outpaced the increase in demand. This is because the double-digit consumption increases normally expected in a bumper crop year were held to 7% by the global financial crisis. As a result, market prices have fallen to levels not seen since the beginning of the decade.
According to this October update, supply is high, and prices are low. Seems that scarce water may have helped farmers (as a group), even if individual farmers suffered.

Bottom Line: Some people have made mistakes and some people are suffering. Some people may not deserve it, but others perhaps do deserve their "just deserts." They should have bought insurance, not made a campaign contribution to politicians who want to "help" them with money from our pockets!

Hattips to LC and CM

20 Nov 2009

Speed Blogging

hattips to JG, DL, CM, DM, HP and RW

Poseidon's Carlsbad project cost is $700 million

Global Water Intelligence is an expensive (but worth it) source of timely and excellent analysis. This piece [$] caught my eye, and I quote heavily because it's gated for subscribers:
Poseidon Resources’ decision to apply for an extra $50 million of private activity bonds [see this post] caught my eye. It also seems to have captured the imagination of California’s media, but for quite different reasons. I was interested primarily because I am intrigued by how Poseidon is going to make a return that justifies the fantastic risks it has had to take on in order to get the Carlsbad project this far. It seems to me that the extra money is a sign that things are going well for the company.

The reason I think things are going well is because the construction costs are pretty well fixed at $360 million for the plant and the pipeline. The revenues are also pretty much fixed...

It seems to me unlikely that Poseidon has had to increase the amount of debt in the project from $480 million to $530 million simply because the debt has turned out to be more expensive than anticipated. The main reason why the cost of finance would rise would be because potential investors are worried about the level of risk in the project. If that were the case, it would be unlikely that Poseidon would be able to increase the amount they are borrowing. Rather they would need to be reducing the leverage in the project. In fact, it appears that the reverse must be happening: Poseidon is finding sufficient appetite in the market for exposure to the Carlsbad project, that it can increase the amount of debt, and reduce the amount of equity. For example it might have started with the assumption that it would need to split the debt and the equity 65-35, which would require $480 million of debt, but now it discovers that there is sufficient appetite in the market for Carlsbad private activity bonds to enable it to push for a 75-25 debt/equity split. Assuming that the total project cost is around $700 million, the total debt would then be $530 million.
Now this column is labeled as "speculation," but the analysis seems sound -- and interesting! But there are still two questions I've got...
  • Where that $700 million is being spent ($360 million for construction and $340 million for... start up costs? buffers? political contributions? help!)
  • Why nobody is talking about the project costing $700 million, since that's stated in a matter-of-fact way here. That matters, because those costs are going to get repaid, by someone, somewhere...
Your thoughts? Bottom Line: Although Poseidon's project may possibly make sense, I'd like to see a full financial accounting -- and so would Poseidon's customers!

Carbon Offsets = BS

Yet again, the NY Times is following on my lead :)

In this 25 Oct post, I asked
Should I offset my "carbon footprint" if I fly in an airplane that's 1/2 full (and would have flown without me anyway)?
In this 18 Nov story, we read:
In 2002 Responsible Travel became one of the first travel companies to offer customers the option of buying so-called carbon offsets to counter the planet-warming emissions generated by their airline flights.

But last month Responsible Travel canceled the program, saying that while it might help travelers feel virtuous, it was not helping to reduce global emissions. In fact, company officials said, it might even encourage some people to travel or consume more.
Bottom Line: Carbon offsets are a lot closer to indulgences than effective tools for saving the earth. If you want to save the earth, use less.

THIS is how you get people to use less water

Aquacue is working with AQUAholics Anonymous to get UCSD students in dorms to use less water.

The strategy has three prongs:
  1. Dormies can see their daily consumption. That's fast feedback. (That link will disappear at the end of the month, so look now!)
  2. Residents can compare their current consumption to their numbers from the day or year before (click on the name of a hall to see the graphics). That creates an incentive to improve personal (or in-group) performance.
  3. Residents can compare consumption to others in other halls, to see who is at the top of the league table. That comparison creates in-group vs out-group competition, which is very powerful.
Residents in the top three halls have cut their consumption by 35-40 percent against baseline -- to 22-37 gallons/capita/day. Students in the worst hall are using more but that's only using 60gcd -- still pretty good for indoor use.

And remember that these students are NOT facing financial incentives to use less water!

Shahram Javey at Aquacue is looking for financial and other types of support. If you like this, email him.

Bottom Line: People will use less water if they know how much they are using and how much relative to "normal" -- aka, their peers. (Oh, and it doesn't hurt to give financial reminders of high and low consumption :)

19 Nov 2009

Why should I be an AWWA member?

I joined the American Water Works Association to participate in the water community.

The "benefits of membership" have been disappointing to me:
  • Although I have spoken at a few AWWA conferences, I find them to be directed at selling pumps and water treatment devices, not at improving water management.*
  • Their webcasts are also more about money than spreading information.
  • I applied to serve on the water rates committee, but they never responded (let alone said yes or no).
  • I wanted to share articles from the AWWA, but they told me to take them down. With one exception, the AWWA is the only organization more concerned with protecting information than sharing it.
A heavy driver of AWWA's structure and "behavior" is its revenue model -- for most AWWA members, annual fees, conference fees, webcast fees, etc. mean nothing because they are paid by their employers customers, which gives them little reason to be picky about costs and benefits.**

Bottom Line: An organization's institutions say a lot about its priorities, customers, etc. The AWWA still appears to represent traditional water management (build stuff!) -- neither innovation nor the concerns of water customers. Oh well, I tried.
* Note that I do not have to be a member to give a talk...
** There's a principal-agent-beneficiary model to discuss!

Vegas charging more... to poor people

The Directors of the Las Vegas Valley Water District (LVVWD) are proposing to increase monthly service charges for all customers. That means that all residential customers will pay $2 or $3/month more, no matter how much water they use.* Water use charges will not change from cheap [pdf].

That means that heavy water users will face a trivial additional cost, while people who use very little water will see relatively greater increases in their bills.

Say, for example, that you are LVVWD director Steve Sisolak, and you use just over 700,000 gallons of water a year (about 660% of the median 5/8" customer).

That means that your monthly bill (assuming a 1" connection) will go from $219.54/month to $222.45. Ouch! That's 1.33% more! Damn, that hurts! /sarcasm

Now say that you are the median customer, using 9,000 gal/mo on a 5/8 meter (that's still 296 gallons per day!) . Your monthly charge will go from $18.57 to $20.57, which is 10.77% higher.

So the "normal" person will have monthly bills that are 11 percent higher, while the heaviest water users (and directors of LVVWD) will pay only 1 percent more. Right, yes, I see....

Bottom Line: This rate increase puts the burden of higher costs (for getting more water!) on average customers, not the ones who are "causing" the shortages: The heavy users and the water managers who set prices too low and then complain of shortages.**

* Although I understand the virtue of matching fixed costs and fixed revenues, Las Vegas has a bigger problem to take care of -- consumption, and this rate increase does nothing to address that.
** LVVWD is led by Patricia Mulroy, General Manager.

Bureaucrats are anti-Entrepreneurs

Arnold Kling puts his finger on it:
I created a list of entrepreneurial temperaments and found that when I reversed them--creating an "anti-entrepreneur"--the resulting personality is in fact a typical bureaucrat, colorless and rigid.
As an (economic policy) entrepreneur, this is both familiar and enlightening.

If you want to know more about bureaucrats, read James Q. Wilson's Bureaucracy.

Oh, and working for a bureaucracy doesn't automatically condemn you to being colorless and rigid, but watch out!

How much do subsidies cost, anyway?

JR asks:
What is the annual dollar value of water subsidies? I know Jimmy Carter was trying to end water subsidies and the guy who wrote Cadillac Desert [Marc Reisner] said that for every two dollars invested in water subsidies, one dollar of economic value was created. In any event, what is the annual tax payer cost of water subsidies?
I can't give an answer to this question, but here are a few thoughts:
  • The biggest subsidy to water users is the "opportunity cost" of water they use, i.e., the difference between what they pay (say, $20/af) and what that water is worth to someone else ($50--1,200/af). If you charge them an "unsubsidized, cost of delivery" price of $50/af, they are still subsidized!
  • Without a market for water, it's hard to know the value of what's being used. Even if there was a market, we would only know the value "on the margin," which does not capture the (inframarginal) benefits that accrue to users.*
  • Timmins (Econometrica, 2002) estimates that water managers in western utilities invest too much in infrastructure, such that they last dollar (of their customers' money) invested only produces $0.45 of benefits. This result is not directly comparable to Reisner, but it indicates the same problem is little bang for the buck.
  • The value of water subsidies/rights are often capitalized in the land that those rights are attached to. A farmer who pays $20/af for water may have land worth $5,000/acre while land at a neighboring farm without water is only worth $1,000/acre.
Can you folks say more? Do you have any calculations of the value or water subsidies, on any scale, at any place on the planet?**

Bottom Line: Subsidies distort prices and therefore distort decisions on actions and allocations of resources. If we want to maximize the value of water, we should end subsidies and distribute water through competitive markets.

* If a $1 can of Coca-Cola is worth $5 to you, your "surplus" is $4; if it costs $0.50 to make/distribute, then total social surplus is $4.50. That may be inframarginal; your 10th can of Coke may only be worth $1.01; there's value, but not that much. Social surplus can ALSO go to zero at the margin when producer costs are rising, unlike my example.

** This PDF (via SH) discusses subsidies on California's State Water Project, pointing out that (urban) MWD has paid 62% of its costs for 31% of its water, while (agricultural) Kern County contractors have paid 13% of costs for 42% of the water. Although MWD should have higher costs (pumping a longer distance, over the Tehacapis) and this is prepared by Public Citizen (a group that sometimes imagines nasties), the report does raise good questions (and give numbers!)

18 Nov 2009

Mixing fresh and salt water to produce energy?

SB writes in, asking about this post:
A device that gleans usable energy from the mixing of salty and fresh waters has been developed by University of Milan-Bicocca physicist Doriano Brogioli. If scaled up, the technology could potentially power coastal homes, though some scientists caution that such an idea might not be realistic.


Instead of using fresh water, an increasingly scarce global resource, a salinity power plant could use water that is polluted or slightly contaminated with salt, giving new life to unusable water, Brogioli said. Seawater could also be mixed with high-salinity water, obtained by evaporating seawater -- perfect for a desert community with little fresh water but sunshine to spare.
Sounds cool. Will it work?

Poll Results -- Water Bill Fail

Hey! There's a new poll (gimme health!) to the right --->
California's Water Bill Package...

...will fix our problems
...will improve things
...will do very little
...will make things worse
38 votes total

Bottom Line: All sound, and very little fury. Looks like more work for lobbyists!

Buchanan's Wisdom

Don Boudreaux writes:
Buchanan insists that we should always look upon “politics without romance,” that we ought never to forget that all the fine campaign phrases and soaring promises issued by politicians too often disguise the selfish, sometimes sleazy, reality of political activity.
As I learn more economics, I appreciate the genius of James Buchanan (and Gordon Tullock!)

A short lesson on the gains from trade

J. Shogren gave this example of "obviously. NOT!" at a conference

Consider four sellers who value their goods at $5, 4, 2 and 1.

Consider four buyers who would value these goods (should they possess them) at $10, 8, 3 and 2.

Now, how much can we increase surplus if we allow trading?

Calculate your answer in terms of the increase in surplus and then click "read more"

If you think I was harsh on the water bills...

Read this interview (via DW) with State Senator Wolk (D-Davis). Here are some nice (?) quotations:
  • She told The Record's editorial board Monday that, realistically, the efforts [water bills] were a waste. "It was awful, incredibly awful," Wolk said. "I've never seen anything like this."
  • She said the legislation was written by Westlands Water District, which serves western Fresno and Kings counties, and the Metropolitan Water District, which serves much of Southern California. "They wrote it in private meetings, and then it emerged in the middle of the night."
  • Wolk remains dumbfounded by the role of Sacramento Democrat Darrell Steinberg, president pro tem of the state Senate. Despite representing a county bordering the Delta, Steinberg pushed Schwarzenegger's water package through the Legislature. She called his role "disturbing." Steinberg threw Northern California Democrats "under the bus," Wolk said.
  • In the end, Wolk believes the bills, including an $11.1 billion bond requiring voter approval, were a step backward
Well, I guess we know how she would have voted in the poll!

17 Nov 2009

Entrepreneurs, brokers and liars

I have been around for awhile. I have studied corruption, organized crime and black markets. I have worked with frauds and cheats (my evil step-father for one). I have enough economic theory and empirical evidence to understand why and how people lie, strategically maneuver, etc.

But it still amazes me when people steal instead of working, or lie instead of being honest. What kind of delusional world do these people inhabit?

One guy stole my $500. I led the fight to get him caught, tried, convicted and imprisoned -- in Washington DC, no less!

A few months ago, I was contacted by Noah Israel, who claimed to have a biological desalination process that was green, etc. I talked to Noah on the phone. He told stories about his other inventions and work, how hard it was to raise money, and how a guy "with a wall of money" had sued him, costing him thousands.

After our conversations, I posted on "his" technology here. He reviewed and corrected that post, clarifying that he was "New Water LLC's president."

Well, he lied. It turns out that this technology belongs to Randy Behrens of New Water Aquaculture LLC. Noah had signed an investor/broker agreement with Randy, and Noah was trying to find other investors (via me, among other sources) so that he could get commissions.

I have nothing to say about Noah's other work, and I understand the role of brokers (I used to be one), but I do NOT accept lying about one's role. Noah was not the President of New Water, but (I suppose) he wanted to make it seem that he was, so he could collect a commission for raising money, so that an investor would not circumvent him and go directly to Randy.

I've seen this before, and the entire dynamic (the lies, the strategic disclosure, the NDAs, etc.) was the main reason that I left this kind of brokerage.

Anyway, I just wanted to apologize to you readers, the folks to whom I emailed this "investment idea," and Randy (who found me through this blog -- the water world is a SMALL world). So, if you want more information about this idea, email Randy.

Noah, btw, apologized to me, and I am passing that apology along to you, now.

Bottom Line: When I die, I won't care about how much money I have; I will only care about my reputation.

Thriving in The Clean Economy [PR]

WED NOV 18, 2009 1:30 pm EST (10:30 am PST) -- that's tomorrow!

"Free Webcast features Coca-Cola, IBM, Nokia, and other Climate Savers partners sharing carbon-cutting innovations just weeks before Copenhagen. Discover how companies are finding innovative solutions to combat climate change and secure our energy future while increasing their bottom lines. WWF Climate Savers companies are leading by example, showing that economic growth, curbing carbon, and increasing shareholder value and can go hand in hand."

Register here.

Kill the growth zombie!

In my article, I discuss how the "iron triangle" of politicians, water managers and real estate developers have driven growth beyond sustainable, beyond our limited water supply.

As if on cue, we get these amazing stories:
  • Sacramento bureaucrats overrode control systems to issue more building permits to K. Hovnanian Homes in Natomas (my favorite candidate to be the next Atlantis). The bureaucrats have been put on administrative leave, but one is the son of a local politician. This was NOT an accident. Here's more on the city employee who caught the crime, and the Mayor Johnson's attempts to cover it all up. Pathetic.
  • A Temecula water district rejects a moratorium on new buildings when developers convince the board that new houses will lead to growth and jobs. Is anyone paying attention the crappy real estate market? or are they just working for developers? Temecula is in Riverside county!
  • Meanwhile, (more clever) water managers are asking for a hookup moratorium in Monterey.
Bottom Line Growth and development are fine when they are sustainable, as in this proposal. Building in floodplains or areas with poor supply is NOT sustainable. Unfortunately, homeowners and taxpayers will pay the price of the iron trangulates' stolen gains.

hattip to DW

16 Nov 2009

Water on the moon and other fantasies

Peter Gleick says:
I have mixed feelings about the value of the space program, and without a doubt, this is probably the most expensive water we've ever found. But, if we go to the moon, it could turn out to be among the most valuable as well.
Fleck calculates the price of that water to be about $1 trillion/af.

Peter's thought on the "value" of that water got me to thinking. Maybe we can bring an acre foot back, sell it to the Chinese and thus rescue our economy.

Whaddya think? :)

Or perhaps some people need to remember what opportunity cost means?

Bottom Line Stop the space fantasies -- we have real problems to solve here.

Monday Morning Smile

(via CC) Two chickens break up a rabbit fight (Chickens for Peace?)

And a little political truth lie truth:

Some more comments on the water bill (aka FAIL)

As I said two weeks ago, I was not pleased at the lack of progress embodied in California's water bills. (Someone else's critique)

Here are a few more items on that:
  1. Senate President pro-tem Steinberg (D-Sacramento) indulged in the most blatant hypocrisy and non-leadership I've seen in years, by inserting a $10 million earmark for his pet project (a community center). He was shamed into removing it. Dan Waters also points out that Steinberg -- a guy who claims to support transparency -- is directing his "investigations" team towards political ends. He should be impeached
  2. This article shows where the $11 billion is supposed to go. I see a whole bunch of pork for projects that should be funded by locals/users, and not the general fund/bonds.
  3. Speaking of pork, Assemblywoman Lori Saldana (D-San Diego) told environmentalists that she was going to vote against the bond, before she voted for it. In between her no and yes came $100 million in earmarked funds for SDCWA. Coincidence? I think not!
  4. Schwarzennger rewarded John Benoit (R-Riverside) with a Riverside county supervisor position on the same day as the vote for the water bills. Benoit claims this was a coincidence. I think not!
  5. This Fresno Bee article does a pretty good job at profiling pork-laden Westlands. One farmer claims that "If that were true [Westlands has big political muscles], why wouldn't we have more success at getting the water we need?" Nice try. If Westlands didn't have all its political pull, it would have been shut down years ago. But that's not the best part of this article. Try this:
    "It would be a tragedy and a blow to national security if we did not have Westlands," Costa said. "Where would the food products come from for Americans' dinner tables?"
    Well, Jim, how about other farmers? I sure hope that Rep Costa (D-Fresno) gets LOTS of campaign contributions for his kind words propaganda.
  6. I reviewed the bills' shortcomings to my class, not so that they would hear me rant, but so they would understand the gap between words and deeds. The class is about "environmental economics and policy," after all! Watch this video (from 54:55) if you want to hear some harsh criticism of our "leaders."

As I said in that lecture, the four "governance" reforms do very little:
  • The Delta Council can be stacked with the governor's fans. It has no enforcement power.
  • Groundwater regulation is timid, at the wrong scale (monitor at the basin level activities that take place at the irrigation district or farm level, with penalties at the county level), and administered by DWR, an organization that's controlled by agricultural interests.
  • The "increase in resources" at the SWRCB is trivial (25 staff?), when what's needed are annual water permit fees, retirement of paper permits, strong penalties for illegal diversions, control over groundwater use (when it interferes with surface water), etc. None of this is happening. Even worse (as Michael Hanemann never fails to point out [PDF], SWRCB has consistently failed to do its job -- for more than 40 years. What makes anyone think they will start working now?
  • 20% reduction in urban water, but "try hard" for ag water? Yeah right.
The $11 billion bond will go down in flames, of course. Nothing like spending money you don't have (and that's not yours!) on Projects of Regional Koncern!

Bottom Line: Our political leaders tried to hit a grand slam, hit a foul ball and then claimed a triple. Fail.

hattips to DW and CM

15 Nov 2009

Minimum Wage

I don't really like it. I don't like most government actions if they prevent individuals from voluntarily making themselves better off. Some may say that is too simple a view, but I trust people, and I trust them to know what is best for them. Recently, the NY Times said the following in a recent editorial:
The country also needs a program that would create jobs for teenagers — ages 16 to 19 — whose unemployment rate is currently a record 27.6 percent. Deep and prolonged unemployment among the young is especially worrisome. It means they do not have a chance, and may never get the chance, to acquire needed skills, permanently hobbling their earnings potential.
Some articles mildly frustrate me, but this one angered me enough to respond, and they published my letter (3rd one down). Although it's quite nice to get published, it's disheartening to read the other letters and to reread the editorial and come to understand that my viewpoint is probably considered kooky, especially because I live in Bezerkeley. I think most economists agree that the minimum wage hurts, so we must not be very good at conveying the terrible costs of the minimum wage.

Bottom Line: Let people sell their time for whatever they feel is fair.

14 Nov 2009

Housekeeping note

Hi Folks,

In preparation of various transitions, I am ending weekend discussions (Fail) and will post no new material on weekends. Instead, I will post an "open thread" (write whatever you want, talk to each other) and a "flashback" to the year before (some things never change; some things need updates) on Saturday morning.


13 Nov 2009

More on the macroeconomy and real estate

Gary Watts may look like the cat that just ate the canary, but he's got a lot of interesting things to say [pdf] about the macroeconomy and real estate in California and the US. Scary facts:
  • 40 million US homeowners have no equity.
  • 90% of Option ARM borrowers are paying the minimum.
  • California foreclosures were 236,231 in 2008 -- up 180% on the 84,375 foreclosures in 2007!
Russ Roberts' talk with Charles Calomiris is amazing. Calomiris has an excellent grasp (as if I can judge!) of the markets and political economy. Most interesting is his recollection that "Joe Stiglitz, Jonathan Orszag, and Peter Orszag were hired by Fannie Mae to write a paper in 2002 defending the claim that the odds of Fannie Mae ever getting into financial trouble were extremely low." Good call, academics consultants. /sarc

Oh, and has anyone considered how frail the "I will buy a place and make higher monthly mortgage payments because I hate throwing my money away on rent" logic looks, now that equity has gone to zero or negative? So much for that conventional wisdom!

Bottom Line: Things are bad, and they will not be better for awhile. The "guys in charge" may have contributed to the problem, but I don't think they know how to get us out of it. (I'd stop wasting our money.)

The Ostrom method/countering climate change

If you want to know more about Elinor Ostrom's philosophy (and that of her husband Vincent, who went down the same path 15 years before her), then read this 2003 interview [pdf] with them.

Now jump to 2009 and read Lin's ideas on global warming. Guess what? There is no one-size-fits-all solution!

Abstract: This paper proposes an alternative approach to addressing the complex problems of climate change caused by greenhouse gas emissions. The author, who won the 2009 Nobel Prize in Economic Sciences, argues that single policies adopted only at a global scale are unlikely to generate sufficient trust among citizens and firms so that collective action can take place in a comprehensive and transparent manner that will effectively reduce global warming. Furthermore, simply recommending a single governmental unit to solve global collective action problems is inherently weak because of free-rider problems. For example, the Carbon Development Mechanism (CDM) can be ‘gamed' in ways that hike up prices of natural resources and in some cases can lead to further natural resource exploitation. Some flaws are also noticeable in the Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD) program. Both the CDM and REDD are vulnerable to the free-rider problem. As an alternative, the paper proposes a polycentric approach at various levels with active oversight of local, regional, and national stakeholders. Efforts to reduce global greenhouse gas emissions are a classic collective action problem that is best addressed at multiple scales and levels. Given the slowness and conflict involved in achieving a global solution to climate change, recognizing the potential for building a more effective way of reducing green house gas emissions at multiple levels is an important step forward. A polycentric approach has the main advantage of encouraging experimental efforts at multiple levels, leading to the development of methods for assessing the benefits and costs of particular strategies adopted in one type of ecosystem and compared to results obtained in other ecosystems. Building a strong commitment to find ways of reducing individual emissions is an important element for coping with this problem, and having others also take responsibility can be more effectively undertaken in small- to medium-scale governance units that are linked together through information networks and monitoring at all levels. This paper was prepared as a background paper for the 2010 World Development Report on Climate Change.

No more student posts

Thank you everyone for your awesome comments and contributions to their work.

FYI, they are going to rewrite those posts ("first drafts") as one page briefings that will be (single-blind) peer-graded. In total, the blog post, briefing and peer-grading are worth 25 percent of their total grade in my EEP100 class.

Bottom Line: Incentives matter, but community can matter more :)

The efficient way to spend stimulus money

The current method is to look for shovel-ready pitchfork-ready* projects, but those projects were NOT underway for a reason -- their benefit-cost ratios sucked.

Although stimulus money may make those projects cheaper for the locality, it does not make bad projects into good projects.

Here's how I would have distributed the stimulus money.**
  1. Pay off existing debt on existing projects that, presumably, passed the benefit-cost test.
  2. That payoff will reduce debt (helpful when bond ratings are falling) and reduce debt servicing (helpful when 30% of tax revenue disappears).
  3. Communities that want to build more can then choose to do so, but they will consider 100% of costs when judging the benefits from a project.
Of course, none of this happened, because politicians want to wield golden shovels in front of NEW holes (Keynesian holes!) in the ground. They are not interested in standing in front of balanced budgets or sensible, operating projects. Such a pity.

Bottom Line: We manage our own finances in a completely different way than politicians manage "our" finances, bribing our current selves with some promise that our future selves will not have to pay. I guess we are just gullible in believing their hokum.

* Sounds about right for Friday the 13th, huh?
** And remember that this is OUR money, so we are basically borrowing from our future selves and spending now. My overall opinion is that stimulus money is wasted, but this is all about harm reduction!

Tom Graff has died

He was one of the founders of Environmental Defense Fund's California office.

Here's a bio at EDF and Spreck Rosekran's blog post in memorium.

Bottom Line: A great man.

12 Nov 2009

Speed Blogging -- Totally Edition

  • Sustainable personal finances, like sustainable water management, means spending less than you make. Totally, but the podcast [mp3] that says this also taught me some good stuff...
  • Spreck at EDF worries about farms selling water to cities and going fallow. I totally agree, except Spreck's being inconsistent when he (or EDF) says that water sales are good, but not the sales they dislike. (That's why I support temporary fallowing and leasing water.)
  • This 2006 episode of South Park totally makes fun of the smugness of hybrid owners, with many special barbs tossed at the holier-than-thou, my-farts-smell-great San Franciscans. [I have a BMW, but I only drive it 5,000 miles/year :) ]
  • Totally useful: Satellite monitoring can be used to increase crop yields or pinpoint "non-point" pollution.
  • Drying and burning peat bogs, swamps, wetlands, etc. are a significant source of CO2 emissions. It's totally stupid to drive a Prius if we are not protecting swamps -- or forests!
  • Coyote hates this recession...
    ...because nearly every day I get another letter from some near-bankrupt city, state, county, or other taxing authority which says basically: “we have this vague, non-fact based hypothesis that your company owes us a lot of taxes you are not paying. To avoid the determination that you owe us lots more money for some unproven or unspecified reason, you must send us approximately a two-inch stack of information that it will take from 8-10 hours to prepare, including…”
Hattip to AC

The price of textbooks

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.

Jose Soria says:

Every year most college students dread the beginning of semesters or quarters. With the beginning of school come many expenses. Students not only have to worry about paying rent and tuition, but also about buying all the course materials needed for all of their classes. Unlike David’s class, most classes are not student friendly and require students to buy the latest edition of a particular textbook plus additional books that could be helpful. In most cases the new textbooks that students are required to buy cost hundreds of dollars.

Students should not have to pay hundreds of dollars for the newest edition of a textbook. Textbook publishers justifying the price of the latest edition of a textbook because of miniscule changes, but do not drastically improve the quality and relevance of information in textbooks. If the theory and general concepts of a textbook have not changed, there is no need for a new textbook. And unlike textbooks in high school, textbooks in higher education do not get reused. Students usually buy a textbook, use it for a semester, and sell the textbook back to the student store before the textbook becomes outdated.

With this current economic situation it is ridiculous to think that students can afford to buy the latest edition of textbooks. According to the National Association of College Stores, students across the country spend an average of $400 every term. Over a 4 year span a student may have to pay over $2,000 for books.

The problem is that the textbook industry has many players that are trying to increase their own utility and not the utility of college students. Along with textbook publishers there are bookstores that stand to profit from new textbooks being sold, but the last participants it the textbook industry that can help college students are instructors. But some instructors are persuaded to assign new editions, because most of the time they get the new edition for free.

Bottom Line: Textbooks publishers and bookstores are trying to make as much profit as they can. To combat the power of textbook publishers and bookstores, instructors of higher education should not always assign the latest edition of a textbook and try to find alternatives to textbooks. Students should also take action by not buying books form the bookstore and not selling their books back to student stores. Instead, students should help each other by using websites like comegetused.com and amazon.com that allow students to buy and sell textbooks at an affordable price.

Milton agrees with me on healthcare

Well, Friedman is dead, so I suppose that I am agreeing with him, but I didn't know he also said that employer-provided health insurance is dumb (and note that the current bill makes that worse, by making it mandatory).

Bottom Line: Give the premium money to employees as salary [the money that's already "theirs"] and then let them buy their own insurance. Better incentives for better insurance, care and cost controls.

Carrizo-Wilcox Aquifer Bleg

A concerned aguanaut wrote this:
The wikipedia article for the Carrizo-Wilcox Aquifer simply doesn't exist. The aquifer is quite large and serves a large portion of Texans and surrounding states. I'm not a wikipedia expert, nor an aquifer expert. I was wondering if you knew anyone I could contact in the hydrology studies that might be willing to contribute to the article. Here's what I've found.
Although someone can contact Scott Jones, perhaps a few of you can contribute to this article.

Note that I created the Peripheral Canal wikipedia entry in late 2007. Seems that I was slightly ahead of the curve. If this aquifer gets more important over time (almost a sure thing with ground water in TX), then you will be too!

Bottom Line: Nobody knows as much as we all know!

How to get bureaucracies to conserve water

There are many examples of government wasting water (sprinklers in the rain, etc.)

Although these examples make good press ("oh no, not again!"), they do little to reduce such waste.

Here's how to reduce that waste: Charge them.

I am pretty sure that many branches of government are not billed for their water use when water supply comes from a public agency. That's because accountants figure that it's not "efficient" to take a payment from one branch of government and give it to another (like shifting money around your pockets).

Of course, such a policy means that there's no incentive to conserve water.*

If, OTOH, the Department of Parks and Recreation had to pay for water as a line-item on its budget, it would pay a lot more attention to how much water (money) it was wasting. That's because more money for water means less money for donuts, staff retreats and other "morale boosters" that our public servants appear to need.

Bottom Line: A bureaucrat's world revolves around his budget. If you want him to do something, make it budget relevant. Bureaucrats will conserve water when it pays costs.
* The same is true about property taxes, auto registrations, and other government services that are consumed by other branches of government as well as the public. If it's "free," demand is greater!

11 Nov 2009

Silly Regulation

The skeptical-of-regulation crowd (which includes me) is fond of citing the "baby seats on airplanes" regulation as a terrible example of high costs but few benefits, i.e., a cost per life saved of $1.3 billion.

As a comparison, note that mandatory seatbelts cost $69/life saved., and that the US EPA's "value of a statistical life" is $7.4 million.

This research [pdf] found the following about baby seats on planes:
  • The baby seats are compared to keeping the baby in the mother's lap.

  • "The cost of the regulation per death prevented would be high -- about $1.3 billion if the price of the round trip ticket for the young child were $200."

  • The number of child deaths could actually increase if as few as 10-15% of families switched from planes to autos as a means of saving money on the cost of an additional plane ticket.

  • Thankfully, the FAA decided that it would NOT require these seats -- because the cost was far more than the benefit.
Bottom Line: Just because a regulation "saves lives" does not mean it's worth it. In other words, this regulation had a high "opportunity cost" -- money that could have better spent elsewhere -- on seatbelts, etc.

Why are generic drugs less expensive than brand-name drugs?

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.

Ana Lopez Castillo says:

In short, the generic manufactures do not incur the high cost for research and development of new drugs. Instead, they wait until the patent protection is over, which usually takes about 20 years, to produce drugs  with the same active ingredients as the brand-name ones.  In addition, generic companies take advantage of the extensive and the million dollar marketing campaigns that brand-name companies used during the patent protection period.  Overall, generic companies are able to produce at a very low cost because they did not have any research investments.  In the same manner, generic companies do not have any exclusivity in the chemical formula which allows more companies to produce generic drugs resulting in tighter competition and decrease in prices.

Bottom Line:  During your next visit to the pharmacy to get some drugs for a cold/flu think twice before you get the brand-name medication; the one next to it, has exactly the same chemical formula for less cost.

More information here
DZ Notes: Generics are not always "just as good" as their brand name equivalents.

Government Fail and Fail

Coyote is good at noticing the government's failures to live up to its promises.

Chrysler promised electric cars, got bailout money. The electric car program is now canceled.

The Kelo case was a disaster: Local government used eminent domain to seize houses for a "value added" private development. The development is now canceled.

I think that some people need to be asking harder "and then what?" questions!

Politics -- not bureaucrats -- sloshing water

Fleck clarifies my misconception about his post:
He makes the excellent point that these lakes reservoirs are managed by two different branches of BurRec (Lower and Upper Colorado Basin, respectively)
with this:
The disconnect is not in the river’s management, but in the resulting political conversation. In thinking about the river as a whole, it is most useful to think about the total amount water stored in both reservoirs. But in building a sense of urgency in Las Vegas, it is in Pat Mulroy’s interest that her community focus on Mead’s dropping levels.

A Cuppa Java on the House

This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.

Brandon Hutchens says:

Living in a house of coffee-drinkers has its perks, not the least of which is a fresh pot of coffee every morning. But why? Why would any rational being take ten minutes to make a pot of coffee when s/he could drip brew themselves a cup in two (our house has both a coffee pot and a filter-based system that drip-brews one cup)? Looking at this “conundrum” using game theory, we can make a reasonable inference about why someone would opt for the pot of coffee.

For the sake of simplicity, let us assume there are two players: the first person to the coffee pot and the second. Each person has two options: to make a pot of coffee, taking ten minutes to set it up and wait for the entire pot to brew; or to make a cup for themselves in two minutes, using a drip brew system with a filter. Let’s assume that the pot results still results in one cup—as there are many coffee drinkers down the line. What does the first person do? Economically speaking, time is valuable and is the cost that should be reduced. The personal brew “saves” us eight minutes and is the better option. But this is not the option chosen. Every morning, no matter how late I’m running, there’s a fresh pot of coffee (thankfully). What gives?

Perhaps the logic is that the coffee pot, unlike the drip brew system, does not use a paper filter. But since my house composts the drip brew filter, I think it unreasonable that anyone feels discomfort at using one of the hundreds we get at a time.

More important than the “hippie hypothesis,” the key is to consider the game itself. Normally in game theory, we assume there is no communication between players and thus no cooperation. But in a house of coffee-drinkers, this assumption does not hold. Most coffee drinkers know who else belongs to the club. As such, there is an incentive to cooperate: if the first person to the coffee pot is not running late, they may make a pot with the hopes that someday this favor will be returned. Indeed, we also neglected that the game is repeated over time, every morning (at least).

The end result: the first person brews a pot because one day they might be the second person, perhaps running late and in search of an easy cup of Joe. If the second person is the first to arrive in a later rendition of the game, s/he is more likely to return a favor to someone they know—especially if that person normally brews a pot.

Bottom line: one should communicate and ultimately cooperate with the other coffee-drinkers. The game then becomes a cooperative effort to decrease the overall time spent making coffee. If one person spends ten minutes brewing a pot, then others get coffee in little to no time. On the assumption that this situation might reverse itself the next morning, the brewer does not mind investing ten minutes "just this once" for his/her pot-brewing fellows.