08 May 2010

Flashback: 2 -- 8 May 2009

These posts are still relevant (to me :), so please comment!

Vanity Lawns. Are they justifiable?

BEST: In Fixed and Variable Costs Redux and Redesigning Some for Free, I get into the details of the right way to price residential water.

Water Chats -- Firebaugh and Westlands with the guys that have 40% unemployment and a farmer who just needs a little more water for his almonds. That reminds me of Same Old Supply Bias -- the notion that more water will fix things, forever. Speaking of supply, these Water Chats at Bowles Farm get into the details of life as CVP "exchange contractors." That means that they get 100% water when others (Westlands) get 20 or 30%.

Indian Suicides and the Blame Game -- a spat between me and the alternet folks over GMO cotton and suicide. I think they commit suicide b/c of debt; they think they do b/c of crop failure. Which came first?

BEST: Food and Water Watch FAIL (x3) -- They seem to think that politicians are always good and businessmen always rapacious. I set them straight.

Sustainable Tuna, in the sea. Really!

6 comments:

W.E. Heasley said...

BEST: In Fixed and Variable Costs Redux and Redesigning Some for Free, I get into the details of the right way to price residential water.

An odd phenomena is voluntary conservation causing a price increase. That is, voluntary conservation met with the disincentive of a price increase or as some argue a tax The case in point is Raleigh, NC among many, many other cities in North Carolina.

North Carolina had two years of drought and then NC Governor Mike Easley asked for voluntary conservation. The population responded but once the drought ended the population continued to conserve. In other words, conservation became the norm not the exception.

Suddenly public water works were faced with declining revenue due to the much reduced demand for water. The public water works infrastructure, human capital, and outstanding bonds required revenue X however the continued conservation, the new normal, was generating revenue X-1 due to major volume decreases directly related to voluntary conservation.

Rather than public water works going on an austerity program, trimming personnel, trimming benefits and retirement plans for remaining personnel, the public water works merely elected to raise rates to return revenue to level X.

Many argued, and argue to this day, that the increased cost for water was/is a tax as the cost of doing business did not increase for the public water works. In other words, fixed and variable costs of the public water works remained basically the same and the price increase for water could not be attached to rising costs of delivering water. That the reward for conservation was a tax leading to increased costs for households and business.

David Zetland said...

@WEH -- I agree that managers can be lazy about cutting costs, but there's also a point about covering fixed costs when revenue falls. You point is fine, but why aren't ALL prices set as a "tax" on people, instead of a cost of service. Why now?

W.E. Heasley said...

Dr. Zetland:



".... but why aren't ALL prices set as a "tax" on people, instead of a cost of service".

Price is a rationing agent whereas tax is the transfer payment from the income of households and firms to the transfer agent (government).

Coercive behavior pricing could certainly be argued as a fusion of price and tax. The fusion then acting as a coercively rationing agent. However, the tax portion still remains a transfer payment to the transfer agent.

Here is a question for you: A tax used to reduce externalities, the particular tax goes to the transfer agent, and then the transfer agent uses the transfer payment revenue for about every reason under the sun except to address the externality. That is to say, the externality get addressed through a tax but the tax revenue doesn’t address the externality.

David Zetland said...

@WEH -- and the payment goes to WHO? If it's a transfer, it has to go somewhere.

Economists prefer lump sum transfers back to ALL citizens, but activists prefer that "sin taxes" go to reducing the sin, via their preferred method, which is often controversial and sometimes ineffective.

W.E. Heasley said...

Dr. Zetland:

I’m an insurance economist. You know, we live in the world of the risk management matrix. But I’m also interested in environmental economics. You know, the world of externalities.

Demesetz eludes to externalities, via neoclassical economics, accrue to all households in his book ‘From Economic Man to Economic System‘. In other words, all positive and negative externalities, the total summation of, accrue to all households who own and/or use private property. Firms are made up of household ownership and or household human capital (employees) hence externalities do no accrue to firms they merely pass through to the total of households owning and/or using private property. Private property ownership and/or use of private property is either diminished or enhanced by externalities.

If a tax is imposed on an externality, the “firm” is the focus of the tax and this taxing of the firm becomes political economy for “activists”. However, firms are made up of households and hence the focus by activists is misplaced (maybe intentionally) as the tax eventually is passed onto households by firms.

You mention transferring the tax back to all citizens as a lump sum. “All citizens”, at least in the U.S. economy, are owners of and/or users of private property (e.g. you own your bike, you use your bike, you rent a bike, you make bikes, you repair bikes, etc., etc.). But the “tax” becomes misdirected away from the externality. That’s the disconnect.

The disconnect is glaring in Cap and Trade proposals and especially if you study the CCX.

If you ride your bike and leave a thin film of rubber on roads from bike tires which is an externality, and a 10% bike tax is imposed to reduce bike riding to reduce the externality, then the tax needs to be used to mitigate the effects of/clean up the rubber film on roads. But if we “trade” thin films of rubber, in a supposed market based approach, on the thin film of rubber exchange, and we reduce bike riding by increasing the cost of bike ownership or use, reducing an externality…..exactly how does the thin film of rubber get mitigated/cleaned up? Or does the thin film of rubber exchange redirect the mitigation/clean up value into other hands that does nothing to address the thin film of rubber left by bike tires.

Explain that phenomena of Cap and Trade where nothing is done to reduce the externality nor mitigate the externality.

David Zetland said...

@WEH -- the tax (a Pigouvian tax) is meant to reduce behavior to the appropriate level. The revenue -- in theory -- can be thrown away. But there are people are harmed, even at the "appropriate" level of tax, and they should get compensation. If they are the public, then they get a per capita distribution. If they live on the road, they are a subsection. If they are victims of secondary smoke, they are a smaller group.

That's the theory.

C&T is BS in many ways. I prefer a carbon tax. :)