31 August 2010

I'm off to Burning Man

Burning Man is an experimental community (this year's theme is "metropolis") in the desert with lots of art, music, drugs and sex -- but NOT water. It's also a place where only gifting, not exchange, is allowed. Although most people prepare to be self-reliant (Burning Man is NOT sustainable), gifting adds a wonderful spin to everyday interactions.

The main exceptions to this are the sales of ice and coffee, which upsets some people. This essay by Larry Harvey (founder of Burning Man) gives an interesting perspective on coffee sales:
Some critics of the Burning Man Project insist that by allowing coffee sales in our city’s Center Camp Cafe we violate a tenet of our non-commercial ideology... My reply is that we’ve never espoused a non-commercial ideology. To be against commerce is to oppose the very existence of civilized life. Even hunter-gatherers engage in trade in order to survive.

When most people say that any thing or act is too commercial or has been commercialized, very few of them mean to say that the practice of commerce is necessarily bad. Instead, they are expressing the feeling that something essential -- something that should never be bought and sold -- has been commodified. This is why we have always been careful to use the words commodify and decommodify.

Our annual event in the desert is meant to provide an example what can happen in a community when social interactions cease to be mediated by a marketplace. Until quite recently, all societies have provided many different kinds of rites and rituals – set apart from daily life – that rehearse and reaffirm certain core spiritual experiences that are held to possess an unconditional value.

[Keep reading]
I'll be back in a week, but the blog -- like any good zombie -- will keep posting

Photo Contest -- The Photos

We had some great entries. There are 7 photos below the fold.

Vote for the one you prefer on the right sidebar.

Voting ends in 2 weeks, and you only get to vote once!

The photographers wrote the captions. I wrote some of the titles.

Note that you can see a bigger version of the photo by clicking on it.

Poll Results -- Tradeoffs

The next poll is for the photo contest; see the post above...
I like government-run parks, and I am willing to fund (choose 1+) of these programs to keep them.
roads 38 votes
defence 16 votes
postal service 36 votes
agricultural programs 13 votes
oil and minerals exploration 7 votes

This poll was motivated by a memory of a conversation I had with a PhD economist a few years back. He said "I'm willing to pay for roads because I get parks as part of the package."

Let's take a look at the cost-benefit of that calculation using actual 2009 federal spending [1]:

National Park Service (Dept of Interior): $2.6 billion.

Roads (Dept of Transportation): $50 billion = 20x NPS.

Depts of Defense/Homeland Security: $688 billion = 265x NPS [2].

Postal Service: $3.8 billion = 1.5x NPS [3].

Agricultural Programs: $43 billion = 16.5x NPS [4].

Oil and Minerals Exploration Dept of Energy = $24 billion = 9x NPS [5].

From these examples, you may see the "opportunity cost" of your NPS.

Bottom Line: Government is not about trade-offs. The government should do some useful things without wasting our money on programs that can be done elsewhere or should not be done at all.

[1] Yes, I left off State parks. Sorry.
[2] That doesn't include intelligence spending, which is secret.
[3] The USPS is supposedly self-sustaining. It lost this much in 2009; see page 71 of this PDF.
[4] Excluding food stamps.
[5] That was a silly choice for the poll. The Minerals Management Service and the Office of Surface Mining have a total budget of $320 million. The US coal industry produced 1,170 million short tons worth $31/ton in 2008; the domestic oil industry produced about 2 billion barrels in 2009, worth about $60/bbl. Total revenues (ignoring natural gas, which is about 10-20% of oil) were therefore in the range of $155 billion, or 485x the budgets of MMS and OSM.

30 August 2010

Takings in the Central Valley

Central valley farmers (Wolfsen et al.) have sued the US government for taking their water and land for environmental restoration ("an inverse condemnation").

Here's the 27 page brief [pdf].

(The Fresno Bee has three paragraphs on the suit. Budget cuts in the editorial office?)

Under the Fifth Amendment, they are entitled to "fair" compensation if they win.

But what's fair? The value they claim, the amount they paid for water, or their property tax assessment?

And I wonder if they'd take the money in exchange for their land.

Monday funnies

via LC, we get this wisdom from an Arizona water attorney.* (I love VIII, of course, but VII is a close second!)

[Note: I am a water attorney. Years ago I was asked to give a speech summarzing Western water law to a group of non-lawyers. This was the result....]

Introduction: It does not take a law degree to understand water law and policy in the western United States. Ten basic legal and historical principles govern the rights to and uses of water in the West. By understanding these ten Water Laws of the West anyone can then understand the current issues of water and its relationship to the future of the West.

I. The Law of Gravity: The First Water Law of the West is the Law of Gravity. Water runs down hill. The initial uses of water in the West involved the use of gravity to tap rivers and divert their flows into canals for delivery to farms and mines. This is also known as Newton’s Law.

II. The Law of Los Angeles: The Second Water Law of the West is the original law of Los Angeles. This L.A. Law states that “water runs uphill to money“. The development of energy technologies to lift water against the pull of gravity is the basis for modern Western civilization. Los Angeles pioneered the effort to defy gravity with money in the early 1900′s with its Owens Valley Aqueduct.** Southern California is now served with a network of pipelines and canals such as the Metropolitan Water District’s Colorado River Aqueduct. Phoenix, Tucson, San Francisco and Denver also utilize massive pumping and diversion systems to transport water from great distances in defiance of gravity to serve their growing urban populations.

III. The Law of Supply Creating Demand: The Third Water Law of the West, also invented by Los Angeles, is that “if you don’t have the water, you won’t need it.” This is sometimes stated as “he who brings the water brings the people”. Both are attributed to William Mulholland, a pioneer director of the Los Angeles Department of Water & Power (DWP). Los Angeles and other Western cities operate on the premise that in order to assure growth of their cities, water supplies for the future must be developed well in advance of that growth. This is in contrast to the general approach in Western cities of developing freeways and other public infrastructure long after the growth has actually happened.

IV. The Law of I Got It First: The Fourth Water Law of the West, embodied in the West’s surface water laws, is the doctrine of “prior appropriation” translated into “first in time is first in right”. First in time for most water uses in the West were farms and mines. Instead of “first in time is first in right”, we have seen the evolution of “we’ve got more votes than you in the state legislature” to decide who gets water.

V. The Law of Beneficial Use: The Fifth Water law of the West is that to have a right to water it must be “beneficially” or “reasonably” used on that appurtenant land. This is only understood in the context that water left flowing in a river maintaining the survival of fish in that river and vegetation growing along side that river was not originally defined as a “beneficial” use in Western water law, whereas drowning gophers or growing rice in deserts were deemed “beneficial” uses. In recent years, environmentalists have succeeded in gaining recognition of “instream” beneficial uses of water and a new category of water rights is beginning to emerge to preserve flows in rivers. However this process is emerging only after most rivers and streams in the West have been dammed and dried up by diversions of the flows to the previously established beneficial uses. To fully appreciate why this happened, it must be remembered that the fish in these streams only recently were able to obtain the services of water lawyers via various environmental and conservation organizations.

VI. The Law of Worthless Land: The Sixth Water Law of the West is that without a water right or access to water, land is worthless. There is not enough water available to use all available land for all the potential beneficial uses. Thus lands with water rights or access to water have value for use, whereas land without water rights is known as the desert, with zero value except when being subjected to state and local property taxation. It is also a historic fact that farmers, ranchers and miners figured all this out about a hundred years before the average city council or environmental group, thus most Western water laws are heavily weighted in favor of using water for farming, ranching and mining. This law is also known as the “appurtenancy” rule meaning the rights to the use of water are tied to specific parcels of land, which are usually owned by farmers, ranchers or miners.

VII. The Law of Expropriation: The Seventh Water Law of the West focuses on how water (and other natural resources) are obtained for Western civilization. This Law depends on finding some fairly impoverished and unsophisticated water right holder (usually Indians, farmers, or rural communities) on the other side of the mountain a city can steal water rights from. Los Angeles pioneered this approach by buying up the Owens Valley on the east slope of the Sierra Nevada for water rights nearly 100 years ago. What we are now experiencing is not so much a water shortage, but a shortage of people on the other sides of the mountains who are willing to let their water resources be stolen from them by cities. “We didn’t run out of water,” said a city official, “we ran out of dummies we could steal water from”.

VIII. The Law of the Price is Right: The Eighth Water Law of the West is that there is no water shortage if the price is right. It is widely believed in city halls that the farmers will sell their water rights if the price is high enough so the farmers can go raise martinis in La Jolla instead of cotton in the Salt River Valley of Arizona, or the Imperial Valley in California. Thus when someone asks “is there enough water for Los Angeles or Phoenix or Tucson  to grow?” the answer is probably yes–if you don’t care about how much the water will cost.

IX. The Law of Water Monopoly: The Ninth Water Law of the West is that water management in an arid environment almost always results in the creation of a water monopoly. Thus (along with the discovery of fire and religion) the first steps towards civilization included the construction of irrigation ditches and the immediate creation of some sort of bureaucracy to run the system. Not surprisingly where irrigation water monopoly civilizations rose, they lasted for thousands of years. The Westlands Irrigation District in the Central Valley of California and the Salt River Project in Arizona are merely the modern counterparts of one of humankind’s most ancient of institutions–the water monopoly. Many western urban areas figured out the value of water monopoly and created enormously powerful regional agencies such as the Metropolitan Water District of Southern California and the Central Arizona Water Conservation District in Arizona, to do essentially the same thing–building vast networks of canals to bring water to their constituents.

X. The Law of Vanishing Civilizations: The Tenth (or Last) Water Law of the West should be called the Hohokam Law of Water and Gravity. Under this law, if there is no rain, there is no water to flow down hill. What went up–the buildings and the civilization–may crumble to dust if Mother Nature decides to hold a long drought. Lying beneath the streets of Phoenix and downtown Tucson are the ruins of ancient Hohokam Indian cities that vanished prior to 1400 AD. Phoenix is the second city to be built on the same site in reliance on the erratic flows of the Salt River. When there are curtailments of water deliveries to Los Angeles due to drought many Southern Californians had been heard to ask “what do you mean this used to be a desert?”

Conclusion: The principles that govern Western water law and policy have a long and somewhat distinguished history. It should also be noted that similar arid environment ditch-dependent civilizations ultimately collapsed under extreme environmental stresses, internal political conflict, and invasion by barbarian hordes. This is worth contemplating during a drought with various water interests fighting over who will get water in times of future shortages while the streets of Santa Monica or Scottsdale  or Tucson are filled with RVs with New Jersey license plates.

* Who gave his permission for me to repost it in full. Always check with a lawyer :)
** This is not true, as the LAA flows downhill, generating power. That, ironically, led to the push for a Colorado River Aqueduct that would bring POWER -- not water -- to LA. See sections 3.1 and 3.2 of my dissertation on MWD of SoCal.

Privatization update

Novato (Marin Co, N. Cal) voters approved a contract with Veolia, with 50.6 percent in favor, and Indianapolis voted to privatize its water operations, in exchange for $1.9 billion. I predict more of these deals.

To wit, the City of San Jose is thinking of selling its water system. The obvious candidate is the San Jose Water Company, an investor owned utility (IOU) that operates next door. The deal hinges on price.

What about the bad companies? A student won an award for a paper [PDF] that uses stock market data to predict which IOUs will fail. It's good news is that they can fail; municipal water utilities can't, and their customers suffer. Why?

Here's one reason:
In Kenya, for example, there are 20 million mobile phone connections, but just 12 million Kenyans have access to piped water (and this access is delivered via fewer than 500,000 utility connections). Most strikingly, Kenyans spend on average 16.7% of their personal income on mobile telephony, compared to around 1% for water services.

There are other reasons for this discrepancy: the mobile phone companies have hungry capitalists behind them, whereas the water sector is ruled by politicians and NGOs.
But are there exceptions?

Parisians praise themselves for re-municipalizing their water supply from IOUs. Good news -- they can reinvest "wasted" profits. Bad news -- they are reinvesting them in "solidarity" projects with struggling water agencies in other parts of the world. I agree that the IOUs may have inflated costs by subcontracting to expensive sister companies, but I disagree that re-municipalization is the only solution for this practice. I'm MORE interested in the long-term performance of this system, where operators/regulator/owners pledge no price increases for five years (underinvestment, anyone?) and have lots of ways of investing "for the public."

Bottom Line: Privatization will advance when companies provide the same (or better) service at a lower cost.

Hattips to RB, JG and BP

28 August 2010

Flashback: 23 -- 29 Aug

These were relevant a year ago -- and still are...

Anarchy! in Amsterdam! -- the Dutch piss off Bill O'Reilly with their goddam truth (Yes on Prop 19!).

BEST: First Lecture for EEP 100 -- that's the class I taught at UC Berkeley last fall. You can watch the entire series of lectures on Environmental Economics and Policy on YouTube. Start here. (BTW, my students loved my spontaneous style but hated my disorganization; I see that they've yet to master tradeoffs :)

DWR as a Fail Organization -- is it good that Lester Snow got bumped upstairs from DWR? Now he's in charge of ALL California resources!

Boldly (Wrong) Politicians -- glad to see that Poizner is out. Cogdill is still around.

Economic Laws of Scientific Research -- not all public goods need public funding, but then we also get The Backwardness of the Social Sciences.

Westlands Owns NASA -- or is it "WWD owns DiFi and DiFi owns NASA"?

BEST: A Few (More) Thoughts on Health Care -- the Congress shoulda listened to me instead of lobbyists.

27 August 2010

Central American travel

As many of you know, Anne and I went to Central America for seven weeks during June and July.

Before we left, I asked you to vote on where we should spend our time. We managed to follow your recommendation for one country (Panama). The figure below compared suggested shares of time vs actual [awesome, very fun] days.


Of course, most of you don't care about how much time we spent. You want photos.

Here's a favorite from Granada, Nicaragua:


There are 400 more, so set aside time to enjoy Honduras, Nicaragua, Costa Rica and Panama.

26 August 2010

This kinda BS stops water markets

In this paper [pdf] two academics claim that farmers cannot afford to use markets for water because the price required to balance supply and demand would be too high for the farmers to make money.

Besides the basic flaw in this logic (shortages are good for farmers?), there is the other flaw -- that prices would rise to the VALUE of water before quantity demanded fell to equal supply -- so that farmers "lose money."

This is just wrong.

All that's required is that prices rise high enough to choke demand. It's nearly certain that the price will be below value.

In fact, this figure from paper illustrates where price has to go, both to end shortage and cover system costs: somewhere above O&M costs and below value. Yes, the price is way above what they are paying, but that price is WAY too low.

How would they set the price to balance supply and demand? How about All-in-Auctions?

Bottom Line: All academics have biases; some have biases that defy common sense.

25 August 2010

Man makes a shortage

Yes, they're here! The new bumper stickers!*


You can buy them (1 for $4; 50 for $100, which is nearly cost) at the aguanomics store, where you can also buy "Some water for free... pay for more" bumper stickers and "Ready. Fire! Aim" t-shirts... Woo hoo!

* I can think of a few MAJOR water agencies that should buy a few cases...

Other people's money

Milton Friedman explains it in 2 minutes 42 seconds.

24 August 2010

Failure-go-round

WEH asks:

What's a "failure-go-round"?

First we get an incompetent government armed with regulations that supposedly stop market failure. When the market failure occurs anyway, the government intervenes before the market can repair the damage, with an intervention that also fails.

Wanna see failure-go-round in action? Try "As 39,000 Spill Claims Dangle, BP Defers to Feds"‏

Speed blogging

  • India debates a new food policy for the poor: Give them coupons for food, so they can avoid corrupt bureaucrats who now steal their food. More on this idea at AidWatch.

  • Lawrence Lessig connects the dots between a corrupt Congress, Deepwater Horizon, financial meltdown, obesity and other policies killing us and our planet.

  • The Carter Administration's Global 2000 Report to the President: Entering the Twenty-First Century was published in 1980. It's got a lot of details on how the sky is falling (a la Limits to Growth), but most of those details were right. What was wrong is the combination of technological advances that made our lives better AND the fact that most Americans are insulated from these problems. The same cannot be said for many people in developing countries.

  • LOTS of information on water trading in Australia's Murray Darling Basin. "Water trading was critically important in moving scarce water around to those who needed it most. It is also helping the irrigation sector adjust to market forces and the need to reallocate water to the environment."

  • On the other hand, we have a report on irrigation subsidies in Spain, which "calculates subsidies... are in the range of €900-1120 million per year (an overall subsidy rate of 55% - water user charges for projects meet only 45% of the costs). More than half of those subsidies finance the modernization and rehabilitation of water distribution infrastructures to allow for water savings."

  • AquaPlanet is for aquaponics professionals.
Hattips to RB, CO and JWT

23 August 2010

Monday funnies

Warning! Note the title, but it's totally worth it (headphones!)

Disaggregated community water management

DR tells me about a VERY COOL project he's working on...
In Michigan, the legislature has adopted a law that makes all of the users of water in a catchment responsible for not having an impact on the resource. All property owners have a right to reasonable use of the water under their property. Riparians have a right to reasonably use the water in streams that abut their property.

If any new use has the potential to cause a problem to the critters in the stream- all users have to modify their uses. The hope is that this happens voluntarily and through private deals. It will, however, end up in court at some point and we’ll see what happens then.

This is all enabled by a web-based tool that anyone can use to estimate what would happen if, for example, a new well is placed in the watershed. Ecological impacts are estimated and displayed. If no impact is predicted, the system approves a permit and the well is registered with the state.

As of early this summer, some 170 new withdrawls have been reviewed, and only 25% of those now go to an agency staffer to review. Of all requests, less than 1% have been declined.
Check it out!

21 August 2010

Flashback: 16 -- 22 Aug

These were relevant a year ago -- and still are...

BEST: A Model of Crisis -- a clever way to understand disasters (before they happen). In Politics, Community and Climate, we get at the ways to avoid crisis, and the human barriers to implementing them. One big one is The Tragedy of the Anti-Commons.

Mulroy, Mulholland and Muddle -- Pat Mulroy's gross expansionism is still happening, right?

BEST: Another Nail in the Coffin -- as in "water conservation technology can increase ag water use."

Water Wars NOT! [2nd edition] -- why we don't have water wars.

BEST: Academic Economists -- a little dialogue on how academics fail to grasp reality. Update: I am applying for jobs at universities (and think tanks) and will continue to blog and speak publicly.

20 August 2010

A big question about bad farmers

Economists often assume that people use their foresight to weight the costs and benefits from actions on their current and future selves.

For example, a farmer without neighbors* will not overdraft an aquifer today because he will want water tomorrow, for himself or his descendants.

But what if he makes a mistake and really does use the water "unsustainably"?

There appear to be three ways to respond to this mistake:
  1. He's screwed up. Let him suffer.
  2. The government should intervene, to rescue him from his folly and regulate sustainable use.
  3. Allow the market to correct the problem, so an outside buyer replaces him and restores sustainability, i.e., the long term flow of value from the land and water.
Note the problems with (2) that do not exist with (3). The government is a monolith that can make a similar mistake (intervening too much or too little or in the wrong way), but many market players compete to provide the best solution. Second, the government does not get rewarded for clever action (more profits) so there's no incentive to get things right. A new buyer, OTOH, would benefit from the profits of a good action.

What do you guys think of this problem and the solutions? Do you have example of wise governments or dumb markets? Please DO ignore problems and solutions involving property rights and/or commons.*


* I am intentionally avoiding a tragedy of the commons race among neighbors to pump before others do, etc.

So, where are those contest photos?

I've only got two submissions. The deadline's TODAY (I'll give you the weekend).

Anything but water

Non-water speed blogging (on the suggestion of my dad):
  • The Mexican President wants to debate legalizing drugs, a good way to reduce harm (28,000 murdered since 2006) in his country, a supplier of drugs to meet demand from we gringos.

  • Mike Munger details how the Chilean government destroyed a perfectly-efficient "public" transportation system (run by private operators), by taking it over for the government to run. (Mike is going to give an updated version soon...)

  • In 2006 Milton Friedman (now dead) said that government overspending will cause inflation (and not by accident). He also talks about the false allure of corporate social responsibility. Tea Bagger God?

  • How Glenn Beck* and Goldline are robbing people blind [click to enlarge]. Hint: It's the 42% loss you take on delivery.

  • Paul Ryan (R-WI) pisses off his fellow Congresscritters by trying to balance the budget. Read this excellent comment to get a feel for what politicians want vs what citizens need.

* Maybe Glenn is working with these guys?
We are Gold miners here in Mali on the sub-region of West Africa .We have some quantity of alluvial Gold Dust for sale. If you are interested, do not hesitate to get back to us as soon as possible for us to give you our full co-operate offer (FCO).Also even if you are not prepared to buy our Gold now, you can look for a buyer that will buy our Gold through you so that you will benefit a commission from it as well. We sincerely use this medium to contact you to let you know what we have presently.

we usually prefer to do our transaction mainly on FOB Mali .Our appointed representative shall accompany you and the product to your final destination and monitor further inspection of the assay process that will be carried out in the country where the product shall be shipped to. After you must have been satisfied with the product. you shall assist us to purchase needed plant machinery and mining equipments with part of the money for our use in order to boast our local production capacity. We can also go into a joint venture if you are interested based on your. Your quick and favorable response would be appreciated. We look forward in doing long lasting business transaction with you.

Our price is $22,000 USD per kilo.

19 August 2010

Bleg: Help make my career relevant

FC asks:
I would like to have your opinion on what would be the best and most useful type of work in the water sector.

The reason I am asking this is because I have a masters in groundwater and a BSc in water management. I have been working in all fields for six years, 90% of the time on groundwater.

I am writing for career advice. I am interested in water problems on a larger scale, and I am thinking of doing a postgrad in civil eng to generalize and not be limited to GW. GW is an interesting field and I really enjoy it but I feel it's not the perfect field to have the most impact.

Other than civil -- which would focus on execution -- perhaps I should get education in law or economics. I am keen to work in international projects, I have worked in Jordan, Laos, Canada, Europe, Africa, and South America but I would like to do something else than "being behind a drilling machine" -- even if I have conducted a lot of modeling for mining projects as a consultant.

I got into the water sector to work on large problems that link humans, economics and the environment, because those problems were important to me. Now I find myself in a "box," and far from my first interest in providing global solutions. This may sound utopist of course, but what advice can you give?

Surreal bureaucracy

I need to get the official text for a human right to water that the UN General Assembly approved on July 28.

But I can't find it on the UN website. They refer to a "text" here and here but don't provide it -- or a link!

This is surreal. ("Yes, you have rights. We just can't tell you what they are.")

Can anyone give me this top secret "text"? Thanks!

Boom goes the Delta!

DF sent me this interesting document [doc]:
On Tuesday August 3rd the State Water Board adopted the Delta Flow Criteria Report (Report) produced by the State Water Resources Control Board’s (Board) Division of Water Rights pursuant to Water Code section 85086 established by Senate Bill No. 1 of the 2009-2010 Seventh Extraordinary Session. SB 7x1 [pdf] requires the Board to develop, within nine months of enactment of the requirement, new flow criteria to protect public trust resources for the Sacramento-San Joaquin Delta (Delta) ecosystem.

The Report [pdf] provides recommendations, based on the best available science, for the minimum hydrologic flow that is needed within the Delta to provide sufficient resources and protection for fish species within the ecosystem.

Essentially, the recommendation of the report, based on analyses of historic conditions (1921 to 2003), indicates that water within the Delta will need to return to 75% of unimpaired flows in order to halt the population decline and increase populations of native species as well as species of commercial and recreational importance. The adoption of the report, by the Board, is a significant step towards California water management reform as it represents the first time a state agency of such magnitude, under such circumstances, has provided formal recognition that the Delta is not receiving an adequate amount of water to protect public trust resources.
Is this the end of Delta exports? Is it just another shot in an endless skirmish? Does it mean that co-equal means 75% flow through and 25% for human uses? Does it mean that we don't have to fix the Delta [pdf]?

Please tell me (us!) what this means...

18 August 2010

Running Out of Water -- The Review

I was sent a review copy of this book (which just went on sale), and here goes:

Peter Rogers is a Professor of Environmental Engineering and Urban Planning at Harvard. Susan Leal is the former GM of the San Francisco Public Utilities Commission. She was therefore managing SF's tap and wastewater.

Their subtitle is "the looming crisis and solutions to conserve our most precious resource," and they set out to make the case for crisis (lots of examples) and solutions (personal stories from their work).

The book has eight chapters (besides the Foreword and Conclusion):
  1. Turn on the tap and out comes water. An intro that says "things are going badly. Don't be scared because we have solutions..." Comes with figures of the hydrological cycle and water flow in a treatment plant, for the textbook crowd.

  2. Making it last: using technology to recycle water. Starts with supply-demand imbalances in California and how recycled water (Orange County, Singapore) can be used as a source. Covers desalination and the Vegas turf removal plan. Ends with a comment on the "wasteful... agricultural industry." Uh oh...

  3. Taming the big user; Improving agricultural water use. Long profile of an "efficient" Nebraska irrigator (Glock); long description of the Imperial Irrigation District (IID); description of Australia's water markets. This chapter was the first where I had WTF?! objections. IID is presented as "if IID farmers can conserve water, so can anyone," when most of that conservation is imposed on a dysfunctional district that's NOT controlled by its farmers. Rogers and Leal are too quick to assume that Glock's ideas can just be picked up (why aren't they?) or that "inefficient" irrigation "wastes" water that probably goes into groundwater. This chapter reminds me of the "do what we say, not what's profitable" attitude of the Pacific Institute reports (first, second) on ag water.

  4. Wanted: public involvement. A boring recap of Leal's PR campaign to get higher rates for infrastructure repair in San Francisco. Getting people to drink NEWater (recycled water) in Singapore.

  5. Valuing an extremely complicated resource leads to wise use. This chapter was the worst, by far. What's the title mean? No idea, but the Rogers and Leal's attempt to describe the economics of water is painful. It seems that they wrote down a bunch of concepts from index cards, without understanding how they fit together OR how the subtle points matters. (Any economist could have read the chapter and made corrections.) They get demand wrong ("there is a need to be able to measure the value of water to each different user," but that's impossible); private and public goods ("private goods are owned by individuals or groups; public goods are held in common," when we distinguish between the good's characteristic -- is it excludable or exhaustible -- not ownership); the use of geeky terms, which they mix up ("long term marginal costs" ARE "fixed costs"); statements of opinion as fact ("water in the mountains of Northern California is much less valuable to the local populations than the same amount used for irrigation and urban uses in Southern California" may be right from some aggregate measure, but maybe not; there's NO MARKET where these values compete, and SoCal's use is facilitated by the bureaucratic engineered works that were build 50-80 years ago); "marginal cost pricing would make water unaffordable for the poor" ARG! Damn. Stop this nonsense. I hated this chapter. Oh, and "price doesn't reduce demand, concrete specific actions by consumer do." Right. So "gas doesn't run cars, engines do"? No, wait. My foot does. No wait. Combustion does. Stop being sophistic! Damn, I've got to stop on this one.

  6. Waste not, want not. Three case studies of cleaning water in Northern California (grease in SF, treatment at EBMUD, and wastewater into steam in Geysers). Nice.

  7. Rivers as shared resources: transboundary conflicts and compromises. This appeared to be a summary of Rogers' work that could have been summarized in a paragraph. We don't need "five conditions for successful outcomes" when they include no duh gems like "willingness to compromise on political issues... and obtaining necessary financing"

  8. Water that lasts a thousand years: Bottled water. An anti-bottled water rant from the former GM of SFPUC known for its good tap water. I'm NOT shocked, except at how silly it sounds. As in (paraphrased) "stop buying bottled water; give us that $11 billion for public water infrastructure." Oh, can I have some of that WASTED money too?
Their conclusion (So, Now What) has this howler
As we have seen, the farming community does not always make water efficiency its first priority. It has to be reminded that water resources are limited...legislative or regulatory enforcement provides the needed incentive [their word!] to operate more efficiently."
That sentiment (and condescension) is enough to lead me to NOT recommend this book. It's wrong and misleading and dangerous in the wrong hands (yes, they call for a federal water czar).

Bottom Line: I give this book THREE STARS, with deductions for pedantic, sometimes confusing exposition, a failure to explain economic ideas clearly, and a biased POV (or narrow disciplinary POV as an engineer and urban manager) that impedes discussion with righteousness. In one sentence? Rogers and Leal reached too far; they should not be appointed czar.

Speed blogging

Hattip to CC, CM and JWT

17 August 2010

Bleg: US water pricing

I welcome any help with these facts.

First, The US has 52,000 water systems, serving 90 percent of Americans. Apparently, 39 million people [NO SOURCE] -- the rest -- get their water from private wells.

True?

Second, does anyone have statistics on the number of systems (or better, customers) who pay for their water based on (1) fixed rate (all you can eat), (2) uniform or flat rate, (3) increasing block rates, or (4) decreasing block rates?

Thanks for any help!

My talk on All-in-Auctions

I gave this talk at PERC yesterday.

Here's the paper.*

Here are my slides [PDF]

Here's the one-hour MP3 of the talk [11 MB]

Two big things came out of this talk. The all-in-auction is appropriate for redistribution of water rights within wholesale water agencies, irrigation districts or water projects of a certain minimum size. The AiA may not be appropriate on smaller scales, where informal trades function pretty well.

Second, it's important to roll out AiA gradually, with consensus among water rights holders. That means that third party impacts are likely to be small, new distributions of water will not be disruptive, and price discovery will allow outsiders to see what's going on. (That's a problem for folks who want to hide the value of their water...)

I'll be updating the paper to include these points and other useful clarifications.

If you have more questions on all-in-auctions, then email me.
* Abstract: Reallocation of water from those who own the rights to those who have higher values can be win-win-win---helping the seller, buyer and society realize the value of an endowed asset, a productive input and a social good, respectively. Reallocation by bureaucratic methods is inefficient because of the difficulty in determining who "really" deserves the water. Reallocation by market methods overcomes this information problem but may suffer from illiquidity of under-participation and/or under-trading.

The All-in-Auction (AiA) mechanism minimizes these effects by selling all water rights in a bid-only auction that maximizes liquidity, efficiency and social welfare. The AiA does not take water rights because owners indifferent to selling can simply bid for their own water, at no net cost. AiAs are appropriate for use within organizations (e.g., irrigation districts or wholesale water agencies) that distribute water among members; members would decide when and how to use them. The AiA was tested in experimental sessions, where participation and endowment effects were observed.

Poll results -- fooding!

Hey! There's a new poll (roads and parks) to the right --->
When you buy food (meat, dairy or veggies), do you choose based on...
...lowest price 18%17
...subjective quality 82%80
97 votes total

So this question (and these answers) are interesting, because they go against the conventional wisdom of conventional agriculture, i.e., politicians and farmers who claim that "people want more, cheaper food."

I have two thoughts on this. First, the people who read this blog (and responded to this poll) are abnormal as far as their food purchases are concerned, or second, that the conventional wisdom is wrong.

While talking to Ron Bailey at PERC, I mentioned this poll. He said that organic food is a waste of money (see Penn and Teller here and here), but admitted that he and his wife buy "nicer food" because they can afford it. I see his point -- that we should not require that everyone pay lots for "boutique" food -- but I also see his inconsistency: If it's so great, why doesn't he eat the cheap stuff?*

I also think that Americans have different choices compared to (more regulated) Europeans and (too poor for mass ag) people in the developing world.**

It seems that our markets are dominated by cheap AND low quality food. (See Fast Food Nation, Food Inc, and my modest proposal of how to balance the food and financial budgets.) I'm not too pleased with that.

What do you think?

Bottom Line: You are what you eat. Do you know what that is?
* Damian's post on food-illness -- below -- shows up today by coincidence.
** I eat more vegetarian and organic in the US and more meat abroad. I'm not against eating meat -- I'm against bad meat, in quality or environmental impact.

16 August 2010

Foodborne illness

According to this post foodborne illness costs us $152 billion a year in lost quality of life/medical expenses. Can anyone put this in context? Tyler Cowen mentions that if each of us has a quality adjusted life year worth $100,000 then our annual total "value" of life is on the order of $30 trillion. Thus $152 billion/$ 30 trillion is not very large.

The trend in this cost figure may be more interesting. I would guess that the trend in foodborne illnesses decreased with the intro of a fridge and associated understanding of pathogens, but then regrettably it appears (CSPI pdf) to be on the rise now. That seems odd given our steady trend in doing things that improve safety. I suppose it could also be an artifact of the data - the pdf above only has data from reported cases, and those are a small subset of those that occur. (When I got sick at a Chinese restaurant a couple years ago, I didn't really know if it was their fault or just mine from eating too much).

Eric Schlosser, of Fast Food Nation, sees these data and wants a new food safety bill to reverse this trend. His point is that we are importing more food from China, and they are not always giving us food. He is also concerned about the rise of corporate controlled food and factory farms. He calls for increased inspections and stronger recall authority for the government, which may improve the food supply from these factories, but at what cost? The fact that one large meat plant can sicken thousands indicates that there are costs to large meat processing centers, and food safety bills typically encourage bigger factories (they have an easier time complying with new regulations). Americans may prefer getting their meat from large, sterile slaughterhouses, but government interferes in this decision by encouraging such large production in the first place.

Bottom Line: Food safety has tradeoffs, and it seems that the result of increased food safety regulation has been more homogeneous, lower quality food from larger factories. That may be worse that the alternative.

Doublethink at Coke

This is crazy:
Coca-Cola is being sued by a non-profit public interest group, on the grounds that the company's vitaminwater products make unwarranted health claims...

...lawyers for Coca-Cola are defending the lawsuit by asserting that "no consumer could reasonably be misled into thinking vitaminwater was a healthy beverage."
I was shocked, shocked to read that vitaminwater* has 33 grams of sugar in a 20oz bottle. Coke has 39g in 12oz, so we're talking about 50% of the sugar in Coke.

Holy sweet-tooth, Batman!

Bottom Line: Sometimes marketing can get so far ahead of reality that it's funny (or sad). I'm glad that we usually know what's in our food, but I'm guessing that there's more that we'd like to know.

* The drink of rappers, hot chicks, and ball players

Monday funnies

Hipsters are developing into a meme worthy of ridicule

Smart meter SNAFU

People are complaining that PG&E's new water smart meters are "interfering with our baby monitors" and causing "debilitating headaches and nausea"

LK says that the meters are probably running on the wrong frequency and points out that PG&E is a monopoly that may not be so hot at consumer pre-testing...

Bottom Line: Smart meters are cool, but they need smart installers.

Hattips to SJ and SR

15 August 2010

Flashback: 9 -- 15 Aug

These were relevant a year ago -- and still are...

Cadiz, Money, Politics and Corruption -- the story has taken a few turns, I hear.

Fish or Foreclosure? -- Jeff Michael claims Central Valley job losses were about construction, not water deliveries. Did we ever get updated (un)employment numbers, to know what REALLY happened?

BEST: Are We Killing Ourselves (and the Planet?) -- a few words of caution (for us) and humility (for the environmentalists)

BEST: The False Security of Mathematical Precision, i.e., "1 + 1 = 2 but does 1 man + 1 woman = love?" -- clarifying the line between "social" and "science." Speaking of that, Useful Research? What academics should be doing (and often aren't)

14 August 2010

It's my birthday!

So I'm now 41 (prime number!) and indeed thankful to have lived another year.

Some of you may think that all I do is bitch and moan, criticizing left and right, but I am totally aware of how lucky I am, and how lucky we are. I just want things to be better.

The photo is from Nicaragua, and I asked Anne to take it because I was particularly chuffed with my freedom to travel and enjoyment that it brings.

Anne and I should be somewhere in the Tetons today, but you can rest assured that I am thinking of more fun things to do, projects to tackle, truths to "out," and life to live.

Oh, and it's great to have such good readers, colleagues, friends and family in my life. I'm a commie as far as sharing a good joke, a clever insight and a cold beer. Thanks for being here.

Cheers!

13 August 2010

Drying out grandma? NOT

From a good story on lawns:
“If water gets more expensive, the demand for water will fall," says Mr. X. "In the case of landscaping, this is a very, very obvious point. A lot of people say we can’t charge a higher price for water, because Grandma will not have enough water to drink or I won’t be able to bathe my children.”

But with more than 50 percent of our water going to our lawns, argues Mr X, that’s hardly an emergency use of water. His idea is to charge customers a base amount for a reasonable amount of water, then jack up the water fees for people who want to use considerably more. People could keep their grass lawns if they wanted to, but they’d really have to pay for it.
Who's Mr X?

Me! :)

Using the Steripen to purify water

Here's my review of a handheld UV water purifier ($70). Pretty cool.



Bottom Line: Five stars for a small, convenient way to avoid sickness -- and waste!

12 August 2010

Who is the California Farm Water Coalition?

Mike Wade, Executive Director of the California Farm Water Coalition, has often commented (or been quoted) on this blog and other places in favor of continuing or increased water deliveries to agricultural interests.

And I have often disagreed with the way that Mike has presented his case.

What bothered me was Mike's dogmatic insistence that water for ag was more important than water in other places. It reminded me of how a lawyer or lobbyist would say or do anything to benefit his client.

And that made me wonder just WHO Mike's client was. It also made me wonder if CFWC was not violating its status as a 501(c)3 non-profit, which forbids lobbying* legislators on particular legislation (such as the water bills or how to allocate federal stimulus money).

In response to this second question, Mike sent an official letter [pdf], stating that
The Coalition supports the current water bond, however we have expended no funds nor do we expect to do so in promoting it if it makes it to the ballot for a vote. While we believe the goals of the water bond are in line with the beliefs of a majority of our members, our goal is to educate rather than advocate.
Now, I don't know about you, but Mike's time costs money and Mike's advocacy in favor of the bond therefore appears to "expend funds."

Oh, and whose funds are these? I asked Mike, point blank, three times to tell me who is contributing to the CFWC, and he ignored that question each time. The About us section on the CFWC website is useless, and the Directors of the CFWC need not have anything to do with funding.

So who's paying you to NOT lobby, Mike?

Here's the beginning of an answer. Their 2008 IRS 990 [PDF] lists $370,000 in dues (from WHO?), and $230,000 in "fees" under revenue. Under expenses, there's one FT salary (Wade) and another $200,000 in "other salaries." Put differently, CFWC spends about 2 cents per acre foot "defending" or expanding agricultural water rights. Maybe that's a deal, maybe not.

So CFWC is a one-man lobbying shop. Doesn't seem very grassroots to me...

Bottom Line: If you want to know who has skin in the game, follow the money.
I've been corrected on this. Some lobbying is allowed, under some circumstances. I am MORE interested in WHO is funding CFWC. (OTOH, what does CFWC do that's NOT lobbying?) Here's what the IRS says:
An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.

Organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, organizations may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status.

11 August 2010

Speed blogging

  • Critical theorists will now inflict us with their opinions on ecology. Read the Journal of Ecocriticism (e.g., "Mining Westerns: Seeking Sustainable Development in Pale Rider and McCabe and Mrs. Miller"), but hold onto your sanity.

  • PERC has some great reports that ALL enviros should read (to make sure they are doing the RIGHT thing to save the earth): Recycling Myths Revisited (= don't bother) and 7 myths about green jobs (= they aren't).

  • Interesting: "Anti-immigrant backlashes don’t always track closely with actual immigration. They track with unemployment, popular anxiety, and a fear of displacement by strangers. They depend on woeful narratives of national decline, of which there is lately no shortage." Got that Dobbs? McCain?

  • The weakening of Hong Kong capitalism will lead to many problems, such as those manipulated regulations at Goldman Sachs and the banking industry. A pity.

  • The Do Not Call Registry tops 200 million numbers. I guess that people really DON'T like telemarketers! Read more on its origin and how telemarketers fought (and fight) it.

10 August 2010

Breaking news: Clean water for everyone!

How did this miracle occur?

The United Nations declared a human right to clean water, so everyone must have it, right?

Not.

Some people fight wars; others declare victory and go home.

Read this great analysis of this new right.

But seriously, folks... my paper on human rights and property rights was rejected by a journal this morning. These objections stand out:
[reviewer #3:] Giving masses of illiterate or semi-literate farmers in Third World countries salable rights to water, with sales to be managed by elaborate and sophisticate market structures, is just asking for massive fraud that will probably leave large numbers of such farmers devoid of both water and wealth.
Besides my explicit suggestion that farmers (and everyone!) be able to lease, but NOT sell, this reviewer also knows that governments are doing a good job for these illiterate farmers (and why are they illiterate?) -- a better job than they can do themselves.
[reviewer #4:] The paper is basically the anti-thesis to the current and emerging trend on water resources management world-wide. Legislation and policy on water resources world-wide are moving in the direction whereby water resources, both surface as well as groundwater, are owned, controlled, regulated and allocated by the state.
I can't wait for the politicians in Sacramento, Washington DC, and other political capitals to decide who, where, why, how and when water flows/sarcasm

The Prize -- The Review

Daniel Yergin's monster of a book was completed in 1990, right at the start of the first Gulf War and before the fall of the USSR. That means that you only get to learn about 1859--1989 while reading his 780 pp history of the oil business.

This book has been on my "to do" list for a long time, and I am glad that I read it. I now know a lot more about the oil business (and oil politics!). That knowledge provides useful insights into the the present and gives me some idea of what will happen in the future.

I will not give you a long summary of the book. For that, start with wikipedia. The short version of the book is:
  1. Americans started the oil industry with lighting; it was run by rough, smart, aggressive characters.
  2. Electricity killed the lighting market (kerosene), but the fuel market (diesel and gasoline) took its place.
  3. Before WWII, most oil was controlled by US and UK firms that worked all over the world; the US was the biggest producer.
  4. Mexico was first to nationalize its oil (breaking contacts with foreign companies) in 1938.
  5. Oil was important in WWI, when it helped machines replace horses. It was critical in WWII, when its absence choked the Nazis and a shortage nearly ended Britain's resistance.
  6. After WWII, supply outran demand, and prices dropped.
  7. Iran (under the Shah) fought with Saudi Arabia for title of biggest exporter. These "beggar thy neighbor" races for market share hurt everyone, in an echo of the same overpumping that harmed oil US producers in the 1920s.
  8. It was not until the 1980s that oil prices were really set in transparent markets; before then, they were set in long-term contracts, in bilateral negotiations that sometimes had nothing to do with economics.
In addition to this outline of trends, I made the following notes:
  • Water is not even CLOSE to oil in significance for military or political actions. It's VERY unlikely that an army would lose a battle for lack of water or a nation be invaded for its water supplies. That's because water is everywhere, but oil is not.
  • There were a lot of VERY smart people in the oil business. Global competition forced the best to the top. No such competition exists in the water world, either in terms of measured talent or productivity nor in terms of the size of the market or incentives to succeed or fail.
  • The Office of Price Administration (J.K. Galbraith was on staff and on topic) opposed raising prices in WWII, making it more likely that the US would have fuel shortages and the military would not have enough oil to fight. Vacations to Florida were making it more likely that the Axis would be the owners of Disney World.
  • The US was involved in Saudi Arabia from the start, and that involvement meant that the US was not too critical of mistakes or misrule in Saudi.
  • The first oil concessions favored capitalist companies. Producing countries then unilaterally rewrote contracts for 50/50 profit splits. New-comers offered more to get into the game. After awhile, most concessions were nationalized.
  • Everything changed in 1973, when the Arab -- not OPEC -- embargo against Israeli allies during the Yom Kippur War raised prices to levels never before seen. It's important to note that Small is Beautiful and Limits to Growth were in the public consciousness at the time. With the intellectual background in place, people saw the advantages to using less. It was a total change compared to use more more more...
    In the United States, the shortfall struck at fundamental beliefs in the endless abundance of resources, convictions so deeply rooted in the American character and experience that a large part of the public did not even know, up to October 1973, that the United States imported any oil at all. But, in a matter of months, American motorists saw retail gasoline prices climb by 40 percent -- for reasons that they did not understand... The embargo and the shortage it caused were an abrupt break with America's past, and the experience would severely undermine America's confidence in the future. [pp 616-7]
  • Oil exploration, production and distribution takes a lot of money, talent and coordination. The oil market was run like a big bureaucracy for many years, but many surprises and mistakes increased the cost of handling complexity. The rise of markets removed a lot of those problems, or at least minimized their harm.
This book provides an excellent background to how the oil business grew and changed the world. For more on the (financial, environmental and political) damage that oil causes us today, read Crude World.

Bottom Line: I give The Prize five stars for its clear and thorough exposition of an industry that gave us the good life today -- and the industry whose unsustainable product threatens to take that prosperity away.

09 August 2010

Monday funnies

From: Shannon Walkley
Date: Monday 21 June 2010 9.15am
To: David Thorne
Subject: Poster

Hi 
I opened the screen door yesterday and my cat got out and has been missing since then so I was wondering if you are not to busy you could make a poster for me. It has to be A4 and I will photocopy it and put it around my suburb this afternoon.



This is the only photo of her I have she answers to the name Missy and is black and white and about 8 months old. missing on Harper street and my phone number.
Thanks Shan. 

From: David Thorne
Date: Monday 21 June 2010 9.26am
To: Shannon Walkley
Subject: Re: Poster

Dear Shannon,
That is shocking news. Luckily I was sitting down when I read your email and not half way up a ladder or tree. How are you holding up? I am surprised you managed to attend work at all what with thinking about Missy out there cold, frightened and alone... possibly lying on the side of the road, her back legs squashed by a vehicle, calling out "Shannon, where are you?"
Although I have two clients expecting completed work this afternoon, I will, of course, drop everything and do whatever it takes to facilitate the speedy return of Missy. 
Regards,
David

Subsidies for groundwater mining at Westlands

I have often praised Westlands Water District (and other irrigation districts) for their skills in turning water and land into food and money.

But my praise does not extend to their use -- perhaps dependence -- on financial and contractual subsidies that mean the difference between profit and loss, permanence and bankruptcy.

Even I could be a great profitable farmer, if you give me enough subsidies to lower the cost of my inputs (water, energy, labor) and increase the price of my outputs (corn ethanol, cotton, exim credits for almonds).

So I was annoyed to learn the (somewhat old) news that Westlands and other irrigators are getting (will get?) $40 million in federal "stimulus" money for drilling deeper wells [read this pdf]. These wells would be used to mine less-than-clean groundwater, so the subsidy is thrice unsustainable -- financially, environmentally and hydraulically.

Thanks DiFi, for stimulating stupid.

Bottom Line: I don't care if Westlands farmers want to destroy themselves, but I do care if they use MY MONEY to do it or -- worse -- continue unsustainable operations that turns WWD into a zombie irrigation district.

07 August 2010

Flashback: 2 -- 8 Aug

These were relevant a year ago and still are...

How Should California Regulate Groundwater? Catherine from the LAO lays it out; I don't see much progress on these ideas :(

Reality to Academe to Reality -- an example of an academic who strives to be useful to real people.

BEST: San Diego's Twilight Zone -- a great example of how a water department can persuade itself that it's right. The Fixed Cost Shakedown -- the trouble with water departments that price water without an incentive to conserve it.

BEST: Farmers Are STILL Not Dumb -- so people should not expect them to "behave" in one way when profits point the other way. For example, when they Use more technology and then use MORE water.

Home Water Testing -- The Review -- we still need innovation in this area. Anyone?

Heart of Dryness -- The Review -- How and why governments prefer to oppress citizens with sustainable habits.

BEST: Optimal Taxes -- Property Tax -- my suggestion for a tax system that's easy to collect, fair and hard for politicians to screw up.

06 August 2010

Bleg: Academic mistakes?

A few years ago, I saw an article on a survey of scientists, each of them discussing the big mistake they made in their career and what they learned from it.

I can't find a link anywhere.

Can anyone out there help? Thanks!

Speed blogging

  • Potential large- and small-scale irrigation projects in Africa [pdf]. I favor the latter.

  • An excellent article (I had some influence on its content :)
    Imagine that you work for a California water agency. You derive most of your revenue from the sale of water. But the state also mandates that you encourage conservation with rebate programs and consumer education. What will happen if you are able to cut demand by 30 percent or 40 percent? You may lose your job..

    [snip]

    So water agencies administer all sorts of conservation programs, but they make sure that the programs will have a limited impact. They keep prices low. They put onerous restrictions on rebate programs. They produce brochures touting conservation but secretly hope that consumers won’t take them too seriously.
  • Poor people use more water than others in Milwalkee. Why? They cannot afford better plumbing features, are often renting (not paying for it), and live in older buildings. Decreasing block rates make it worse -- by making conservation pricing even more expensive for water wasters -- but better pricing could upgrade fixtures, lower consumption and still be fair.

  • Public subsidies for bad power projects means wasted money and expensive energy.
Hattips to BP, DR and SS

05 August 2010

Subsidies, opportunity cost & deadweight loss

This example is for my book. Does it make sense?

And finally, we get to an important, invisible subsidy – the subsidy for preferential access. Say that you and 5,000 other people want to go to a concert that’s in a hall with a capacity of 800 people. Tickets are only $5, but how do you get a ticket? If there was an open market for tickets, buyers might compete to push the price to $50, but there isn’t. Only some people — the connected, cool folks — are going to get tickets. (I’ll get to reselling tickets in a bit.) Note that the ticket promoter is forgoing $45 per ticket to distribute it to the cool people. We don’t know why he’s willing to pay this opportunity cost, but he is.

Let’s break down this example. Some cool people would have bought the ticket at the full price. Andy, for example, pays $5 for a $50 ticket that he values at $65, so he gets a subsidy ($45 = $50–$5) on top of his benefit ($65 less $50). Other cool people are going to get the $5 tickets that they would not have bought for $50. Bob is cool, but he’s only willing to pay $35 for the ticket. Bob gets a positive value of $30 ($35-$5) from the difference between what he pays and his value, but the remaining $15 of the $45 subsidy is wasted, as a deadweight loss from the difference between the ticket’s value in an open market and Bob’s value. But there’s more, there’s the deadweight loss from Carl not being able to buy that ticket. Carl values the ticket at $75 and would have been happy to pay $50 for it. From a social perspective, this method of distributing tickets creates deadweight losses from tickets ending up in the wrong hands. The $40 deadweight loss is the sum of the foregone benefit when Carl did not get the ticket ($75 less the $50 market price) plus the difference between the market price and Bob’s value ($50 less $35). It also creates subsidies by selling the ticket below the market price ($45 to Adam and $30 to Bob). Although the subsidy is merely a transfer of wealth from the ticket seller (money foregone), it’s valuable to those cool people who get that transfer. The deadweight loss is not valuable to those with preferential access – the cool people – but they are socially costly as a misallocation of resources.

If a secondary market was allowed to function, then we’d expect that Bob would sell his ticket to Carl. If he sold it for $60, then deadweight loss would go to zero.* Although that sale would not reduce the cost of the subsidy ($45 per ticket), it would change its value. The subsidy was only worth $30 to Bob, but now it’s worth $55. So now you have a better understanding of why people like subsidies. First, because they get something for less than cost – and sometimes less than their value. Second, because they can sell subsidized goods to others without preferential access. This ticket example demonstrates how preferential access wastefully misallocates valuable assets. Although it would be better to end such practices, a second-best choice – allowing re-selling – can eliminate most of the waste. Reselling is also more feasible, since winners in the current system would continue to win.

This gets us to water rights and access to infrastructure...
* This is slightly tricky, since deadweight loss is defined as the difference in values when the ticket ends up in the wrong hands ($40), not as the distribution of benefits ($15 to Carl and $25 to Bob) from reallocating that ticket.

Sigg bottle RIP

I've had this bottle for about 10 years, but it finally gave up.


Corrosion in the bottom caused a leak.


I put it into the recycling bin, with the aluminum cans. Now I am using a plastic bottle that I've had for 9 years. It also has my bumper sticker :)

When police are useless

We were nearly the victim of theft in Bocas (a gringo-dominated set of islands in Panama), but others have not been so lucky.

We were surprised to be awoken at 4am by a man on our first floor balcony. Since we were above the ground floor, we had not thought it necessary to close our balcony doors. Unfortunately, the [name omitted] hotel staff had left a ladder in the yard that the thief had used to climb up to our room.

Thus, I found myself, naked, confronting a man who was bigger than me and interested in robbing us. We yelled for the Police and made noise. The man prayed that we not bother him, climbed down the ladder and walked -- SLOWLY -- out the side-gate of the hotel, closing it behind him. (I tried to toss him off the balcony as he went over to the ladder, but his grip was too strong.)

The only person who responded to my cries for help was the hotel manager. As we stood in the street and talked, a police car drove by. We waved for it to stop, but they only looked and carried on.

In other thefts, people had gone out, leaving their windows open, and returned to find their rooms ransacked.

If there was a CSI: Bocas, then it would show the police asleep in their hammocks. If they are awake, they are watching TV. Seriously. Others told me about people getting stabbed or killed. The police ask for gas money before they will come and investigate. If you are being robbed and catch the thief, the police will release him ("nothing stolen"). If the thief gets away, then there's nobody to arrest. There are two ways to deal with thieves. They both ignore the police and rely on small-town dynamics:
  1. Go to the local bar and offer a reward to get your stuff back, no questions asked. 
  2. Get a video or photo of the thief and "let it be known" that they will be killed if they try to steal again/do not return the stolen items...
Bottom Line: When the police fail, you have to take care of yourself.

04 August 2010

Photo Contest!

Send me your best water photo with a story of why that photo is important to you, me and everyone else.

I'll sort through the entries to get the top 6, and then allow readers to vote for their favorite.

Deadline for submissions: August 20 (one only please!)

Voting Begins: August 23 August 30.

Here's one of my photos (I am NOT in the contest), from Mt Cook NP in New Zealand:


I like it because it shows the glacial runoff from the nearby peaks (not sure if that's Mt Cook in the background). I drank the rock- mineral-rich water. It tasted good, but was a bit "heavy" on my stomach :)

Speed blogging

  • I'm in Montana, so I am reading actively moving water, Chris Corbin's excellent blog on water trading. This post discusses why senior water rights may not be useful; this one discusses regulatory bottlnecks to trades. Read and learn!

  • Travis Lybbert (a professor at my old department at UC Davis) has a nice piece on adoption of new drought-tolerant crops by poor farmers.

  • The meaning of life. Really.

  • Another explanation of how the stimulus is misguided.

  • An excellent piece on how to deal with shortage, i.e., either "1) limit population growth and agricultural land expansions, 2) increase water management and use efficiency, and 3) pay to either pump water from deepening aquifers, transport water from more distant sources, desalinate sea water, or reclaim/reuse already consumed water."
Hattip to WEH

03 August 2010

The Value of Nothing -- The Review

This anti-market, anti-capitalist screed falls within a tradition that includes The Communist Manifesto, Polanyi's Great Transformation, and various works by Naomi Klein and Maude Barlow. It is essentially a tirade against all that is wrong with this world; how all of that can be traced to greed, money, markets, and economics; and how all we need to do is try harder to overthrow the forces that work against us, The People.

Unfortunately, many readers will see reason in Raj Patel's deluge of words, ideas and catch phrases -- everything from infant formula to labor exploitation to pollution offshoring to Wall Street greed -- without seeing the holes. It's hard, after all, to know what happened at a crime scene when there's only one witness.

I am another witness, and my perspective includes elements that Patel either omits or misunderstands.

First, the title of this book is misleading. I thought I was going to get a deep discussion on the issues with valuation, why some things are worth more or less than they cost, and how to integrate these values into prices -- similar to the discussion on morals I got here. Instead, I got a lot of rhetoric about things (nature, family, happiness) that are worth more than money. Ok, fine. Now what? Well, not much. In many places in this book, Patel says "we need to do more" but doesn't offer a cogent rule, institution or action plan. This is especially distressing when he says "markets [for labor, carbon, healthcare] don't work..." but then fails to offer more than "we need to look out for humans, the weak" and so on...

Second, Patel goes after his "artificial people" -- governments and corporations -- as if they are really people. Of course they aren't! People are inside corporations and governments, fighting over what to do. Even when there is a clear goal (profit maximization), people still fight over the means of pursuing it. Patel needs to do a second edition of this book, with extensive revision to include Buchanan and Tullock on Public Choice and Schumpeter on Methodological Individualism. I do not make this recommendation to pick nits, but Patel's very broad background reading appears to have missed a literature that is absolutely central to his thesis -- that people need to regain control over the institutions affecting their lives. Speaking of institutions, he needs to read more from Douglass North [PDF].

Third, Patel needs to upgrade his caricature of economic thinking from a straw-man version of Gary Becker to something reflecting thought in the past 20-30 years. He does himself no service calling Becker a crank pushing an absurd neoliberal agenda in service of corporations. Please. He lauds Marx and Keynes but fails to consider the implications of their policies. Give workers control of capital! Stimulate the economy! Fine. And then what?!? His caricature of a capitalist economy is so pathetic that he claims that only people with money will get health care. That's not true in the ("capitalist") US, although it may be in ("communist") China. I wish that he would at least concede that government policies for safety nets and redistribution are not in contradiction to markets and capitalism, but a complement to capitalism, divvying up a bigger pie.

Fourth, Patel mixes up economics (the study of efficiency, often via markets) with politics (the study of equity, often via laws and policies). He constantly attacks markets, money and corporations for sins committed within a political framework. Patel needs to spend more time criticizing the rules of the game, instead of blaming winners. He discusses, e.g., the problems with subsidized beef without pointing a finger at the USDA. He blames corporations for externalities -- an area where government intervention is critical. He claims [p. 49] that "corporate capitalism has yet to prove that it can operate without these kinds of [environmental and social] subsidies," which is ridiculous. He goes out of his way to find fault with every advertisement -- "Coke is a cocktail of chemicals" or "Visa encourages debt" -- in such a hysterical manner that I think he's drunk a little too much of Klein's No Logo Kool Aid. For example, he got this [p. 167] wrong: "...the fetters placed on democratic society by the market." That's backASSwards. Society puts fetters on markets.

Fifth, this book was endorsed by Michael Pollan and Naomi Klein -- two public intellectuals without strong economic background. That's not important for their work (I agree with the central theses of The Omnivore's Dilemma and The Shock Doctrine, and Patel praises them in his text), but it matters for Patel's. They are not highly-qualified witnesses for this work.

Sixth, Patel talks a lot about righting all the wrongs of unfair distributions or property, money and other things. (He does not seem to see how that contradicts his recommendation that we stop worrying about money and things.) But how does such a redistribution work? Who takes direct action? If we reject property rights, then who gets stuff? The folks with guns? How does that affect the incentives for work and innovation? I understand his affinity with Small is Beautiful and the leisure of a hunter-gather lifestyle, but we cannot force people to end their greed. (Polanyi made the same mistake. He denounced wage labor but failed to allow for labor that WANTED wages.) And no. People are not socialized to greed, neither by McDonalds or the Federal Reserve!

Seven, Patel talks (a LOT) about NEEDS and things we NEED to do. That's fine, but who pays for these needs? Who will pay if farmers all switch to organic production methods. Even without subsidies, non-organic farming produces cheaper food. Will poor food consumers in "The Global South" be better off with organics?

Eight, on a positive note, I liked Patel's example of participatory budgeting in Porto Allegre, Brazil (and other places) as well as his examples of direct, deliberative democracy. We need more of that, in more places, if we are going to get good policies affecting markets or redistribution of wealth.

Nine, "We need to admit that prices don't signal what we believe" [p. 192]. Oh really? So what's that barrel of oil worth, then? And who is "we"? if not all of us? This is the kind of bullshit that made me want to throw this book out the window, but I forced myself to read to the end, to see if Patel ever gave a hint of how to do things -- other than "trust us to do the right thing" -- and I never got that hint. I got to the end of this book thoroughly convinced that Patel has strong beliefs and outrage but little grasp of what causes it or how to change things.

Bottom Line: I give this rant TWO stars for outlining a number of problems and suggesting a few solutions but absolutely FAILING to give any useful analysis of how political-economy works. I only recommend this book to people who need confirmation of their opinions (NOT a need to understand them) or analysts looking for easy arguments to demolish. This review has a value of greater than nothing if it leads you to spend your time and money elsewhere.