31 Aug 2011

Speed blogging

H/Ts to EF, DL and RM

The Company of Strangers -- The Review

This book offers an amazing, intuitive and scientific introduction to the economic method while describing the biological underpinnings of the economic dimensions of our behavior.

Paul Seabright wrote it in 2004 but updated it in 2010 to comment on the economic and behavioral dimensions of the financial crisis. This revision is helpful in describing the economic foundations of current events but not necessary in terms of understanding the timeless characteristics Seabright discusses.

The book is packed with rich thought and elegant language. Here are a few parts I liked:

p. 37: The average child is not as smart as his/her parents, but the average parent is more intelligent than his/her grandparents. So Harry is not as smart -- on average -- as his mum and dad, but he's probably smarter than average if passes his genes to the next generation. This has been true for awhile and will stay true (unless idiocracy comes to pass).

p. 50: Specialization in work and the gains that come from trading among specialists produces wealth in free markets but it can waste human and natural resources when it's directed from the center (i.e., the USSR). We KNOW this, of course, but Seabright extends this example into an explanation of how our small tribe instincts to support winners and neglect losers do not handle the losses that people experience in huge, anonymous economies. The result is emotional and social trauma for losers -- and they vote.

p. 85: Cooperative behavior among chimpanzees has been passed to humans. This behavior has been used in market and non-market situations, but it -- combined with specialization -- can put people in tough place psychologically as they cope with their small role or inferior position within or across specializations -- to the point where people who "feel useless" commit suicide. (I struggle with this feeling -- not suicide -- as I try to understand my role and/or impact in the debates over water policy.)

p. 140: Markets are good for producing gains from trade, but they are not so good when some participants have market power, information is asymmetric, trust is necessary but honesty is not present, equality is threatened, and/or negative externalities exist. Results are not so good when these weaknesses are present, but that doesn't always mean that government intervention can improve matters. Governments can be more corrupt and more myopic -- creating worse impacts via "helpful" interventions.

pp 172-173 & 184: Water (!) is a scarce resource with many dimensions of use, BUT it needs to be priced (above "free") when it's scarce.

p. 242: "Modern man could easily suffer from a collectively generated paranoid schizophrenia in the absence of guidance on how to evaluate the results of each others' endlessly restless creativity."

p 262: Our independent drive to create, prosper and have more children has made us all much better off on average, but there are losers from this process, and they need to be protected, via collective action (the best purpose for politics).

p. 266: It's nice to have a military to protect yourself from hostile neighbors or even take those neighbors over, but how do you defend yourself from your military?

p. 280: Thomas Friedman is wrong (his "Dell Theory of peace" states that trading partners will not go to war), since "there's no reliable basis in history" for the claim that "trade among neighbors makes warfare less likely."

p. 314: Global collective action (on climate change, etc.) requires cooperation, but the weak will not cooperate unless they can feel that the strong will participate, contribute and BE BOUND to support the effort. This means, paradoxically, that the American "New World Order" weakened international cooperative ventures, leaving the US to shoulder a greater burden (not sure whether military examples fit, but we see this with international aid, etc.) or neglect its "responsibility" (e.g., Rwanda 1994), leaving everyone upset that the US didn't do something at the same time as Americans ask why they should do all the dirty work.

Bottom Line: Every student, professor and dilettante interested in the philosophical and biological foundations of human behavior and economics should read this book. I give it FIVE STARS.

30 Aug 2011

Hell Yeah!

Via AZ:

Republicans and regulations

Republicans keep talking about repealing "job-killing regulations" but the uncertainty that they are creating around rules that have been in place for 30 years -- or even 30 days -- is a much bigger problem.

Businesses want predictability and a logical even pace of change, not the hysteric hyperbole and drama that the Republicans are "delivering."

Bottom Line: Republicans more likely to hurt business than help it in their quest to blow things up.

The wrong way to raise prices

Amanda Rice of Cambria (central California coast) gives us an excellent example/case study of how local water managers, price increases, and politics interact (she wrote after reading chapter 7 -- managers and politicians -- in my book):
I'd like to share one community's response to a serious rate hike:

In 2007, Cambria, CA residents undertook a protest against an increase in water and sewer rates, taking advantage of a recent ruling (at the time) that water rates are subject to Prop 218 (a constitutional amendment) rules.

The district didn't even know how to handle the first protest - the community response was amazing and indisputable: over 2500 letters of protest were delivered to the district and the rates could not be increased.

A second stab it an increase heightened controversy to the point that the two incumbents on the Board that year (2008) were tossed out and the increase was rescinded.

29 Aug 2011

Monday funnies

I've been telecommuting (>2 days/week) for nearly ten years. Awesome!

My advice for the Governor

A reporter asked for a quote on this story about sustainable groundwater use in Kansas. I said this:
Governor Brownback's desire to conserve and extend the water resources of the Ogallala aquifer is laudable. As most people know, Ogallala groundwater is being "mined" as water extractions for agricultural irrigation outpace the natural rate of recharge. This longstanding policy makes sense, but it must be limited in two ways: first, by reducing the harm from one farmer's pumping on his neighbors; second, by limiting extractions today if it makes more sense to have water tomorrow.

Both of these goals can be reached with simple regulations, property rights and markets. The regulations would ensure that everyone's extractions are tracked; property rights would mean that extractions in one place are not allowed to outpace extractions in another place; markets would allow those who want to use more water to buy the right to pump more from those who have the right to extract but prefer to sell that right for money. It's possible to include other "features" in this system (water futures that would make it possible to pump less today and more tomorrow, for example), but these basic concepts are far easier to understand and operate than bureaucratic systems of command and control that try to make the best choice for everyone.

Let farmers choose what crops to grow, how much land to plant, and how much water to use. Just reduce the costs of those decisions on other farmers.
Note that Kansas already has a good system for managing groundwater.

Your thoughts?

26 Aug 2011

Friday party!

Wow, oh wow!

Examples of good water management institutions?

TS writes:
In the End of Abundance and Aguanomics, you continuously make reference to the importance of good institutions in water management/policy making. I agree 100% and have written about this before. However, I could use a few articles (that guide some of your arguments) that directly speak to institutions for in my on-going paper on climate change adaptation and water. Do you have any articles/links that can point me to the importance of institutions in water?
Good question.

I sent back these quick examples (over 500 posts on this blog cover "institutions"):
I'd love to have more examples; please describe successful water management institutions in the comments or -- if it's a good example -- email me your entry for the contest.

Bottom Line: Institutions can have formal property rights and prices -- or not -- all that matters is that they do a decent job at efficiently and fairly managing scarce water.

25 Aug 2011

Win a copy of the End of Abundance!

Yes, a real copy. Signed if you like! :)

Your challenge is to give the best example of "the end of abundance" in water and how people addressed/solved the problem.

It's OK to use examples in the media, etc., but NOT from this blog.

I will choose the top five and post them on the blog for everyone to vote for the winner, who gets a paperback copy of the book (or PDF/Kindle if you like).

Maximum 200 words. Hyperlinks helpful for news stories, etc.

Sound good?

Deadline: 15 Sept

The token scam

In Holland, they are called "munten," but I call them a ripoff.

They can only be bought in minimum quantities (e.g., 4 tokens for €10), and they usually cannot be sold back or used again. At the end of the event, each €2.5 token is worth €0.0.

Drinks are sold for odd numbers of tokens, e.g., 1 token for a beer, but 2.5 tokens for a glass of wine. Beer and wine is 3.5 tokens and you're left with 0.5 tokens of useless.

Tokens are sold at a different place than food and drinks. People who do not want to stand in too many lines tend to by too many tokens -- just in case -- but those extra tokens are worth nothing later on.

Tokens make it harder to see when you're getting ripped off -- like paying €5 for a 500 ml bottle of water (only €10,000 per m^3! such a deal!) -- at an event that does not have any other sources of water (except temporary taps near toilets that are labeled "not for drinking") and does not allow you to bring water in with you.

Vendors claim that:
  • tokens save people time when buying drinks, but that's not true when you have to pass through two lines and need to make "token change."

  • tokens reduce theft by food staff, which is true for them, but not for customers who are left with useless tokens at the end of the day.

  • tokens reduce the risk of robbery, but they concentrate money at locations where tokens are sold.

  • make it easier to buy things, but that's only true when they charge even prices in tokens and odd prices for cash. Those numbers can be moved around.
Bottom Line: Dan Ariely says that people steal more when they steal tokens instead of money -- because the theft is "more distant" from money. That's exactly why tokens are used (to get you to spend more money), exactly why credit cards are dangerous, and exactly why politicians seem to find it so easy to spend OUR money.

24 Aug 2011


Chapters that I wrote TWO YEARS AGO for the Encyclopedia of Water Politics and Policy in The United States (2011) are finally published.

Here are PDFs for:

Fairness, agency and bias

Economists often talk about the tension between efficiency and equity (aka, the size of the pie vs. how it's divided), and the topic is complex.

I recommend these Econtalk podcasts for a useful discussion of "fairness" in markets and the tension between freedom to trade and burdensome restrictions on trade:

Munger on Exchange, Exploitation and Euvoluntary Transactions

Satz on Markets

The Satz talk was particularly interesting in the idea of "agency," i.e., the freedom to participate and control that one has in a market. She uses the example of a child labor market as one in which children have very little agency -- in contrast with a market for apples in which both sides tend to have equal power.

This concept of agency is part of a much larger discussion of "principal-agent" problems that are very central to the management of water (are managers -- as agents -- working hard for customers who are their principals?), politics (politicians and voters), and so on.

One category that is not often seen as having strong principal-agent dynamics is the media in a country with free speech. We tend to believe, I think, that competition in the media will expose rights and wrongs and give us a broadly correct view of the world.

There are several problems with this rose-tinted narrative:
  • The media doesn't work when lazy "customers" merely want to be entertained and/or have their biases confirmed.
  • The media doesn't work when money (advertisements) changes opinions (editorial) -- as we see in beauty magazines.
  • The media doesn't work when the "news" contradicts their fundamental views (we understand what's going on and you are ignorant until we explain it) and/or conduct (certain institutions are PART of the media experience).
Thus, we see heavy media coverage of a guy who was eaten by a shark on his honeymoon but not of the other 75,000 men who die every day.

Even worse, we get the current, you must be kidding me, media blackout on Ron Paul as a Republican candidate for US President. Watch this amazing clip in which a media pundit speculates that the lack of reporting can be traced to reporters' need to have friends in government and dislike of Paul's libertarian (small state = less demand for media) views.

Bottom Line: Freedom, knowledge and the good life don't just to you. You have to work within the system to get them and work the system to improve what you're able to get!

23 Aug 2011

Anything but water

  • Days of the Week (via XKCD) is pretty cool.

  • Interesting paper [PDF]: "we show that fewer agents contribute to the public good when their action set allows for taking. As a result, the provision level of the public good is reduced. Extending the action set to the take domain thereby allows us to provide a new interpretation of giving in (linear) public good games: giving positive amounts in a standard public good game may just reflect a desire to avoid the most selfish option, rather than a ‘warm glow’ from giving" (i.e., people give less when they are allowed to take; this means that "giving" research may over-estimate people's desire to help others).

  • An interesting comparison of weight energy use: whales vs. Americans.

  • No government = strong growth in Belgium. Maybe Americans should shut down Washington DC?

  • Speaking of which, Penn Jillette (of Penn and Teller) says:
    I don't believe the majority always knows what's best for everyone. The fact that the majority thinks they have a way to get something good does not give them the right to use force on the minority that don't want to pay for it. If you have to use a gun, I don't believe you really know jack. Democracy without respect for individual rights sucks.
    Read the whole thing.

  • The Economist investigates: "China’s oil trade with Africa is dominated by an opaque syndicate. Ordinary Africans appear to do badly out of its hugely lucrative deals."
H/Ts to LK and TV

Updated End of Abudance available

I got to California yesterday (flying over the Hoover Dam and a VERY insignificant looking Colorado River) and looked over the paperback proof for version 1.1 of my book.

It looked good, so I approved it to go live on Amazon. I love technology.

You may now buy a dozen copies in any format you want, as long as it's either paperback, Kindle or PDF :)

Notes from experimental economics

I went to Tiber-X -- a very good conference -- last week and caught up on the latest research. Although I only heard talks in italics, these results [abstracts PDF] were interesting:

Vastfjall: People give more aid to one "needy" child than to 2 or more. Lots of potential reasons for this (1:1 relationship, not overwhelmed with "need," no "friends" around who can help child). Reminders that others need help can reduce giving to the one child.

Bolderdijk: When presented with an opportunity to "fill their tires for free" to either (a) save the planet or (b) save $, people choose (a). This research fits my 20/80 view of motivations (20% of people save water b/c it's "right;" 80% will do so if they save $) b/c people acting on (a) did not think of the cost/benefit of air fills (time and hassle vs gas savings); they thought about "doing the right thing" no matter the time cost or savings.

van der Weele: People who do not care about society prefer to remain ignorant (preventing cognitive dissonance).

Chosen-Hillel: People are jealous of others getting a better deal when they just "find out about it" but not when they help them get the better deal (having a role via "agency").

Bugelmayer: Children with higher cognitive skills are more spiteful, especially boys, who may be manifesting their competitive side.

Tan: A third-party enforcer reduces punishment (and thus cooperation) among two players. This result matters in the debate between regulated (third party) and common law (harmed party brings suit) enforcement of property rights.

Ponitzsch: People pay more for public goods when they can get a private good out of it (e.g., charity auctions, Project |Red|, etc.)

Nardotto: People who send themselves reminders to use the gym use it more.

Koehler: People paying per minute on the phone OR a fee that rises with minutes but hits a maximum are more nervous than people who pay a flat fee for unlimited minutes.

Evers: People who have more of a "set" of items are willing to pay more to complete the set (Remember Time Life books? My god, what a scam.)

Snir: $x.99 prices (a psychological price point) are more likely to be used [by US supermarkets] when raising prices, since people are less likely to notice the increase (compared to $x.97 or $x.91). I guess we're not going to see the end of gasoline @ $4.219 anytime soon. Oh well.

Inbar: People are blamed when they take an action that "benefits on another's misfortune" -- even when they have NOTHING to do with it. Hear that short sellers? price gougers? Witches?

Oh, and there were talks by some stars:

Jim Andreoni explained that people prefer the certainty of $50 over a 90% chance of $50 and 10% chance of $100. This violation of "first order stochastic dominance" appears to illustrate nervousness about risk.

Dan Ariely gave a GREAT talk about cheating [short video]. Big idea: there are very few BIG cheaters (Madoff) buy very MANY small cheaters (speeding a little? tax returns? earmarks?). These cheating results are interesting for my idea of households self-declaring their headcount for per capita metering (they will cheap less if they sign the TOP of the page, pledging to be honest). Ariely also found that cheating losses double when people ask for something WORTH money instead of money. Hear that lobbyists?

22 Aug 2011

Monday funnies

Some new ideas

Last month, I participated in a one-day workshop on the future of drinking water at the Institute for the Future with 11 other experts from around the world.

These are some good ideas that I and others had:
  • It makes sense to turn wastewater into biogas + dirty water that's then filtered by organic matter (e.g., "living machine") that removes contaminants and discharges clean (even drinkable) water.

  • Drop nano sensors into a pipe network to find contamination sources, leaks and illegal connections using realtime GIS sensors. NB: Sensors need to be drinkable!

  • Centralized treatment has a lower cost (economies of scale) ONLY if leaks (losses and contamination) are low. If they are high (e.g., many LDCs), then it makes more sence to deploy smaller local treatment plants. They are more expensive per unit treated but deliver more units. They can also be used for local wastewater recycling. For more on this idea, read this paper [PDF] on urban self-sufficiency, which also applies when the local monopoly is incompetent and/or will not deliver water at ANY price.

  • In slightly-related news, read this World Bank paper on standpost water services. Short version: the water is too cheap for the utility to support the standpost and (simultaneously) too expensive for customers. Why? The standpipe guy has a little monopoly!

19 Aug 2011

Friday party!

JC sends a a little wisdom for the weekend (and life) ahead:
  • Do not argue with an idiot. He will drag you down to his level and beat you with experience.
  • The last thing I want to do is hurt you. But it's still on my list.
  • Light travels faster than sound. This is why some people appear bright until you hear them speak.
  • If I agreed with you, we'd both be wrong.
  • We never really grow up, we only learn how to act in public.
  • War does not determine who is right -- only who is left.
  • Knowledge is knowing a tomato is a fruit. Wisdom is not putting it in a fruit salad.
  • Evening news is where they begin with 'Good Evening,' and then proceed to tell you why it isn't.
  • To steal ideas from one person is plagiarism. To steal from many is research.
  • A bus station is where a bus stops. A train station is where a train stops. On my desk, I have a work station.
  • I thought I wanted a career. Turns out I just wanted paychecks.
  • Whenever I fill out an application, in the part that says, 'In case of emergency, notify:' I put 'DOCTOR.'
  • I didn't say it was your fault, I said I was blaming you.
  • Women will never be equal to men until they can walk down the street with a bald head and a beer and still think they are sexy.
  • Behind every successful man is his woman. Behind the fall of a successful man is usually another woman.
  • A clear conscience is the sign of a fuzzy memory.
  • I asked God for a bike, but I know God doesn't work that way. So I stole a bike and asked for forgiveness.
  • You do not need a parachute to skydive. You only need a parachute to skydive twice.
  • Money can't buy happiness, but it sure makes misery easier to live with.
  • There's a fine line between cuddling and holding someone down so they can't get away.
  • I used to be indecisive. Now I'm not so sure.
  • You're never too old to learn something stupid.
  • To be sure of hitting the target, shoot first and call whatever you hit a bullseye.
  • Nostalgia isn't what it used to be.
  • Change is inevitable, except from a vending machine.
  • Going to church doesn't make you a Christian any more than standing in a garage makes you a car.
  • A diplomat is someone who tells you to go to hell in such a way that you look forward to the trip.
  • Hospitality is making your guests feel at home even when you wish they were.
  • I always take life with a grain of salt. Plus a slice of lemon, and a shot of tequila.

Mulroy Recording Studios

...appears to only sell one (broken) record (via RM):Give me a break.

The economic recovery in Vegas depends on:
  • Housing prices bottoming out as value meets willingness to pay.
  • Visitors with money to burn.
  • Businesses hiring for wages that still generate profits.
  • Consumers with less debt and a need to eat.
But let's rephrase this headline:
Mulroy's fantasy lifestyle depends on securing water.
That's more like it.

Bottom Line: Vegas needs sustainable water services. Mulroy only knows how to support real estate developers.

18 Aug 2011

Speed blogging

R/T to RM

TEoA -- Version 1.1 -- in press

I am correcting some typos in my book.

The paperback format will not be available until I approve a new proof copy (hopefully by next Monday).

The PDF format is waiting for some art. Hopefully, it will be done later today. done. [18 Aug]

The Kindle format will come after that. is in process available! [21 Aug]

A good comment on TEoA

Chris Perry wrote me this interesting email:

I enjoyed your book -- many good insights and entertaining/revealing stories.

As background, I worked for many years for the World Bank as an economist specializing in water/irrigation, was subsequently head of research at the International water Management Institute, and am now a part time consultant and co-editor in chief of Agricultural Water Management. I know and have worked with several of your colleagues in and around Wageningen.

You write about topics that I have also written about in various papers, and while I had many comments (supportive and questioning) as I read the book, I would like to concentrate on three points, which I try to make briefly.

17 Aug 2011

Anything but water

H/T to AT

Let's get real

It's increasingly obvious to me that no human or natural actions are going to limit climate change. The question then is what adaptation steps to take to minimize personal and social harm.

On a personal level, I am planning to live in places with good institutions for managing water (yes, Amsterdam; no, Los Angeles). I still have enough economic "potential" to insure myself against harm, but there will be more tragic "accidents."

On a social level, I'm working for (and hoping for) water policies that integrate water scarcity (or abundance) into people's decisions. It's obvious that water prices can accomplish this task by fluctuating, but there are many other possible actions. Some of these actions can complement accurate water pricing, but none should be used as a substitute.

What do YOU think about these ideas? Do you agree on CC? If yes or no, what actions are you taking on a personal level? What actions should we take on a social level?

16 Aug 2011

Achieving harmony with water in Milwaukee

Gonna be near Milwaukee on 19 and 20 Sept? Got $325?

Then come listen to me (and others!) and participate in Water Summit V: Achieving Harmony with Water.

  • The Global Water/Energy Nexus
  • Urban Watersheds: Striking the Balance
  • Making Urban Agriculture Work

Poll results -- long way home

Hey! There's a new poll (who deserves it?) on the right ===>
I work xx distance from my "emotional center" (friends and family), where xx is...
less than 20 minutes 31%30
between 20 minutes and 2 hours 24%23
between 2 hours and a day 7%7
a day or more 13%13
I don't have an emotional center (or it's scattered) 16%16
My emotional center is always with me 8%8
97 votes total

I don't have a lot of "analysis" to add to these results. I presume that it's more difficult to live farther away from your emotional center because of the difficulty of feeling safe/loved/etc., but perhaps some people (7% and 13%) can comment on how they cope.

Personally, I am scattered and/or self-sufficient. The main implication is that I constantly question both my actions and their ultimate implications. This may have more to do with the complications of freedom (light job and family responsibilities) that affects my emotional center.

These thoughts easily segue into our basic nature as humans. A recent New Yorker article on Neanderthals [more here] speculated that the main difference between them and us -- a related species that overwhelmed and absorbed them -- is our sociability. People are just better at relating, cooperating and dominating other species -- for good or ill.

Bottom Line: Humans have basic needs. Once those are met, we have more complicated emotional needs -- some of which can only be satisfied by inner peace.

15 Aug 2011

Monday funnies

Bottom Line: It's all relative.

Julian Simon loses the bet

In 1980, Julian Simon and Paul Ehrlich made a bet. Erhlich claimed that humanity was going to hell in a handbasket (a billion people would starve before 2000); Simon claimed that more people were better (we needed more of "the ultimate resource"). Both of their positions have faults (I am researching Simon's thoughts now), but they were able to find common ground for disagreement (population).

Simon challenged Erhlich to put his money where his mouth was, and they decided -- by some mysterious process -- that the change in the price of five metals would clarify who was right and who was wrong.

(The idea was that greater resource scarcity -- thus declining quality of life -- would be reflected in the the prices of resources. In this 2008 post, I argue that Simon won a sucker bet against Ehrlich because resources are priced and the environment -- something Erhlich cared about and we are still depleting -- is not.)

The prices of these metals in 1990 were lower, so Simon won. Many have since taken this single datapoint as "proof" that environmentalists are some combination of crazy and wrong.

But now those metals are more expensive (in real terms) than they were in 1980. Simon died in 1998, but he said this in 1996 [p. 67]:
I suggest that the possibilities of the world are sufficiently great so that with the present state of knowledge... we and our descendents can manipulate the elements in such a fashion that we can have all the raw materials that we desire at prices ever smaller relative to other goods and to our total incomes.
I agree with most things that Simon said (he spent a lot of time in his last years on political mismanagement of resources), but I think he sometimes took his own ideas too seriously (probably because he was so aggravated by eco-doomsayers), and that led him to stake his reputation a bit too far into thin air.

Bottom Line: The price of natural resources will rise when our demand for those goods outpaces our ability to innovate more efficient ways of using them. Higher prices will reduce our standard of living, but that's the "price" we pay for want.

This process cannot be applied to goods that are not in markets or for which there are missing markets, so we have to be doubly careful about how environmental goods (for example) are managed if we are going to protect and extend our standard of living.

14 Aug 2011

Happy birthday to me!

I'm 42, which means that I have a better idea about the meaning of life (I hope!)

12 Aug 2011

Friday party!

I made this video last weekend at Welcome to the Future. Great crowd!

For the opposite feeling, watch Steve Angello totally fail as a DJ -- he's just playing a CD, not mixing.

On a related note, someone revised his wikipedia entry to say this: "He does not actually DJ, instead he plays his live set from a CD and waves his arms in the air like Jesus."

Speed blogging

11 Aug 2011

A little wisdom

Meanwhile, there are men with "issues":

From the 15 Aug New Yorker.

PS: My mother would have been 70 today :)

Know your H2O -- The review

The Surfrider Foundation sent me this 20 minute video. I liked most of it but had some comments (below). Watch the video and see if you agree:

  • Love the production quality. Very cool.
  • Wastewater discharges are not as bad as described. San Diego (Surfrider is based just north of San Diego) and Sacramento only partially treat their wastewater, but most places are better. EU countries may "over clean" their wastewater -- removing contaminants that are not at harmful levels. It's particularly important to avoid hysteria about wastewater if you want to convince people that recycled water (toilet to treatment to tap) is safe to drink.
  • People do not lack "access" to water due to over use. The problem (human right to water) is about incompetent or corrupt politics.
  • Peak water is an inaccurate idea. Scarcity is more accurate.
  • CA uses 19% of electricity -- not energy -- on treating and moving water. Since electricity accounts for only 25 percent of energy use that means that water treatment and distribution only consume about 5 percent of the California's energy. I've seen this mistake ("19 percent of energy") more often recently, and we've got to prevent its spread.
  • Great point on quarreling water managers. They can be coordinated in 2 ways -- bureaucratic convergence (good luck) and market prices (much easier).
  • Half the water from desal is NOT wasted -- it's brine discharge.
I address most of these issues in my book, using the same examples, e.g., San Diego's wastewater discharge/desalination plans and the value of wetlands for coastal protection and water filtering.

As a final thought, I recommend that we consider one more "R" with respect to water policy (reduce, reuse, recycle) and that's... Raise prices to reflect water scarcity. Higher prices send a useful signal to water consumers that helps them conserve and generates additional revenue that can be used to improve the reliability and quality of our water supplies.

Bottom Line: I give this video FOUR stars for helping people see the connections between water flows and uses in an entertaining way.

10 Aug 2011

Anything but water

H/T to BE

Bleg: A career in western water policy?

MS Student emailed me, asking for advice:
I'm writing because I'm about to graduate from my masters program (MS in water policy from XX University -- think of it more as a geography program) and I want to pursue a career focused on improving western water policy. A broad goal, I know, but I was hoping you could help direct me: where is progressive change happening and where could I fit in as a recent MS with little work experience? I'm sure you're busy and I appreciate any thoughts you might have.

A little more about me so you know who you're talking to:
  • My advisor XX has worked on international water policy.
  • My thesis is about the geography of dams in China and their impact on agriculture.
  • I have a strong background in econometrics (thesis: instrumental variable approach).
I answered with the following:
The blog has similar questions -- and answers -- from the past:


My general opinion is that an MS is particularly well-suited for working on real issues.

This may conflict with your econometric background -- which tends to get used for consultancies and law cases where people fight over the division of spoils....

I suggest that you choose an AREA you'd like to live in and then look for work within GOV/NGO/UTILITY industries related to policy. Best thing you could do is spend your time in rooms with enviros and farmers fighting over water flows...

You may not make more than $35k/year, but you gotta ask if money or enjoyment is better.

After 5 years, you will be a qualified veteran. After 10 years you will be an expert. After 20 years, you will OWN your space...
To which MS Student sent the following clarification:
Something I am realizing is that having a background in metrics is a blessing and a curse: I know enough to be dangerous, but I certainly don't have a PhD, which limits my ability to pursue a career that relies on expertise in metrics (as it should). The opportunity cost of studying metrics and resource econ is that I haven't studied, e.g. the detailed politics of California water and finding out where those rooms with angry farmers and enviros are. I like that I know metrics in a proficient but not expert way, but I have yet to see if the job market does too.
And then I said this:
I reckon that you know enough metrics. It's VERY rare that I see any USEFUL econometrics in the real world.

Perhaps the best skill you will have is an ability (or intuition) to detect bullshit. There's a lot of it.

But most of the battles in water/environment are getting ANY data or sensible prices. Metrics are a long way down the list...
Do readers have additional thoughts (or job offers) to add to this discussion?

9 Aug 2011

TEoA and water markets on the radio

I had a good interview with Luke and Matthew at Benzinga Radio:
Water shortages are already major problems in several areas of the US, and they are only going to become more common. David Zetland, senior water economist at Wegeningen University in the Netherlands, author of the blog Aguanomics and the new book The End of Abundance: economic solutions to water scarcity, discusses flaws in American water policy and how market-based price principles might be used to encourage sustainable levels of consumption.

The issue with current water policy is that pricing schemes, for both commercial and residential applications, do not reflect the scarcity of the resource. Farmers' irrigation needs are highly subsidized regardless of sustainability. And “all you can eat” residential water systems, in which residents pay a flat monthly rate for water, encourage wasteful consumption. As water becomes an issue of more importance, Zetland argues, these pricing schemes will have to change.
Listen to it here.

Land, water and money

SS asks:
I am interested in water investing, particularly investing in raw productive agricultural land with water on site. My interest was generated from closely following [Famous Guy, FG].* He is arguably the world's most prescient investor. Even Warren Buffet and Alan Greenspan have referred to this in interviews.

He is cryptic about his current investments but in some interviews the transcripts do include mention a significant portion of his portfolio is invested in raw land, specifically "productive agricultural land with water on site". In an interview with the author of a book about him, the author says that [FG] told him it was a complicated way of investing in water. The author also said he was focusing on almond farms. Since he lives in Northern California and California produces 80% of the world's almonds, it seems likely he is buying almond farm land in California.

Assuming he is buying almond farm land that is productive agricultural land with water on site, what is your best guess as to the way in which this works as a water investment?
FG's plan to buy almond land and sell the valuable water is not new. The Bass brothers tried to sell ag land in Imperial Valley and sell its water to San Diego, but they were blocked and ultimately sold the land to the Imperial Irrigation District.**

Here are a few more comments:
  1. Water sales in California and most of the US are not easy. They require approval by regulators, water-using neighbors, local politicians (area of origin laws) and environmental panels.
  2. Almond farms may be a good investment now, since almond prices are not so high but costs are rising. Farmers can, of course, rip out trees and plant a different crop.
  3. Water trades (as in Australia) are difficult without standardized procedures, access to conveyance, adjudicated groundwater, etc.
My overall thought is that this is a high risk strategy. If I had my way (allowing more water marketing), it would pay off, but many people are either too conservative (don't change anything) or too greedy (give ME free water) to allow markets.

Bottom Line: Maybe FG is talking up this idea so he can offload some almond land on newbie investors.
* Maybe referring to Michael Burry, the investor made famous in the Big Short, who says he doesn't trust Wall Street and only invests in water (via water-rich food businesses). Interesting to see that this does NOT mean water rights, utilities or water tech companies.

** That sale and farmers' decision to allow IID [article] -- but not individual farmers -- to sell water ultimately backfired. Now farmers who want to sell water ANYWHERE are blocked from doing so by "city" IID board members who want to keep cheap water in the area "for jobs."

8 Aug 2011

Monday funnies

This cartoon is an improvement on a joke I heard a few years ago:

Two economists meet in the road.

Economist 1: Wow. Doesn't this food crisis stuff scare you?

Economist 2: Yes. I've stocked up on rice and beans.

Economist 1: It's scarier than that. I've stocked up on guns and ammo.

Panic in the markets

MD writes:
As an economist, you’ve got to be watching yesterday’s markets with fascination. From where I sit, it’s looking more and more like the collapse of the Washington Consensus, this just 20 years after the USSR kicked the bucket. Now no one seems to know what the dominant philosophy will be in this new global/technological world. I’m no economist; that’s my read as a layperson.
The market panic is the exact OPPOSITE of the collapse of the WC, which (1) hasn't really collapsed (look at Chile, Brazil, Estonia and other countries with low debt, small deficits, openness to trade, etc.) and (2) describes the kind of prudent macroeconomic policies that the US/EU are NOT pursuing.

Let's just list WC policies here:
  1. Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
  2. Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  3. Tax reform – broadening the tax base and adopting moderate marginal tax rates;
  4. Interest rates that are market determined and positive (but moderate) in real terms;
  5. Competitive exchange rates;
  6. Trade liberalization – liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  7. Liberalization of inward foreign direct investment;
  8. Privatization of state enterprises;
  9. Deregulation – abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudent oversight of financial institutions;
  10. Legal security for property rights.
I'd say that the US and the EU have failed (zero for ten) in terms of policy DIRECTION -- even assuming good policies in the past, e.g., Kelo weakened property rights in the US; the Italians and Greeks are opposing deregulation and privatization to protect special interests.

The "markets" panicked because people started to understand that political "solutions" like raising the debt ceiling, promising to print more money (QE3), or bail out Greece from wasteful loans do NOTHING to make the economy strong. At best, they transfer money to incompetent losers; at worst, they waste time and resources (shuffling deck chairs while the Titanic sinks).

Note that the Tea Partiers are not exactly paragons of macroeconomic wisdom. Their obsession with lowering taxes -- to zero percent, it appears -- is just as stupid as an obsession with the President's birth certificate.

Bottom Line: Political shenanigans [e.g, The Economist] will not strengthen the economy, and a weak economy will not support social programs that protect the weak.

5 Aug 2011

Friday party!

Men are so competitive in their quest for the Darwin Award (via RM)

Anything but water

4 Aug 2011

Management fail? Screw customers!

BP sent this:
My friend X lives in the [xxx] area. He is served by the small [xxx] Mutual Water Company rather than the city of [xxx].

Apparently the mutual water company has been so mismanaged that they are now adding extra fixed charges for customers.

You can see that there is a quantity charge, a meter charge, then something called a "land charge" and a "surcharge". According to X, the land charge applied to all customers depends on the size of your lot, irrespective of how much water you use.

In other words, X, who has 5 acres, is charged more in total fixed charges than a neighbor with a smaller lot, even if the neighbor uses a lot more water. The land charge is almost $30.00 per acre.

Then, there is a surcharge. Apparently they just started adding the land charge twice and calling the second one a "surcharge." This was done because the water company has been so poorly managed they were running out of money. They apparently just added a surcharge to recoup losses?!!

On top of all this, their tiers are crazy. The first tier gives a user up to 50 units of water! What is the point of having 4 tiers if you can stay within the first one so easily.
My responses:
  1. Water companies can charge whatever they want to "cover costs," even when they are wasteful or losing money because it's very hard to replace them with new companies (lots of political and regulatory transaction costs).*

  2. Almost any mix of fixed and variable charges is possible and justifiable, given the variety of targets that managers can aim for -- everything from water conservation to fiscal stability (maintaining your debt rating).

  3. Some charges (per acre? for a water company?) are stupid.

  4. There are two ways to rectify the situation: hope for outside subsidies (via takeover by the local city/private operator or a cash transfer) or overthrow management on a platform of "fairer" pricing. Given the subsidy from landowners to water users, I am not sure how that fight might go.*
Bottom Line: Water managers with monopoly power -- not customers -- choose how to do their jobs.

* I discuss water management, politics and collective action in Chapter 7 of my book :)

3 Aug 2011

New improved orange flavor!

Marketing people sometimes go too far...

Anything but water

H/Ts to KO and JR

2 Aug 2011

Did the US default?

One way or another, "government competence" is now an official oxymoron:

Kern County Water Robbers

(via RM and DL):
lawsuits claim that enormous withdrawals of water by the banks lowered the water table, causing geological damage, service disruptions and costly repairs.


A memorandum of understanding between the small local utility... and the Kern County Water Agency, which operates one of the water banks, stipulated that any problems resulting from its bank would be the agency’s responsibility.

But the agency said it was not to blame, and made no effort to cover costs.


Now engineers believe it [the Bank] reversed the area’s underground hydraulic gradient, turning a hill-shaped water table, accessible by shallow wells, into a valley. The trigger for the huge withdrawals was a drought that began in 2007... in the 40 months beginning in March 2007, roughly half the banks’ capacity was pumped out to keep fruit and nut trees alive.
Sounds like the farmers using the Water Bank were more like robbers who emptied their vault -- and then that of their neighbors.

Why did this happen?
  1. No groundwater monitoring or regulation
  2. No property rights in groundwater
  3. Unequal political and financial power
We can't fix #3, but we can sure fix #1 and #2.

I wonder what Senator Feinstein would say? Would she contradict her aggie sugar-daddies in defending small farmers and little communities?

Bottom Line: The rich will rob the poor of their water until the rights of the poor are protected -- and this problem will only get worse as water scarcity increases.

1 Aug 2011

Monday funnies

I am happy to say that I am pre-grad :)

Speed blogging

  • What happens when the state is broke? Water utilities need to recover their full costs. That's not necessarily bad news if it also frees them from political interference and instability.

  • Interested in presenting on "Managing Scarce Water Resources: From Conflict to Cooperation" in San Francisco on December 5-9? Submit your abstract by August 4 [more info]

  • Got non-revenue?
    18,095 [Chicago] fire hydrants were illegally opened in 2010–a third of them in [poorer] five South and West Side wards. The city water department reports that an open hydrant loses 34,000 gallons per hour
  • Water is NOT the next big investment (b/c it's a LOCAL good, among other reasons).

  • "Colorado River Flood at Top, Drought at Bottom" discusses "unbalanced" supply and demand but fails to mention the need for local and regional balancing (e.g., markets). SOMEONE needs to read my book!

  • Southwest Florida Water Management District has a new Water use permit information manual [PDF] that's 119 pages long. I wonder how many of these pages are necessary (externalities) or not (needless regulation)? I note that this manual covers conjunctive use (simultaneous surface and groundwater), so they are ahead of California.
H/Ts to MD and JY