26 Jul 2016

The political economy of property taxes

I advocate property tax as a source of revenue due to its simple measurement and implementation. It's also progressive, in that property owners (and indirectly, renters, shoppers, et al. using the property) will pay more for properties that are worth more.

So why do we see such a small share of local and national tax revenues from property taxes compared to income, expense and -- worst of all -- corporate taxes?*

In my opinion, it's because rich people want to avoid taxes on their wealth, so they "help" politicians design and implement those other taxes in ways that sound "fair" on paper, but actually take very little from the rich (as opposed to a lot from the middle classes).**

Bottom line: Follow the money (or lack thereof) if you want to know who the system is really designed for!

* Corporate taxes make no sense in theory (we want to tax people) and they are MUCH easier for corporations with lawyers to avoid/dodge compared to the individual taxpayer.

** I asked several leading scholars of inequality for their opinions on property taxes. They just shook their heads as they agreed with me. Property taxes are totally off the radar of most people -- perhaps because they see themselves as potential "victims" of higher property taxes without considering how much more the wealthy would pay with, say, a 4-5% annual property tax that had no exemptions. (It's no accident that the Vatican is the greatest real estate owner in the world.)

19 Jul 2016

When to rely on markets and when politics?

The discipline of political-economy split in the 19th century (and very much so after World War II) when practitioners decided they needed to get more "scientific" (and thus mathematical-analytical) in their "understanding."

The resulting evolution of both disciplines has been good news (clear theory! publications!) and bad news (irrelevance!), and there's been a strong (and growing) countercurrent to re-integrate ideas from both disciplines. Two of the clearest efforts go by the names of "institutional" and "public choice" economics, i.e., the study of how rules and norms change over time and how "selfish" politicians affect public policy. Elinor Ostrom, not surprisingly, worked in both areas, along with her husband, Vincent, and many notable thinkers (Coase, North, Buchanan, Tullock, et al.)

I use a political-economic framework all the time when thinking of how to manage goods. In this 2x2 grid, the columns refer to a good's nature as a excludable or non-excludable.

The definition of "excludable" means that access to the good can be limited by rules, walls, etc. Such a characteristic also makes it easy to charge for access to the good. It is thus simple to recommend that these goods be managed in markets, using price as a means of rationing access (and encouraging production).

Non-excludable goods, in contrast, cannot be protected. It it therefore difficult to charge for access (or for damages) to those goods. (Negative externalities from using private goods are experienced in the commons.) That's why non-excudable goods need to be managed via some sort of political mechanism that will impose penalties on those who use the goods "without permission." Enforcement without access to police power (top down) or community approval (peer) is difficult, by definition.

(Rivalry means that one person's use of the good leaves less for others. Non-rival goods are not "used" (depleted or contaminated) for one person when another enjoys it. Read more about these ideas in Chapter 1 of my book [free download])

These definitions should help you think about water governance, as it is perhaps preferable to use prices or markets to manage tap water or irrigation water, respectively, while it's better to use policies and regulation to manage the commons of groundwater or water subject to pollution. Management in contradiction of these suggestions is possible, of course, but vulnerable to many types of failure, as abundant examples have shown.

Bottom Line Use the right tool -- markets (voting) -- when it comes to managing excludable (non-excludable) goods, respectively.

12 Jul 2016

Academics meet reality -- a desalination example

I've been following the policies and technologies applied to desalinated water supplies for some years. In general, I approve of the technology, but not as a replacement for good water management.*

I recently wrote two papers on desalinated water. The first [pdf] describes how desalination can help good policy but not fix bad policy. In the second [pdf], I go over the political reasons for favoring "economically inefficient" desalination. In its discussion of Poseidon's $900 million Claude “Bud” Lewis desalination near San Diego, I wrote:
Desalination, in contrast, allows current behavior (and growth) to occur at a small cost to the average customer. It also gives local leaders greater security in their frequent negotiations with Met and complications from interdependency (Yousef, 2004).

What about the plant’s climate change impact? The plant will emit 61,000 tons of CO2e annually (Voutchkov, 2008)...

The only relevant fact from these calculations arrives as an afterthought: Voutchkov (2008) assumes the plant will be carbon neutral because 47,000 tons of its emissions will be offset by a reduction in energy-intensive water imports from Met. Such a reduction makes no sense when regional plans promise a 30 percent increase in population by 2035 (RWMG, 2013), but perhaps Voutchkov, as Senior Vice President at Poseidon LLC until 2009, did not want to look too closely at tradeoffs. Politicians in the region have the same habit of emphasizing benefits over costs when it comes to common pool water (Zetland, 2009).
When I wrote that (an earlier draft dates to Jan 2015), I thought I was pretty clever to spot the bait and switch of "carbon neutral" for taking less water from Met, except that Met's water would be used by SDCWA (or another member agency). It would NOT be left in the Sacramento Delta or -- heavens forbid -- in the Colorado River.

I didn't even blog on this "point," so I was both surprised and pleased to see that others had noticed the same thing. In this 2 June 2016 press release, CoastKeeper says:
Coastkeeper also revealed that Poseidon has failed to acquire the greenhouse gas offsets required for its Coastal Commission Permit.
If you click through, you get a 26 May 2015 letter [pdf] from the California Coastal Commission notifying Poseidon that they have failed to offset their carbon emissions by reducing water imports from Met!

I'm curious to see what happens next.

Bottom Line: I'm not sure if my analysis is causal or correlated, but it's good to see common sense water policy.

* Full disclosure: I have consulted and recommended for desalination in Monterey but against in San Diego. I am also an advisor to the Aquiva Foundation, which uses desalination to supply water in poorer places.

8 Jul 2016

Friday party!

The Dutch solution to Parisian flooding problems!

5 Jul 2016

Wasted EFfort

tl;dr: I'm totally annoyed that people who should know better have missed an opportunity to improve water governance.

I wrote two weeks ago about the importance of good governance to sustainable water management. MS was kind enough to send a sad example of totally missing that point.

What makes this example particularly appalling (to me) is that it comes from the World Economic Forum, i.e., the Swiss facilitators of the annual Davos meeting among Illuminati high and mighty decision makers.

Back in 2011-12, I had several email conversations going with WEF staffers, hoping that they could use WEF's status as a leading non-profit to advocate for better governance (=less corruption) in the water sector. Such a campaign, I argued, would serve its business members and average citizens while undoing unsustainable practices that waste money and benefit cronies. I have not seen much sign of such a campaign (their Global Water Initiative project doesn't even mention "governance" or "corruption"), but I had my hopes.

But then MS sent me this campaign for World Water Day:

OK, so Mina is going to run 1,680 km to "raise awareness." Mina likes to run, and she's representing who?
Thirst is an initiative of the World Economic Forum's Young Global Leaders, a unique, multi­stakeholder community of more than 700 exceptional young leaders who share a commitment to shaping the future.

Thirst aspires to be the world's leading water community, affecting change in society by making consumers aware of the value of water.

Our vision is a future where supply of water is greater than demand, where there is enough water for all, forever.
Ok, and how are they going to do that?

Ok, pledges... to contribute money or use less water. Well, they only got $2,700, or 4% of the funding target. That result makes their water conservation (via totally non-binding pledges) look rather good:

135 million liters. Well, that's only 13.5% of their goal but it sure sounds like a lot. Let's see. That's 135,000 m^3 of water (about 35 million gallons), which is a lot to drink but not too much when you put the volumes into bulk units, i.e., 0.135 MCM (also called gigaliters, or 109 acre feet). If that was Perrier, it would be worth $471 million ($3.450/m^3, bubbles not included). If it came out of my Amsterdam tap, then it would cost $187,000 ($1.38 or €1.24/m^3). If I wanted to buy this water on the Australian market (using a recent quote of AU$170/ML for temporary water, not the water right), it would cost about US$17,400. Using Imperial Irrigation District's price of $20/acre foot, that's about $2,200 of water saved. My point with these numbers is that the value, price and cost of water vary by alot.

So that's the benefit of this campaign, but what about the costs? That's awfully hard to find in terms of cash. Thirst claims to be "a model of transparency, integrity and honesty," but their 2015 Annual report [pdf] is a case study in financial obfuscation (try to find any aggregate figure on spending). Their staff of 16 must be paid something, and I am guessing that it's more than $43,000 ($0.63/"person reached" times 68,458 students reached -- "152% of target!" that can be backed out of the non-financial report). I'm not going to debate this cost/benefit, as Thirst does a lot of outreach to students, but let's get back to the main point:

Bottom Line If WEF's Young Ambassador's are trying to have an impact, then "conserving" 135 million liters is pretty weak compared to spending all those hours of volunteer, staff and supporter time on discovering, explaining and improving water governance. Isn't that what we'd expect the world's next generation of leaders to do if they were going to really address water scarcity? Three minute showers are not the enemy, bad policies are (here are 500+ more).

4 Jul 2016

Monday funnies

More accurate than funny. Happy Fourth of July!