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The "Progressive" Case for Water Markets:

As part of its symposium on "What's Next? The New Progressive Agenda," the webzine Democracy: A Journal of Ideas includes "tradable water rights" among the "progressive" ideas our nation's leaders should adopt. In a short essay, MIT environmental economist Michael Greenstone explains how tradable water rights could help overcome water allocation and scarcity problems, particularly in the West. According to Greenstone:

There are clear gains from having an active market in water rights. It would help solve the problems posed by current water shortages in the West, and it would provide the flexibility necessary to confront the impact of climate change on water supplies in the coming decades. It would be, in a word, fluid.

In his view, the federal government should take three steps to facilitate the development of water markets:

First, the restrictions that prevent the trading of water rights across state lines should be removed. The median price for a one-year lease of an acre-foot of water in Colorado is 10 times the median price in Utah. Additionally, as much as possible, other restrictions on trades and the requirement that all trades be reviewed by bureaucrats should be removed.

Second, property rights for water must be clarified. The practice of usufruct rights, in which the state holds all water "in the public trust," with the ability to retract or reassign rights, should be eliminated. The uncertainty caused by these policies prevents beneficial investments from being made.

Third, federal and/or state governments can reduce transaction costs in several ways. They could, for example, set up a monitoring system to determine withdrawals from the Colorado River and other important water sources. Moreover, the government could help fund a centralized market for trades if one doesn't develop in the private market naturally. Finally, government involvement would likely be necessary to construct water transportation systems that aid trading or to clear the legal hurdles to developing these systems.

The case for water markets is particularly urgent when one considers the potential consequences of climate change, so it is promising to see water markets embraced as part of a "progressive" agenda.

Related Posts (on one page):

  1. The "Progressive" Case for Water Markets:
  2. Climate Change and Water:
Extraneus (mail):
I take no position on the proposals regarding water markets, but the linked abstract makes some pretty big assumptions, and states them as facts.

Global climate change will exacerbate pressures on water resources.

Wouldn't it be more correct to say it "may" exacerbate pressures? I mean, do we really know what will happen, or even which direction the climate will change when it invariably does, or aren't you assuming more than you can actually claim?

The gradual warming of the atmosphere is certain to change the distribution and availability of water supplies, with potentially severe consequences for freshwater supplies.

Clearly, you've bought into the global warming hypothesis, but do you need to go so far as to say it's "certain" to change in an inconvenient direction? Why not just say it might?

While climate change will have a significant impact on water resources through changes in the timing and volume of precipitation, altered evaporation rates, and the like, the precise nature, magnitude, timing, and distribution of such climate-induced changes are unknown.

So is the direction they will take.
4.11.2008 8:24am
Chris Smith (mail):
The final sentence seems to need editing.
4.11.2008 8:26am
ERH:
I've read repeatedly that water is the new oil and if that's the case tradable water rights might well play out just like oil markets. In other words, exploit the cheapest resources as much possible with little planning for the future.

A better solution would be controls on growth in areas lacking sufficient resources for large population groups.
4.11.2008 8:36am
devil's advocate (mail):
and the problem with exploiting the cheapest resources is??

Jon thanks for the link. I actually testified to a RI legislative committee that water should be treated as fugacious minerals with a correlative regime with property rights running with the surface estate -- unless of course they are segregated through knowing economic contract.

I have held this view for a dozen years as I have watch the enviromentalists maneuver to gain control of water in complete contravention of our riparian law in our relatively water rich state of RI.

In fighting environmentalists I have had natural allies in both the farm community and the municipal and regional water suppliers.

But I recognized early on possible flash points within this allied coalition as well as the extent to which they were largely reacting to absurdities in public trust regulation of water elsewhere and not so much, in fact not at all, urging market management of water. I think pointing to absurdities elsewhere (as well as absurdities instate like wetlands regulations that the legislature doesn't have the will to undo but doesn't wish to repeat) only gets you so far in resisting the relentless advance of the regulators.

In this context I bring two anecdotes to the table. Groundwater regulations were instituted in the little state that could [regulate] next door in Conneticut. Water suppliers complained about the resulting rules because a supplier who had bought a modest property in glacial till and put in a test well of 8" was only given credit for the production of the 8" pipe even though their plan after testing was to put in a 2' well. They argued that a system that had invested in future supply shouldn't be thrown into some kind of lottery with everyone else to see who gets that yield. Seems like a reasonable principle (as does the notion that we should bail out mortgage holders who lied about their income to get low doc loans, but they are the new illegal aliens, not really a crime, they were begging us to put double our income on the form - but I digress as usual).
Except that what on earth yields a groundwater right to that kind of quantity from a 20 acre parcel. By pumping the kind of yields they wanted from a 24" well the water companies would been taking the correlative right of adjacent properties as well as placing additional uncompensated watershed regulatory burdens on those properties because a good deal of the water falling on their surface estates and that passing through thier subsurface estates now contributed directly to a public water source and they would be much more highly regulated.

This particularized anecdote was on display at the hearing I just attended on the latest bill to take ownership of all water in the state into public trust (one a year these days). The water suppliers understand that one goal of then greens is to force demand management on their customers. And they are being consensused into going along with this as in all other arenas where the siren's song of environmentalist is go along to get along. So they are testifying to the legislature that they don't really care if the envirowackos take control of all the water. They are just concerned that if they are going to deliver less water per customer and their costs aren't going down that the public utilities commission must be directed in the law to allow them raise rates on the smaller deliveries.

So I'm the next to last one to testify in a 3 hour marathon and I said effectively one thing. How is it that they can be delivering less product to their customers with virtually no diminishment in their cost? It is because the water doesn't cost them anything. There is no cost signal in the water itself. You just heard a dozen farmers tell you that this legislation coupled with aggressive stream flow regulations that take an unprecedented first claim on water could put them out business the first dry year we have. The farmers own a great deal of land that collects and harbors a great deal of water and if you let them decide whether to use it for irrigation or sell it to trout unlimited or to the municipal water supplier, they are compensated for running these water collectors, you get farms, forests and open space not by allocating public moneys bnut by letting the market work. Meantime the price of delivered water increases encouraged reduced consumption and the greens get demand management. What doesn't anybody understand about this?

Well I got the typical response - held for study. Envirowhackos at bay until next year when they come back and propose the same damn thing -- unless they read a little of their own internal commentary.

Agree that this progressive gek about the threats of climate change is quite presumptuous, but there is some research to suggest that we may well face serious water regime changes in terms of dispersion and plenty whether the current climate patterns are largely human induced or solar induced with a background human component. This is true for colder periods as well although notable droughts in highly farmed and populated areas of the southwest and southeast were associated with periods warmer than now a millenium and two milleniums ago (the roman warming and the medieval climate optimum). In other words, greenland was a great place to farm at them time by Southern California it appears spent half the 400 year period in a drought.

It is reasonable from an adaptive standpoint to consider reasonable economic mechansims, especially if they don't involve a great deal of present day regulatory baggage and unnecessary costs, through building some costly government system in waiting.

I'm thinking the Yes Minister episode I just saw where Britain built a hospital, staffed it with administrators but couldn't afford medical staff and it just sat there costing money. The britcom denouement is to make the hospital into apartments for cuban refugees thus heading off an investigation of waste in the health services and a donneybrook over failure to give compassion to castro's offal.

But the pushback against new regulatory powers for environmentalists reveals I think the opposite of Rosen's recent New Republic post. Of course a democratic administration and demoncratic congress may do some stupid things, and we might get unneeded, costly, economic suicide in some kind of kyoto regime, and that will inevitably be a multimedia spin-off. But when it comes to things they want to regulate when they want to regulate them the environmentalists are starting to look like the boy who cried wolf.

Who knows if we really face a failure of our current patchwork laws of water allocation. I'm not that worried, but the idea that at least some in the progressive camp get that, if you are really worried about this, a market based system might be the compromise you have to make to actually put something forward looking in place that is acceptably non-heavy handed at present.

Maturity??!
4.11.2008 9:39am
taney71:

when one considers the potential consequences of climate change

Seems like many are going a lot to prevent potentially hasher climate change.

For the most part, I think environmental groups needs to consider that the climate change isn't manmade and that they may be wrong. Heck, in the 1970s these groups were talking about global cooling. Go figure.
4.11.2008 10:38am
taney71:
Blah. going=doing
4.11.2008 10:39am
cjwynes (mail):
You know, if self-described "progressives" are talking about removing government oversight of markets, returning property rights to individuals that is presently held by the government, and removing trade barriers, I don't care what stupid nonsense about climate change prompted it. I'm just amazed that a leftist can even write those words.

Progressive-types can't really want any of this to happen, can they? If removing gov't red tape, taking property from the government and putting it in the hands of individuals became a proven solution to environmental problems, the lefties would have to drop it entirely and find some other decoy cause to advance their Marxism.
4.11.2008 11:36am
J. F. Thomas (mail):
Well, for believers in federalism, the idea that the Federal Government should come in and demand that states change their water laws seems a little presumptious at best.

Also remember that out west, especially in the desert southwest, significant water rights are held by Indian nations, which for these purposes, are considered sovereign. Add to that disputed claims that the the Indian tribes probably have a right to and would come to a head in the wholesale reordering of western water rights and you have a hell of a mess on your hand.

And as much as Jonathon likes to pretend otherwise, there is a lot more to water rights than the use of water. There are water quality issues, maintaining flow for navigation and to prevent saltwater intrusion, flood control, fisheries, recreation and a myriad of other issues that the market cannot address sufficiently.

Oh yeah, and all the water in the United States does not even stay or come from the United States. Canada and Mexico have something to say about how we use our water.

But damn it. The market will solve all these problems.
4.11.2008 11:38am
grackle (mail):
This is another one of those really great capitalist ideas. I wait for the day when a child is born with an account through which he can rent some air to breathe. Renting him some blood will not be far behind. As Tyler Cowen says, there are markets in everything.
4.11.2008 11:42am
EIDE_Interface (mail):
JF Thomas - the market is never allowed to work by liberals like you.
4.11.2008 11:55am
Floridan:
Unlike coal and oil, water flows above and underground.

Under the markets approach, how will urban areas downstream be assured that they will receive adequate water supplies?

In Florida, for instance, many cities get their water from underground acquifers that originate hundreds of miles to the north. Would urban areas at the bottom of the peninsula, like Miami, be forced to pay whatever the "upstream" owners demand?

I can see it now -- OWEC, the Organization of Water Exporting Capitalists.
4.11.2008 11:57am
AntonK (mail):
Right. Any time you see "Progressive" in the title of a work or group you can be certain that the underlying thinking is anything but. "Superstitious" or "Incredulous" are better suited in this instance.
4.11.2008 11:58am
AK (mail):
This is awesome. All we have to do to get conservative/libertarian public policy enacted is to repackage our arguments as "the progressive case for __________," and pitch the whole thing as a tonic for Global Cooling, er... Global Warming, er... Climate Change, er... Climate Stasis.
4.11.2008 12:06pm
J. F. Thomas (mail):
the market is never allowed to work by liberals like you.

If you want to radically change a system controlling one of the absolute necessities of life that will affect every single person and at the same time transfer a vast amount of public wealth into private hands you better have a better reason than "the free market always works better". Because that canard is simply untrue. The free market does not always work better.
4.11.2008 12:12pm
Extraneus (mail):
This is awesome. All we have to do to get conservative/libertarian public policy enacted is to repackage our arguments as "the progressive case for __________," and pitch the whole thing as a tonic for Global Cooling, er... Global Warming, er... Climate Change, er... Climate Stasis.
Yes, I see I missed the significance of the scare quotes in the post. Progress on!
4.11.2008 12:12pm
J. F. Thomas (mail):
Besides, I was just pointing out glaring flaws in this concept. If you or Jonathon has a counterargument to any of the points I have just raised, please point them out. I am genuinely curious how the free market is going to stop saltwater intrusion into the Sacramento Valley or ensure that Mexico gets its allotment from the Colorado River.
4.11.2008 12:16pm
Piano_JAM (mail):
This water issue is just one more way for the govt to take more control. Here in Atlanta, we are supposedly in a drought - how one can get 36 inches of rain in a year and be in drought is beyond me - but we were asked to reduce our consumption. Great we did. It dropped by 10%. Now, since we lowered consumption, they want to raise our rates 'temporarily' until the drought is over to make up for the revenue lost from less consumption.

What a f'n joke. 2/3 of the planet covered with water and we don't have enough???
4.11.2008 12:17pm
actual progressive (mail):
For the most part, I think environmental groups needs to consider that the climate change isn't manmade and that they may be wrong. Heck, in the 1970s these groups were talking about global cooling. Go figure.

a cover in Newsweek is not the same as a scientific consensus. it isn't a political movement either. you need to consider that the climate scientists know more about this subject than you do.

also, anthropogenic global-warming denialism is out. the new line is that it won't be that bad and its too expensive to bother fighting.
4.11.2008 12:30pm
Paul Milligan (mail) (www):
"Progressive ideas" - the scariest words since "Hi, we're from the government, and we're here to help you".

What do the 'progressives' do when water becomes a commodity, traded on spot and futures markets, with hedge funds, etc ? Which drives the price up, to where 'the poor disadvantaged folk' can't afford it.

So, the government will step in to 'help', and re-apportion it via welfare regulations, giving subsidized water 'to the poor', and 'taxing the wealthy' to make up for it.

Some cities are tyring to do exactly that right now, with the Internet. They want to offer 'free broadband Wi-Fi' to 'underpriviledged urban areas'. Except, there's a catch - NOTHING is free. SOMEONE pays. The taxpayers, or 'the well to do who can afford it' ( in the minds of our fine civil servants, at least ) via increased rates on PAYING customers.

That is what would happen to water under the 'progressive' mantle. And, of course, the government would skim off their usual 15 % off the top, count on THAT !
4.11.2008 12:37pm
c.gray (mail):

What a f'n joke. 2/3 of the planet covered with water and we don't have enough???


Earth is 70% is covered by SALT water, which is sort of useless for irrigation &drinking. FRESH water is pretty rare, at least for now. And most of it is found in places where it isn't particularly need.
4.11.2008 12:38pm
AnonLawStudent:
Floridan: Consider this:

Under the markets approach, how will urban areas downstream be assured that they will receive adequate water grain supplies?

In Florida, for instance, many cities get their water grain from underground acquifers farms that originate hundreds of miles to the north[west]. Would urban areas at the bottom of the peninsula, like Miami, be forced to pay whatever the "upstream" owners demand?

I am genuinely curious how the free market is going to stop saltwater intrusion into the Sacramento Valley or ensure that Mexico gets its allotment from the Colorado River.

These are use rights, just like navigation or wetlands. The bigger picture is that rapidly advancing technology is facilitating the atomization of resources - in ownership, production, and use. To adopt a living-constitution argument, why should we be restricted to the crude manner of allocatig resources that prevailed 100 years ago?
4.11.2008 12:42pm
J. F. Thomas (mail):
In Florida, for instance, many cities get their water grain from underground acquifers farms that originate hundreds of miles to the north[west]. Would urban areas at the bottom of the peninsula, like Miami, be forced to pay whatever the "upstream" owners demand?

Well, of course the grain is grown on farms that receive government subsidies to ensure an adequate demand in areas of the country (like Florida) with massive government investment in water infrastructure to control flooding, aid in navigation (much of the grain produced in this country moves on federally funded and maintained waterways), and provide water for irrigation (both from aquifers and surface waters). Then of course, the grain is shipped on federal highways or railroads that were built with direct grants of federal lands.

But no, let's just pretend it is all the free market.

These are use rights, just like navigation or wetlands.

So you're going to force people to pay people to maintain a flow of water through a river? It's hardly fair to make downstream non-users (after all, they aren't using the water, they just want a minimum flow through the river to prevent seawater from coming in) to pay for the excesses of upstream users.
4.11.2008 12:57pm
autolykos:
It's not that we don't have enough water, it's that we don't have enough cheap water. There's no physical reason Southern California couldn't pump out and desalinate enough water of the Pacific everyday to satisfy the needs of LA, San Diego and the rest of the American Southwest. It would just be expensive.
4.11.2008 12:59pm
J. F. Thomas (mail):
Which drives the price up, to where 'the poor disadvantaged folk' can't afford it.

Yeah, we can go back to the good 'ol days like London in the 1850's. Rich folks back then figured there was no need to have a centralized water treatment or delivery system. After all, how could it possibly hurt them if the poor couldn't get access to clean water.
4.11.2008 1:00pm
J. F. Thomas (mail):
There's no physical reason Southern California couldn't pump out and desalinate enough water of the Pacific everyday to satisfy the needs of LA, San Diego and the rest of the American Southwest.

Considering the energy requirements of desalinization and pumping over the Sierra and California's already precarious energy situation, there are physical reasons this is impractical if not impossible.
4.11.2008 1:04pm
Ben P (mail):

Here in Atlanta, we are supposedly in a drought - how one can get 36 inches of rain in a year and be in drought is beyond me.


I would think this to be obvious, but when your average is 50 inches, and you've only received 36. That's a pretty far below average percipitation levels. (AKA a drought)

If you go out to Lake Lanier and just look at it, that ought to be enough evidence.
4.11.2008 1:30pm
Francis (mail):
California water law is a core area of my practice, and with personal experience I can assure all of you that water "markets" are, for the most part, just silliness.

First, there is nothing that is a more natural monopoly at the individual level than the delivery of potable water. Water mains are expensive to lay and last for decades. And many households, even here in So. Cal., use $1 - $2 of water per day. And, not surprisingly, the quality of water delivered for potable purposes, is highly regulated, requiring investments in expensive water treatment plants.

So when people talk about water markets, no one who has any idea what they're talking about seriously proposes retail competition for water.

Which leads to the conclusion that water "marketing" is really about preferring water wholesalers who sell to retailers that serve municipal and industrial users over wholesalers who sell to agricultural retailers.

Please note that, here in California, all of these are governmental agencies. Public utilities are at the retail end, and either develop water supplies locally or buy from wholesalers.

"Market" is, to be blunt, little more than fraudulent labelling for state governments preferring M&I use over Ag use. There are no characteristics of a true market anywhere in this process.

Second, it's more than a little bizarre for a libertarian blog to be promoting the idea of upsetting 150 years of (more or less) settled law on property rights. Allowing senior appropriators to sell their use right to someone who has no appropriative right to water on that river results only in screwing over the junior appropriator.

Since agriculture in California substantially pre-dates Los Angeles lawns and swimming pools, agriculture (mostly) holds both the senior and the mid-level rights. So a farmer who owns mid-level appropriative rights -- a Constitutionally protected property right -- now sees water that he legitimately thought was his flow to LA.

This is almost EXACTLY what people were complaining about on this blog in discussions about Kelo. The government was seizing property rights in the name of efficiency. Now it's a good idea because the word "market" is attached to it? Please.

An idea that was popular in libertarian circles until just recently was public-private partnerships in operating municipal systems. Private companies promised that they could operate systems so much more cheaply than the municipality that they could both lower rates and make a profit.

oops. Turns out that there isn't that much fat in municipal systems. Time and again, private companies found that they had to raise rates substantially -- even to the point that a significant percentage of their own customers couldn't afford basic daily supply -- in order to generate the revenue needed to keep shareholders happy.
4.11.2008 1:32pm
AnonLawStudent:

Well, of course the grain is grown on farms that receive government subsidies to ensure an adequate demand in areas of the country (like Florida) with massive government investment in water infrastructure to control flooding, aid in navigation (much of the grain produced in this country moves on federally funded and maintained waterways), and provide water for irrigation (both from aquifers and surface waters). Then of course, the grain is shipped on federal highways or railroads that were built with direct grants of federal lands.

But no, let's just pretend it is all the free market.


Good God, how could huge cities possibly have existed for thousands of years without massive government interventions in the markets? JFT, as usual, your logic and "facts" are so out of touch with reality that I don't even know where to begin. The easy one is the reference to California's self-created "precarious energy situation": Impose a price control, prevent the creation of additional supply, and then use the resulting fiasco as a basis for creating additional regulations in other areas.
4.11.2008 1:38pm
Anon1ms (mail):
ALS: "Good God, how could huge cities possibly have existed for thousands of years without massive government interventions in the markets?"

You might try reading Daniel Defoe's Journal of the Plague Year for some insight into just how well urban areas used to operate in the days before "government interventions."
4.11.2008 2:34pm
J. F. Thomas (mail):
Good God, how could huge cities possibly have existed for thousands of years without massive government interventions in the markets?

Well, the thing is that although large cities existed, very few huge cities did. It took the industrial revolution for cities to grow much past 500,000 or so (there were some exceptions, Baghdad and Beijing might have been over a million early in the second millenium) And it wasn't until the beginning of the last century that cities were clean enough to maintain their populations, they depended on a constant influx of new citizens from rural areas to grow or even maintain their population because of the high death rate from disease and pollution.

Pre-industrial cities of course didn't have the luxury of things we take for granted--like electricity, water and wastewater treatment plants, extensive networks of paved roads. And they were under constant threat of famine and disease.
4.11.2008 2:40pm
J. F. Thomas (mail):
Impose a price control, prevent the creation of additional supply, and then use the resulting fiasco as a basis for creating additional regulations in other areas.

Regardless how they got there, California has limited supplies of electricity. Desalinization and pumping water uphill (thousands of feet in elevation not to mention the lateral distance) requires vast amounts of electricity. The lack of available electricity is a physical limitation on any grandiose mass desalinization and water pipeline scheme.
4.11.2008 2:58pm
Mike Gallo (mail):
The free market for water rights has existed for centuries. If you want water, go live by water. If you're dumb enough to go build a city in the desert, then you should have known from the start you were screwed.
I mean, Christ, the dumbest animals on the planet know that. Live by water, or adapt so you use less.

They're working on a "Great Lakes Compact" right now in my neck of the woods.

Oh, and as far as desalination goes - you can do this passively with reverse osmosis. SCIENCE!
4.11.2008 3:02pm
Francis (mail):
JF: I've heard that one idea kicking around is for Nevada to build a nuclear plant is So. Cal and use it for desal. (Gallo: RO is very energy-intensive, as a matter of fact). MWD would take the desal water in lieu of its Colorado River right, and Nevada would then take MWD's allocation.

Nuclear is particularly suited to desal, because the plants continuously generate base load. Desal operations then occur at night, when demand is otherwise very low.
4.11.2008 3:27pm
wfjag:

Well, for believers in federalism, the idea that the Federal Government should come in and demand that states change their water laws seems a little presumptious at best.


It's scary when I actually agree with JF. Going back to basic principles -- what about Federalism?

The reasons stated as justifying this radical change in federal, state, and individual relations hardly seem persuasive. Even assuming that "climate change" (aka - AGW caused by supposed "green house gases") is true -- rather, than simply understanding that the climate is a dynamic system in which there are periodic warmer and cooler periods -- and assuming that the conclusion from the forgoing assumptions is that "global warming" translates into drought -- the supposed benefits of the "progressive" solution are still far from apparent.


First, the restrictions that prevent the trading of water rights across state lines should be removed. The median price for a one-year lease of an acre-foot of water in Colorado is 10 times the median price in Utah.


When the people of Colorado get tired of getting gouged, they can either (1) move to Utah and pay lower prices there or (2) get their STATE legislature to amend their laws to remove the legal restrictions that unnecessarily increase the cost.


Second, property rights for water must be clarified. The practice of usufruct rights, in which the state holds all water "in the public trust," with the ability to retract or reassign rights, should be eliminated.


Although the first and second arguments are based on a supposed distinction between interstate and intrastate issues, they really are the same argument. One of the reasons justifying Federalism is that the STATES are supposed to be allowed to experiment with different legal regimes and approaches to solving problems, and over time, the best and most efficient solutions will be adopted elsewhere. Although not implemented without problems, it allows a great deal more flexibility than a top-down centralized edict from a federal bureaucracy -- especially one located a few thousand miles away that lacks understanding of local conditions. If STATE law is uncertain or causes problems, you can (1) move to another state or (2) get the state legislature to change the laws causing the problems.

Third, federal and/or state governments can reduce transaction costs in several ways.
4.11.2008 3:46pm
J. F. Thomas (mail):
Oh, and as far as desalination goes - you can do this passively with reverse osmosis. SCIENCE!

Well, true RO works passively (or by gravity feed--and since you are taking water from the ocean you would still need to pump it to the top of the RO system) if you don't mind generating a few gallons an hour. But if you want to generate the kind of water to service a large community you need to force water through the membranes with huge pumps.
4.11.2008 3:53pm
wfjag:
Sorry, hit Post too soon.


Third, federal and/or state governments can reduce transaction costs in several ways.


I assume that the author has never, in fact, worked with federal or state bureaucracies. Over time most bureaucracies are "captured" by those they regulate, or by "true believers" in an ideology.

The recent grounding of hundreds of commercial aircraft is an example of what occurs when regulators are captured. The FAA inspectors got too cozy with the airlines, and let mandated inspections slide. The FAA inspectors likely understood that the electrical wiring inspections did little to actually promote public safety, and so were convinced to overlook airline personnel not doing them on schedule. So, to now correct this, hundreds of aircraft are grounded while the inspections are done on an expedited basis. You also see this frequently in building inspectors -- the inspector gets to know a contractor, decides that the contractor does good work, and signs off on the work without looking at it (or, maybe the inspector gets bribed). Katrina didn't really hit New Orleans. Rather the weakest quadrant side-swiped the City. In NOLA, max sustained winds were 75 mph (barely meeting Category 1 standards) with gusts up to 90 mph. Many buildings in the central business district shed glass -- however, under the existing building code, had those standards been enforced -- the buildings should have not suffered damage.

Another trouble is when true believes capture the agency. This not infrequently happens on environmental issues. Because of the book "Silent Spring", the US effectively banned the use of DDT worldwide. In Africa, a million people a year die from malaria, and several million annually suffer severe sickness, many of whom are disabled for life. Proper use of DDT, with other measures, could quickly eradicate malaria in Africa. However, don't propose that idea to most regulators in the area unless you're wearing full body armor. You'll hear many accusations about the horrors caused by DDT, and the speaker will not consider the science showing that those accusations lack a basis in fact.

Seldom does government intervention reduce transaction costs, or overall costs.
4.11.2008 4:08pm
ChrisIowa (mail):

The lack of available electricity is a physical limitation on any grandiose mass desalinization and water pipeline scheme.


The lack of available energy is a temporary limitation on desalinization. If water is valued enough, the infrastructure needed to provide the added electricity to provide the water can be built.

There are alternatives to desalinization though. They also require electricity, or a similar energy source. Rather than using the water once and sending it out to sea, the water could be treated and re-used, most likely at less energy input than desalinization. The last step would likely also be RO to control the salt build up, but the energy required would be less to treat the lower concentrations of salt in wastewater than the very high content of salt in ocean water.

Another idea would be for a city to buy water rights from an upstream user, and pump back wastewater that was treated sufficiently for irrigation of crops. Part of the reason why there is a water shortage is that it tends to be used only once, especially on the coasts.
4.11.2008 4:33pm
ChrisIowa (mail):
One example to consider is when LA bought the water rights to the Owens Valley. Would that have been the same or different with a market in water rights?

Did LA buy just the rights or did they have to buy the land to get the rights?
4.11.2008 4:37pm
autolykos:

Regardless how they got there, California has limited supplies of electricity. Desalinization and pumping water uphill (thousands of feet in elevation not to mention the lateral distance) requires vast amounts of electricity. The lack of available electricity is a physical limitation on any grandiose mass desalinization and water pipeline scheme.


What's your point?

It's not physically impossible, it's just expensive (exactly what I said). And the only reason California has limited supplies of electricity is because of government mismanagement. There's no physical reason that California necessarily has a shortage of electricity. It's not because the state's farther from the oil/coal fields. If California's government wasn't stuck on their pie in the sky hopes of solar/wind/water power, the state would have more than enough nuclear/coal/natural gas powered plants to generate the needed electricity to run the desalinization plants and send the water over the Sierras.

Heck, you could always throw the water in tankers and truck it over. Expensive, but not unfeasible.
4.11.2008 4:48pm
J. F. Thomas (mail):
The FAA inspectors got too cozy with the airlines, and let mandated inspections slide. The FAA inspectors likely understood that the electrical wiring inspections did little to actually promote public safety, and so were convinced to overlook airline personnel not doing them on schedule.

So your solution to this is apparently get rid of the FAA inspectors and just let American decide to do inspections when they feel like it.
4.11.2008 5:17pm
J. F. Thomas (mail):
One example to consider is when LA bought the water rights to the Owens Valley. Would that have been the same or different with a market in water rights?

There is already a market in water rights in the west. It just isn't enough of a free market to satisfy Jonathon. He doesn't like the pesky concept of anything being held in trust for the public, even if it is vital to human life, smooth functioning of society,there will never be enough to go around, or simply does some things that can't have a market value placed on it--like keep the San Francisco Bay out of the Sacramento Valley.
4.11.2008 5:24pm
Francis (mail):
ChrisIowa: On the Owens Valley story, the ultra-short answer is that the City, using various fronts, bought land and/or shares of mutual water companies until the City controlled the rights to the Owens River.

The statutory and regulatory regime has changed a little since then, including the passage of "area of origin" laws that make it much harder to repeat what the City did.
4.11.2008 5:34pm
D Palmer (mail):
I'm generally a free market guy, but I disagree here.

If you move to the desert you shouldn't be surprised that there isn't any water.

Phoenix should not grow beyond what it's available water can support. Neither should California.

To the extent that drought is the problem, like Georgia, that should eventually resolve itself. If it does not then the government should limit growth.

But I shouldn't have to worry about my resources being strained so that someone else can live in a warm weather state.
4.11.2008 5:44pm
autolykos:

I'm generally a free market guy, but I disagree here.

If you move to the desert you shouldn't be surprised that there isn't any water.

Phoenix should not grow beyond what it's available water can support. Neither should California.

To the extent that drought is the problem, like Georgia, that should eventually resolve itself. If it does not then the government should limit growth.

But I shouldn't have to worry about my resources being strained so that someone else can live in a warm weather state.


The issue is not that there isn't water. It's that the people who live there don't want to pay what it would cost to get access to renewable water resources. They'd rather just take as much of the cheap water as they can, to heck with the consequences.

It's the same issue that we have in New Orleans. When you let people move to an area without having to worry about paying the true costs of living there, someone is going to get stuck picking up the tab.
4.11.2008 6:00pm
Francis (mail):
Anyone wanting to get a sense of the issues moving to a "market" based system in California should first read State Water Resources Control Board Cases 136 Cal.App.4th 674, 39 Cal.Rptr.3d 189.

The case will give the reader a sense of the complexities of the existing system of rights. Making changes to California constitutional and statutory law to increase the marketability of water rights will require a massive restructuring of existing rights -- something generally opposed by libertarians.
4.11.2008 6:23pm
markm (mail):

2/3 of the planet covered with water and we don't have enough???

Earth is 70% is covered by SALT water, which is sort of useless for irrigation &drinking. FRESH water is pretty rare, at least for now. And most of it is found in places where it isn't particularly need.

The real shortage is of cheap fresh water. You can desalinate seawater, treat sewage until it is potable again, or build long pipelines to regions that usually have an excess of water - but all of these options are costly, and therefore won't satisfy the nitwits that want their showers, lawns and crops watered, green golf courses, etc., in the desert without paying the cost.

Market solutions mean that many people will pay a per-gallon rate that will cause them to re-evaluate how much they want their lawns, or whether growing tropical fruits in the desert make economic sense. Where water is costly, suppliers will invest in higher capacity supplies (whether that's desalination, pipelines, or whatever), while demand drops, until supply and demand are equal. What this requires is (1) establishing ownership to each gallon of available fresh water, and (2) getting the government out of the way of the owners selling it for the best price. (Note: I'm not considering city water distribution systems here, which are natural monopolies, but where the cities get their water from, which already usually includes multiple sources and could be a competitive market.)

Or, they can have the government commandeer water supplies, then collect taxes - from people who live where there is plenty of fresh water as well as from the desert-dwellers - and use them to ship water around so that people living in Phoenix can have lower water rates than people living in small towns in Michigan.
4.11.2008 7:00pm
Anonymous1002 (mail):
One of those smart-alecks at Yale has already covered this: http://lsr.nellco.org/yale/ylsspps/papers/9/

But it's good that others are on board too.
4.11.2008 8:31pm
c.gray (mail):

The real shortage is of cheap fresh water.


In California (and some other parts of the West), this is not exactly the case. There is plenty of cheap water, but it is overwhelmingly in the hands of agricultural interests which, because of the complex system of legal rights in water, make it virtually impossible for the people who are senior in the chain of rights to transfer rights to interests with subordinate claims that might be willing to pay a very high price.

I've got to disagree that this raises the same sorts of issues as Kelo, though. Kelo was about whether the state could use eminent domain to transfer property from one private owner to another. Condemnation of water rights would almost certainly involve transfer of water rights to a municipal water utility. Thats a "public use" by any reasonable definition of the term.
4.12.2008 12:42am
Soronel Haetir (mail):
You would however get into a heated debate over what would be just compensation for such a taking.

How many years of lost income potential do you have to pay for if you put a farm out of business by taking away the water?
4.12.2008 12:57am
markm (mail):
Soronel: However many are covered by the price the farmer would sell his water for.
4.12.2008 12:46pm
ohwilleke:
Colorado has a legal framework that fits essentially all of the elements described in the original post. But the market is very thinly traded. Why?

1. Water rights aren't fungible. Location matters. A water owner in position X can only sell to people in certain places on certain rivers due to the nature of rivers. Also water rights trades implicate water flow in basins which impacts the rights of other users.

2. Measurement difficulties are significant practical difficulties. One of the greatest is the complication introduced by interactions between surface waters and aquifers of groundwater.

3. The valueable water rights are held by farmers. For reasons both cultural and involving government subsidies, few farmers are willing to sell water rights even though the economic value of their use is far less than the economic value of urban use.

4. Supply is not constant, so many low priority rights look a lot like trading in options with a remote probability of occurring.

5. Third party oversight of trades turns out to be critical because a misdescribed trade impairs the rights of large numbers of third parties.

Adjudicating water rights in like having a perpetual bankruptcy proceeding in the sense that it is a zero sum game where every action in a river basin affects everyone else, only there is no creditor's committee to represent classes of people.
4.14.2008 8:30pm
TokyoTom (mail):
Thanks for broaching this important, but difficult, topic, Jon.

I suspect that getting legislatures to change water rights in ways that allow greater trades may prove difficult, as it may involve an initial distribustive change that benefits someone at another's cost.

What we are more likely to see is that as water dries up supply shortages will force changes at the retail level that will result in consumers facing higher costs and perhaps even some marginal pricing rather than average cost pricing.

Greater investments in water infrastructure will be needed, which costs should also be borne by users, and not taxpayers generally. We will see more rational pricing if we can successfully get the federal government out of the water irrigation business.

As I suppose you are aware, there is a wealth of information on water rights and water trades at the PERC, the pioneering free market environmentalist thinktank:
4.15.2008 7:34am