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McCain on Water: Bad Politics & Bad Policy:

Last week, Senator John McCain told Colorado's Pueblo Chieftan that he thought the 1922 Colorado River Compact should be renegotiated due to the increasing demand for water in downstream states to account for population changes and increased water demand in places like Nevada, Arizona, and southern California. This has made folks in Colorado none too happy. According to Bob Ewegen, this is the sort of thing that could (and should) cost McCain Colaorado's nine elctoral votes come November.

The problem, from Colorado's perspective, is that in the 76 years since the compact was signed, California, Nevada and Arizona have grown much more rapidly in population — and political power — than the upper basin states. So when the lower basin states talk about "renegotiating" the compact, that's their code for a process of give and take — in which Colorado, Utah, New Mexico and Wyoming give and California, Arizona and Nevada take.
Someone should have reminded McCain that in Colorado whiskey is for drinking and water is for fighting.

However politically ham-handed McCain's comments were, they were no better as a matter of policy. There's no need to renegotiate the water allocations and take water away from upstream states. Rather, if Arizona, Nevada, and California demand more water, they should simply pay for it. The best way to deal with shifts in water supply and demand brought about by demographic and environmental changes is through water markets. Particularly if current projections about the effect of climate change on Western water supplies are accurate, the West needs more robust water markets, not more administrative reallocations or "renegotiations."

Chris Bell (mail) (www):
- Don't invade Russia in winter
- Don't mess with water rights in the western states

How hard is this?
8.17.2008 10:26pm
Francis (mail):
First Zetland and now you. What, pray tell, are the characteristics of a robust water market in California? To the extent, for example, it involves a senior right holder selling a portion of the exercise of a right to a junior user, what do you do about the beneficial use doctrine (which holds that user holds rights only to the extent that the water is used)? Is the sale a beneficial use, or does the sale need to be accompanied by conservation? Who measures? Who gets paid? Recognizing that vast quantities of rights are held by government agencies, should governments really be in the business of trying to run their retail water business at a profit?
8.17.2008 10:33pm
Anderson (mail):
this is the sort of thing that could (and should) cost McCain Colaorado's nine electoral votes come November

Well, let's hope so, anyway.

But I'm sure McCain will have a new position on the subject any day now.
8.17.2008 10:34pm
mac (mail) (www):
- Don't look longingly northward at Canadian water
- Learn how to pronounce SAAKASHVILI
- Make a not that Putin is not the President of Germany
8.17.2008 10:59pm
Anderson (mail):
Don't look longingly northward at Canadian water

War with Canada! The solution to all our problems!

(It does have a venerable history.)
8.17.2008 11:05pm
Norman Bates (mail):
Professor Adler:

I believe that water rights are a perfect example of rent property. Simple-minded classical economic arguments like the one you've presented don't do justice to this issue. Francis touches on some of the deeper issues that are involved here.
8.17.2008 11:13pm
PersonFromPorlock:
Remember, McCain's not just a military man but the son and grandson of military men: his whole history for three generations back is of living in a centralized society where resources are assigned by authority on the basis of need. His response on water rights exactly conforms with this.
8.17.2008 11:28pm
John Armstrong (mail) (www):
Never go in against a Sicilian when death is on the line!
8.17.2008 11:58pm
Donna B. (mail) (www):
I think McCain's position has more to do with his years of representing Arizona than it does his ancestry.

For example, every generation of my family has served in America's wars, some rebels fighting the King's men even before the Revolution.

But I was born in Colorado. My family's military history has nothing to do with my feeling that Arizona, Nevada, and especially California, do not get Colorado's water.

Well, maybe Californians could have just a little bit if they'd promise to stop moving to Colorado and driving up housing prices.
8.18.2008 12:09am
Mark H.:

Well, maybe Californians could have just a little bit if they'd promise to stop moving to Colorado and driving up housing prices.



LOL, Donna, and I bet you'd be willing to bottle it up and deliver it to stop them.

Oh, wait, bottled water is on the endangered list in CA... Hmm, where did the bottled water craze start anyway?
8.18.2008 12:26am
CDU (mail) (www):
Given that the Colorado River Compact allocates more water than is actually available (the three years used as a baseline to establish how many acre-feet were available were all well above average) it's going to have to be renegotiated sooner or later.
8.18.2008 1:38am
Avatar (mail):
I'm willing to extend a property right to water when the owners are willing to assume liability for the damage that water might do on its way down the river. I guess you'll want to start building levees upriver to guarantee that the transportation of your property doesn't damage the property of others...

It's not okay to privatize the profits but to socialize the risks. If those water rights are worth something, well, so too are the damages people suffer when the river rises.
8.18.2008 1:49am
byomtov (mail):
What's with all the rules?

Never play cards with a guy named "Ace."

Never eat at a place called "Mom's."
8.18.2008 1:54am
gov98 (mail):
Are you serious? Isn't there some egregious degree of Dead Hand Control here with a 1922 compact?

I don't quite understand how it's bad policy other than just the say so of Jonathan Adler, but apparently someone died and made him right, so there ya go. Especially since even creating "water markets" would necessitate a complete renegotiation.
8.18.2008 1:55am
Sean Neves (mail) (www):
Francis: How hard is it to understand that water is an asset that can, and is, traded in spades by the thousands of acre-feet per day? Life here in Utah presents the issues that you describe on a daily basis, and yet there is trade. However, inter-basin trade is heavily regulated and inter-state trade is nearly impossible as things stand in the bounds of the compact. This leads to things like the Vegas Vampire move that is so quietly going to suck the entire central-east Great Basin dry, including a massive swath of Western Utah, without our permission.

Water politics is a quiet war out here. Without a venue for trade, states steal. Nevada and Utah are the two driest states in the nation. We are under constant threat of "shortage". Yet over 80% of water use in Utah goes toward agriculture, which accounts for a small percentage of our economic output. Most of this water goes to alfalfa fields, a low-value crop that the government pays farmers NOT to grow in the East. There is plenty of room for the markets to do their mystical magic out here.
8.18.2008 2:01am
Old33 (mail):
Perhaps McCain will follow this up with a proposal to pipe water from the Great Lakes down the desert southwest.
8.18.2008 2:03am
gs:
The Chieftain article quotes McCain:
"Conditions have changed dramatically, so I'm not saying that anyone would be forced to do anything because I'm a federalist and believe in the rights of states," he added. "But at the same time there's already been discussion amongst the states, and I believe that more discussion amongst the governors is probably something that everybody wants us to do."
Later in the article:
McCain stressed that he has no intention of taking additional Colorado water, but emphasized that talks should occur.

"Let me make one thing perfectly clear: I would never advocate any course of action that would damage the state of Colorado's rights over the water, or any other water resources that is going to be one of the most precious commodities for Colorado and the entire West," the presidential hopeful said. "I would never support any policy or any federal role that would impair the state of Colorado or others state's rights to their resources. But I know there have been discussions amongst the governors. I encourage those discussions as to how we best use a scarcer and scarcer resource in the West."

McCain, who said he understands water issues better than his Democratic opponent, Illinois Sen. Barack Obama, also said that it should be up to each Western state to decide for itself what new water storage projects should be built.

He said that if Colorado were to choose to do so, some federal money could be found to help.
In the comments on Ewegen's op-ed, 'dan simon' twice suggests that the piece is an MSM smear of McCain.

Absent an explanation of why McCain's disclaimers should be ignored, I am unpersuaded by Ewegen's op-ed and by Professor Adler's post.
************
What should McCain have said instead of his 'politically ham-handed' remarks? If pointing out that an obvious problem is a problem gets a candidate torn to shreds--see also McCain's comments about energy at the end of the Chieftain piece--, then I guess...the country will continue on its present course.
8.18.2008 2:37am
Soronel Haetir (mail):
Another rule:
Never trust a thin chef.
8.18.2008 2:43am
Daniel P (www):
Ah, more milkshakes.
8.18.2008 4:12am
Bill Poser (mail) (www):
One aspect of rationalization would be removing the massive subsidies that make it economical for ranchers to grow alfalfa, a low value crop that requires a lot of water, in the Central Valley.
8.18.2008 4:15am
Mongoose:
The population of California increased 116% in the 1960-2000 period, and in the same time the Colorado population has increased by 145%. The California population has increased faster than Colorado since the Colorado River Compact was signed in 1924, but the entire California advantage was gained during the 1924-1960 period.

California is a misgoverned state that has adopted socialism with a vengeance. It will continue to increase population at a slower rate than Colorado, Texas, Nevada, Florida, and Baja California. It should not be subsidized!
8.18.2008 7:00am
JB:
Simple-minded classical economic arguments like the one you've presented don't do justice to this issue.

Even more complex regulatory regimes ought to take into account Adler's point: If downstream states want more water, they should give something up to get it, not take it via political means.
8.18.2008 8:35am
Jonathan H. Adler (mail) (www):
Francis &Norman Bates -- You should get out of the theory books and look at the real world. Many of these concerns are addressed every day (as Sean Neves explains in his comment), and I address some of the other points in the paper linked above, as do many of the sources cited therein. Water markets are not some theoretical construct, but something with which we have substantial experience.

gov98 -- If recognizing historically negotiated rights is "Dead Hand Control," then I guess I am guilty. As for whether more interstate transfers would require "complete renegotiation," I am not so sure this is so. As I read the compact, it does not seem to prohibit states from facilitating greater market (re)allocation of water or participating in voluntary trades.

gs -- I see nothing in the article that suggests McCain believes in shifting toward greater reliance on water markets, or even suggesting downstream states should be compensated for any reduction in their water rights, but I would welcome any such clarification (and promise to post on it if such is brought to my attention).

JHA
8.18.2008 9:24am
Waldensian (mail):

If pointing out that an obvious problem is a problem gets a candidate torn to shreds--see also McCain's comments about energy at the end of the Chieftain piece--, then I guess...the country will continue on its present course.

Well, if you want the country to continue on its present course, I would agree that McCain is your guy.
8.18.2008 9:26am
J. F. Thomas (mail):
Your magical market just isn't efficient or as good as allocating resources, especially something that impacts so many aspects of human life and the environment as water, as you think.

I will give you a couple examples that markets will just be really bad at managing, and centralized control, whether you like it or not, is necessary to control.

Saltwater intrusion in coastal areas (and sometimes even some inland areas) is a serious problem in some communities. Drawdown in wells in a single aquifier all contribute to the problem yet it is only the communities closest to the saltwater source that are going to suffer the consequences of too much drawdown. How are your markets going to manage this problem?

The right to pollute water (in the form of permits to discharge from a plant) depends on flow of the receiving stream. How do you manage the flow of a large system (say the Colorado) to maintain this usage of water?

Also there is flood control. Who is responsible for flood control under a market system. Floods are of course an excess of water. How does the market account for water that nobody wants and simply needs to be held back to prevent damage?

I could go on and on.
8.18.2008 10:20am
Adam J:
gov98 - "Isn't there some egregious degree of Dead Hand Control here with a 1922 compact?" No more then there's some egregious degree of Dead Hand Control here with the Constitution. Which is to say, there's none at all.
8.18.2008 10:23am
bikeguy (mail):

Well, if you want the country to continue on its present course, I would agree that McCain is your guy.


And if you want a guy who has no particular course in mind for this particular situation or most others (other than "Hope" and "Change"), I would think Obama might be the better choice.
8.18.2008 10:26am
Thorley Winston (mail) (www):

I'm a bit new to this issue (water shortage has never really been a problem in Minnesota) but so far it seems that CDU's point that the Colorado River Compact already allocates more water than actually is available and gs' actual quoting of what Senator McCain actually said (something no one else did), I don't what's so outrageous about Senator McCain's comments. There's apparently a problem with a shortage of water in the West and the governors of the States affected are talking about whether to change an existing agreement. Senator McCain agrees that there's a problem and supports letting the governors continue to discuss to come up with a solution but doesn't think the federal government should be imposing one.

I get that Professor Adler and others believe that there should be a market solution to the problem and I tend to agree. But there is nothing in anything that I've read in Senator McCain's remarks which would preclude or impair the ability of the States from finding one. It seems to me that since the status quo apparently isn't a market solution, that Professor Adler would have been wiser instead of criticizing McCain for something he didn't actually say to instead applaud him for comments recognizing that the status quo doesn't work really well, supporting a more federalism-friendly approach to the water, and encouraging or outlining a market-based solution that a McCain administration working with the States could implement the same way that he's done on health care reform.
8.18.2008 10:41am
Thorley Winston (mail) (www):

gs -- I see nothing in the article that suggests McCain believes in shifting toward greater reliance on water markets, or even suggesting downstream states should be compensated for any reduction in their water rights, but I would welcome any such clarification (and promise to post on it if such is brought to my attention).



It seems to me that if you have an interstate compact regarding the use of water and some States want to be able to use more of it but the State where the water is located doesn't want to be forced to give them more and Senator McCain has essentially said "let them talk among themselves to find a solution but the federal government shouldn't force any of the States to do anything they don't want to do" that pretty much precludes forcing Colorado to give any other State any more water than under the existing compact (contrary to Salazar's grandstanding) and as a practical matter only leaves the States in need of more water with the option of buying more water from Colorado.
8.18.2008 10:58am
pjh:
Francis:
To the extent ... it involves a senior right holder selling a portion of the exercise of a right to a junior user, what do you do about the beneficial use doctrine (which holds that user holds rights only to the extent that the water is used)?


The Prof and Steve Neves addressed your concerns in broad strokes. But not your specific question re beneficial use upon transfer. Normally under the prior appropriation doctrine (which does vary in detail among the states where it applies), when one beneficial user sells the right (with an attached priority date) the buyer becomes responsible to continue using the water beneficially, with the same priority date, but possibly a different benefit. In fact, most sales are from agricultural to municipal use, with ag to conservation organizations in second place, if I recall correctly.
8.18.2008 11:00am
Sean Neves (mail) (www):
Mr. Alder is also correct to point out the natural uneasiness that the upper basin states (the 'producer' states of Colorado, Utah, Wyoming and New Mexico) experience when the words renegotiate or worse, reallocate, are uttered by the lower basin 'consumer' states. Cities like Denver and Salt Lake have been growing at about the same clip as Vegas and Phoenix, but they don't ask Montana to provide the water for their growth. As a general rule, the major populated areas of the lower basin states are pie-in-the-sky style oases amid massive deserts. They constantly reach further and further for their resources to sustain themselves, which would be all fine and dandy if they paid something closer to market value for those resources rather than acquiring them by fiat.

Yes, the Colorado is over-allocated. Yes, the entire Colorado plumbing project has been heavily subsidized by the Feds, but does that mean that the desert cities should be asking for even more water from 1000 miles away?
8.18.2008 11:02am
Francis (mail):
JHA: I'm a water lawyer and deal with transfer issues on a regular basis. How many water clients do you currently represent?

Problem 1: Nobody wants a water market except a few lawyers and economists who haven't actually represented any clients on this issue. Urban consumers? Low and stable prices. Ag. community? Will trade stability for ultra-low prices. Water managers? They're engineers, not traders.

Problem 2: Infrastructure. Water market is libertarian code for cities buying out ag. Little details like moving the stuff, and storing it when you get it there never seem to occur to the advocates. Anyone with a pulse and any interest in water law knows that there is a tremendous infrastructure deficiency in moving water around the Bay Delta. Storage and conveyance facilities (dams, reservoirs and aqueducts) are government-owned, which makes life a little more difficult for private parties who want to get into the wheeling business on a for-profit basis.

Problem 3: Law. The Law of the Colorado River includes Supreme Court opinions, a few Acts of Congress, a treaty with Mexico, and endangered species act permits, for starters. The recent experience of the participants in the Quantification Settlement Agreement (whereby, among other things, the Imperial Irrigation District sold water to San Diego) suggests that developing a "robust" water market within this framework will be .... difficult. Central California has its own problems, with a judge imposing massive restrictions on pumping out of the Bay Delta pursuant to the endangered species act.

Problem 4: Government. There is tremendous government oversight in the provision of water. The constituents of drinking water are highly regulated (Safe Drinking Water Act). The State regulates system design, including fire flow and pressure. As retail water delivery is a pure monopoly, non-government retailers are regulated by the Public Utilities Commission. Water wholesalers, who would be the likely market participants, are governments. (Thank heavens.) Their mission is to deliver low-cost water to their constituents over the long term, so they afford to do things like invest in pressure wells that prevent seawater intrusion and in groundwater recharge from treated sewage. If MWD were a for-profit entity, would any of this be going on?

Problem 5: Experience. Creating a true market for electricity in California was a catastrophic failure. Just about very attempt at privatization of water systems here and abroad has collapsed. (Bolivia, Stockton, New Orleans, etc.) Why should advocates for a water market have any credibility, especially since water is a true life necessity?

Problem 6: The essence of a market is that it responds to shortages with an increase in price. But no one wants the shortage to occur in the first place. Voters want their government to protect them from both shortages and price variations.

Problem 7: Ignorance. Most California water is not subsidized. Neither the State Water Project water nor the California River water gets a dime of subsidy. (The Central Valley Project water is subsidized, but that's changing.) The reason that potable water in Southern California is 100 times more expensive than ag. water in Imperial County or the Central Valley has zero to do with the cost of the corpus of water itself, and everything to do with moving, storing, cleaning and delivering water in a high-cost urban environment. (One of the biggest total energy consumers in the State are the pumps that lift water over the mountains that separate the Central Valley from Southern California. Most people who talk about water don't have a clue.

Problem 8. Ignorance, continued. California already has on the books the laws for a water market. (Water Code 1700 et seq.) Relatively few transfers have taken place. Reasons include: a. establishing that the transaction will not harm a downstream rights holder; b. lack of storage at the destination; c. inability to move the water reliably through the Bay Delta; d. an unwillingness to sell -- farmers are stubborn. Most people who complain about a lack of water markets again still don't have a clue.

So, Prof. Adler, what, precisely, do you mean by a "robust" water market?
8.18.2008 11:48am
MarkField (mail):

You should get out of the theory books and look at the real world.


This line was hilariously ironic when posted, and Francis's subsequent comment renders it more so.
8.18.2008 12:01pm
Norman Bates (mail):
Professor Adler:

You should get out of the theory books and look at the real world.


Pat Buchanan has, of course, made an exactly similar argumnent against those who favor NAFTA and free trade in general. I think Francis has done a more than adequate job of deflating your pretensions in his prior post. I'll just add that I still do not think you have adequately addressed issues that arise because water trading involves rent prices in the technical sense of the term. When you've responded to Francis fully you will have begun to address this issue.
8.18.2008 1:38pm
pjh:
A recent compilation and analysis of water markets in the west. This may have already been cited.

Trends in water market activity and price in the western United States
Thomas C. Brown fn1
Received 12 April 2005; revised 5 May 2006; accepted 7 June 2006; published 8 September 2006.
Over 2000 water market transactions that occurred in the western United States from 1990 to 2003 were examined to learn who sold to whom and for what purpose, how
much water was involved, and how much it sold for. The transactions show that much more water changes hands via leases than via sales of water rights. Public agencies and
irrigators are the most common lessors, with lessees being fairly evenly distributed across types of buyers. However, with water rights sales, irrigators are by far the most common sellers and municipalities the most common buyers. Across the West in general, the number of leases has been rising in recent years, as have their prices. The prices of water right sales have also been rising, but the number of sales has not. The price
of water is highly variable both within and between western states, reflecting the localized nature of the factors that affect water prices.
Citation: Brown, T. C. (2006), Trends in water market activity and price in the western United States, Water Resour. Res., 42, W09402, doi:10.1029/2005WR004180.
fn 1: Rocky Mountain Research Station, U.S. Forest Service, Fort Collins, Colorado, USA.


The link to the abstract; $9 to buy the article.
8.18.2008 3:11pm
David Zetland (mail) (www):
Francis: (et al.)

1) You are not allowed to beat people up with "I represent more clients than you do" lines of argument. If such a qualification was valid, you'd have to defer to hairdressers.

2) Your statement "Water market is libertarian code for cities buying out ag" appears to show an ignorance of markets -- wherein WILLING buyers and sellers transact.

3) Your continued reference to government involvement in water as a blockade to water markets is another non-sequitur. The government allocates radio frequencies and we have pretty good markets for cellular, television, etc. (I realize that the market structure is not parallel, but you get my point.)

Finally) There are many ways to structure markets, and water markets will take many forms. You cannot use "this market didn't work because of X" or "that market lacks Y" logic to deny the feasibility for marketing water in places that have Z.

I agree with JHA's main point -- that Colorado water should be reallocated by markets. (Interested readers can see daily examples on this at my blog.
8.18.2008 5:44pm
gs:
More--not to mention Bob Ewegen's choice of terminology--regarding McCain the wrinkly water rustler who should be tarred and feathered:

According to the Rocky Mountain News, the Colorado Water Compact is not so untouchable that a 'supplemental agreement' is precluded:
Last year's supplemental agreement among the seven states formalized rules for cooperation during droughts.

It commits the states to negotiate before going to court, establishes rules for handling surplus water in times of plentiful runoff and encourages conservation.
Five weeks ago, the Cleveland Plain Dealer reported:
McCain says states should control their own water

VAN BUREN TOWNSHIP, Mich. -- Republican presidential candidate John McCain says Michigan and other Great Lakes states are right to protect their water from dry regions such as his home state of Arizona.

McCain told The Associated Press in an interview after a Michigan campaign stop in suburban Detroit Thursday that he supports the Great Lakes compact...

"'I've often had dreams of giant pipe that ended up in my backyard in Phoenix," McCain joked. "But the fact is that any decision concerning water should be made by the people who own the water. Thats the states. "
McCain is getting flak from his own side:
Colorado's Republican U.S. Senate candidate responded forcefully Friday, condemning Republican presidential candidate John McCain's comments that he would like to see the 1922 Colorado River Compact reopened.

Republican Bob Schaffer said: "Over my cold, dead, political carcass..."
(Speaking of cold dead political carcasses, the odds are that Schaffer is on the way to losing his second Senate bid.)

Perhaps Mr. Schaffer should be less concerned that McCain will force renegotiation of the Colorado River Compact, and be more concerned that an Obama-appointed federal judge will rewrite it. A similar reservation might be voiced about Professor Adler's emphasis on water markets.
8.18.2008 6:09pm
fishbane (mail):
McCain was a Prisoner of War, and should not be questioned on issues of policy. We know that a prisoner of war would never make a bad policy choice. That's because he was a prisoner of war, and we can trust prisoners of war.
8.18.2008 7:31pm
Francis (mail):
David: I was responding to Prof. Adler's line: You should get out of the theory books and look at the real world. And comparing me to a hairdresser certainly wasn't derogatory on your part. Of course not.

Water is bulky, heavy, liquid and falls free from the sky. So capturing it, moving it great distances and storing it has, so far, been the province of government.

At a retail level it is a true natural monopoly and life necessity. So selling it to individual households has, so far, been heavily regulated by government.

Now, it's possible that a "robust market" could spring up between these two endpoints. But the law allowing for that market already exists and it ain't much used. Now it's possible that the principal reason there aren't more water transactions is a lack of staff at the State Water Resources Control Board. Or that the existing law is badly drafted.

But somehow neither you nor Prof. Adler ever seem willing to get in the weeds and explain how to lift the constraints on the formation of a robust market in a way that voters would accept. (And no, I don't think an all-in auction is politically feasible, even if such an auction could be designed.)
8.18.2008 7:56pm
Justin Bowen (mail):

Perhaps McCain will follow this up with a proposal to pipe water from the Great Lakes down the desert southwest.


We in the Great Lakes states solved this problem by creating the Great Lakes Compact. If our politicians do nothing else well, which I believe to be the case, they did in this case. They saw this problem coming and used the legislative process to nip it in the bud. To me, it was an amazing example of federalism at work.
8.18.2008 8:24pm
Big Bill (mail):
American is changing. A big piece of that is the new Mexian colonization. Projected rates of immigrant settlement and immigrant reproduction (and the upcoming McCain-Obama amnesty) virtually guarantees that the US population will increase by 100-150 million in the next 40-50 years a very large part of that being Hispanic (and Asian) in California, Nevada, Texas, Arizona and New Mexico.

White people are just going to have to accept that times have changed. Permitting the predominately white upstream states to keep their water while the new Hispanic and Asian states are denied water is just not going to happen, no matter what old Anglo agreement they signed back in the old America.

It will take a while for the new white minority to adjust its expectations, As time passes they will appreciate the new order and the need to accept and accommodate the needs of the new Americans.
8.18.2008 11:00pm
JB:
Francis,
Problem 6: The essence of a market is that it responds to shortages with an increase in price. But no one wants the shortage to occur in the first place. Voters want their government to protect them from both shortages and price variations.

So they want the absurdly impossible. Why should anything concrete be sacrificed in the service of rank insanity?
8.19.2008 12:08am
TokyoTom (mail):
Jon, if the Chief looks tan, it might be because he was born that way.

Francis, presumably you don't disagree that there are tremendous inefficiencies in the use of water in the SW, and that the most efficient way to deal with the pinch that is now being felt is through more market pricing of water and more water trades. Consumers would use water more sparingly if they faced the marginal costs of replacement, and farmers would be wealthier if they had greater abilities to sell water to the cities.
8.19.2008 4:10am
TmjUtah (mail) (www):
California will not permit exploitation of its own resources for energy supplies, refining capacity, transmission, or generation.

Further, it won't permit construction of even minimal water storage and distribution networks.

California (and to a lesser extent, Nevada) have coasted along confident that their congressional clout would be sufficient to allow them to sieze unfair allocations of water in order to continue their fantasy spiral into socialism.
8.19.2008 12:04pm
Jonathan H. Adler (mail) (www):
Francis --

I largely disagree with your points or find them unresponsive or irrelevant to the arguments I made in my paper. Very briefly, in order.

1. Of course those who benefit from the current system don't want change, but many organizations and individuals would like a shift toward markets, including conservation organizations that seek to purchase instream flows or benefit from water salvage in agriculture. I also think many are simply unaware of the benefits of moving toward more markets.

2. The infrastructure exists for some water transfers and trades, but not others. So? Allowing for gains from trade creates entrepreneurial opportunities for those who can figure out how to get water to where it is needed.

3. Yes the law needs to be changed. That's part of the point of my paper!

4. Yes the government creates many obstacles to greater reliance on markets -- and many are unnecessary. Again, I am advocating changes in this regard. Many other government interventions aren't particularly relevant to a shift toward markets.

5. The California electricity market was anything but a "real" market. The government still controlled consumer prices, barred long-term contracts and inhibited supply enhancement. Combining such measures with wholesale deregulation was a recipe for failure, as many market advocates noted at the time. As for the experience with water markets overseas, I beg to differ here as well (even though in my paper I call for market-pricing of water rather than water system privatization). For more on the issue of privatization, I recommend this and this.

6. Yes market prices increase if demand outpaces supply -- but this is the best way to create incentives for more efficient use, conservation, and supply enhancements. There are also plenty of ways to reduce private variation in private markets. I'm sure voters like getting free or underpriced stuff from government and wish this could be done without creating real shortages, but that combination is not possible.

7. There's plenty of subsidized water in California and even more elsewhere. Whether some portion of the water in California is free from subsidy and sold at market prices is irrelevant to the broader argument.

8. California has had some successes with some market reforms, including water banks. But California's laws are hardly a model of

As for what I would do, my recommendations in the paper include: 1) defining, and recognizing the security and transferability of property rights in water resources;
2) eliminating government subsidies for water use and distribution; 3) moving toward market-based
prices for water in municipal systems; and 4) identifying and reducing legal and regulatory barriers to water
transfers, particularly interbasin and interstate water transfers. I would also enact salvage legislation and recognize instream flows and other environmental uses as beneficial uses.

One quick and final point: All of your objections neglect to address the dramatic uncertainty and instability in water supplies that are likely to result from climate change. This increased uncertainty requires more flexible and adaptive water institutions. Whatever flaws water markets have -- and I'm the first to admit that they are not perfect -- they are far more suited to this challenge than the administrative alternatives.

JHA
8.19.2008 12:07pm
Justin Bowen (mail):

A big piece of that is the new Mexian colonization.


Perhaps you've forgotten a bit of your American history...
8.19.2008 12:29pm