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Progressives Support Markets?

April 11, 2008, 9:15 am

It may really be a new era, when markets rather than command-and-control government allocations and restrictions are advocated by progressives to allocate scarce resources.  In this case, the argument is especially surprising, since it is arguing for more open water markets.  For some reason, water is the last place anyone seems to want to apply pricing signals, something I have written on many times.

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.

Tags: , ,
Category: Economics
  • http://comuse.blogspot.com Allen

    The water thing always confuses me. I hear progressives complain about all the farms and ranches in eastern Colorado going barren because cities like Aurora, Denver (which many other metro cities use for their water), Colorado Springs, Ft. Collins and others have bought up the rights from the farmer or rancher. But then when a project like the new proposed reservoir on the Pache de Cache (?) near Ft. Collins come up, a project which would mean that many less ranches and farms getting bought out, comes up they fight that too. Maybe they're not progressive but actually quite scared of change.
    So are there really that many progressives talking about a market for water?

  • http://www.tinyvital.com/blog John Moore

    No doubt the progressives see a huge role for government in the water markets. Imagine all the rules the gov would make under progressives.

    Also, water in the west is a property right already long-ago litigated. The progressives would no doubt "convert" those rights into shares in their nenw market - thereby arbitrarily changing one's property rights.

    BTW, There already is a market in water rights - people can buy water or water rights - it's just a matter of making a private contract. Also, Scottsdale owns a ranch just for its water rights.

    As for Allen's understanding of progressives...

    Progressivism is a cognitive disorder. Logical dissonance is a normal state for them, as is a deficiency in the ability of progressives to associate cause and effect.

  • Mesa Econoguy

    Water is federally subsidized here in Arizona, creating an enormous price distortion.

    If you don’t want so many people moving to the middle of the desert, then stop subsidizing water rates to AZ.

    Likewise, stop forcing me to pay for Huey Long’s New Orleans disaster…

  • http://www.tinyvital.com/blog John Moore

    The federal subsidy is already spent (except for some pumping, and strange SRP pricing). I don't advocate that, but it is a separate issue from a water market.

    Furthermore, when people move here, they DECREASE water consumption when agricultural land is converted to residential land. The water problem is farming where water doesn't support it - a situation created by, as you point out, subsidies.

  • mahtso

    The obstacle to water marketing is that water rights are property rights, but not in an absolute ownership sense. What you get is the right to use the water (in legal lingo a usufructary right) but you cannot stop someone else from using the water if you do not use it. Because these are property rights, it is also difficult to take control of the water from those that have it (and rightfully so if you respect property rights.)

    In Arizona that are four classes of water for legal purposes surface water, groundwater, Colorado River water and effluent. The distinction between surface water and groundwater is legal, not hydrologic. The matter is further complicated in that there are state-based rights and federally based rights that operate on different systems. The primary beneficiaries of federal rights are the Indian tribes.

    In Arizona, and most western states, for surface water the state-based rule is “first in time is first in right” (aka prior appropriation). In theory there would be a list showing who is entitled to use how much water on what land. The earliest dates (priority) can take all their water even in the people at the end of the line get none. To transfer a water right one has to show that no junior user is harmed, and that is hard to do because, at least on paper, the systems are over-allocated. In Arizona and most of the other western states, large scale adjudications are underway, with the goal of creating the list of priorities.

    For state-based groundwater rights in Arizona, based on where you are located, one of two basic rules applies. In most of the state the rule is that if you are using the water you pump for a reasonable and beneficial use on your own land, you can pump your neighbor dry. In the more populous areas the rule is based on an arcane set of statutes and in theory large-scale new pumping is restricted (except maybe for the cities). In both cases, transfers from one groundwater basin to another are severely limited. (Scottsdale’s water ranch and several others were grandfathered in).

    Economists talk of the price at the margins (i.e., the cost of a new unit of production). This is why water may seem cheap. Those that have older secure water rights (e.g. Phoenix) get the water cheap; those that want new rights for new uses do not.

    I am one that believes charging more will not save water because if we each use less there will be more houses coming. As Mr. Moore indicated housing tends to consume less than agriculture, but the key word is consume. In Phoenix at 6 houses per acre, the homes will use about as much water as farming. But most of the water from our homes goes to the treatment plant for re-use. (Also a reason the price is not high). Not so for ag.

    Nevertheless, large scale ag use provides the perfect buffer – ag uses about 66% of the water in Arizona. Rather than cut off cities in a major shortage, the hope would be that farms could be shut off and paid economic damages for lost crops.

  • mahtso

    It is interesting to see the issue phrased as a comparison between “government command and control” and “market based approach.” The western water laws date back to the mid to late 1800’s, and there was little or no government control other than a rule that allowed the person who first made beneficial use of the water a right to continue to do so (i.e., the prior appropriation law). Some say the rule developed in the mining camps, and is analogous to staking one’s claim to a mine. In a way it was the ultimate free market, because the water was available for the taking.

    The prior appropriation rules (ultimately through government command in the courts) did restrict marketing because to sell the water (or transfer use to different land) you had to show that no junior user (i.e., one with a later priority date) was harmed. The purpose was to avoid giving anyone a monopoly right on water and was based on the idea that water is essential and we don’t want anyone to control it all.

    In contrast to even the limited control of surface water, in Arizona there was virtually no control on groundwater pumping and market forces led to massive drawdowns in the water table (the depth to water increased by 400 to 500 feet in some areas). As a result Arizona passed the Groundwater Management Act that actually does allow limited transfers of uses that were in effect at the time that Act was passed. Like it or not, the control was a result of a perceived failure of the free market.

    As a practical matter, water itself is free in the sense that it is not manufactured or grown (of course transport and treatment can be costly). Consequently, a market-based approach will not work without the heavy hand of government to stop or restrict new users. Aside from cost, why would I pay you for water if I was not prohibited from sinking my own well and pumping all I want? One could argue for private enforcement through lawsuits if I pump you dry, and some states operate that way, but that is still based on government command to get any decision enforced.