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Wall Street's thirst for water: a market for water will drive up food prices

• rayiner 14y ago
  Market allocation of water has to be the dumbest idea since god knows what. Doesn't it occur to any egg-head economists that a resource as necessary as water is going to invoke market failure? It's the healthcare problem writ large.
  • jacques_chester 14y ago
    Just before this particular parade gets rolling, let's all take a moment to reflect that "market failure" has a particular meaning to the dismal scientists. And it's not "I don't like the outcomes". There are some cases where a market in water is absolutely the best way to balance usages. It's important to understand that we are not just talking about the construction of infrastructure for municipal supply -- that's an example of a public good where market failure can occur. We're talking about balancing the demand of different uses for water. Municipal supply vs agriculture vs industry vs environmental flows. This is the kind of hyper-distributed problem that markets are very good at solving.
    • rayiner 14y ago
      I'm well aware what market failure means. And I'm referring to it in the technical sense. The economist response to water privitization is not uniform, and the consequences of market failure in the area would be catestrophic.
      • jacques_chester 14y ago
        The thing is that the way it's allocated now is ... well, it's awful. Or at the very least: completely accidental. He holds up the Ruhr as a good example. It isn't; it just means that the input into allocations is purely political. Democracy has notorious failure modes too. Here in Australia, for example, we have been having an unending fight over the waters of the Murray-Darling basin since before Federation. How do you balance between providing drinking water to Adelaide, a city of 1.2 million people; and the production of food in the vast irrigated projects upstream? Right now: through god awful bunfights. It simply doesn't work. There's been attempts to introduce a market in water rights, but it's hampered by the fact that a person holding rights in South Australia simply has no way to stop someone in Victoria taking that water out of contention. The dispute only exists because the water isn't fully private property.
        • arethuza 14y ago
          Is there anywhere where water itself is fully private property? I'm just curious how that works when it comes to a river. [NB Not being snarky - I genuinely want to know how it works to "own" water in something like a river which by its very nature doesn't stay in one place]
          • jacques_chester 14y ago
            What has been tried in Australia is allocation rights -- X litres of water per year. The problem is that the market doesn't have coverage of the whole supply. Plus you actually need derivatives to deal with the fact that ... um ... river flow varies from year to year. So some rights have to be more secure (and more expensive) than others. The key though is that for the system to work it has to be enforceable against people upstream. Otherwise it's pointless. We don't have that. That rivers cross borders is not a Federal responsibility is a known bug in our constitution.
        • glesica 14y ago
          So how exactly do we know that the political failure modes, in this case, would be worse than the market failure modes? Last I checked, formalized, real existing markets are extremely vulnerable to political manipulation by both public and private actors/participants (using the public actors as proxies). So we trade in political volatility for political volatility plus market volatility (positive, though perhaps small)? That doesn't sound like a good deal to me... In addition, how on earth are you going to make water fully private? If I look up and open my mouth when it's raining will the police bludgeon me? What about if i set a bucket outside (some municipalities already punish this, actually)? Will a representative of Goldman Sachs insist on weighing me before and after I go rafting, lest I take more water than I paid for home in my stomach and soaking wet clothes? I'm not being (entirely) hyperbolic here, look at intellectual "property" as an example. It isn't a perfect fit, of course, since water is finite. However, the blunt-instrument style enforcement is, I suspect, an excellent model for what would happen if water were to be made 100% private property. How many people have been sued for minor infractions? How many times has the government drastically overstepped its authority to enforce IP laws? How many lawyers have grossly abused the court system to enrich themselves on the backs of innovative companies that accidentally violated vague patents? These things happen partly because IP laws are really, really hard to enforce adequately and evenly. I see no reason why enforcement of water "ownership" would end up any differently.
  • tgrass 14y ago
    Cities like Vegas, Tucson, and Phoenix were created because of federally subsidized water. Allowing water prices to 'float' to the market value might keep these areas from growing beyond their resources.
    • rayiner 14y ago
      Or we could just stop federally subsidizing water. The whole southwest was a mistake to begin with--the government never should have irrigated it.
      • netfire 14y ago
        Seems a bit extreme. Other parts of the US have significant problems to deal with as well. The west coast (earthquakes), midwest (tornados and drought), south (hurricanes) and northeast (snow) all have problems which cost lots of money (sometimes federal tax dollars) to deal with. You could call building in any of these areas a "mistake", but that doesn't really help solve the problem.
        • rayiner 14y ago
          Yeah sometime those places get disaster aid, but the southwest is really the poster child of unintended consequences of government infrastructure spending. Those places would not exist without Herculean irrigation efforts by the Army Corps of Engineers in the 19th century. As the result of these efforts cities rose up were they should not have, and when the water runs out those cities will be reclaimed by the desert.
  • codehotter 14y ago
    I'm not an economist - can you explain why a resource being necessary makes it involve market failure?
    • EvilTerran 14y ago
      I'm not the poster you're replying to, but I'd guess (given "It's the healthcare problem writ large") s/he is thinking of the notion that the demand for products genuinely essential to life (such as life-saving medicine, or water) will be very price-inelastic, and as such, allowing a free market to determine the price may lead to a price that is cripplingly high for consumers at the low end. In my mind, it's nowhere near as simple as that in this case (although I'd say it is nearly that simple for, say, the life-saving medicine case (but I'm getting side-tracked here)) -- there's a lot of non-essential uses of water, and those sources of demand would be price-elastic, which may be enough to prevent that sort of market failure. I suppose it would depend on what proportion of the demand for water is "essential".
      • jacques_chester 14y ago
        We already know that people in rich countries are prepared to pay for water at a rate dozens of times over the current tap price.
      • fr0sty 14y ago
        You can't make any useful comparisons between "water" and "healthcare" outside of saying "people generally want as much as they can consume with minimal cost". If you can point me to a faucet that I can use to fill a jug with a few gallons of "healthcare" then you can make more detailed comparison but not until then.
        • EvilTerran 14y ago
          It wasn't my comparison, it was rayiner's. I was just trying to make sense of it.
• arethuza 14y ago
  Makes me glad that I live somewhere which has absolutely no shortage of clean water and where water supply and sewer systems are handled by what appears to be a reasonably efficient state owned company.
• brianbreslin 14y ago
  Does anyone know if this has any tangential relationship to the fact that billionaires like t.boone pickens are buying up water rights across the country?
  • chrisaycock 14y ago
    From the article: In 1996, [California] introduced an electronic bulletin board for farmers to buy and sell their rights to Westlands' water from their home computers. This has had municipal support for 16 years now.
• deleted 14y ago
  [deleted]
• pmorici 14y ago
  Isn't this more or less the plot of the 2008 James Bond film "Quantum of Solace"?
• tokenadult 14y ago
  Veteran HN participant jacques_chester already has the definitive comment here, http://news.ycombinator.com/item?id=4701930 http://news.ycombinator.com/item?id=4701930 but because his comment is not a top-level comment, I had better chime in with agreement. The submitted article read like something out of the hard-left 1960s when I was growing up and a lot of people thought that countries with centrally planned economies were doing better than countries with free markets. They never have. Markets in water are crucial for figuring out how different users of water really value water, and how to monetize improving the quality and distribution of water. I live high upstream of most of the United States (near a continental divide), in the well watered state of Minnesota ("the land of 10,000 lakes"). This year is a drought year (although it was rainy the last two days), and even at that, we have adequate water. A controversial issue here is sale of water from the upper Midwest to arid places in the Great Plains or even the Southwest through pipelines. Banning the sale of water across state lines is not going to stop the Mississippi River or Red River (of the north) from flowing, and all the arid places in the United States have elaborately developed legal systems (unlike the riparian common law system in Minnesota and other states with abundant water) for allocating water rights. If big interstate trade in water through unit trains on railroads or through pipelines develops, the law will be able to keep up, and water will be better used in the United States. If similar trade develops internationally, or domestically in formerly poor countries, again the crucial thing to do is to develop laws so that people can trade according to their needs. When people trade, they all become richer. Water is generally cleaner and more available today, serving a larger and healthier world population, than it was in my childhood. That came about BECAUSE of market economics, while the stifling poverty that resulted in famine in China in the 1960s came about from anti-market policies. I'll stick with the market when allocating important resources. AFTER EDIT: The comments kindly made to my comment reminded me of life experience from living in Taiwan when Taiwan was still part of the Third World that I should relate here. For decades, the standards for water treatment of municipal water supplies in Taiwan have been up to world standards for piped water, ensuring that bacteria are reduced in the water before it leaves the water treatment plant. But in the 1980s, the dictatorial government of Taiwan at the time forced local governments to keep city water prices abnormally low, so none of the cities could afford to maintain the network of pipes that delivered water to homes. And that meant that the water flowing out of home taps could NOT be assumed to be safe. Instead, everyone all over urban Taiwan paid out of their own pockets to install filters (possibly ineffective against bacterial or protozoan contamination) on public building drinking fountains, and home dwellers paid for bottled propane gas to boil their home tap water before drinking it. (Boiling water to let it stand and cool was a big chore in those days. Some people bought special electric water-heating machines that automated the process of heating and storing tap water for drinking safety.) After three years in Taiwan, the first thing I did when I reached the home of a relative in Los Angeles upon my return to America was drink a big glass of tap water, a luxury I had been denied all that while. And my wife was HORRIFIED to see me do that. She had never seen anyone drink a glass of tap water straight out of the tap in her life. As Taiwan democratized in the 1990s, the press began reporting on how ridiculously low the price of tap water was in Taiwan, and it was proposed simply to raise the price of city water, so that the city could maintain the pipe network properly and ensure clean water stayed clean all the way to home taps. I'm not sure how much progress has been made in this project to date in what parts of Taiwan, but my wife (who has been back there more recently than I have) reports that Taiwan in general is cleaner than ever, healthier than ever, and generally thriving well under democracy and a free-market economy. The bureaucrats in Taiwan were always mostly technocrats, rather smart people even in the worst times of dictatorship, but using prices to allocate resources makes more sense than using bureaucratic fiat to allocate resources. Two heads are better than one.
• Spooky23 14y ago
  I'm sure the Wall St types see a great opportunity here. Thanks to horrific governance, you have water-rich places (like the Northeast of the US) with local governments that operate on the brink of bankruptcy. At the same time, you have fifty years of massive government-subsidized buildout of suburban sprawl and industry in the South and in the desert. So instead of treating water resources as a public commons, we'll let some financiers borrow cheap money (courtesy of the Feds suppressing the interest rate market), buy up munipical water companies and rape the public for all time.
• jcarreiro 14y ago
  Where exactly in that article does the author make any sort of argument that would support his thesis?
• aristidb 14y ago
  Clearly markets are the problem and not wasteful government programs that e.g. subsidise water given to farmers in desert areas.
• jivatmanx 14y ago
  As long as water is sold for far less than it's value, there is no incentive to conserve and the future looks grim as our aquifers dry up and rivers run to their maximum. And no, your low-water appliances aren't helping much, as consumers only use 11% of water in the U.S. As water prices are set by municipalities, there is little incentive to raise prices, the politicians who control them don't have any interest beyond their next election. There is likely to develop a semblance of a "Market Price" for water in the U.S. which will inevitably be higher. As far as selling water rights, the biggest danger here is that the governments that currently own them will sell them for less than they are actually worth, primarily because there isn't yet a true "Market Price" for water. Or, of course, corruption.