A nicer letter than that post deserves.

Hey friends,

I got a letter from an actual economist. It said very thoughtful things, in a far more temperate tone than my post. This is great. On other occasions, I’ve started writing up my objections to using economic theory to water, but I had to stop, because I kept getting sidetracked into name-calling. But surely I could write to this economist in a better voice, so I’ll dig those pieces out and finish them. This is swerving away from the LHC study, about which I only wrote sort-of tangential things. If someone has real substantive questions about the LHC study, I’d take a shot at answering them.

The timing on all of this depends on whether my library delivers Mockingjay to me today. If it does, you won’t see me for a day or two.  No one will.

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[I’ve taken some identifying text of out the letter.]

However I was a little uncomfortable with some (of what I read to be) shots your took at economists in that post.  In the interest of full disclosure I’m a fellow anonymous public servant who happens to work as an economist for an unnamed agency, so it’s possible I’m just being hyper sensitive…but this is the 3rd or 4th time since I’ve been reading your blog that I’ve caught something of an anti-water markets vibe.

… .  However, there are a number of good water resources economists who do understand the complexities of California water management (not me by the way, I’m a total dilettante.  I stay as current as I can, know enough about irrigated ag. and groundwater pumping issues to be dangerous, and am familiar w/ the flow recommendations from various BiOps but I’m still pretty green).  And most of these guys will agree that markets are generally a pretty good way to solve a number of water allocation problems.

If I read your past posts correctly, I believe your position to be that too many economists want water markets just to have a market.  With issues as complex as water allocation one needs to think very hard about what the end goal should be and, if I understand your beef, you don’t believe many economists have done this…that they are guilty of, “When all you have is a hammer everything is a nail,” type thinking (which, ironically is the beef most economists have with engineers when it comes to water).  I can sympathize with you somewhat here … .
I would like, respectfully of course, to point out that some excellent economists have spent a lot of time thinking about:

• distributional issues – under what conditions would water markets tend to concentrate wealth and have secondary and tertiary community effects (i.e. if a market encourages fallowing how does that impact ag suppliers in the community?)
• issues related to the spatial distribution of water rights
• groundwater/surface water interaction issues and spatial externalities – do markets for surface water cause accelerated groundwater pumping?

Economists have been talking for a long time about these and other institutional/practical issues related to water markets and market design through the American Journal of Agricultural Economics, Water Resources Research, and The Journal of Environmental Economics and Management and Contemporary Economic Policy.

In the interest of not writing you a book here I’ll try to summarize my points:

1.  Economists generally assume the goal of an allocation mechanism is to maximize total social surplus.  Whether that should be the goal of a water allocation policy is arguable…and economists generally are not well equipped to participate in that normative argument.  But if that is the goal (and economists generally assume it is) then markets are a pretty good way to get there.

2.  Some economists (like me) are in favor of more markets in water policy because…why the hell not?  We’ve tried lots of other ways to manage water and most of what we’ve done just ended up promoting an endless string of litigation.  Why not give markets a shot?  There are very few market based incentive structures in western states relative to number of watersheds with severe over allocation issues (where markets are likely to be useful).

A slight digression but…when it comes to California water issues the econ landscape seems to be thoroughly and unnecessarily dominated by predictive models.  That’s not meant as a knock on Dick Howitt or Jeff Michaels but we don’t need to get all our socio-economic info from input-output models that impose assumptions…we have data.  There are successful water markets in place on the Deschutes River in Oregon, Snake River tribs in Idaho, and the Scott River, in CA.

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The writer is perceptive; I do have a chip on my shoulder about economists, mostly because I think they believe their models more than the real world supports the model. I suppose I should lay out my thinking, rather than keep taking potshots.  Or lay out my thinking and then keep taking potshots.