Trying to apply techniques from Australia’s water market is a mess.

I gotta tell you, I feel as if I’ve stumbled into quicksand.  I’ve accidently gone up a level of complexity, and can’t draw conclusions that I am sure of (I try to only write here when I trust my thought).  I keep reading more complex discussions of California water transfers and markets, which send me to other materials and when I come back to write, my draft posts all trail off into more reading.

I have started to draw some conclusions.

1. There are a few classes of water market advocates.

  • Oversimplistic economists who don’t know the water field but worship markets and feel sure that markets are the right answer for everything.  I don’t give a shit about them.
  • Economists who do know the water field extremely well.  I am puzzled by them, because they persistently ignore forty years of evidence that large scale markets keep not happening despite the longterm policy push.  They keep thinking that there are policy tweaks that could create a water market, rather than the likelihood that farmers would rather farm than sell water and that the transaction costs of moving water really are that high.  They believe in their economic theory more than they believe in what we observe in the world.
  • People who just want to get water away from senior rights holders (for environmental or urban use) and don’t care about the equity issues.  They think the water rights fight is unwinnable and spending urban money is faster.  But they don’t love markets, they just want any tool to accomplish their goals.

2.  Despite my own blog writings, I do not see social goals for a market in any pro-market advocacy piece.  There are goals for the market itself (lots of easy trades, send price signal, reduce inefficiency) but never anything like “create a stable farming community with high wealth equality” or “keep meat cheap because people like meat” or “put an end to urban landscaping”.  There is never a choice of a social goal, then an evaluation of the tools to achieve that, one of which is a market.  People who advocate for markets always start with markets, then list the things markets do (but not the ways markets make people’s lives shitty or even design criteria to prevent that.)

Now I will stop and post this, hoping that this leads me back into blogging that I can post.  I am still working on the question:

What, out of all the content in the Unbundling Water Rights, could be used here?  I’ve heard Tim Quinn say that he hopes for a big push on water markets if the drought continues, so this could be a very active topic next year.  What Australian magic can be applied here?  My first guess at the answer is “ignore third parties more”.


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9 responses to “Trying to apply techniques from Australia’s water market is a mess.

  1. Leo Winternitz

    I think you have characterized the water marketers pretty well in this short piece. Water marketing is a tool towards a solution; not the solution. Last I heard Chinook salmon still do not have a bank account.

  2. delveg

    I like your honest, “this is where my questions lead me” analysis… and fear that you’ve identified real problems with just treating it as an ideal market. How do you lure back the dedicated water economists [of bullet 2] and get them to consider important things like “water is heavy”?

  3. Steve Bloom

    Ah yes, advocacy of the market as “one social goal to rule them all.” Mainly it’s a means of avoiding having to deal with actual social goals.

  4. Steve Bloom

    Video of interest.

  5. Steve Bloom

    Yet more trouble in Oz. On the face of it this looks to be a consequence of treating farmers with kid gloves.

  6. I’ve written about the problems of improving the functioning of California water markets on my blog here: I’ve been struck by the naive comments on promoting water markets as the “solution” from economists such as Chris Thornberg. (Reminds me of Paul Krugman writing about California’s electricity crisis 15 years ago.) The facts are that 1) California already has a relatively active short-term water market that has traded over 2 MAF in some years and 2) that proponents fail to acknowledge (recognize?) that California already had two multi-MAF long-term transfers in 1944 (CVP) and 1958 (SWP). (Thanks Joe Bain for identifying these as such.)

    We cannot “declare” markets and have them spontaneously arise, but most of the water market efforts have gone down that line. And a deeper issue is that water transfers are essentially moving economic vitality from one region to another. On the other hand, compensating for third party impacts need not be an overwhelming burden given the benefits bestowed.

  7. onthepublicrecord

    Welcome. I would like to read your paper on messy markets, but don’t have a subscription to Wiley. Would you mind sending me a copy?

    Thanks. (Also, if you know other analyses along the same lines, I’d welcome pointers to that as well.)