Water Wars or Water Trades?

Fresh water is key for healthy oyster harvests. In an earlier post–Florida Oysters and Georgia Peanuts Compete for Scarce Water–I discuss the disputes over river water running through Georgia and Alabama before flowing over west Florida oyster beds.

When goods are scarce it is common to find divergent views over how those goods should be allocated. This can happen at dinner when two pieces of apple pie attract the gaze of three or four or five still-hungry onlookers around the table. Divergent views about allocating scarce slices of apple pie are handled different ways in different places. Understanding pie slice scarcity can help us understand scarce fresh water flows and every other marine resource scarcity issue.

At the local House of Pies in Houston, apple pies are both scarce and plentiful. Very few goods are plentiful enough to be free. Apple pies require someone to grow, harvest, and deliver the apples, plus to prepare, bake, slice and deliver pie. All these are scarce goods and services requiring people’s time, land, equipment, energy and know-how. Patrons at House of Pies offer cash or credit cards in exchange for slices of apple and other pies, and the payments made for pies flow to the thousands managing each small slice of the pie production process.

But for family members sitting around the dinner table quietly mustering their best arguments for more pie, markets and prices aren’t in the picture. Mom can mention that she made the pie, dad can explain that his work paid for the pie, sons can argue that they are the hungriest (teen “utility-monsters”), daughters can explain that they helped make the pie (not mentioning extensive tasting along the way), and younger Popeye and Wimpy fans around the table can offer to gladly pay for a slice of pie today, tomorrow.

So back to the quote at the beginning about divergent views on water usage. Scarcity is the normal state of affairs with goods, whether pies, iPhones, or river water. Entrepreneurs see these scarcity problems as opportunities, and new enterprises find ways to create wealth by turning time, energy, and raw materials into valued goods and services.

But political entrepreneurs exists as well as economic entrepreneurs. Political entrepreneurs try to use the political process to shift rules about resources and transfer tax revenue from some to others. Political entrepreneurs have different skill sets and perspectives on scarcity problems. They might see water scarcity across three states as a rationale for a new “Tri-State Water Commission” that would meet, hire staff, hear testimony, develop new guidelines and regulatory authority, and importantly, establish new taxes and fees to fund the new agency and its programs. Envisioning political solutions for scarcity problems is natural for politicians (and often debaters!). New legislation and commissions are the political tools politicians are familiar with, the hammer they know, so social and economic problems tend to look like nails.

Economic entrepreneurs by contrast look for new enterprise opportunities that create wealth through trade, discovery, or production. Entrepreneurs would search for outside water sources to divert into the river system and for new technologies to conserve water. They would search for ways to connect upstream water users willing to reduce water use for a fee and downstream users willing to pay for additional water. Economic entrepreneurs look for exchange opportunities. Here is the Library of Economics and Liberty entry on Entrepreneurship by Russ Sobel.

Economic entrepreneurs focus on expanding the pie and getting slices to those who value pie most. Political entrepreneurs end up dividing the current pie as best they can (while often taking a slice or two for themselves and their friends).

Informal exchanges often occur around the dinner table as those wanting scarce pie offer side services to siblings or parents willing to relinquish their pie slice claims. So hungry and impatient sons (with shorter time-horizons) promise to do all sorts of chores later in exchange for extra pie now.

With dinner table exchanges people can discuss scarcity and alternatives face to face with those they know and trust (or mistrust on some issues…). In-person we can evaluate claims, arguments, and promises, and draw on past experiences.

Face to face dinner table exchanges are just not possible across across thousands of square miles and involving millions of people along rivers flowing through Georgia, Alabama, and Florida. The alternatives then are for top-down controls (new regulations and mandates), traditional institutions, or markets, and in most cases some combination of these three.

Sort of like a family around the dinner table, the government convenes interested parties and divides the water pie among users. Sort of like dad at dinner, various opinions and proposals are listened to, then a decision is given. But the state isn’t dad nor even “Uncle Sam.” Instead, the state is a network of everyday people elected or appointed to some office who have been granted (or have seized) authority in some areas of sociey.

Family decision processes for producing and distributing apple pies work with families (though not without some friction). Decisions about scarce resources involving thousands or millions of people can’t be made around the dinner table. A table seating tens of thousands of “interested parties” won’t reach a decision without turning to force or the threat of force.

Markets have a different and ingenious way to coordinate and adjust the preferences and decisions of thousands or millions that share common resources and production processes.

Markets can justly allocate scarce fresh water flows in much the same way markets coordinate the production and consumption of other scarce goods in society. Land, like water, is scarce and people have long held divergent views on how it could best be allocated and used. Ranchers wanted to graze cattle abd sheepherders graze sheep, farmers wanted to plant crops, orchardists wanted to grow apple, peach, and pear trees, foresters wanted to cut down trees, and native americans wanted to continue their traditional hunting. And much later, developers wanted to replace farms, orchards, fields, and forests with new neighborhoods of homes and shopping centers.

These various divergent land use views were settled, mostly peacefully, by voluntary exchange in a system of private property rights, at least for land in the eastern United States and midwest. In the western U.S., half of available land is still owned by state and federal governments.

So we live in a world of scarcity. Economics is the study of how people, families, and firms respond to that scarcity by producing, exchanging, and consuming goods and services.

Ethical norms and legal institutions set the foundations of any society, and the legal transitions are by nature difficult. Population densities can increase and land and water that longed seemed unlimited, become increasingly scarce.

In China for centuries electricity and manufacturing were scarce and clean air and water seemed limitless. Over recent few decades though, manufacturing, automobiles, and electricity have become much more plentiful, and thanks to dirty coal and low-technology factories, clean air is now scarce. When clean air and water in China seemed endless, and manufactured goods and jobs were scarce, few laws seemed necessary to limit factory pollution to protect air and water. Taiwan went through the same transition from a society of mostly poor farmers, to heavily polluting factories, to much less polluting factories, service industries and now clean air and water (after billions were spent for pollution control and sewage treatment).

This transition time has arrived for the Apalachicola-Chattahoochee-Flint River Basin. Along this 20,000 square mile river system, water flowing from Georgia was once large enough to send plentiful fresh water to users downstream in Alabama and Florida, and enough water flowed into the ocean to refresh oyster beds across Florida’s Apalachicola Bay. But after decades of population growth in Atlanta, increased agriculture in Georgia, and a few years of drought (before recent rains), fresh water became scarce enough to require either new government regulations (bad things, I say, that will fail entirely or be costly and counterproductive), or new property-rights based institutions that would put a price on scarce water and allow trade (good things, I say, that would provide flexibility, create wealth, and return Florida oyster harvests to health).

For more on water markets, this PERC study by Brandon Scarborough can be downloaded. Here is excerpt from overview:

Societies with strong property rights allow parties to protect their property, develop it, trade it, or give it away. They enjoy greater prosperity and freedom than societies that impose many restrictions on property or suffer from a lack of clarity in rules. As Brandon Scarborough explains in this Policy Series, restrictions in water rights and uncertainty about how particular water trades can be affected limited the ability of parties to voluntarily use water for environmental benefits.