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.
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".
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.
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.
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.
[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]
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.
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.
I invite you to name a successful country with a high standard of living which has only political volatility, according to your model.
> In addition, how on earth are you going to make water fully private?
Not what I was proposing. And you are correct that private property does not make a good fit "non-excludable" goods. However, some water is excludable (river flows, lakes, tanks, pipes) and some isn't (rain).
Where a thing can be traded, there are well recognised advantages to allowing that trade. Arbitrage can smooth prices across multiple markets, some derivatives can smooth prices across time. The use of floating prices allows water to mostly wind up where it is currently most urgently needed.
As you can imagine, we talk about water a lot in my country. We seem to have the same key distortions as everyone else: an agricultural sector that is either directly or indirectly subsidised at the expense of everyone else. Sometimes it's an industrial sector that gets the unusually cheap water.
Hayek has an interesting chapter in one of his books[1] (not sure which exactly) about why people distrust the market: it seems like you're being dealt an unfair hand by an invisible agent. And surely if one agent can deal a bad hand, another agent can set things to right.
But there was never such an agent to begin with. It was an emergent phenomenon.
I have a blog post outline somewhere that ties this into faces in clouds and Borges's The Lottery in Bablyon[2]
[1] The chapter title is "'Social' or Distributive Justice", I read it in the collection Essence of Hayek.
[2] http://www.class.uh.edu/mcl/faculty/armstrong/cityofdreams/t...
I don't recall where I heard it, but one of my favorite quotes is that economics takes as its domain the set of solved political problems. Based on a quick search it was Abba Lerner. Galbraith has a similar quote about this issue. Saying that trade in water will get it to where it needs to be implies that there are no political issues involved.
Will every politician really just sit back and tolerate net outflows of precious water? Doubtful. What about "bubbles" in a hypothetical water market? Even if you assume that the government usually causes market bubbles by meddling, they still happen. Is there any reason to believe they would not happen in a market for water? A housing or tech stock bubble is unfortunate, a water bubble could be devastating.
My point is that a formal, large-scale commodity market for water could, and probably would, be manipulated beyond recognition as a means to achieve political aims and personal enrichment (of the less-than-savory kind). This is not an economic problem. The efficiency of markets is completely irrelevant if the actual, existing markets themselves are inefficient. The problem, it seems to me, is a political one, and it has not been solved.
Sure. But all we have at the moment is the political solution. Even a shitty distorted market has a chance at doing a better job.