PB sent me this article (“US lawmakers Elizabeth Warren and Ro Khanna seek to ban trade in water rights”), which is full of silly ideas that I will refute:
- “With private investors poised to profit from water scarcity in the west” — those investors are profiting by moving water from a less valuable to a more valuable use, which is better for society. Those moves will involve willing sellers (often farmers) and willing buyers (often cities), so all three parties will share the benefits.
- “…pursuing a bill to prohibit the trading of water as a commodity” — Water can be a commodity (excludable) or a collective good (non-excludable) — as I explain in my book. These lawmakers are mixing up water’s different uses in the same way as they would if they banned trading of land as a commodity to “save parks” while also destroying the real estate market.
- “Warren and Khanna’s Future of Water Act has been reintroduced amid growing concerns about meddling from investors [a] in western water rights… The lawmakers and supporters of the bill argue that now is a crucial moment to re-introduce it – and stop water-futures trading before the climate crisis and booming water speculation threaten to shrink supplies [b] and inflate prices [c].” — (a) Water rights, by definition (“excludable goods”), can be bought or sold; if investors are buying or selling, then they are making the market work better. No water holder wants to sell to a middleman when they can sell directly to the water user, but those matches are not easy. Thus, the value of the investor. (b) the climate crisis is impacting supply but buying/selling does not, in the long run, since there’s no value if water is not in use. Futher (c) prices MUST be higher if there’s going to be any hope of rationing scarce water to excessive demand.
The rest of the article is full of more non-sensical thinking, but I don’t have the time to debunk every stupidity.
Water markets/trading/prices are essential for balancing shrinking supply and increasing demand. Ban them and you pretty much guarantee (a) shortages to those unable to buy water and (b) wasting water on “low value uses” because those with rights are only able to use water — rather than selling it to others with higher value uses.
The bottom line is that Warren and Khanna’s misguided ideas promise to make a bad situation worse.
Well stated, David … it would be easy to regulate water trading markets properly without banning them – if for no other reason (beyond the common sense points you make) than that, unlike other commodity markets, water is principally a physical bi-lateral market that doesn’t really need a financial hedging market to manage risk — the bi-lateral market already does that! Warren and Khanna’s political hysteria is making them blind to the economic and societal benefits you point out … a shame, really.