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Comment by jshen | Hacker News Reader

I always cringe when I hear markers and water in the same sentence. I’m not sure what exactly you mean by “markets” but the history of water rights in CA is a great lesson highlighting how spectacularly “markets” can fail to handle water.

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As I understand it, the history of water rights in CA, and indeed in the US west generally, is a history of lack of markets; it's all been political maneuvering by various factions to make sure they aren't the ones who go short when the water gets divided up. There has never been an actual market to allocate the limited supply of water to the highest value uses. If there were, agriculture in much of CA wouldn't exist, since much of CA is a desert and it makes no sense to do agriculture in a desert when you can ship in food from elsewhere at lower cost.

How do you determine who owns water in the first place.

A real & important question, but by no means an impossible problem. E.g. suppose "the public" (e.g. gov't, as with public lands) owns all of it in the first place, sells it, and uses the proceeds to fund water projects.

A less radical option would be to keep the system of water rights we have today and simply allow the water to be bought and sold. Currently if you sell it, someone can take you to court & say "well you didn't use it, so you should lose your water rights" (because California follows the doctrine of first use). Would run the risk of creating wealthy water czars overnight, but less radical.

Who sets the price and what stops the very wealthy from buying it all and selling it for a giant profit. The further we go down this train of thought the less market-like it becomes very quickly.

It's a market. The first owner sets the price at whatever point they like, balancing their interests of revenue, protecting the resource, and so forth. If people are arbitraging & selling the water for increased prices, the first owner increases their price and eliminates the arbitrage opportunity.

How do you get a first owner for water?

Are you being intentionally obtuse? I just described two ways. There's Right of first use, Riparian rights, and my pet illustrative example of treating it as a publicly held asset to be sold... There's other ways beyond those three, but the first two are how ownership is assigned in the US today.

You're arguing with extreme left about markets.

riparian rights is what led to the CA water wars where the wealthy from LA bought land up stream of the farmers in the owen's valley. It didn't solve the problem we're talking about regarding rich people buying up the water.

I have no idea how first use could work for water, would be happy to read more if you link me to something about it. A quick googling returned nothing.

The last one requires a lot more specifics to talk about meaningfully, but I'll bet that most of the free marketers wouldn't consider it a free market.

In a world in which transaction costs are sufficiently low, Coase's Theorem says it doesn't matter: you make the best initial choice you can, and then people execute free market trades to get to the overall most efficient allocation.

So one way of looking at the whole problem is to ask why transaction costs are too high to make this feasible. And the obvious answer is politics.

efficiency and humanity are sometimes at odds. Slavery was very efficient.

What are you talking about? The Western water rights system (prior appropriation) is the opposite of markets. It basically lets the first person to tap the public resource use unlimited amounts of it for free. That’s not a market.

I think you might have replied to the wrong person. I agree with you.

You're wildly contradicting yourself.

California is both an example of how markets can't handle water, and has also never had markets in water.

I never said they had markets in water.

You implied this when claiming the rich are buying all the water rights.

I didn’t say that. I said they would IF we had an open “market” for water.

I mean that if resources were reallocated by a market, literally EVERYONE would be better off. The current situation is not Pareto-optimal.

To put it another way: if the users being asked to conserve water could just pay farmers to use their water, both would come out ahead. The farmers would get more value than from using it for farming, and the other consumers would get more water for a lower price than from alternatives.

In any case, it's bizarre you cringe at the word "markets". Societies that try to avoid markets are horror shows. Markets are an utterly essential social technology for the modern world.

I love market based economies, but not the idea that markets solve all problems. You said something about “their water”, and that’s the problem. Going back to the history of CA water rights, there is no clear concept to determine who owns water. If I buy the house on the river upstream from your house on the river, who owns the river water? I went to college in CA and had to take a bunch of CA history classes. I highly recommend reading up on CA water rights and it’s history. It’s a fascinating and enlightening topic.

Are you saying there are no water rights in the current system? If there are, what's wrong with being able to trade them?

The very wealthy buying all the water and selling it at a huge markup with poor people dying of thirst.

Wow, that's some serious imagination you have there. It wouldn't work anything like that, of course.

This is what happened in CA to a lesser degree.

California never had a market for water / water rights, so your extreme left imagination is left without data to back it up.

At all.

In the late 19th century rich people in LA bought many properties upstream of Owens valley, on the Owen’s river, and diverted the water to LA leaving farmers in Owens valley without the water they historically had and needed for their farms.

Diverting water from farmers != causing the poor to die of thirst. That latter scenario of yours was just ridiculous.

the idea that "leave it to the market" will solve all problems is ridiculous as is shown by the historical example I gave.

The idea that the only market is a robber-baron friendly totally unregulated one is an absurd strawman.

The water issues in California could be addressed by trading (say) half the water currently going to agriculture. Everyone would be better off, including those poor you pretend to care about.

It’s not a straw man, that’s exactly what a whole lot of people on here believe is the one true way.

So your idea is that the government will decide and enforce that roughly half the water is not allowed for agriculture?

If we generously assume someone needs 2 liters of water/day to survive, then only 3% of California's water production is needed for its population to not die of thirst. A market system could easily be set up where this tiny sliver of water is reserved for this purpose, avoiding the scenario where those dastardly rich twirl their mustaches and cackle while the poor wither.

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