Alex Tabarrok

Sewage Infrastructure

by on November 23, 2014 at 9:08 am in Food and Drink, Uncategorized | Permalink

This Vice documentary on sewage in New York is actually quite interesting. I would enjoy the Richard Scarry book.

Hat tip: Connor.

Defining Diversity Down

by on November 18, 2014 at 7:11 am in Economics, Web/Tech | Permalink

Marc Andreessen make some excellent points about diversity in a wide-ranging interview:

The critique of Silicon Valley is also that it isn’t very diverse. At Twitter, for instance, 90 percent of the tech employees are male and more than 50 percent of them are white.

I think these discussions are totally valid. Now, I disagree with many of the specific points.

What’s your take?

Shall we? Let’s launch right into it. I think the critique that Silicon Valley companies are deliberately, systematically discriminatory is incorrect, and there are two reasons to believe that that’s the case. No. 1, these companies are like the United Nations internally. All the diversity studies say that the engineering population is like 70 percent white and Asian. Let’s dig into that for a second. First, apparently Asian doesn’t count as diverse. And then “white”: When you actually go in these companies, what you find is it’s American people, but it’s also Russians, and Eastern Europeans, and French, and German, and British. And then there are the Chinese, Japanese, Koreans, Thais, Indonesians, and Vietnamese. All these different countries, all these different cultures. To believe in a systematic pattern of discrimination, you’d have to believe that we’re discriminatory toward certain people without being discriminatory at all toward an extremely broad range of ethnicities and religions. Because of Pakistanis, we’re seeing a higher-than-ever proportion of Muslim employees in a lot of our companies.

No. 2, our companies are desperate for talent. Desperate. Our companies are dying for talent. They’re like lying on the beach gasping because they can’t get enough talented people in for these jobs. The motivation to go find talent wherever it is is unbelievably high.

He is also spot on about online education.

Hat tip: Newmark’s Door.

It’s well known that GDP per capita increases with distance from the equator and it does so moving both North and South. (I discuss this correlation at MRU in Geography and Development, Disease (video)). Dietz Vollrathat at the Growth and Development Blog points us to a new paper by Holger Strulik and Carl-Johan Dalgaard that shows that development used to be greater nearer the equator. Here’s the big picture.

The top panel shows that as absolute latitude (distance from the equator) increases today so does development, here measured as the urbanization rate. The left panel shows the world. The right panel shows, rather remarkably, that the relationship continues to hold in Europe.  The bottom panel shows that as absolute latitude increased in 1500 development, here measured as population density, decreased both in the world and Europe.

LatitudeIncome

What can account for this relationship and its reversal? The authors have a let’s say highly speculative (but very interesting!) theory. It runs as follows. Animals and people get bigger in colder climates possibly because surface area to volume decreases with size so larger animals can retain heat more easily. All else the same, however, bigger people means fewer people and so in the pre-industrial era higher latitudes had smaller populations leading to less innovation (ala my TED talk on market size and innovation). But fewer children also meant more investment in human capital per child (a Beckerian quality-quantity tradeoff). Higher human capital per child leads to increases in technology which allow and encourage even more human capital accumulation and fewer but yet even higher quality children and thus you hit a takeoff point where the economies of the colder regions accelerate generating the modern relationship.

Phew! Now that’s a theory. I don’t say that I believe it but I applaud the ambition. Bravo!

What alternative theories do MR readers propose?

Telepathy over the Internet

by on November 7, 2014 at 7:22 am in Science | Permalink

A amazing paper in PLOS One demonstrating a kind of telepathy over the internet:

…two participants had to carry out a specific task in the form of a series of consecutive trials of a computer game. The game was designed so that the two participants had to play cooperatively, and the required cooperation could only be achieved through direct brain-to-brain communication. The goal of the game was to mind melddefend a city from enemy rockets fired by a pirate ship… One participant was able to see the game on a computer screen, but was not provided with any input device to control the cannon. The second participant could use his/her right hand to press a touchpad, but could not see the game. The two participants were located in separate buildings on the University of Washington’s campus. Specifically, the Sender side was stationed in the Computer Science & Engineering building while the Receiver side was stationed in the Psychology building. The two buildings were located approximately 1 mile apart. The two participants could only communicate with each other through a brain-to-brain communication channel.

During rocket trials, the sender conveyed the intent to fire the cannon by engaging in right hand motor imagery. Electrical brain activity from the Sender was recorded using EEG, and the resultant signal was used to control the vertical movement of a cursor – this allowed the subject to get continuous feedback about imagery performance. When the cursor hit the “Fire” target (a large blue circle) located at the top of the screen, the Sender’s computer transmitted a signal over the Internet to the Receiver’s computer. The two computers communicated using the standard hypertext transfer protocol (HTTP).

The Receiver’s computer was connected through a custom-made serial cable to a TMS machine. Whenever the Receiver’s computer received a fire command, a TMS pulse was delivered to a pre-selected region of the Receiver’s brain. The stimulation caused a quick upward jerk of the Receiver’s right hand, which was positioned above the touchpad. This up-down movement of the hand typically resulted in enough force to trigger a “click” event on the touchpad, causing the cannon in the computer game to be fired as requested by the Sender.

The players were able to perform significantly better than chance at firing the cannon and saving the city.

The content of the communication is obviously low–basically 1 bit–but the author’s offer some intriguing speculation. Language is a significant limit on communication. In Polanyi’s terms we know more than we can say; a lot of knowledge is tacit. But can we say what we know with telepathy?

…current methods for communicating are still limited by the words and symbols available to the sender and understood by the receiver….A great deal of the information that is available to our brain is not introspectively available to our consciousness, and thus cannot be voluntarily put in linguistic form. For instance, knowledge about one’s own fine motor control is completely opaque to the subject, and thus cannot be verbalized. As a consequence, a trained surgeon or a skilled violinist cannot simply “tell” a novice how to exactly position and move the fingers during the execution of critical hand movements….Can information that is available in the brain be transferred directly in the form of the neural code, bypassing language altogether? We explore this idea in the rest of this article….

We have a long way to go on that score. The authors haven’t transferred thought or the pattern of thought but rather have used a kind of intermediary language, namely the computer interpretation of the brain signal. Still, credit the authors with vision.

Oh, and if that isn’t enough to blow your mind, another group has demonstrated human to animal telepathy.

The world’s urban population is growing very rapidly, especially in the developing world. The McKinsey Global Institute estimates that in India alone such an expansion will require the building of, in essence, a new Chicago every year for the next several decades. The problem with these numbers is not the expense. The problem is political and organizational. Many currently less-developed countries, including India, remain high in corruption and low in efficiency, especially in the administration of their towns and cities. It would be wonderful if foresighted and public-spirited government planners would provide India and other developing nations with wise urban planning but it seems unwise to rely on what has historically been rare for this massive transformation. Is there an alternative?

In Lessons from Gurgaon, India’s private city (working paper) found in a new book Cities and Private Planning  Shruti Rajagopolan and I explore this question. Gurgaon, which I have written about before, shows both the successes and failures of private development. On the surface, Gurgaon is a gleaming, modern city built nearly overnight on wasteland. Gurgaon was built, however, without benefit of planning and its failures–most notably poor and inefficient provision of  water, sewage, and electricity–are a warning. The failures all stem from high transaction costs, Gurgaon’s private developers have simply not managed to Coasean bargain and internalize externalities. It’s clear from Gurgaon that cities need advance planning–a reservation of rights of way for water, sewage and electricity at the very minimum–but does the planning have to be provided by government which is often incapable of such foresight?

The lessons of Jamshedpur, India, suggest another approach. Jamshedpur is a private township, planned from the beginning by visionary businessman Jamshetji Nusserwanji Tata, who, after travelling to the United States to see Pittsburgh, returned to India to found Tata Iron and Steel. Jamshedpur has been run by a single, integrated entity for over 100 years and as it is integrated it has internalized externalities. As a result, Jamshedpur, India’s other private city, has some of the best urban infrastructure in all of India.

Gurgaon shows the benefits of competition. Jamshedpur the benefits of integration. Can we get the best of both worlds?

If the rights to develop Gurgaon had originally been sold in very large packages, some five to seven proprietary but competitive cities could have been created in that region. Within this system the role of the state is to make it possible to auction large parcels of land. Once such parcels and associated rights to develop the land are created, private developers will provision public goods and services up to the edge of their property.

As proprietary communities, the competitive cities would have every incentive to invest in and especially to plan for appropriate infrastructure. Moreover, with five to seven communities in the same region, competitive pressures would keep rents low and at efficient levels for maximizing net benefits (Buchanan and Goetz 1972, Sonstelie and Portney 1978). Within the larger city, subdivisions on the order of neighbourhoods and business districts could be sublet and run by competitive firms with the overarching city establishing rules to internalize externalities. Competitive private governments would also generate experimentation and innovation in new rules that would then spread through intercity learning (Romer 2010).

Thus, Rajagopolan and I conclude:

In the next five decades many entirely new cities with populations in the millions will be built in places where today there is little or no population or infrastructure. Most of the urban development will occur in the developing world where government resources are stretched thin and planning is in short supply. Gurgaon illustrates the scope and the limits of private sector provisioning when the state machinery fails to provide essential public goods. The lesson of Gurgaon, Walt Disney World, and Jamshedpur is that a system of proprietary, competitive cities can combine the initiative and drive of private development with the planning and foresight characteristic of the best urban planning. A proprietary city will build infrastructure to attract residents and revenues. A handful of proprietary cities built within a single region will create a competitive system of proprietary cities that build, compete, innovate, and experiment.

A Rare (Earth) Case of Wisdom

by on November 4, 2014 at 7:22 am in Economics, History, Science | Permalink

Four years ago we were being warned that China’s monopoly on rare earths was a threat to the United States. Since rare earths are key resources for both national defense and green technology, the crisis united right and left in fear and anger.

Paul Krugman titled his column Rare and Foolish and he was hardly alone when he wrote:

You really have to wonder why nobody raised an alarm while this was happening, if only on national security grounds. But policy makers simply stood by as the U.S. rare earth industry shut down….The result was a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants.

…, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials.

Yet you probably haven’t heard much about this crisis recently. Why not? Ans: The crisis was exaggerated and what wasn’t exaggerated the market alleviated. Eugene Gholz of CFR has a balanced examination of what happened. I summarize:

  • The Chinese government might or might not have wanted to take advantage of their temporary monopoly power (it’s still unclear what the fishing incident was all about) but Chinese producers did a lot to evade export bans both legally and illegally.
  • Firms that had been using rare earths when they were cheap decided they didn’t really need them when they were expensive.
  • New suppliers came on line as prices rose.
  • Innovations created substitutes and ways to get more from using less.

Even the government did some good by funding competitions to support basic and applied research in substitute products and processes. Gholz draws a simple lesson:

…policymakers should not succumb to pressure to act too quickly or too expansively in the face of raw materials threats.

I agree but would add that at the time it was almost surreal how quickly nominal free traders and internationalists merged into war hawks. We did surprisingly well to not overreact politically and instead let market forces solve the problem. A disruption in our trade partnership with China would have been far more dangerous to our national security than a dispute over rare earths. I’d say that’s a rare earth case of wisdom.

Addendum: Bonus points to Tim Worstall, economist blogger and rare earth dealer, who in 2010 at the height of the crisis pointed out that rare earths were neither rare nor earths and China’s monopoly had been won only by low prices that accrued to our benefit. “If Beijing wants to raise its prices and start using supplies as geopolitical bargaining chips,” he wrote, “so what? The rest of the world will simply roll up its sleeves and ramp up production, and the monopoly will be broken.” Nailed it.

Ten years ago when Burt Rutan was predicting 100,000 space tourists in ten years I wrote a widely debated article, Is Space Tourism Ready for Takeoff? My answer then, and my answer now, is no:

The vision is enticing but the facts suggest that space tourism is not ready for market. The problem is not the monetary expense, there are enough millionaires with a yearning for adventure to support an industry. The problem is safety. Simply put, rockets remain among the least safe means of transportation ever invented. Since 1980 the United States has launched some 440 orbital launch rockets (not including the Space Shuttle). Nearly five percent of those rockets have experienced total failure, either blowing up or wandering so far from course as to be useless. The space shuttle has a slightly better record of safety — it was destroyed in two of 113 flights. There are lots of millionaires willing to spend one or two million dollars for a flight into space but how many will risk a two to five percent chance of death?

It is true that we have been “learning by doing” or in this case by learning by exploding. In the 1960s the risk of failure was a stunning 12%. As in other industries, learning by doing reduced the failure rate dramatically over the first units but more slowly thereafter. In the 1970s the failure rate dropped to 5.2% but nearly thirty years later the failure rate for rockets still hovers between four and five percent. We can expect similar slow and steady improvements in the future but there is little reason to expect dramatic improvements in rocket technology

Unfortunately with two disasters this week, one of them sadly involving the loss of life, the safety of rockets continues to be far too low to support significant tourism. Virgin Galactic’s VSS Enterprise, which crashed yesterday, was just on its 23rd powered flight suggesting a failure rate of perhaps 5%, in line with expected values. An earlier tragedy involving tests of the rocket motor killed 3 people.

As I said ten years ago, even a failure rate of 1 in 10,000 is far too high to support space tourism of the “fat guys with camera” variety and we are not yet close to a failure rate of 1 in 10,000.

Some Good News on Patents

by on October 29, 2014 at 12:45 pm in Economics, Law | Permalink

Further evidence of a dramatic slowdown in patent litigation activity in the United States is provided today in data published by Unified Patents, the entity whose business is based on helping SMEs fight frivolous patent suits. According to the research, which covers the third quarter of this year (June to September),  there was a 23% drop in the number of suits filed compared to the second quarter, and a 27% year-on-year reduction.

The findings come just weeks after data released by Lex Machina showed that there had been a 40% fall in patent suits in September 2014 as compared to the same month in the previous year. Commenting to IAM on the reasons for the decline, Lex Machina founder Professor Mark Lemley claimed that much of it could be attributed to the Supreme Court’s Alice v CLS decision. The Alice judgment was handed down towards the end of June.

More here.

Alice has made a difference as well as the cheaper post-grant challenge procedure in the AIA. Once the first software patents make it through, however, there will be an uptick as people learn the new system. Still this is good news especially for software patents but we have a way to go on the larger issue of IP, including copyright.

Here is the updated “Tabarrok curve“.

Tabarrok Curve

Most secessionist movements want independence. But a small group in Sardinia, the beautiful island off Italy’s coast has another idea for secession.

sardinie2Angered by a system they say has squandered economic potential and disenfranchised the ordinary citizen, they have had enough. They want Rome to sell their island to the Swiss.

“People laugh when we say we should go to become part of Switzerland. That’s to be expected,” said Andrea Caruso, co-founder of the Canton Marittimo (Maritime Canton) movement.

While many have dismissed the proposal as a joke, its supporters insist they are serious. “The madness does not lie in putting forward this kind of suggestion,” said Caruso. “The madness lies in how things are now.”

The Sardinians are not mad. As with Charter Cities the idea is that if you can’t move to good rules then have the good rules move to you. Charter city proponents, however, are focused on relatively uninhabited areas to avoid political problems but the Sardinians are inviting new rules and rulers. In the United States, firms can choose which state to incorporate in and thus which of 50 packages of laws will govern the relations between their shareholders and managers. Why not let cities, states and regions adopt wholesale a package of laws that will govern them? Competitive federalism on a world scale.

 Sicily, for instance, employs 28,000 forestry police — more than Canada — and has 950 ambulance drivers who have no ambulances to drive.

More here on the general state of decline in Italy.

Digital Non-Cash

by on October 24, 2014 at 7:29 am in Current Affairs, Economics | Permalink

In the United States we are using advanced technology like fingerprint scans to pay for goods. In Venezuela they are using advanced technology like fingerprint scans to ration goods. Here is the WSJ:

Amid worsening shortages, Venezuela recently reached a milestone of dubious distinction: It has joined the ranks of North Korea and Cuba in rationing food for its citizens.

…Under the system in place here, basic price-controlled items—including milk, rice, coffee, toothpaste, chicken and detergent—are rationed, with the fingerprinting machine used to ensure that a shopper doesn’t return over and over to stock up.

The stark contrast between our advanced technology and our primitive ethics has often been noted. Our advanced technology also stands in stark contrast to our primitive economics. Sadly, the problem is not only in Venezuela. Here is the WSJ (!) “explaining” the shortages:

Venezuela is turning to rationing because of shortages caused by what economists call a toxic mix of unproductive local industry—hamstrung by nationalizations and government intervention—and a complex currency regime that is unable to provide the dollars importers need to pay for basics.

No, no, no, a thousand times no! (And I very much doubt that is what the economists told the reporter.) Nationalizations, the currency regime, unproductive industry, Venezuela has many problems but shortages are caused by price controls.

Check out this wonderful photograph and the face of the customer.

Venezuela

A Real Life Milgram Experiment

by on October 23, 2014 at 7:30 am in Education, Film, Science | Permalink

This amazing video, introduced by Philip Zimbardo, discusses a real world Milgram “experiment” in which people obeyed an authority figure to an astounding degree, even when the authority figure was just on the telephone.

The video comes from the Heroic Imagination Project which hopes to use the results of social psychology to help people to take effective action in challenging situations. More videos on obedience to authority, including from Milgram’s experiment, can be found in the resource section along with other social psychology videos and other interesting materials.

Here is one more, this time a little lighter, an experiment in which people find themselves unexpectedly married:

Kevin Vallier, a philosopher, considers on Facebook the optimal journal submission strategy:

I was implicitly assuming the best strategy was to start with the best journals, receive rejections, and then work my way down, lest my piece get accepted by a sub-par journal first. But now I’m thinking it may make more sense to start from “the bottom” or at least mid-tier journals and work my way “up” if I can assume that my pieces will generally be rejected several times, even by the mid-tier journals. I think I was overestimating the risk of publishing my work in mid-tier journals and underestimating how much rejections can improve the quality of the paper. In light of this, I want to construct a “journal ladder” that political philosophers and political theorists can “climb” towards the best journals. 

Let’s put some numbers on this to see what makes sense. The expected utility from submitting to a high quality journal first is:

HighFirst = Ph* HV + (1 – Ph)*(Pl*mult)* 1

The first term, Ph*HV is the probability of acceptance at a high quality journal times the value of acceptance at a high quality journal. If the paper is rejected, which happens with probability (1-Ph), then you go to a low-quality journal where the paper is accepted with probability Pl times the multiplier which you get because of suggestions and comments from the referees at the high quality journal. The value of the low-quality journal is set to 1 so HV>=1.

Now what about low first:

LowFirst = Pl*1 + (1 – Pl) (Ph*mult)*HV

if you submit to the low quality journal and are accepted you get Pl*1, if the low quality journal rejects which will happen with probability (1-Pl) you submit to the high quality journal which accepts with probability Ph*mult and if accepted you get HV.

Now let’s put some numbers on this. The probability of acceptance at a high quality journal is 5-10%. The rate at the AER in recent years, for example, has been about 7.5%. Let’s say 10% and for a low-quality journal 20%. These rates are conditional on being the type of paper that is submitted to the AER not any random paper. (These rates are also reasonable for philosophy journals.). What’s the value of HV, the high quality journal relative to the low quality journal? Let’s say between 1 (equally valuable) and 10. And the multiplier? 1.5 would be very generous. 1.1 might be reasonable on average, 1.2 if you are lucky. Given these numbers let’s consider LowFirst-HighFirst so positive numbers mean that the LowFirst strategy is better, negative numbers that the HighFirst strategy is better. Here’s what we get:

OptimalStrat

The way to read this is that if the multiplier is a hefty 1.5 then LowFirst is superior to HighFirst if a high quality journal has a value of at least 3.5 (relative to the low quality journal at 1). If the multiplier is 1.3, however, then LowFirst is optimal only if the high quality journal is more than 8 times as valuable as the low-quality journal. And for a multiplier of 1.2 LowFirst is never optimal.

Thus the LowFirst strategy is better the higher the relative value of a high-quality journal, the bigger the multiplier and also the lower the acceptance rate at the low quality journal . The lower the acceptance rate at the low-quality journal the lower the cost of submitting it there in order to earn the multiplier.

I conclude that the high-value first strategy is usually optimal. All the more so since there are good substitutes for submitting to a low quality journal. Namely, submit the paper to a conference, circulate the paper to friends, enemies (especially) and others to get comments. The multiplier with this approach will be at least as large as with the submission approach and the opportunity cost will be lower.

Charles Murray on Ayn Rand

by on October 19, 2014 at 7:30 am in Books, Philosophy | Permalink

Charles Murray has a good piece on Ayn Rand, critical in parts but especially insightful about why Rand’s books continue to be so inspirational and influential:

Ayn RandRand expressed the glory of human achievement. She tapped into the delight a human being ought to feel at watching another member of our species doing things superbly well. The scenes in “The Fountainhead” in which the hero, Howard Roark, realizes his visions of architectural truth are brilliant evocations of human creativity at work. But I also loved scenes like the one in “Atlas Shrugged” when protagonist Dagny Taggart is in the cab of the locomotive on the first run on the John Galt line, going at record speed, and glances at the engineer:

He sat slumped forward a little, relaxed, one hand resting lightly on the throttle as if by chance; but his eyes were fixed on the track ahead. He had the ease of an expert, so confident that it seemed casual, but it was the ease of a tremendous concentration, the concentration on one’s task that has the ruthlessness of an absolute.

That’s a heroic vision of a blue-collar worker doing his job. There are many others. Critics often accuse Rand of portraying a few geniuses as the only people worth valuing. That’s not what I took away from her. I saw her celebrating people who did their work well and condemning people who settled for less, in great endeavors or small; celebrating those who took responsibility for their lives, and condemning those who did not. That sounded right to me in 1960 and still sounds right in 2010.

Second, Ayn Rand portrayed a world I wanted to live in, not because I would be rich or powerful in it, but because it consisted of people I wanted to be around. As conditions deteriorate in “Atlas Shrugged,” the first person to quit in disgust at Hank Rearden’s steel mill is Tom Colby, head of the company union:

For ten years, he had heard himself denounced throughout the country, because his was a ‘company union’ and because he had never engaged in a violent conflict with the management. This was true; no conflict had ever been necessary; Rearden paid a higher wage scale than any union scale in the country, for which he demanded—and got—the best labor force to be found anywhere.

That’s not a world of selfishness or greed. It’s a world of cooperation and mutual benefit through the pursuit of self-interest, enabling satisfying lives not only for the Hank Reardens of the world but for factory workers. I still want to live there.

…In scene after scene, Rand shows what such a community would be like, and it does not consist of isolated individualists holding one another at arm’s length. Individualists, yes, but ones who have fun in one another’s company, care about one another, and care for one another—not out of obligation, but out of mutual respect and spontaneous affection.

Ayn Rand never dwelt on her Russian childhood, preferring to think of herself as wholly American. Rightly so. The huge truths she apprehended and expressed were as American as apple pie. I suppose hardcore Objectivists will consider what I’m about to say heresy, but hardcore Objectivists are not competent to judge. The novels are what make Ayn Rand important. Better than any other American novelist, she captured the magic of what life in America is supposed to be. The utopia of her novels is not a utopia of greed. It is not a utopia of Nietzschean supermen. It is a utopia of human beings living together in Jeffersonian freedom.

Also worth reading is this superb piece by Robert Tracinsiki, All an Ayn Rand Hero Really Wants is Love.

California’s Water Shortage

by on October 16, 2014 at 7:30 am in Economics, Law | Permalink

In the 1970s the US faced a serious shock to the supply of oil but the shortage of oil was caused by price controls. Today, California is facing a serious water drought but the shortage of water is caused by price controls, subsidies and the lack of water markets. In an excellent column, The Risks of Cheap Water, Eduardo Porter writes:

Water is far too cheap across most American cities and towns. But what’s worse is the way the United States quenches the thirst of farmers, who account for 80 percent of the nation’s water consumption and for whom water costs virtually nothing….

Farmers in California’s Imperial Irrigation District pay $20 per acre-foot, less than a tenth of what it can cost in San Diego….This kind of arrangement helps explain why about half the 60 million acres of irrigated land in the United States use flood irrigation, just flooding the fields with water, which is about as wasteful a method as there is.

Tyler and I discuss water subsidies in Modern Principles:

Farmers use the subsidized water to transform desert into prime agricultural
land. But turning a California desert into cropland makes about as much sense
as building greenhouses in Alaska! America already has plenty of land on which
cotton can be grown cheaply. Spending billions of dollars to dam rivers and
transport water hundreds of miles to grow a crop that can be grown more cheaply
in Georgia is a waste of resources, a deadweight loss. The water used to grow California cotton, for example, has much higher value producing silicon chips in
San Jose or as drinking water in Los Angeles than it does as irrigation water.

The waste of subsidized water is compounded by over 100 years of rent-seeking and a resulting legal morass that makes trading water extremely difficult (see Aquanomics for a good analysis). A water trading system is slowly taking form in the American West but the political transaction costs are immense. Australia, however, faced similar difficulties but has managed to develop a good water trading system and Chile has long had a robust market in water. Subsidies to farmers are politically sustainable when everyone has as much water as they want but when faced with continued shortages and an ever-intrusive water Stasi consumers and industry may eventually demand a more rational, less wasteful system based on incentives, markets and prices.