****ing libertarians. I swear to God, you guys act the same every
single time. EVERY time I post something about a societal trade off,
you instantly, passionately and irrevocably identify yourself with one
and only one side. Why? WHY? WHY do you do that? I thought this one
might be harder for you. I mean, two picturesque resource extractors. I
thought the salmon fishers might get some love from you. Two years
they lost their entire livelihood and way of life! But no. Instead you
write with a fanatic dedication to the potential costs to the farmers!
Why?! What did you choose on? Seriously, it was "rippling back muscles
of the fisher as he winches his nets out of the sea, man on his boat
against the elements" versus "his thigh muscles flexing, the grower
squats to take a handful of soil, surveying the new growth on his
alfalfa before whistling for his dog". How the hell did you choose?

That is from Megan Very-Non-McArdle, and there are some related posts at the blog; commentary is here.  The asterisks are from me.

These days, if a TV show is going to draw me in as a viewer, it has to be really, really good.


Oh, Tyler, this is a no-brainer. The farmers were supported by VP Cheney, and he is The Man.
Anybody who can get torture legalized must be agreed with.

That was one of the worst cases of pseudo-intellectual posturing and empty position-avoidance statements I've ever seen in weblog comments. That was also one of the least libertarian self-professed libertarians chipping in with his/her bizarre forty-eighth party removed assignment of partial rights to water he or she has never seen.

The core point here is that authoritarians and managed-economy collectivists on the whole have distinct problems understanding the implications of market forces and economic management externalities. Free market economic interactions promote peace, not conflict -- it's difficult to achieve trade for mutual benefit where you're risking your life in an attempt to murder potential trade partners, for instance.

Meh. The whole thing just boggles my mind.

I don't know what libertarians hang out on Megan's blog, but whoever they are, they appear to have completely missed the standard liberatrian solution to such quandries: place the resource under private ownership.

The Coase theorem guarantees that, as long as property rights are well-defined, the market will find an efficient allocation of resources even in the presence of externalities. It doesn't matter who owns the rights. Give the river to a farmer; if the fishermen can make more money with the next mega-gallon than he can, they will pay him to use it and it will get used for fishing. Give the river to a fisherman; if the farmers can make more money with the next mega-gallon of water than he can, they will pay him to use it and it will get used for farming. Give it to the first homeless guy you meet on the street; he will dole out water to the farmers and the fishermen in whatever ratio maximizes their profits and, and thus his.

Asking a scientist or bureaucrat to compute the objectively optimal allocation is a fool's task, because the objectively optimal allocation isn't just a question of multi-factor crop yield functions or salmon life-cycle models. It's a question of how every person on the planet, not just the local farmers and fishermen, relatively value the outputs that can be produced from one use of the river versus another (or another, or another). And amazingly, we have an algorithm for solving that incredibly complex optimization problem: it's called the price mechanism.

****ing bloggers!

I have to admit Marius has a very important point there. Markets, when not at least _slightly_ regulated, usually go the sour way of conglomerate/monopoly... it's human nature, even more powerful than the "invisible hand." Or did I just insult the agnotheists/atheists by defaming their god?

Anyone care to guess who's the deep pockets for the environazis?

If said deep pockets were to legislate itself out of being deep pockets, it'd be a different ballgame, because the environazis would have to use their own money - ohhh, putting the risk where it belongs???? Isn't that what you guys talk about here?

There are a subset of libertarians that annoy me in the same way that most Democratic politicians annoy me. They let their sympathies run only in certain ideological directions. Just as many liberal Democrats only express sympathies with those victims of some sort of unfairness that will then generate the big-government solution, so some libertarians only express sympathies for those victims of some sort of unfairness that generates the less government solution.

Without giving away too much information, I have a friend who had to fight some major government injustice that would have greatly harmed him and his family. That same friend has had some health issues, and his insurer always tries to find some excuse to drop his coverage. I sympathize with him on both counts, even if those sympathies might lead me to favor solutions that run in opposing ideological directions.

Now, as Megan Non-M says in her post: "Regulators are there to balance interests."

After a few beers I say: "Hey, isn't that what markets are for?"

I'm assuming Megan Non-M is smart enough to reply with something like: "Yeah, cutie, if we could have them, but the transactions costs are too high to have markets here. That's why we have the regulators trying to do it."

Then I say something like: "Yeah, you little vixen, I guess that's what cost-benefit analysis is for, to most closely approximate the answer the free market would have generated if it could function."

Then she says: "Yeah, stud, it's just a shame that evil political toads come in and ruin it all."

And I say: "Hey, gorgeous, you have to ask yourself whether that's a systemic issue, which then lowers the optimal scope of regulation. Also consider that some of the worst water policies, even worse than those delivered by the lack of proper regulation, are the federal government's water subsidies to farmers. So that sort of impairs the goal of regulation filling in the gaps where the market can't function. Maybe you and your smart friends should consider developing ways to develop more transparent and tradeable water property rights."

Then she says:"Can we stop talking about sex?"

Eric H: Granted, Coase assumes negligable transaction costs. No one has pointed out any reason why transaction costs should be prohibitively high for trading water rights, though. Certainly for kilo-gallon users the transaction costs would be too high, but it's the giga-gallon users that count.

Marius: One can certainly criticize Russian oligarchs for how they aquired their holdings (bribery) and how they shut out competitors (murder), but there aren't many complaints about how they allocate them: pretty much they sell to the highest bidders. In cases where they don't (e.g. hand-outs to political favorites), the reason is that property rights are insecure (i.e. they fear re-appropriation), not that property rights are too secure.

Fustercluck: I don't understand. If the next mega-gallon can produce $100 worth of crops or $200 worth of fish, are you saying that a farmer who owned it would not sell it (for between $101 and $199) to the fisherman? Just out of spite? Or stupidity? That strains credulity.

Fuster: He's talking about commercial fishermen, not sport anglers or natives who have a government-granted "right" to fish "because they're natives".

Markets are lousy at providing "my recreation should be free" and "because we're natives" demands with their satisfaction, yes.

RJ: I suggest the farmer is much more likely to be stubborn under the current set of conditions where has to fight the State simply giving "his" water away, than under a regime where the person wanting "his" water has to ask him for it, and pay.

Stubbornness seems, in my experience, to be born much more out of being otherwise-powerless than out of having control (or even an equal and acknowledged-to-be-equitable share) of the process.

(This all brackets the problem of who "owns" a river or watershed, which is tricky - which is one reason Governments tend to do it. At least when the State owns the water, everyone is treated equitably as supplicants...)

No, David, he describes the problem in three steps: traditional (Pigou) approach, the problem illustrated anew (without transaction costs), and then the problem *with* transaction costs (starts in section VI). It is unfortunate that most people are only taught or only seem to retain the second part and none of the highly lucid discussion following the development. What has come to be called the Coase Theorem is no panacea. I highly recommend David Friedman's treatment in Law's Order (webbed here), Chapter 4.

To the extent that libertarians sided automatically with the farmers, they have betrayed one of their core principles. Either decision by the government was going to take property from one person and deliver it to another. In the case of the fishermen, their property was taken decades ago. Now, with political winds blowing the other way, the fishermen were prepared to reclaim the property, but the farmers had a political ace up the sleave and stopped the reclamation.

A nice impasse, now, with no easy solutions. Libertarians should have been focussed on the fact that government prevented the establishment of property rights in the first place, and is now responsible for this mess. I have to agree with Megan on this one, I don't know how "libertarians" knew who to side with, I can only guess that they sided with the side that stood to lose the property today.

Fustercluck: It's not surprising that the Coase theorem should "strike you as an odd statement". The irrelevence of the distribution of resources is quite a counter-intuitive result. It wasn't well-understood until the 1960s. It is, however, quite well-founded and now well-accepted. Perhaps the fact that even Barkley Rosser, usually a reliable apologist for non-market solutions, accepts the principal, and even makes a guarded endorsement of the practice, will help you to overcome your skepticism. Or perhaps you could look it up in an econ text.

As regards your objection that a functioning market in water rights would require participants to know either other's marginal products, that's not correct. Presumably you are willing to accept that our farmer knows enough about his own business to make a good guess about how much he could earn from next mega-gallon of irrigation water. To decide whether to sell to the fisherman (or anyone else), he doesn't need to know any details of the other person's business. All he needs to know is whether that person is offering him more for that water than he could earn from it.

David, see this (quoted from Wikipedia):

"The other strain of criticism [of the Coase theorem] often points out other problems often associated with public goods which manifest in coasean bargainings. In many cases of externalities, the bargaining doesn't happen between two economic actors, but instead the parties might be a single large factory versus a thousand landowners nearby. In such situations, say the critics, not only do transaction costs rise extraordinarily high, but bargaining is hindered by basic prisoner's dilemma problems. For instance property rights might say the landowners must pay the factory to stop polluting, certain landowners might downplay the harm of pollution on them, trying to free ride on the other landowners' wallets."

This illustrates why, in this case, it does matter who owns the rights, as I and others have already pointed out.

As regards your objection that a functioning market in water rights would require participants to know either other's marginal products, that's not correct. Presumably you are willing to accept that our farmer knows enough about his own business to make a good guess about how much he could earn from next mega-gallon of irrigation water. To decide whether to sell to the fisherman (or anyone else), he doesn't need to know any details of the other person's business. All he needs to know is whether that person is offering him more for that water than he could earn from it.

Methinks there are too many parties in this situation: to whom would you actually sell those rights? A fisherman? All fishermen? Licensed fishermen? How exactly are you removing government regulation?

A further refinement on the Coase theorem involves a confusion induced by the more recent textbook tendency
to clearly separate collective consumption (or "public") goods situations from externalities situations. This
was not done so clearly in the past, and indeed, there is a good reason for it. Externalities involve spilling
over of effects from one party to another, and it is exactly such spillings over, which can start to involve lots
of parties and which then raises transactions costs in their dealing with each other and indeed in dealing with
the underlying problem of defining property rights. In that regard, Coase in his original paper kind of pulled
a hat trick, although he was sort of recognizing this point. He was eliminating the externalities problem by
turning it into a property rights clarification problem. But he always understood that if this involved high
transactions costs, which deep externalities involving lots of people generally do, then the problem may not be

BTW, David Wright, you may not like a lot of my views, but on what grounds do you claim that I am "usually a reliable
apologist for non-market solutions"? Care to elaborate more specifically?

Barkley: I did intend that to be a bit of a rhetorical dig, but I didn't intend it to cross over into the level of a personal attack. I do hope I struck the right balance.

As for examples: advocacy of minimum wage laws, government action on CEO pay, and limitations on free trade come to mind. And I do apologize if am incorrect in attributing these views to you.

For the benfit of other readers, I should also say that, while I do remember Barkley as a reliable apologist for non-market solutions, I do also view him as among the most economically well-grounded, engaging, and eloquent such apologists on this blog.

By the way, I very much appreciate Keith's response. Not only was it entertainingly risque, it quickly and engagingly addressed all the important issues. Much better than my own plodding responses!

Megan says "Keith: I am not usually so fresh with people I have just met."

Well aren't you right now complaining about the results of this policy? (I mean on your site, not this one.)

Um, that was just a throwaway joke, because Keith was writing the way I usually do. Are you suggesting that I am complaining about the results of not being fresh with people right away? I complain about that sometimes. If you mean complaining about something else, I didn't follow.

David W.,

Fair enough. Perhaps I was struck by repeated use of the term "central planning," which evokes
command central planning of the totalitarian regimes and their millions dead. I see no central
planning in this matter, merely competitive rent-seeking political economy, boring stuff in the end.
The only places we have anything resembling central planning in the US are in the DOT and DOD, to
varying degrees of competence and incompetence and corruption, with all of it strictly indicative
anyway within a basically market capitalist economy.

"1. The federal endangered species act exists to protect species from extinction. One listed species is the coho salmon, found in the Klamath river."

Thank God those good intentions aren't then thwarted by special interests who capture regulatory agencies.

"2. I've written a couple of lengthy comments at Megan's blog on the ESA and on what went wrong on the Klamath. Put simply, at the direction of Cheney senior staff within the Department of Interior issued a legal/scientific document that was so obviously arbitrary and capricious that the Department of Justice lawyers charged with defending it chose not to appeal. The impact of that document was a massive fish kill, including the coho."


"3. I have repeatedly asked libertarians who disapprove of the ESA to send over a few dodos and passenger pigeons, and to go fishing with me for salmon on that stretch of the San Joaquin River that runs dry. Somehow, I never get much of a response."

Cheesy. Note, if you can write sentences like that and actually post them, then my inner Bayesian updater raises the probability that you are a total tool.

And wasn't the salmon killed after passage of the ESA? And would the salmon have been killed in the absence of federal water subsidies? If not, then maybe you owe the libertarians the fishing trip.

"4. There are billions of dollars of existing infrastructure, paid for by both state and federal taxpayers, that moves water vast distances in the West. There is also an existing allocation of water rights under various state laws worth collectively further billions of dollars. It would be nice to see some recognition of the complications presented by these impediments to a Coasian redistribution."

It'd be nice if you and Megan and her fellow regulators were working on that Coasian solution, because that really would make the world a much, much better place. And it seems like you guys have some of the needed expertise. But now that we have massive regulation, we've raised the bar to innovating and developing a property rights/Coasian solution that much higher. So you and Megan and her friends, instead of getting to make the world a much, much better place (and maybe making a buck or two in the process), are instead doomed to watch your intentions thwarted by rationally ignorant voters and their political minions.

"5. I was particularly taken by the snide comment made about Tribal fishing rights. Those rights exist by treaty. The federal government's historical violation of Tribal treaties is not exactly a bright spot in american history; I would have expected some reluctance, even by libertarians, to encourage the federal government to breach again existing tribal treaties."

This I will totally give you. In the property rights-based trading system, the Indians should be given a whole bunch of "We're sorry" tradeable water permits to use or sell as they see fit.

"6. Allocation of the enjoyment of public resources purely on the ability to pay is one of those policies that gets normal people hating libertarians."

You mean normal people like those farmers who hate libertarians for saying they should pay a market price for their water?

"Many people believe that there are ways of allocating those resources in a manner which better reflect americans' collective values."

Like Dick Cheney's memo?

"These include: first in time - first in right, lottery, use limited to reasonable beneficial use, and national interest among others."

None of which are subvertable in any way.

hmm, it seems to me that what we have here is a failure to communicate.

What happened on the Klamath is that the executive subverted the law; it was not a case of regulatory capture. That act of subversion is not really much of a comment on the wisdom of the law. To press the point, does the failure of a prosecutor to pursue a crime justify the return to days of private criminal prosections? Or do we just press harder for greater accountability?

One purpose of the ESA is to protect the interests of future generations in the existence of that species. In the absence of the ESA, can we assume that private parties will step into the breach and purchase enough fish?

A moment of actual research will reveal that creating property rights in anadramous fish runs is actually very difficult. Different runs and different species will school together, meaning that there would be enormous by-catch problems. Enforcement is also a tremendous challenge. It's no accident that the one place having the best success in creating private property rights in fish is New Zealand.

moreover, there is a very poor match between the various alleged property rights at stake. Farmers want water. Commercial fisheries want enough healthy fish to make it to the ocean. Recreational fisheries want the right kind of environment on the river to provide a high-value experience to their customers. These interests do not fit well into an allocation of flows / fish on the Klamath.

The Tribes already have rights; they just want to be able to exercise them without the Vice-President's interference on behalf of one interest group.

The farmers and the Tribes are both relatively poor but give very high noneconomic value to their continued way of existence, so initial allocation will be tremendously important.

The ultimate point is that there are way too many demands on the Klamath in times of drought. The laws we have are a response to the conflict; they do not create the conflict.

It was not a priori an absolutely obvious violation of the ESA

I was in law school at the time and the reaction of my professors was that is was, even then, an absolutely obvious violation of the ESA. There was no precedent for an additional level of review for a legitimately completed ESA Biological Opinion. That isn't something that had happened before and no matter the outcome, it weakened the ESA to introduce another means of challenging a Biological Opinion. Besides which, the Biological Opinion had been correctly issued and found in favor of the fish. The only reason to review it again is to overturn it. Cheney took this action with the sole purpose of evading the ESA. If it wasn't technically illegal, it was a gratuitous challenge to the law of our country. I think lots of people here recognize the danger in that.

Hmmm. Well, I said that was my last entry, but with the estimable Megan weighing in, I guess I should reply.

So, yes, Megan, Cheney's actions were a violation of the law, period, even if he inveigled respectable scientists
into it. On another blog I have called for his impeachment and the defunding of his office.

However, the issue here is the higher level one of what the law should be. Now, clearly the ESA is based on
broader principles, a moral judgment I agree with against wiping out species. However, indeed it is complicated.
I note two issues, way beyond this particular case.

One is an essential contradiction. We save pandas and coho salmon, but we wipe out HIV, or try to. Why are they
not protected? (I am sure a simple amendment would say species killing humans are not to be preserved, but then
many we now save do kill humans and were once killed as "pests.")

The other is that even liberal environmentalists, I am thinking of people like Jason Shogren, a top environmental'
adviser to Clinton on his CEA, who said that due regard should be made to interests of landowners in these situations.
After all, if we wish to preserve endangered species, we do not want landowners cutting down those woods with the
endangered owl in it they just found before anybody finds it, whereas if they were provided with some incentive to
preserve the wood, well, there are compliecations (and in Africa, many realize it may be better to allow tribes to
harvest ivory in a controlled way rather, which gives them an interest in preserving the elephants, than strictly
forbidding, leading to uncontrolled poaching and slaughter, but these are not simple matters).

@David Wright at Jun 30, 2007 2:47:07 AM

The standard libertarian solution:

"Let's take the monopolistic resource from bureaucrat Dick Cheney, and give it to entrepreneur Dick Cheney. He will certainly not abuse his monopolistic power."

"Are you suggesting that I am complaining about the results of not being fresh with people right away? I complain about that sometimes."

Yes, that's exactly what I meant.

Comments for this post are closed