King Cotton and Deadweight Loss

In our textbook, Tyler and I write:

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 which 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.

In Holy Crop, part of Pro-Publica’s excellent, in-depth series on the water crisis the authors concur:

Getting plants to grow in the Sonoran Desert is made possible by importing billions of gallons of water each year. Cotton is one of the thirstiest crops in existence, and each acre cultivated here demands six times as much water as lettuce, 60 percent more than wheat. That precious liquid is pulled from a nearby federal reservoir, siphoned from beleaguered underground aquifers and pumped in from the Colorado River hundreds of miles away.

…Over the last 20 years, Arizona’s farmers have collected more than $1.1 billion in cotton subsidies, nine times more than the amount paid out for the next highest subsidized crop. In California, where cotton also gets more support than most other crops, farmers received more than $3 billion in cotton aid.

…If Arizona’s cotton farmers switched to wheat but didn’t fallow a single field, it would save some 207,000 acre-feet of water — enough to supply as many as 1.4 million people for a year.

…The government is willing to consider spending huge amounts to get new water supplies, including building billion-dollar desalinization plants to purify ocean water. It would cost a tiny fraction of that to pay farmers in Arizona and California more to grow wheat rather than cotton, and for the cost of converting their fields. The billions of dollars of existing subsidies already allocated by Congress could be redirected to support those goals, or spent, as the Congressional Budget Office suggested, on equipment and infrastructure that helps farmers use less water.

“There is enough water in the West. There isn’t any pressing need for more water, period,” Babbitt said. “There are all kinds of agriculture efficiencies that have not been put into place.”


Well said.

And, the Western Farmer's reply is:

Pay me for my allocation of government water.

Water as the new entitlement.

Spoken as if any had free-will and choice - and that effort equals results -and- it really was possible that everyone who wanted success in this country and worked for it, honestly without nepotism or network or undue financial padding - received it - i have never believed that notion for a moment. Not because there is rampant evil/corruption (however you define it, but simply that the core ingredients for success in this country (or any other) are not available in the quantities needed to be widespread and ubiquitous).

Even if that were true, which I do not believe, it still makes no sense to grant an artificial prosperity to a few farmers at the expense of everyone else.

You mean like granting property rights to individuals who own land in Manhattan that allows them to take the property of those who own the building built on the land?

The Trump Plaza coop in NYC is built on land based on a 99 year lease that expires in 2024 at which time the land owner will be able to demand ten times the rent, or more,,or will get to take the building owned by the condo owners.

The current lease granted property rights to eventually Trump circa 1983 at about the same time that landowners got rights to the water flowing by their land thanks to the water projects that redirected the rivers.

And wouldn't the idea that you have rights to clean air be artificial, so your neighbors should be free to build a pig farm next to your house and raise thousands of pigs intensively to provide food for thousands of people.

You could ban the odors without banning the pig farming activity directly. If a sealed building with air filtration is not economic, which it probably wouldn't be, it would go elsewhere. That would be a more flexible approach to regulation that should still accomplish the public goods/quality of life objectives of regulation.

None of what you say has anything to do with paying money to subsidize cotton farmers. (And if you build a building on leasehold land then the consequences are pretty straightforward. I have given legal opinions on such transactions - and recommended against them.)

This, to me, reveals a great deal about you and your ilk. What a bleak world you live in.

If it were actually possible to pay them for it, Coase would get us out of it. Albiet while enriching them (IMHO unjustly), but it would still get us out of it.

Water is not an entitlement, but a right explicitly given in several State constitutions.

Arizona title 17 of its constitution:
Section 1. The common law doctrine of riparian water rights shall not obtain or be of any force or effect in the state.
Section 2. All existing rights to the use of any of the waters in the state for all useful or beneficial purposes are hereby recognized and confirmed.

The interpretation of section 2 is generally accepted to mean that your rights are limited to the use you make of the water right. Ie, if you have a right to 10 acre feet per year, then you must take 10 acre feet per year, or else you can't put 10 acre feet to beneficial use and thus give up the right.

I would note that SCOTUS issued a decision earlier this session on water rights under the water compact that led to the above title 17 section of the Arizona constitution. Arizona is pumping its allocation of water up 3000 feet to get one-seven of the flow in 1920 to flow across the Arizona desert.

Of the seven States, Arizona fought for a bigger share of the water, clearly because they wanted to grow more cotton which in 1910-1940 was a major part if Arizona's economy.

Arizona is a big cotton growing States thanks to Pima Indians developing Pima ELS cotton in 1910, which became critical to Goodyear in making tires. This Pima cotton can't be grown many places globally or in the USA.

If you oppose passing laws in light of climate science is reckless because the science is not settled, then you are arguing that all the water rights granted are valid because the science of the long term flow of the rivers is not setlled.

Why don't you have faith that god will deliver 100 feet of snow to the Rockies in each of the next ten years and the snow will restore the glaciers back to their extent circa 1900 in Glacier National Park by 2025?

Hilarious. The government is subsidizing the waste of water and the "solution" is to have them subsidize something else? You'd think an economist would understand "efficiency".

yup, PhD economists easily see the obvious absurdities in government control, development, and allocation of America's water resources -- but can not imagine what the root problem might be.

The root problem is government control, development, and allocation of America's water resources. Duh

Guess the professional discipline of Economics offers no other possible human system for water development/distribution ? But how do shoes, computers and food stores magically show up in every corner of society without government politicians and bureaucrats directing everything ?
Water commodities must be an unfathomable economic mystery.

Many of the suboptimalities of water rights in California go back to the pre-government days of the Gold Rush when miners established property rights recognized by informal mining communities to sources of water. These were typically grandfathered in by the 1914 water law as "senior" rights.

Another source of inefficiency is the "I drink your milkshake" incentives to pumping groundwater out that may or may not come from a common aquifer.

Water and other natural resources markets are clearly identical to the markets for shoes. Thanks, Duquesne

I'm sure the reason for proposing to subsidize wheat rather cotton was to save water. Ending all subsidies to agribusiness would be politically impossible.

What I find amusing about the whole issue is that virtually all of the agribusiness types who benefit from subsidized water are probably very conservative. I'm reminded of Sen. Joni Ernst of Iowa, who ran on a platform of cutting government waste the way she castrated hogs but, so far as I know, has made no attempt to end ethanol subsidies.

Worse -- the current solution is to hound/mandate people to cut back on the highest-value uses of water: residential applications that people would still engage in even if the price of tripled, like shower length.

Some subsidies are worse than others ... some are even sensible (like education and health, since healthy educated people are better workers and thinkers).

Oh for heaven's sake. Just stop subsidising agriculture! And you too, EU and Japan. Just bloody stop it.

"Pay me for my allocation of government water"

Fine. Use the Coase, Luke. Pay them off or make a deal (give up x% of your water allotment for the rights to sell the rest on the open market) . The water will be diverted from a wasteful, low value use (cotton) to higher value uses regardless, and if cotton farmers getting a windfall is the price to pay, so be it.

I hear you, Slocum, but I'd like a way to ensure that the farmer's great grandchildren are not still getting the same windfall.

But as it stands, the farmer's great-grandchildren are likely to be getting the same water allotment and using it to grow cotton in the desert. Better to give the farmer a lump sum buyout payment and then, if it makes you feel better, you can hope the farmer drives over to Vegas and squanders it all on hookers and blow and leaves no ill-gotten gains to the descendants.

Silly rabbit. Case doesn't apply when participants are doing bad things and screwing up markets. They need to be punished and chastised, not paid off.

Open season on politicians?

@Slocum: I think the meaning was "Pay me (with other subsidies) to receive the (largesse of) my water quota, as opposed to: pay me to forfeit my water quota.

Now I'm a bit of a thickie when it comes to matters geographical, but wouldn't Alaska be a good place for greenhouses because it is supposed to be cold there? After all, the Finns are rather fond of them. Which is just fine for those who frequently find themselves in the throws of a fresh Finnish flower fetish.

I suspect you're being a thickie on purpose -- heating greenhouses in the Arctic is obviously very energy inefficient. Unless, like Iceland, you're sitting on geothermal hot-spots, but even then:

As for the Finns, I suspect they'd be better off (both economically and environmentally) flying in fresh-cut flowers from places like Ecuador, Mexico or Kenya than growing them locally with artificial heat and lighting. It'd do some real good for people living in developing countries besides:

Actually there are a number of (unsubsidized, AFAIK) commercial greenhouses in Alaska that "take advantage of the shortened but intense Alaska summer growing season."

Home gardeners have quite a few, one gets more rabidly excited about the advent of the spring growing season than an Alaskan. And Alaska isn't quite an arctic wasteland; remember the 24 hours of daylight in the summertime. Makes more sense (for local consumption) than growing cotton in a desert does.

"Makes more sense (for local consumption) than growing cotton in a desert does."

For local consumption during the brief summer season, sure, and if the only use of greenhouses is to extend growing season and avoid killing frosts, that makes perfect sense. But greenhouses for year-round production? No.

24 hours of daylight in the summertime. .
Isn't that just at the north pole, and just for June21st ascending and declining before and after?

I lived in Copenhagen when I was about 4 years old, and I remember my dad taking me outside in the middle of the night so I could see the Sun during the longest day of the year. I remember it being a very dim Sun just above the horizon. Don't be misled into thinking "24 hours of daylight" is anything like noon in Dallas.

It's for the arctic circle, which is a decent sized area (maybe a third of Alaska). not that it includes much of the population of Alaska. But it's close to 24 hours below there, too.

Anchorage, which is at the southern end of the state, is getting about 20 hours of sunlight these days

Enough daylight in Fairbanks in June that you don't need your car headlights on at midnight to see a moose cow and calf trotting down the middle of the road ...

It would protect again last and first frost, among other things.

If only making the world more efficient rather than liveable was the most important.
As economics is to the world -- philosophy is to physics: an interesting dalliance with questionable motives, assumptions, and end-result; used to pseudo-legitimize, with simplified observations and analyses, one's type of cartoonish politics over another's (right is better than left -- look, look, see my economics calcs) ho-hum. At least this week's big pro-left cultural/lifestyle policies will segue nicely into next year's Conservative-dominant defence and economics policies. Then many may realize that such labels and their 'expected' policy categories are meaningless at best, counter-productive at worst.

It was clear by the end of the second sentence that you haven't got a clue.

This is what always blows me away with these California drought stories. People act like there's a water shortage that means everyone has to conserve. The real story is that most of the water is a given away to agribusiness, letting residential uses fight over the scraps.

And NESTLE wastes a TON of water by bottling it! Republicans need to get a clue.

Are you under the impression that, after bottling the water, Nestle then pours it directly into the ocean? This actually one of the *less* objectionable stories of water misuse in California, but it's somehow garnered the most outrage.

the righteous part of the outrage is the very low rates paid compared to what we know they can/will sell it for.

The real outrage is that a market for bottled water exists at all. Rational consumer my ass.

The US runs a $500 billion annual trade deficit with the rest of the world. If I could have sold my front lawn to China I would have.

OTOH, California farmers actually can sell their plant material to foreign countries in one form or another. Supporting agriculture by prioritizing water rights to farmers is not completely crazy. It could be part of a sane trade / economic policy.

Prioritizing farmers over what alternative use? If you used water for (say) silicon chips or wheat or lettuce that can bring foreign exchange too? Or if you used the water to feed and bathe thirsty programmers that write programs.

So we send dollars abroad that they mostly stick in vaults, and they send us electronics and other useful stuff, and you think this is a major problem, why?

One scare story is that the evil foreigners will let their currency appreciate and then you'll be stuck without factories and without imports.

I grew up in the 80s and remember when the Japanese were going to buy America. So forgive if I'm skeptical.

You're forgiven.

Is it a good policy to just keep running large trade deficits forever? Are there no undesirable aspects to such a policy?

The truth is rural America is a Pinko Wonderland subsidized by urban America.

Federal subsidies is higher on a per capita basis in urban counti

Federal subsidies is higher on a per capita basis in urban counties than in rural counties.

The underlying link is broken.

The California Water problem is the result of the environmental protection of some upstream fish species dictated by leftists

Cotton subsidies are a hostile act by America towards developing nations. Brazil fought back and the US had to pay a subsidy to Brazilian cotton farmers to compensate for the subsidies paid to American cotton farmers.

If the Republicans had any intellectual integrity they would be calling for the immediate end to all farm subsidies of any kind.

Historically cotton was an evil crop that caused enormous harm to the United States. How the heck does anyone have a romantic attachment to cotton farming?

at this point it would be cost effective to just burn down the cotton fields I. Sherman-eqsue fashion

'“There is enough water in the West. There isn’t any pressing need for more water, period,” Babbitt said. “There are all kinds of agriculture efficiencies that have not been put into place.”'

That missing snowpack? Forget about it -

'Imagine all the people
Sharing all the water...

You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will live as one'

Imagine enough water exists, and the problem of not enough water in the West just disappears.

Those expensive reservoirs? Many of them are pretty much running on empty - and the snowpack that would provide the water those reservoirs are designed to store simply doesn't exist.

Unfortunately for hydrologists, they don't get to just imagine things - 'State water officials had planned to make the trek back to the Sierra Nevada to conduct their snowpack measurement Friday.

But Thursday they announced they wouldn’t bother. For the second consecutive month, there won’t be any snow to measure.

“This is just another piece of information in a series of increasingly dismal findings,” said Department of Water Resources spokesman Doug Carlson. “It nails down that the drought is severe – maybe as severe as any in our history.”


Though the manual measurement east of Sacramento often provides a backdrop for media coverage, the state uses electronic sensors up and down the Sierra to measure the water content of the snow. Snowpack accounts for about 30% of the state's water supply when it melts in the late spring and summer and replenishes reservoirs.

On April 1, statewide measurements showed that the snowpack’s water content was just 5% normal for that date, the lowest in records going back to 1950. Thursday’s readings indicate the snowpack’s water content is half an inch or about 3% of normal for this time period.

“We can’t count on the Sierra snowpack to replenish our water supplies,” California Department of Water Resources Director Mark Cowin said in a prepared statement. “Major reservoirs are dropping at a time when they typically would be filling with melted snow. We need careful, sparing use of water across the state, because we don’t know when this drought will end.”

The last time snow was found at Phillips Station during the May 1 measurement was in 2011, officials said.'

Just imagine the snowpack, it is easy if you try... and you have a good memory.

So much for the lyrical formatting. Just imagine it exists.

This is like when someone says there is plenty of landfill space and another person comes along and says "But this one landfill is completely full!"

Does Cliff have secret information on new California sources of water?

No mention of the Aral Desert in this context? I'm disappointed.

The Aral saga is pretty scary. In under 50 years the waterline has receded by ~100 kilometers in some places.

California has the opposite problem.

Maybe they should hire some Uzbek engineers to see about redesertification.

Twenty years ago I toyed with the idea of writing a paper titled "How many jobs is one farmer worth?" The line of reasoning was:
(1) Subsidizing farmers increases US exports/decreases US imports;
(2) That increases the exchange rate for the US dollar;
(3) Which increases US imports of manufactured goods;
(4) Which costs low end US manufacturing and tourism jobs.

Every farming job saved with subsidies might have cost five (or more) manufacturing and tourism jobs.

Think of how many illegal immigrant workers would lose their jobs.

When you think "farmer", think "landowner'.

How many illegal immigrant farm workers are there in the US?

when you think "farmer", think "agribusiness"

This is mostly a matter of the historical property rights basis of water ownership and farmers own most of the water. Allowing prices to rise would make recycling/desalination economic before it would make much more available due to how it is held.

Right. This is largely a property rights problem. The kind of property rights in water that were established when California was lightly populated are obsolete but reforming the property rights system sounds vastly expensive.

There are lots of California farmers with what are called "senior" property rights in above ground water that go back before the water legislation of 1914. There are many others with property rights in water they can't pump out of ground they own. For example, earlier this month the President took a golf vacation at the Sunnylands Annenberg Estate near Palm Springs, which is legally allowed to pump out of the ground as much water as it can use on its golf course and trout ponds.

Expensive, but what you gonna do at this point? You could annul the extant rights to surface water in return for a crude indemnity derived from property assessments and a couple of other vectors, install meters everywhere, form an inspectorate to police water poaching and meter tampering, and hold multiple-price auctions on a monthly or seasonal basis for tranches of a global use budget determined 'ere each auction according to conditions. Farmers could put in their bids or buy from brokers and local water authorities could put in their bids. You allow local water authorities to adjust prices each month or each quarter and require that any retained income over a certain threshold be rebated at the end of the year on a per customer or per capita basis. The biggest impediment to such a scheme is that velociraptors in the legal profession would keep it tied up in court for a decade or two or three.

Right. It would be gigantically expensive and time consuming to move from the historic system of property rights in water to a more efficient one.

And if you tore up current property rights, it's not clear you'd end up with a better system because property rights in water are an obscure, complicated, and boring topic. Very few economics professors, even, understand them.

It's not hard to get a better system than the one they've got now. San Diego is building a massively expensive desalination plant that will have a levelized cost of $2k/acre-foot (if it comes in on time and budget, hah!) while farmers are growing alfalfa to ship to China that sells for $350 per acre-foot of water used.

To a first approximation that can just allocate the urban water districts as much water as they can sell and then leave the farmers with their prior appropriation system. The outcome would be superior to the status quo.

"Massively expensive" compared to what? You compare the sunk costs to the present value of deadweight loss registered every year. Millions of households and businesses in New York have water meters. It's not an impossible task to install them on the pumping equipment of a low-six-digit population of California growers. The market value of California cropland and pasture is about $315 bn, give or take. An indemnity to holders of water rights equal to 25% of the market value of their land would require a bond issue with a principal of about 4% of California's annual domestic product. The BO plenty administration in Washington added more than that last fiscal year. The question is, is it worth it to you? (And how long will the bloody lawyers tie the deal up?).

The California prior appropriation system does not cover extracted ground water, only diverted surface water. Pumping can be regulated or banned altogether without running afoul of any property rights.

Allowing prices to rise would make recycling/desalination economic before it would make much more available due to how it is held

Wagers on the table that there would be quite a bit of conversion of arable land to pasture and quite a bit of crop substitution on residual arable land and quite a bit of investment in drip irrigation technology 'ere desalination plants would ever be economically viable.

San Diego County is building a desalination plant. It would make more sense to, say, buy ground water from the lousier Palm Springs golf courses, but, I believe, there are rules against pipelining groundwater out of the Coachella Valley basin, probably because one Coachella Valley property owner can siphon off ground water from other property owners, so there are restrictions on what they can do with their water (e.g., don't sell it to San Diego) to prevent a drilling arms race.

That's tangential to ArtDeco's point that drip irrigation and crop substitution will be cost effective far earlier than desalination.

Sure, but cost effective for whom?

Art Deco is just about the only commenter (or poster) who seems to understand much about why California has the complex and awkward system of water property rights it has.

Is the problem too many farmers using water in California or too many people living in California using water?


The more crowded California gets, the more expensive everything gets to fix. The NYT had an article today on the leak-proof water main that is being laid in my neighborhood in Los Angeles to replace the leaky 100 year old one that William Mulholland laid. What the article didn't mention is that it took Mulholland only one year to build the original water main using picks, shovels, and mules, while the streets in my neighborhood have been torn up for a half-dozen years laying the replacement, which is about the same diameter.

Something that most people don't really grasp is that California has been living off the immense infrastructure laid by the megalomaniacal builders of the past like Mulholland and Pat Brown, who ran roughshod to build for a much bigger population than existed at the time. Now we've got that population and more, and it's immensely expensive just to maintain the infrastructure, much less expand it. California today suffers from increasing marginal expenses: rather than economies of scale in infrastructure, each new person costs more than the last.

Neither. The problem is water not properly priced for efficient allocation. Ergo, too much land devoted to agriculture instead of pasture, crop mixes on arable land which incorporated an inefficient balance between water-intensive crops and other crops, insufficient investment in water saving technology, and excess inclination among domestic water users to plant lawns instead of installing desert gardens and to shower more often and do more loads of laundry than that with which they could get away.

Why not grow where the water is? The migrant workers who man the fields will go where the work is, so what does it matter if it means growing far from major population centres?

California has the initiative process. Someone should get together an initiative to abolish prior appropriation. They can get around the fifth amendment problem the same way Roosevelt got around with gold.

I can't imagine the farmers could muster a majority over the productive areas of the state.

Heck, one casino Indian tribe can muster a majority in the initiative process to defeat some other casino Indian tribe.

Australia had a similar situation in 2008-09, after five years of prolonged drought in the Murray Darling Basin (MDB). Allocations to farmers were very low (circa 10-30%, depending on the catchment), and the existing water trading arrangements had massive problems with illiquidity and state and irrigation districts implementing impediments to trades. Victoria still caps outbound trades from the State at 4% of current total allocations from the MDB, which are filled very quickly each year.

The drought was obviously also impacting households for human consumption. Water restrictions were in place in Adelaide, Melbourne, Sydney, and some crazy restrictions were in place in regional areas (as in, pubs would serve beer in plastic cups so they didn't have to wash a glass). The environment was getting smashed too, the lake levels in the lower lakes of the MDB went to around 0.5m below sea level, and salinity levels in those lakes went up exponentially. Acid sulfate soils, exposed by the low lake levels, began discharging sulphuric acid back into those lakes still left.

Ultimately, even though there would have been more than adequate water for human consumption if it could be traded from farmers to households, the political calculation was impossible. It was easier for those states to build new desalination plants than it was to implement rural to urban water trading. Before the drought broke in 2010-11, Adelaide, Melbourne and Sydney all built desal plants of more than 100GL/annum capacity for a cost of around $2bn a piece.

"Do not, my friends, become addicted to water..."


It's difficult for economists with no direct experience to grasp just how intractable property rights in water tend to be in practice.

Do other countries do it better than America and Australia? I wouldn't be surprised ...

I recall reading that the English common law system of riparian rights was particularly ill-suited for Los Angeles after the U.S. takeover of California in 1848, since it's hard to run out of river water in England. Eventually, the California Supreme Court had to reimpose something resembling the old Spanish/Mexican water law system to stop farmers upstream in the San Fernando Valley from now taking most of the water out of the Los Angeles River before the city could get anything to drink.

I wonder how Israel's system of water rights work ...

I think part of the problem economists have conceptualizing California's water problems is that they think of it as a problem of government policy. And it is in part, but it's more a problem of existing property rights.

Israel thanks to their strong socialist history has no problems of this sort. There's a government water authority to coordinate national policy, which are mostly carried out through a government owned national water company that distributes water to local water authorities.

And that authority mostly serves to ensure that water bypasses Palestinian olive and date farmers so that Israel can grow its garden in the desert.

Well yes, but meanwhile there's none of this prior appropriation nonsense. If tomorrow a miracle happened and Bibi decided to allocate a fair share to the Palestinians, no Israeli farmers would be entitled to sue for compensation.

Let them e
at cake!

I think the real thing to bear in mind is that the economic solution is effectively irrelevant, as sad as that may seem. Water rights are legal rights, and so there's a lot at stake for those vested interests and the politicians who represent them.

In Australia the federal government of the time managed to move the power over water trading and rights from states to the commonwealth, but only some ten years after the negotiation date, and to get an agreement the prime minister may have given away several billions in funds for the rights. Those powers will transfer in 2018, long after the PM and the Premiers of the time have retired and moved on. (And only for the MDB.)

Since the drought broke in 2010, the subject has also disappeared from political discourse entirely. Back then there were hundreds of millions up for grabs to fund water saving infrastructure, but nothing at all, and no reforms either. There were also massive buybacks of water rights to redirect water to environmental uses back then, but even now the environmental water holder can't even agree on how to deploy that water when it has excess water.

And unsubsidized African/Asian cotton producers are supposed to compete with this? No wonder they have such a hard time accumulating capital.

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