The Libertarian Perspective On California Water

Private property rights in all water, combined with full-cost pricing in free water markets, is the best (and indeed only) way to match California's vast water supplies to its growing water demands. In practice, this means

• ending the subsidies that make water for agriculture often cost ten times less than urban water, in exchange for giving farmers secure and fully transferable property rights in whatever grandfathered allotments they reasonably deserve;
• defining secure and fully transferable private property rights not only in all surface water but also in all groundwater, so that (for example) environmental groups are given full ownership of water shares needed for ecosystem maintenance;
• making all urban and agricultural water customers bear the full cost of the water they get, while also receiving the full profits when they use less than they are alloted and thus release (i.e. sell) water back into the system;
• allowing efficient and transparent market transfers of water rights 1) among users within water distribution systems, 2) between water distribution systems, 3) between water basins, and 4) between states (such as those with shares of the Colorado River);
• resisting calls for expensive and ecologically suspect new water projects as long as the above policies are not yet implemented.
  

This libertarian prescription of free water markets has been well presented by free-market think tanks like the Pacific Research Institute and the Reason Foundation. The best analysis I've seen so far is Ending California's Water Crisis - A Market Solution to the Politics of Water by Erin Schiller and Elizabeth Fowler (Pacific Research Institute, 1999). Its themes are underscored by Why Water Markets Can Solve California's Water Crisis - Amy Kaleita (Pacific Research Institute, 2008). An earlier study is Water Marketing In California - Richard Wahl (Reason Foundation, 1993).

For up-to-the-minute analysis, I recommend the blog http://aguanomics.com. For example, just today Dr. Zetland posted his analysis of California's draft 2009 water plan. His prescription:

1. Amend state law to require that ALL water rights (ground, surface, riparian, etc.) be adjudicated.
   
2. Retire ALL water rights that have not been exercised for over 10 years.
   
3. Direct DWR and SWRCB to formulate "plain vanilla" procedures to facilitate short term (<1 yr) water transfers within water basins and between basins.
   
4. Require that water resellers raise rates if water consumption rises above long-term (50+ year reliability) average water supplies. Keep raising them until consumption is below sustainable yield.
   
5. Require that ALL directors of a water district or agency resign if a shortage is declared and require a one-term cooling-off term before they can seek reelection.
   
6. Allocate space on "oversubscribed" conveyance according to market mechanisms (i.e., auctions).

Here's his Water Plan: "Structure rates such that everyone gets a human right allocation of water, allow trading among those who have (ground/surface) water rights, and make sure that the price of water fluctuates with water scarcity." Exactly.

Cut Taxes All The Way To The Ground

A land value tax is not necessarily any worse in terms of forfeiture than any other kind of tax. The government comes after almost any/all of your assets if you owe it taxes.  However, I wouldn't necessarily have land be forfeit when the landholder fails to return the geo-rent to the community (i.e. pay the "property tax").  We could let unpaid taxes accrue with interest as a lien against the eventual sale or transfer of the land, with the amount due capped at the market value of the land at the sale or transfer.

The reason economists say that taxes on land value (and pollution or congestion of a commons) is the "least bad" tax is that such taxes have no deadweight loss.  Any tax on production or exchanges or movable assets causes economic inefficiency.  A tax on these things causes a deadweight loss (i.e. allocative inefficiency) because people who would have more marginal benefit than marginal cost are not buying the good or service, just as a subsidy causes people to buy who impose more marginal cost than their marginal benefit.  However, this effect of taxation does not happen when the supply of the taxed good is perfectly inelastic, as is the supply of land -- more precisely, the area on the surface of the Earth. Sites cannot hide, they cannot flee, and the available amount of them cannot be changed.  (When a tax is not on a good but rather on a "bad", like pollution or congestion, it's the very absence of the tax that causes allocative inefficiency, because external costs are not internalized.)

"Taxing" land value (i.e. geo-rent) is less unjust than any tax on production or exchanges, because geo-rent is not created by the land-holder.  Geo-rent is the extra income a site earns because of the exclusivity of its location within the community, as compared to what such a site would earn at the edge of the community.  (Technically, geo-rent is the extra production you get from exclusive use of a site compared to the most productive available site that is not in use, given the same inputs of labor and capital.)

Taxing geo-rent is not only more efficient than taxing production or exchanges, but it also is less intrusive.  All the government needs to know is who owns each plot of land and how much the unimproved land is worth.  Appraisers and insurers make such calculations routinely, and one variant would have each land-holder self-assess as long as he's willing to take any offer over his assessed value.  There's no need to audit anyone's behavior, as with taxes on income/production/exchanges.  You don't even need to visit the site or look over the fence, as you do with taxes on land improvements or square footage.

Finally, taxing geo-rent imposes a built-in ceiling on government revenue.  Critics of land value taxes claim they wouldn't raise enough revenue because geo-rent is allegedly only a small fraction of GDP.  That sounds like a good thing to me.   If government revenue is restricted by definition to geo-rent and fees for polluting/congesting/consuming the commons, then government cannot be nearly as big as when it is allowed to tax labor, production, exchanges, and all resulting products.  Once you have taxation of people's labor and exchanges and produced assets, there is no limit to what the government can take from you.

Professor Foldvary lays out all these arguments in these two excellent papers:

• The Ultimate Tax Reform: Public Revenue from Land Rent - Foldvary (2006)
• Geo-Rent: A Plea to Public Economists - Foldvary (2005)

Extra Nolan Chart Dimensions

Not all political issues can be mapped onto the Nolan Chart's dimensions of economic self-determination and personal/civil self-determination.  Fundamental questions about the nature of property are largely orthogonal to these two dimensions.  It might make more sense to identify a separate dimension that measures how much one allows privatization/privilege in:

• private (rival excludable) products: agriculture, artifacts (esp. capital)
  
• monopolization of spatial resources (rival, often excludable): land, orbits, spectrum, rights-of-way
  
• spoiling/consumption of natural resources (i.e. rival non-excludable goods): atmosphere, water, carbon sinks, sunlight, wind, game, underground oil pools
  
• "intellectual property" (non-rival, largely non-excludable): copyright, patents, genetic info, blackmail, trademarks, "private" personal data
• alienability of one's body parts (e.g. organ sales)
  
• alienability of one's will (e.g. very-long-term contracts, indentured servitude)

Left would generally correlate with less privilege and Right with more, but many of us who reject the hard Right stance would also reject the hard Left stance as well.  I don't see a non-ad-hoc way to make geolibertarianism be the obvious happy medium; many of these seem to be free variables.

Property is not the only area where the Nolan Chart is incomplete.  Another candidate dimension is inclusiveness vs. exclusiveness (i.e. enfranchisement) according to attributes such as property ownership, religion, race, gender, citizenship, age, intelligence, sentience, sexual orientation, cryonic suspension, and computational substrate.  Who gets enfranchised is a logically separate question from what rights franchisees should enjoy. In the context of statism, enfranchisement of non-citizens suggests support not only for for liberal immigration, foreign aid, and human rights abroad, but also for free trade and humanitarian interventionism (as opposed to isolationism or imperialism).  Leftists are generally inclusivist, but they see fetal enfranchisement as an threat to women's enfranchisement, and often oppose even humanitarian interventionism.

An increasingly interesting possible dimension is futurephilia vs. futurephobia. Historically, rightists feared the future, while leftists and progressives believed history was on their side. Lately, leftists fear technological development even more than rightists.

At http://libertarianmajority.net I have a javascript Nolan quiz that is higher-precision than the WSPQ, and that adds an extra question to distinguish ecolibertarians from royal/right libertarians.

When Freedom Is Lost, It's Usually "For The Children"

Single-payer federal health insurance for all children?

1. Unconstitutional.  Nothing in Article I Section 8 gives the federal government any authority to do this.  The Constitution is hardly perfect, but it can't protect us from the politicians (or from the mob) unless we protect it from them.

2. Why stop there?  If you're going to socialize and nationalize health insurance for children, then why not also nutrition, shelter, education, transportation, energy, retirement, and employment?  Oh wait, we've already done that for retirement, Bush has started nationalizing education (No Child Left Behind) and housing (No Speculator Left Behind), Obama is about to nationalize energy, and the rest of the economy is being steadily nationalized through subsidies, mandates, and bailouts.

Here is my challenge to any brainy do-gooders with the urge to use government power -- i.e., handcuffs, jails, and guns -- to enforce a feel-good vision on the rest of society.  For any force-based intervention you propose, please 1) identify the market failure you're trying to correct, and 2) explain why it cannot be corrected at a more decentral level -- state, metro area, county, municipality, or neighborhood.

Health care is indeed subject to market failure:

• asymmetric information between doctors and patients,
  
• adverse selection of insurers by insurees,
  
• moral hazard tempting insurees, and 
• free-riding of potential donors leading to the underfinancing of charity healthcare.

However, health care is also subject to massive government failure such as

• tax preferences that artificially bind health insurance to employment, hide costs from consumers, and encourage over-insurance,
• price controls dictated by a bloated mandatory insurance program that (thanks to high senior voting propensity) is funded via inter-generational income transfers,
  
• laws against interstate competition in health insurance,
  
• rent-seeking through legislated preferences sought by unions and hospitals and insurers and pharmaceutical patent holders,
• artificial barriers to entry via professional licensure and excessive safety/efficacy regulations, and
  
• laws preventing insurers and consumers from agreeing on lower-cost lower-coverage insurance.
  

America's healthcare market has for so long been so distorted by government interventions that it's hard for most people to see how a free market in healthcare would work.  Piling on more government interventions is not a smart response to the situation.  Instead, we need to replace the federal government's centralized tangle of health care bureaucracy and regulation with a decentralized market-based system in which government intervention is restricted to just correcting market failure at the most local possible level.

The market failure of free-riding on healthcare charity -- i.e. of under-donating to the safety net because you worry others will under-donate -- can be corrected at the state level or lower.  There is no state in the union so poor that it cannot afford to finance health insurance vouchers for its poorest citizens if its voters don't think they would be charitable enough to the sick among them.

The remaining market failures -- adverse selection, moral hazard, and asymmetric information -- are all knowledge problems, and only require tax incentives to correct.  Adverse selection by insurees can be corrected by tax incentives for insurees to join age-based risk pools (instead of our current brain-dead system of pooling risk by employer).  Moral hazard to over-rely on the safety net can be corrected by tax penalties for those who under-insure themselves against health catastrophe.  Asymmetric information held by doctors and hospitals can be corrected by tax preferences for providers who practice transparency. All these tax incentives could probably be done at the state level (even with interstate insurance competition), but even if initially implemented at the federal level this policy regime would be much smarter than any "single-payer" mandate -- no matter how messianic the leader whose armed henchmen would be enforcing it.

For more on market-smart health care policy, see

• The Cato Institute Policy Handbook chapter on healthcare
• The Library of Economics and Liberty articles on health insurance and the health care industry
• Milton Friedman's 2001 How To Cure Health Care
• analyses by libertarian economists like Arnold Kling, Robin Hanson, and Tyler Cowan.

Whence the authority of the State?

How can individual officials of the State have any more rights, authority, or power than private individuals?

Everyone is created with an equal right to protect the rights of other individuals. However, certain procedural and substantive rights require a coordination framework to ensure their adequate protection:

• Due process rights require coordination to avoid problems like conflict among competing courts or laws, double jeopardy, and inconsistent or capricious interpretation of rights.
• Protection of common goods (i.e. natural resources) requires coordination of policy in the geographic extent of a resource.
• Regulation of site monopolization, and the return of site rents due to provision of public goods, requires coordination throughout the region benefiting from a given public good.
  

These kinds of coordination cannot plausibly be achieved -- and thus the underlying rights cannot be protected -- without clearly defined geographic jurisdictions with the authority to impose standards of rights protection within them and at their borders.

When such a jurisdiction (i.e. rights-protection coordination framework) does not exist or is inadequate, anyone may homestead the right to provide it.  Where an adequate such framework is in place, random individuals may neither usurp that framework nor ignore its authority to protect rights.  Thus a state is legitimate to the extent that it provides such a framework.

The original question above is roughly analogous to the question of how an individual guardian can have any more rights, authority, or power over a child in her custody than other random private individuals.  The answer is that guardianship can be acquired through a symmetry-breaking process like homesteading, with a first-mover effect thus resulting in an asymmetry in authority over the person(s) in question.  The institution (and authority) of guardianship exists only because of the individual rights that could not be protected without it; the same is true of the State.  In both cases, the legitimacy of the institution depends on the consent of the governed -- not in the sense of having arbitrary veto or secession power, but rather in having recourse to a process of emancipation.  In the context of the state, that process is either revolution or secession.