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Eighteen Fallacies
Mason Gaffney
[reprinted from The Good Society, June 1991]
Note: This version only has 7 so far!

Professor Gaffney prefaced his remarks with the following:

"A wise man can learn more from a fool than a fool can learn from a wise man." - Cato

The above observation from a Roman philosopher and statesman, speaking to us through two thousand years, may motivate you to attend to what follows, even if I begin by calling foolish and false what you've been told is wise and true. Be patient. Like Harry Truman's economist, I have two hands: wait for the one you like better.

Once I was young and foolish and made many promises. I learned they are easy to make and hard to keep, so I turned to forecasts. Those are also easy to make, but hard to abide when they turn wrong.

Next I tried prescribing public policy. That is safe if the advisee is in Tierra del Fuego, and you are in the privileged sanctuary of a U.S. academy or bank. The going gets rougher as you diagnose and prescribe closer to home and offend the local Chamber of Commerce or water establishment: these bite back.

That left other choices. One is to acquire property, so I bought a small irrigated farm with a senior claim on the Santa Ana River. The second choice is to identify and refute fallacies, the weakness indulged in the present paper. This is good clean fun, and appropriate when you have been asked to be 'provocative'.

These fallacies, some of them spread by special pleaders ex parte, muddy the waters and darken the light needed to implement common rights, draft better water legislation, and raise the general welfare.

The late Senator Albert Severidge of Indiana, in his philosophical years wrote "You know, I've learned in the Widener Library at Harvard that most of what I was taught as a boy in Indiana is pure bunk". That is also true of much of what we ordinarily read and hear about water economics and ownership.

I am giving you a list of things I submit are pure bunk, or mostly so. My first points may seem radical, but stay your judgment, I have some right-wing thoughts coming 'on the other hand'.

1. "Water rights are real property"

Wrong! To begin, the word 'right' is wrong. A right is something like free speech, possessed by everyone. The only water rights, properly speaking, are common, which present water permits certainly are not.

Private water interests are claims, licenses, permits, holdings, reservations, privileges, or possessions. I do not say 'property,' except in reference to the state, water is the property of the states.

Most private water claims are licenses, at least in the 17 western states. Most state constitutions read that the water of a state belongs to the state (in trust for the people of the state).

If economists have two hands, (on the other hand!) a lawyer has more than a squid has arms, and as much ink to darken the waters. Murky ideas make for clouded titles and blinded citizens. Now and again, however, one finds a pure ray of light like this from Oregon Chief Justice McBride: -- "It does not seem to me that a license to appropriate water in this State ever rose above the dignity of a mere privilege over which The legislature has complete control."

A water license has about the same standing as

  • the privilege some airlines had (before deregulation) to occupy certain airport gates and time slots;
  • the privilege of a cab to work the streets of New York after securing a medallion;
  • a license from the FCC to use a specified frequency; or
  • a grazing permit on Federal lands.
It is like the old Oregon and California Railroad land grant which was revested when the grantee failed to perform. It is subject to conditions and to forfeiture for failure to meet same.

The evidence is, you do not find water licenses recorded like title deeds to real property. More important, you do not find them on the real estate tax rolls. Never have I heard a licensee demand to be taxed because he holds real property.

Lawyers habitually intone 'property' when describing water permits, especially their clients'. This is ceremonial and tendentious, to bolster the particular case.

It is also a group shibboleth, to bolster all clients' cases against all the outside, unlicensed public. Call it a class bias. After all, most lawyers get in this field to represent licensees, individually and collectively.

The upshot is that The Legislature has more latent power than most of us imagine. As electors and citizens our hands are not fled, but rather our minds. That's part of a lawyer's job, and they are good at it.

2. "Real Property is Sacred and Untouchable"

Wrong! Suppose this layman writer and the Oregon Chief Justice were in error, and water permits were real property. That is out of the frying pan, into the fire.

What does 'real' mean, applied to property or estate? It is not the opposite of 'imaginary.' No, 'real' is an elided English form of the French 'regal' taken into English when English kings spoke their native French. Real property is The King's.

We threw out kings in 1783, but not the royal powers. Rather, we transferred those powers to our State governments. By succession, real property means government property!

Every landowner is a tenant of the king or his successors in interest. The very word 'own' comes from 'owe.' An owner is one who owes. What he owed historically was fealty to his sovereign.

That used to mean bending the knee, kissing the royal foot, swearing allegiance, and showing up on demand to smite the enemy.

It has evolved into servitudes like eminent domain, police power, the public trust doctrine, and something else that our lawyers may have glided over, but economists underline: the tax power.

These concepts are basic to common law which has been brought into every U.S. state constitution (save Louisiana's). Moses was not just whistling Dixie when he quoted The Lord as saying "The land shall not be sold forever; for the land is mine, and ye are strangers and sojourners with me."

Chief Seattle would have approved. So would Brigham Young, who founded the once-independent nation of Deseret on that principle.

Moses was also speaking just as William the Norman spoke after conquered England, except that Moses was also a theocrat. "You hold title to this land from me; observe my rules."

That's the law we have inherited; that's how the system works. In one form or another it is found around the world, except in the minds abstract economic theorists like those of the Chicago School.

3. "You cannot take real property without compensation"

Wrong! Whoever said that has not been following zoning law. As a rule of thumb, zoning can take away about 85% of the use value of land before it is declared an unconstitutional 'taking' of property.

The owner must be left with some 'economically viable' use, meaning almost any use whose revenues exceed expenses, however small the net gain.

As to other property, well! No one has yet been compensated for losing the fruits of his sweated brow to the IRS, at rates which once soared as high as 90% in the top bracket.

4. "If property falls, America falls"

Wrong, at least in my opinion. Property is not an end in itself; it is a means of getting resources put to their best use for the general good.

To secure that end, property rights are instituted among men, deriving their just standing from the consent of the unpropertied.

Whenever any form of property becomes destructive of that end, it is the right of the people to alter or to abolish it, and to institute new principles most likely to effect their safety and happiness.

Consent of the unpropertied?

That means property must work for the benefit of all, not just those who own property.

But abolish property!?

That is a red flag indeed, but note I said alter or abolish, and it is our own Declaration of Independence I am paraphrasing.

Like Jefferson, I generally prefer alter to abolish: 'abolishing' something is nihilistic until we know what we want to replace it with.

The point is, we have many degrees of freedom as citizens; we are not bound body and soul by decisions made, or allegedly made, in the past.

5. "The cost of water is passed through to consumers in higher prices"

Wrong! At last I'm in my own field. Prices are determined by supply and demand, not cost. If you sell in a national or world market, or even a competitive local market, you are a price-taker, not a price-maker. You can't pass cost hikes on to consumers; you have to eat them.

In addition, water (like energy) is an unusual kind of input whose high price may actually increase production.

It would be easy to assume, using the good old idea of diminishing returns, that dearer water would reduce intensity of land use.

It certainly cuts water use, but when you pay more for water you often switch to higher-valued crops. That is what Southern California farming is all about. You substitute capital and labor for water on the same land, and often raise yields per acre.

You cannot afford to dump high-priced water on barley, or alfalfa, or rice, or irrigated pasture, or any other of these domesticated phreatophytes that guzzle up most of our underpriced water today.

A number of fairways and cemeteries would also give way to higher-valued uses.

With dearer water you use less by controlling it better, switching from primitive furrow irrigation to sprinklers, spitters and drip.

This in turn lets you do new things like growing avocados on steep hillsides formerly barren, yielding more dollars of product for less water (and in this case on waste land).

The above facts point to a fascinating, portentous corollary: you can tax water withdrawals without wrecking the water economy.

On the contrary, such taxes (carefully crafted to be constructive) can encourage conservation, getting more bins and bales for the bucket, so to speak.

Americans are raised on anti-tax slogans masquerading as economic analysis, always presuming taxes destroy good incentives and wreck the economy.

Here is a kind of tax that raises revenue while strengthening the economy.

This corollary is too good to drop, and is highlighted later.

6. "You can't stop a landowner from pumping on his own land"

Wrong! You can even control his hunting and fishing there, and apply police power. As to pumping, it depends on whether he owns what is under his land.

If it is oil, we all know mineral rights are routinely severed from surface rights by sale, reservation or lease. Water can be subject to constraints, too.

Limits on pumping water are not as common or severe as Huey Johnson and I think they should be, but they do exist. In coastal areas, pumping is limited and/or taxed to stop salt water intrusion.

Further inland, pumping can be stopped to control movement of toxic plumes that destroy valuable aquifers: this is done in the Bunker Hill aquifer under the Santa Ana River, threatened with fouling by toxins from Norton Air Force Base, San Bernardino.

Pumping is routinely stopped to prevent 'export' of water from lands overlying an aquifer: California calls that the 'correlative rights' doctrine. It is not always well observed, and not often well-advised, but very well established.

If that does not suffice to stop overdraft, pumping is controlled to prorate water among surface owners, and shorten pump lifts.

Also, pumping wells near streams can be stopped to prevent the indirect diversion of surface water. This happens on the alluvial fans that are so common in the west.

A simple solution to half our tractable water problems would be a severance tax on water withdrawals. If you can regulate it you can tax it.

A tax can be viewed as nothing more than an economic price charged by the owner of water (the state) for using its property.

If Chicago-School (and Rand Corporation) economists were more consistent in their ardor for the price system, and less consistent in their anarchistic mistrust of legislatures, they would seize upon this obvious application of the price system and boost it with all the considerable influence they wield.

Whether one chooses taxation regulation, we must control pumping in some manner if any system of surface control is to work.

While California rations and conserves surface water, landowners in the arid San Joaquin Valley just punch more and more wells into the aquifers and pump up free water the State keeps recharging at high cost.

Thus they play out their destined role in The Great Water Treadmill: subsidized water supply followed by overdraft followed by State rescue projects followed by new overdrafts, etc. ad bankruptcy.

This treadmill got well started in 1913 when Los Angeles tapped the Owens Valley waters to supply free water in the San Fernando Valley.

The lands there were timely pre-purchased by insiders, giving a clue to the forces behind the premature seizures and diversion of water.

The episode was dramatized in the film Chinatown, so the scenario is often now labelled 'the Chinatown syndrome' although the key names like Mulholland, Otis and Chandler sound distinctly occidental.

It is not just history; it is the present and near future: the Great Treadmill keeps turning. The Metropolitan Water District of Southern California (MWD) now presides over our destinies.

The MWD presses for more water sources, preaches domestic conservation, imposes rationing on its old customers -- and annexes new desert lands to water.

In similar fashion, Kern County landowners keep irrigating desert lands and overdrafting, while petitioning the Sacramento legislature for 'emergency' aid.

7. "Economics is hostile to environmentalism"

Partly wrong, although some economists are guilty as charged. Economics, properly pursued, deals with how best to meet human wants. Recreation, fishing, wildlife, amenities, clean air, pure water, sustained resource supply, watershed protection, good health, and conservation are legitimate human wants.

Many economists, I confess and deplore, are blind to such values, and think only of maximizing GNP measured in the brutal old-fashioned way, developed during World War II for war's emergency purposes and never revised.

Others, cowed by cow college deans, dare not think at all, and write only of sustaining farm land values: damn the cost to others.

Many others, however, are leaders in developing environmental and resource economics. Today wise environmentalists, rather than sniping at all economists, are allying with the last kind.

Here are four reasons why environmentalists and economists are natural allies.

(a) Economizing is conserving.

Rationalizing water use, the proper aim of economics, is inherently conserving. For example, if we put the Santa Ana River to its highest and best use, it would obviate megatons of water imports, and with them the associated environmental damage.

I myself possess a share of this river, which rises naturally in an area of intense water shortage, yet I waste it. Why? There is hardly any variable charge imposed on me for using more. There is a yearly fixed cost, at about $20 per acre-foot for a 'standard' amount. The 'standard' hasn't changed in a century, and is much more than I properly need.

Incidentally, the small charge covers expenses of the Gage Canal Co., which delivers to me in the cheapest old-fashioned way, by gravity, in rotation with other users. There is no charge at all for water as such.

Meantime, the State is importing water here at a true social cost of about $2,000 per acre foot, 100 times what I pay). If there were a market where I could sell my 'right' for a tenth of that price I would surely do so, but there isn't, so I am waiting. If there were a price charged to me at a tenth of that cost, I would not buy, but there isn't, so I am taking. Thus I, and thousands like me, just stand pat and waste water.

Abuse of local waters in arid areas of high demand, like Southern California, results in 'hydro-imperialism.' The prevailing ethic is mixed-up macho. Conservation is for sissies: Real Men don't conserve water; Real Men prove they possess predatory genes by preying on peaceful people's waters. The predators can build more golf courses in the Sonoran desert of the Coachella Valley.

(b) Subsidy wastes both dollars and ecologies.

Hydro-imperialism is the common enemy of Sierra Clubbers and economists. That is lucky for economists, because Sierra Clubbers have more clout. For example, twenty years ago some pork-barrellers proposed pumping water from the lower Mississippi River up to West Texas, to overcome drought in Lubbock. It was to be one of the The Great Boondoggles -- a real record-smasher for pure waste.

I laughed when I read ecologists were fighting it to save the habitat of some unremembered nothing-bird, say the 'Least Southwestern Shiny-rumped Fleapicker.'

It seemed so funny to have a few ocular bird-freaks dragging in their eccentric boy-scout hobby, when billions of real values like dollars were at stake.

I'm not laughing any more: the Shiny-rumped Fleapickers won! Damn the billions, Congress doesn't care, but it jumps for organized ornithologists.

Now I dare admit the truth, I'm an old bird-freak myself; complete with ancient bird study Merit Badge on my old scout sash, and an honorable arrest for trespassing in hot pursuit of; as I recall, an Oven Bird.

Even bird-hating economists should be glad, because ornithologists are winning our battles. We are natural allies.

'You have no right to stop growth,' says the hydro-imperialist. I agree, but insist on the counterpart: we have no duty to subsidize growth. Hydro-imperialists and allied land speculators have no right to demand subsidies. Water supply and flood control and navigation projects, the traditional kinds, are heavily subsidized. Subsidy generates waste almost by definition, in the amount of the subsidy. If it is a subsidy to withdraw water it also creates scarcity of water where nature may have given us plenty. Consider the lower Colorado River.

Every major user is subsidized, mostly by Congress. No one pays a dime for water at the source, but everyone gets paid to suck it up and take it home. No wonder there is a shortage. No wonder there are 82 golf courses operating in the Coachella Valley, a Sonoran desert, and 50 more planned.

No wonder The U.S. Bureau of Reclamation can't even find takers for water carried to Phoenix in its multi-billion dollar Granite Reef Aqueduct. I could go on, but exhorting Congress not to waste money is scolding sinners in Sodom. Come on, ecologists, find an endangered species!

(c) Correct economic analysis prescribes more water for fish

Twenty years ago a study on the S... River of B.... prescribed sacrificing the fishery to a proposed power project, reasoning as follows. The fishery has no value because it is overcrowded; 'its rent has been dissipated by the tragedy of the commons'.

The value of the catch is only great enough to pay the fishermen. The fishery as such therefore has no residual value; it adds nothing to the total value. Take it away and nothing is lost, net of costs.

That is a profound fallacy. You will have noted it is a way of 'dehumanizing' fishermen and assuming away their unemployment costs, but that is not my main point. It says you should remove water from the use that is crowded with people, and dedicate it to the use of fewer people. This violates the basic law of diminishing return'; (a.k.a. variable proportions). It violates good marginal analysis, a bedrock of economics.

My friend the author happened not to be an economist by training, but (alas! for education in economics) some 'trained' economists would do the same. In fact, however, the crowding of a resource does not mean it is worthless.

Rather, it has become extremely scarce to those crowded onto it, and the marginal value of water added to that use is extremely high. In terms of variable proportions, it has the same effect as removing some fishermen, which the writer would have approved.

(d) Correct economic analysis presumes public trusts

Another thing some economists do right is to acknowledge that 'entitlements' -- the initial assignments of property rights - have a major effect on the relative bargaining power of different parties.

For years, economists would ask, say, canoers what they as individuals would pay to keep a river wild.. They got rather low valuations, and duly reported them as the value of recreation. This was an effective defensive strategy for dam builders.

One day it occurred to some unsung genius to ask not what the canoer would pay for the wild river; ask what the power company would have to pay the canoer, and all potential canoers, to extinguish their entitlements.

The second question presumes that canoers, as citizens, already own the wild river.

In recent years ecologists have been catching onto this point and rubbing the noses of legislators and bad economists in it. In the currert lingo, one arguing ex parte the canoers stresses that canoers' WTA (Willingness to Accept) is the relevant dollar value, and it is higher, perhaps much higher, than their WTP (Willingness to Pay).

In defense, the black-hat economists are developing the new defensive strategy of trivializing the matter by claiming WTP = WTA.

They follow a Chicago-School guru, one Ronald Coase, who has written it doesn't really matter how you assign entitlements so long as it is clear and firm. Then just call the signal for 'Free Market!' an punt: everything will work out for the best. Property will be allocate the same, no matter who starts the game with all the chips, because WTP = WTA.

Bunk! You are not surprised when someone says 'My home is not for sale. I will not sell at any price' even in our highly mobile, commercially oriented society. They can take that attitude when they hold the initial entitlement.

You would be amazed to hear anyone say 'I will pay any price,' There are many documented instances of a person swearing under oath his land is worth no more than $X for tax assessment purpose and soon thereafter swearing again it is worth $15X when being condemned for a park or other public use, because he wouldn't sell it for less.

Modern' micro-economics is a throwback to the old Manchester School, some of whose members carried Adam Smith far beyond Smith's intent. They prescribed 'free trade in land' as the solution to all resource problems -- free trade beginning with entitlements inherited from millennia of conquest, corruption, aristocracy, confiscations, negligence, covin and fraud.

In this narrow view, everyone is an economic man; everyone has his price; all decisions are marginal; etc. Facts are forced to fit that theology. One modernist works the northwest Pacific Coast these days taking questionnaire surveys to put a value on environmental values. He has written that he rejects and screens out WTA answers when they exceed WTP answers by more than 5%. They don't fit the model, so they are invalid 'aberrations.'

If so, aborigines are aberrations. Consider Indian tribes with Treaty Rights to fish. Their WTP for those rights is minimal, partly because their ability to pay (ATP) is minimal. In addition, the mere hypothesis they are the ones who must pay implies they are impoverished and cannot pay anything.

On the other hand, their WTA presumes their Treaty Rights are valid and they are in control. In their culture, traditional land rights rank very high relative to money. They have seen people squander money and be ruined by it land is not squanderable, by nature. Land has more than marginal value to them because they have just one way of life, based on fishing. Substitution of other lands is not part of their ethic. Religion is also involved. It is entirely believable they mean it when they say they will not sell 'at any price.' They may be unreasonable, but that's the point: ownership lets you be as unreasonable as you please. We only notice when someone else has the entitlement. Politics and institutions are involved: Treaty Rights are the most valuable mode of holding property there can be. They enjoy legal supremacy as high as the Constitution itself (Article VI, Section 2), preempting contracts and ordinary legislation.

Indians are an extreme case, but most of us have a streak of their psychology. Not many generations back we shared the same kind of culture, a dependence on traditional lands we held in common, in trust for our descendants. These traditions affect current behavior, and are totally disregarded in mechanical-type formal micro modeling (except perhaps as tautological 'revealed preferences').

So, a pox on economists who belittle the importance of entitlements. They deserve the scorn and paranoia they evoke in environmentalists. The proper answer to them is, "if entitlement doesn't matter, give it all to me.' At the same time, give a break to other economists who are on your side. We need all the help we can get.

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Wealth and Want
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