Markets Solve Scarcity

The Great Cascade Mountains
The Great Cascade Mountains
So far, the snowpack does not appear threatened.

Editor’s Note: The Property & Environment Research Center, once known as the Political Economy Reserch Center, is one of the founders of free market environmentalism. They tackle a complex, and less emotionally accessible ideology, compared with today’s conventional wisdom which relies on big government.

How do you explain property ownership promotes environmental stewardship, when big government advocates can rhetorically claim private property nurtures greed? How do you argue that lower taxes and takings will create wealth and require less government for more quality of life for everyone, when big government can point to every poor person, every fouled property, and demand laws and regulations and more taxes for them to fix it? How do you explain market forces can ensure clean, responsible growth better than government controlled growth? It’s not easy, nor is everything black or white.

The Property & Environment Research Center (PERC) includes many renowned economists on their roster, including the author of this article, Terry Anderson. He is one of the pioneers of free market environmentalism, and founder of PERC. If free market environmentalist principles aren’t getting more voice, it is perhaps because the measured studies of the PERC thinkers are not going far enough. Their tone is so restrained, their arguments so reasoned, that the ire of the free man is not sufficiently aroused. We here at EcoWorld, on the other hand, know our fight. We want more development, not less, more energy production, not less. How else can we inject fresh water desalinated from seawater back into our land and cities in cubic kilometer volumes, in order to rehydrate the earth and replace impending water rationing with price competition between water providers?

If anything should have the propaganda detector of the American population sounding off it sould be global warming alarmism and the obsession with CO2 levels. In the name of these imperatives, both of them supposedly well beyond debate, now all land development outside “urban service boundaries” (along with all water and power development virtually anywhere) will be almost completely under the control of the government, and their willing lackeys, environmental financial interests. And why not have CO2 offset trading? It will pump a lot more money through the brokerages than privatizing social security. Never mind the FACT that European carbon offset payments are well on their way to having financed the destruction of millions of square miles of former tropical rainforest, with all the attendant consequences to global climate, indigeonous ownership, and wildlife protection. But Wall Street isn’t about to forfeit this windfall, nor are the environmentalists and their allies in big government. So who is left to fight the good fight?

With over two decades of intellectual leadership in the free market environmentalist movement, Terry Anderson knows what is happening in America today, and in measured tones, he is taking on the global warming alarmists, and their powerful backers. The example he provides here of intimidation of global warming skeptics by powerful government officials, in this case a government-employed climatologist in Washington state, is one of many. In July 2006, the President of ACORE (the American Council of Renewable Energy, in which several official U.S. Government Agencies belong), in a highly publicized gaff, openly threatened author Marlo Lewis, of the Competitive Enterprise Institute, who has published a series of essays questioning global warming (ref. “Let Skeptics be Skeptics”). Noted and reputable atmospheric scientist Richard Lindzen, of MIT, has published another report (ref. “Is There A Basis For Global Warming Alarm”) which lists additional cases of intimidation of global warming skeptics within government agencies, the academic community, and through demonization in the press. So read on, and remember the truth is rarely found without debate, nor is falsehood long held, when debate thrives. – Ed “Redwood” Ring

Fightin’ or Drinkin’
by Terry Anderson, PERC Reports, June 2007
The Grand Coulee Dam
The Grand Coulee Dam
So far, there’s plenty of water year-round.

Not surprisingly, global warming is getting the blame for drought conditions in many parts of the American West. For example, in the January 31, 2003, issue of Science, researchers from the National Oceanic and Atmospheric Administration (NOAA) reported that recent droughts in the West are caused at least partly by global warming-induced rises in western Pacific and Indian ocean temperatures. Pointing to data between 1950 and 1995 showing that snowpack accumulation in the Cascade Mountains had decreased 50 percent, Todd Myers of the Washington Policy Center, said this: “In a state where salmon, hydroelectric power, and water resources generally depend on snowpack, the claim is a potential blockbuster.”

Before jumping on the mayor’s bandwagon, however, it is important to note just how careful we must be in making causal inferences based on selected data. The Washington Policy Center reports that Associate State Climatologist Mark Albright saw different trends in the data, casting doubt on this so called “blockbuster.” In a memo to scientists at the University of Washington, Albright suggested that there may have been some “cherry picking” with the 1950 to 1995 data. As he put it,

“I believe a more accurate statement would be along the lines of 1) The average snowpack in the Cascades has increased over the past 30 years in spite of the steady upward trend in global temperature, or

2) Long term data indicates no signifcant trend in Cascade Mountains snowpack over the past 90 years, or

3) The snowpack (1997-2007) at Mt. Rainier Paradise has increased 11% since the 1940s.”

For his reinterpretation, he was told that he could no longer use the title of Associate State Climatologist.

Such controversies permeate the global warming debate because it has become so politicized. In the case of water supplies in the American West, for example, there is nothing more political than the plumbing system created by the Bureau of Reclamation and Corps of Engineers. As moisture patterns shift, whether due to global warming or other causes, agricultural users may find their irrigation water gone, salmon may be left high and dry, and hydroelectric producers may be called on to replace more fossil fuel production. Making these tradeoffs in the context of the West’s water pork barrel, however, will not be easy.

For this reason, stories such as those in this issue of Reports none of the proposed global warming policies, including doing everything proposed in the Kyoto Protocol, will have any meaningful effect on temperature or sea level changes. Moreover, predictions of local impacts of global warming as indicated by the above example are less than precise, making governmental planning problematic.

Assuming that predictions from the global warming models regarding higher temperatures and increased variance in precipitation patterns come to pass and that there is little we can do to reverse the predicted trends, the best alternative is adaptation. For centuries markets and their prices have led demanders and suppliers alike to adapt to food shortages and abundances, to energy crises, and to weather patterns. The same will be true for global warming impacts if we let the invisible hand of the marketplace do its work.

Specifically, in the case of changing water supplies, markets have the potential to encourage adaptation if water rights are clearly defined and transferable. For decades western farmers and ranchers have transferred water rights between one another to accommodate variable stream flows. More recently, growing demands for environmental water uses such as pollution dilution or instream flows for fish and wildlife have been met through willing buyer-willing seller trades. Traditional “use it or lose it” rules are being modified to allow irrigators to transfer their rights, permanently or temporarily, to instream flows. In Idaho, for example, the 2007 legislature unanimously approved the Wood River Legacy Project, which allows ranchers to temporarily dedicate their irrigation water to instream flows without the risk of losing their diversion rights. Between 1998 and 2005, approximately 6 million acre-feet of water in the West were restored to instream flows through leasing, permanent transfers, and donations.

Where water prices signal the true scarcity value of water, people find innovative ways to conserve and trade; where prices do not reflect scarcity value, water is wasted and political battles rage. Opening markets to non-traditional environmental uses is a major step toward making prices reflect alternative values. The more that we reform legal institutions to lower the cost of water transfers from one use to another, the more we can adapt to changing demands and supplies regardless of what is causing those changes. With water markets, Mark Twain’s adage that “whiskey’s for drinkin’ and water’s for fightin” transforms into “water’s for tradin’ leavin’ more time for drinkin’.”

Terry Anderson Portrait

About the Author:
Terry Anderson is the Executive Director of the Property & Environment Research Center in Bozeman, Montana, a nonprofit institute dedicated to improving environmental quality through markets. Mr. Anderson is also a senior fellow at the Hoover Institution at Stanford University, and an economics professor (emeritus) at Montana State University and co-author of Water Markets: Priming the Invisible Pump (Cato Institute, 1997). In his “On Target” column, PERC’s executive director TERRY L. ANDERSON confronts issues surrounding free market environmentalism. Anderson can be reached at

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