The visible hand in economics

Make friends, not dams

Posted on: November 12, 2008

Federated Farmers’ press release:

…if government increase[s] infrastructure expenditure it should spend money on building dams rather than cycle lanes. …Water storage is critical to New Zealand’s future. It is well known that farming is the backbone of the economy. Current run of river water allocation systems see farmers too vulnerable to drought and floods.

The government’s State of the Environment report 2007:

The increase in total water allocation in New Zealand between 1999 and 2006 can largely be explained by the increase in demand for irrigation. The amount of consented irrigated land in New Zealand increased by 52 per cent over this period…

Water is getting scarcer and scarcer worldwide and it’s only a matter of time before NZ feels the pinch, too. Farmers say they should get the water becasue they’re our ‘backbone’; environmentalists throw up their arms in dismay; the government implements ad hoc water restrictions and gets lobbied by everyone.

Luckily, economics provides a solution to the problem: tax water such that the cost of using it is equal to the marginal social cost. It’s currently exploited as though there are unlimited supplies, as is every common property resource, simply because nobody has an incentive to conserve it. The best thing to do at the moment is to grab it before anyone else does and before it’s all gone. Why is there such a reluctance to implement a water pricing/rights scheme that will prevent such exploitation?


3 Responses to "Make friends, not dams"

I feel a bit redundant linking to a political party now that the election is over, but I believe the Greens were the only ones with a water policy. The gist of which seems to be:

Support councils to use water meters to monitor and record water use in residences and commercial properties, for educational purposes, to promote water conservation, and demand side management.

National’s environmental discussion document from 2006 appears to advocate tradeable water permits

Click to access A%20Bluegreen%20Vision%20for%20New%20Zealand.pdf

It’s good to see someone cares, but it’s sad that none of them care enough to actually do anything.

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