So how exactly do we know that the political failure modes, in this case, would be worse than the market failure modes? Last I checked, formalized, real existing markets are extremely vulnerable to political manipulation by both public and private actors/participants (using the public actors as proxies).
So we trade in political volatility for political volatility plus market volatility (positive, though perhaps small)? That doesn't sound like a good deal to me...
In addition, how on earth are you going to make water fully private? If I look up and open my mouth when it's raining will the police bludgeon me? What about if i set a bucket outside (some municipalities already punish this, actually)? Will a representative of Goldman Sachs insist on weighing me before and after I go rafting, lest I take more water than I paid for home in my stomach and soaking wet clothes?
I'm not being (entirely) hyperbolic here, look at intellectual "property" as an example. It isn't a perfect fit, of course, since water is finite. However, the blunt-instrument style enforcement is, I suspect, an excellent model for what would happen if water were to be made 100% private property.
How many people have been sued for minor infractions? How many times has the government drastically overstepped its authority to enforce IP laws? How many lawyers have grossly abused the court system to enrich themselves on the backs of innovative companies that accidentally violated vague patents?
These things happen partly because IP laws are really, really hard to enforce adequately and evenly. I see no reason why enforcement of water "ownership" would end up any differently.
> So we trade in political volatility for political volatility plus market volatility (positive, though perhaps small)? That doesn't sound like a good deal to me...
I invite you to name a successful country with a high standard of living which has only political volatility, according to your model.
> In addition, how on earth are you going to make water fully private?
Not what I was proposing. And you are correct that private property does not make a good fit "non-excludable" goods. However, some water is excludable (river flows, lakes, tanks, pipes) and some isn't (rain).
Where a thing can be traded, there are well recognised advantages to allowing that trade. Arbitrage can smooth prices across multiple markets, some derivatives can smooth prices across time. The use of floating prices allows water to mostly wind up where it is currently most urgently needed.
As you can imagine, we talk about water a lot in my country. We seem to have the same key distortions as everyone else: an agricultural sector that is either directly or indirectly subsidised at the expense of everyone else. Sometimes it's an industrial sector that gets the unusually cheap water.
Hayek has an interesting chapter in one of his books[1] (not sure which exactly) about why people distrust the market: it seems like you're being dealt an unfair hand by an invisible agent. And surely if one agent can deal a bad hand, another agent can set things to right.
But there was never such an agent to begin with. It was an emergent phenomenon.
I have a blog post outline somewhere that ties this into faces in clouds and Borges's The Lottery in Bablyon[2]
[1] The chapter title is "'Social' or Distributive Justice", I read it in the collection Essence of Hayek.
I'm not arguing that trade can't work, I'm arguing that a market in water would be a magnet for abuse and exploitation. The problem I often have with these sorts of economic debates is that economists tend to see politics as an after-thought, something that will "take care of itself" and can assumed away or ignored. The devil is in the details, and economists hate details.
I don't recall where I heard it, but one of my favorite quotes is that economics takes as its domain the set of solved political problems. Based on a quick search it was Abba Lerner. Galbraith has a similar quote about this issue. Saying that trade in water will get it to where it needs to be implies that there are no political issues involved.
Will every politician really just sit back and tolerate net outflows of precious water? Doubtful. What about "bubbles" in a hypothetical water market? Even if you assume that the government usually causes market bubbles by meddling, they still happen. Is there any reason to believe they would not happen in a market for water? A housing or tech stock bubble is unfortunate, a water bubble could be devastating.
My point is that a formal, large-scale commodity market for water could, and probably would, be manipulated beyond recognition as a means to achieve political aims and personal enrichment (of the less-than-savory kind). This is not an economic problem. The efficiency of markets is completely irrelevant if the actual, existing markets themselves are inefficient. The problem, it seems to me, is a political one, and it has not been solved.
So we trade in political volatility for political volatility plus market volatility (positive, though perhaps small)? That doesn't sound like a good deal to me...
In addition, how on earth are you going to make water fully private? If I look up and open my mouth when it's raining will the police bludgeon me? What about if i set a bucket outside (some municipalities already punish this, actually)? Will a representative of Goldman Sachs insist on weighing me before and after I go rafting, lest I take more water than I paid for home in my stomach and soaking wet clothes?
I'm not being (entirely) hyperbolic here, look at intellectual "property" as an example. It isn't a perfect fit, of course, since water is finite. However, the blunt-instrument style enforcement is, I suspect, an excellent model for what would happen if water were to be made 100% private property.
How many people have been sued for minor infractions? How many times has the government drastically overstepped its authority to enforce IP laws? How many lawyers have grossly abused the court system to enrich themselves on the backs of innovative companies that accidentally violated vague patents?
These things happen partly because IP laws are really, really hard to enforce adequately and evenly. I see no reason why enforcement of water "ownership" would end up any differently.