Coyote Blog

I wrote about Michigan governor Granholm's taxpayer-funded initiative to make Michigan energy independent of, uh, Kentucky

Governor Granholm and Gov. James Doyle of Wisconsin seem to be tormented by the fact that the Midwest industrial engine imports much of its energy needs from coal states in the east and west. "Doyle has estimated that $226 billion leaves the region each year in energy costs that could be saved with alternative-energy installations and support jobs here," reported the Detroit Free Press.

I pointed out the absurdity of drawing every smaller circles on maps and claiming that wealth depended on that circle being self-sufficient.

But the pithy comeback would have been to ask how Ms. Granholm would react if, say, the the governors of California or Texas announced that were upset that billions of dollars leave their state every year to buy cars and that they were suggesting taxpayer-funded initiatives to free themselves of dependence on Rust Belt states for their transportation.

There has always been a slippery slope to trade protectionism -- if it makes us all richer to draw a line around the United States and prevent more goods from crossing that line one way vs. the other, shouldn't it make us even richer to draw that line even smaller?  What about around a state?  If the US is better self-sufficient, shouldn't the same thing apply to Missouri? Or St. Louis?  Or University City?  Or the Delmar Loop?  Or just the house on corner of Waterman and Kingsland?

We see this idea in full flower here, from Michigan's Governor Granholm (via my Princeton classmate Henry Payne):

At its conference here last week, the Midwest Governor's Association (MGA) -- chaired by green queen Jennifer Granholm of Michigan -- said it wants to claim the future by transforming the Rust Belt into the Green Belt. But in calling for energy independence from other U.S. states and embracing a 30 percent renewable energy standard by 2030 (up from 2 percent today), the MGA's prescription is a giant leap backwards.Governor Granholm and Gov. James Doyle of Wisconsin seem to be tormented by the fact that the Midwest industrial engine imports much of its energy needs from coal states in the east and west. "Doyle has estimated that $226 billion leaves the region each year in energy costs that could be saved with alternative-energy installations and support jobs here," reported the Detroit Free Press.

My personal view is that Granholm actually hates Michigan.  How else to explain why she keeps doing things like raising the minimum wage and keeping taxes high to fund goofy energy schemes in a state with the highest unemployment in the country.

A week or so ago, the Toronto Star accused Phoenix of being "unnatural" and hypothesized that water shortages would soon drive people in a reverse migration to the Rust Belt, where lots of underutilized infrastructure exists.  I had a long, long response, because there was just so much silly stuff in the article, but you can bet I argued:

1. Why is it unnatural for Phoenix to depend on water moved from long distances but it is natural for Buffalo and Cleveland to depend on hydrocarbons for winter heat moved from a long distance away?  When did self-sufficiency in water become the be-all end-all judge of city sustainability?  And how do cities dependent on big old coal-fired plants criticize the CO2 footprint of a city powered by the largest nuclear plant in the country?
2. To the extent Phoenicians are inattentive to water use, it is because we have some of the cheapest water in the country, provided to us at ridiculously low rates to politicians who would rather manage water supply and demand through command and control than through price and markets.  Much of Arizona's water use is in agriculture, where water hungry crops are grown in the Sonoran Desert because of subsidized water use rates and federal agricultural subsidies.

I did a bit more research, and found this:

In an average year, Arizonans go through about 7.25 million acre-feet,
or nearly 2.4 trillion gallons. Put a different way, that amount of
water could support a residential population of nearly 30 million
people.

Except it doesn't. It's supporting a population of 5.7 million - and a
lot of farms, which use about 68 percent of the state's water.

I have no problem with whoever wants to use the water.  If people want to make a go of cotton farming in the desert, power to them.  EXCEPT when the government provides them massive subsidies for doing so, as is the case in Arizona (and most all southwestern) agriculture.  Cotton farmers, for example, receive massive government subsidies for growing their crops, and water their plants with subsidized artificially low-priced water.  If the distortive government subsidies went away, and water prices were allowed to float up to where supply met demand (and we were not draining down aquifers and Lake Powell) then my guess is that a lot of desert agriculture would disappear.

By the way, I am also perfectly willing to believe that if water prices rose, there would be fewer people moving to the area.  Fine.  However, this effect would likely be small, since water costs are only a small percentage of the costs of home owning but are a huge percent of the costs of agriculture.   But I think we can see that trying to blame Arizona's water problems on inward residential migration is  pointing the finger in the wrong direction.

Interestingly, even that great bete noir of environmentalists and outside critics, our golf courses, really have a minimal impact on the water use:

Everyone's favorite culprit, golf courses use two-thirds of the
industrial supply, or about 4 percent to 5 percent of the total supply.
Some courses use treated effluent, or "gray water." Scottsdale, for
example, requires any new course to use gray water or bring its own
supply.

Postscript:  Water is one of those weird topics, a bit like health care I guess, where most people seem to assume that the normal laws of economics do not apply.   Over the last several months, I have probably read 30 articles on Arizona water use.  Not one single time in any article have I seen mention of the word "price."  Its all about what command and control methods we need to exercise.  Take the guy they interviewed for the article above:

Charles Buerger, who divides his year between homes in Gilbert and
suburban Chicago, is sometimes surprised that people in northern
Illinois, on the banks of Lake Michigan, seem more concerned about
water use than people in dry Arizona.

"They have every-other-day grass watering back there," Buerger said.
"They fine you if you're overwatering or if you're watering on days
you're not supposed to. They're very conscious about water supplies.
The way Arizona's growing, you just wonder, 'Where's all this water
coming from?' "

Pricing matters, even for water!  Not silly even-odd day lawn watering laws.  Just look at these numbers:

What could explain more eloqently why I paid more attention to how I watered my lawn in rainy Seattle than desert-bound Phoenix.  Remember gasoline in the 1970's.  It wasn't even-odd day rationing that solved the supply crisis; in the end, it was elimination of price controls.

Update: The Toronto Star argued that Phoenix represented environmental Armageddon while the Great Lakes region was the environmentally smart place to live.  They suggested "that in the
Great Lakes basin, where less than half a per cent of the world's
population sits within easy reach of a quarter of the planet's fresh
water, the opportunity for harmony exists."  Of course, that's only if you ignore the fact that these cities treat the Great Lakes like one big toilet:

"The Great Lakes basin is one of the most important freshwater
ecosystems on the planet - holding one fifth of the world's
freshwater," said the report's author Dr. Elaine MacDonald. "Yet, the
20 cities we evaluated are dumping the equivalent of more than 100
Olympic swimming pools full of raw sewage directly into the Great Lakes
every single day."

This is the kind of stuff that has a lot higher immediate impact, and should be worked long before, tenuous claims of damage from CO2 production.

For the lack of a better term, I will call large, old-line union dominated companies "Big Rust Belt."  These are companies that tend to have strong unions and that have compensation packages most new companies eschew (e.g. defined benefit rather than defined contribution pensions).  These companies tend to be experienced rent-seekers, and usually are beneficiaries of protectionist practices.  I generally lump the big 3 auto makers (and much of their supply chain) and integrated steel manufacturers in this description.  Other industries, like traditional airlines (e.g. United but not Southwest) also fit in this description.

Already over the past several years, Big Rust Belt has been getting bailouts of their defined-benefit pension plans.  Going forward, Big Rust Belt is looking for the government to bail them out of their health care obligations as well.  Big Rust Belt began offering health benefits as part of their compensation packages in WWII, when government wage freezes made it difficult to compete for labor, and offering health benefits was a way to evade the wage laws.  Health benefits grew in popularity at a time when it seemed reasonable that your employer might still be alive and employing you forty years from now, and because Congress and the IRS made these plans tax-preferred over cash compensation.  Short-sited corporate executives began offering retirement health care in labor negotiations as a way to reduce cash wage increases, on the theory that cash wages hurt the bottom line now while retiree benefits hit the bottom line, well, on someone else's watch.

Now these health benefits are an albatross around these corporations' collective necks.  Not only are they bankrupting them, but smaller companies who were not so dumb as to make these promises to their employees are out-competing them. 

So Big Rust Belt wants at least three things:

• It wants the government to force its smaller competitors to have to offer the same health insurance it was dumb enough to promise.
• It wants the government to take on a portion of its medical obligations, particularly for retirees
• It wants to government to by law limit the procedures it has to pay for (i.e. ration care), something they have been unable to do in their union negotiations.

And, surprise surprise, given that Big Rust Belt is even better at rent-seeking than it is in running its core businesses, state and federal governments look ready to deliver on all of these.  Each of these is a feature of the governator's new plan, and all are features of various Hillarycare models discussed by Democrats in Congress.  So no one should be surprised when GM CEO Robert Lutz says:

he expects the new Democratic-controlled Congress will be more understanding on health care issues

"More understanding" means "more ready to bail Lutz and GM out of there business problems."  And remember that for Big Rust Belt, universal health care does not mean "great, now everyone can have health care";  it means "great, now we don't have to bother competing with any companies who are smarter about how they have compensated their employees."

Update:  More Big Rust Belt rent-seeking here.