Resource Development vs. Rationing

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California’s decision to “decouple” the amount of revenue their regulated public energy utilities receive from the amount of energy they deliver is hailed by environmentalists as a breakthrough. But the consequences of this decision to enforce artificial scarcity are not fully appreciated. It might be argued that this policy of “decoupling” the amount of money you collect from the amount of value you produce is a dangerous tampering with the natural laws of supply and demand, and is orchestrated by special interests who benefit while the consumer is victimized. Now the NRDC, in a report released last month entitled “Making Every Drop Work: Increasing Water Efficiency in California’s Commercial, Industrial, and Institutional (CII) Sector,” wants to do the same thing to California’s water supply.

Here are two of the recommendations the NRDC makes that make chills run down my spine:

(1) Prioritize water conservation above increasing supply. The State of California should codify the requirement that efficiency improvements precede supply side resources—as it did in the energy sector—to motivate investment in water efficiency and recycling by agencies who might otherwise be awaiting development of traditional water supplies.

(2) Decouple water agencies’ sales from revenue. Water agencies should not need to rely on water sales to assure their fiscal stability. Water agencies should instead adopt a structure that allows them to recover additional money from customers if sales are significantly below projections. This revenue adjustment mechanism will enable water agencies to aggressively promote efficiency and maximize the conservation price signal for customers.

There is nothing wrong with encouraging conservation. But “maximizing the conservation price signal for customers” is akin to a cell phone company charging you less than 1.0 cents per minute for the first 500 minutes per month per your plan, then charging you 50 cents per minute for every minute you talk over your agreed 500 minutes per month. This unpopular practice amounts to rationing, and bears no relationship to the underlying costs to the provider. The 501st minute cost no more than the 500th, but the consumer paid 50 times as much to use that 501st minute. Now they want to do this with our water.

An alternative that would fulfull goals of water conservation would be to have progressive pricing based on water use, but based on reasonable tiers instead of these cliffs. This alternative to rationing could be calibrated to yield the same results, but wouldn’t punish people who simply place a higher value on using lots of water than others. People with gardens, or who like long showers, or otherwise have a legitimate personal preference for high per capita water use might simply pay 20% more for units of water use that go over their “limit,” and maybe an additional 20% if their usage goes beyond, say, twice their “limit.” Gradually escalating pricing tiers instead of imposing punitive tiers is a more humane way to encourage reductions in water use.

Returning to the NRDC’s other recommendation, prioritizing water conservation over increasing water supply is a recipe for disaster. There are significant ways to increase supplies of water – rebuild and upgrade interbasin aqueducts, build additional collection basins to harvest and store storm runoff, develop aquifer storage to harvest and store storm runoff, build more and better water treatment facilities to recycle waste water and send it back upstream, develop large-scale desalination plants, encourage “smart irrigation” in the agricultural sector which consumes 80% (or more) of California’s water supply, and even, gasp, build a few more dams. Just allowing more farmers to sell their water to urban consumers would easily alleviate water shortages. The idea that a prosperous, technologically advanced region like California faces an inevitable water crisis is ridiculous, and the only way a genuine water crisis may occur is if development of water supplies is not given equal or greater priority to water conservation.

The reason these supply-side alternatives aren’t explored is because they require investment, and these kinds of infrastructure investments are prohibitive in California thanks to the power of trial lawyers who work for environmentalist nonprofits. More than anything else, rippling across the entire supply chain, the inability to cost-effectively develop infrastructure is because environmental lawsuits have tied virtually everything up in knots. And, of course, if these supply-side infrastructure development solutions were implemented, there wouldn’t be a “crisis” anymore.

Other than trial lawyers and environmentalist nonprofits, who benefits from all this? Not the consumer, who pays more for water and energy than water and energy should cost. Not necessarily even the environment, since desalination plants on the Southern California coast could give back millions of acre feet of water each year to the delta. Nor, speaking of the delta, would a peripheral canal, which would be able to inject water into the delta wherever needed, need harm the environment, especially if it were built in conjunction with massive development of desalination capacity on the Southern California coast.

The powerful additional beneficiaries of resource strangulation, artificial scarcity, and environmental alarm are California’s public sector agencies, who can take the artificially inflated prices, “decoupled” from any supposed obligation to develop infrastructure sufficent to actually deliver water and energy to the public at a reasonable price, and use it instead to inflate their salaries and benefits. The collusion between public sector special interests and environmentalist nonprofits is not being explored by journalists nearly as much as it deserves. In general, there is to-date a shameful failure of mainstream journalists, who presumably share a concern for the aspirations of the economically less fortunate, to expose these hidden agendas behind many “green” recommendations.

Prosecuting “Future Crimes”

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The “World Future Council” has recently issued a press release stating “Crimes against Future Generations need to become taboo” (pdf), with a lead sentence that states the following: “How can we prevent and prosecute activites today that severely threaten the living conditions and health of those living in the future?”

Does this sound sinister to you? If you don’t buy into some of the dominant concepts of mainstream environmentalism today, if you appreciate the potential for unintended consequences, and if you are paying attention to the ongoing momentum of mainstream environmentalism, you will find this pronouncement sinister indeed. Here’s more:

“The fundamental rights of future generations need to be recognized in international justice. Investigating the concept of Crimes against Future Generations is a very important initiative to support this,” according to Prof. Marie-Claire Cordonier Segger, a World Future Council “Councillor.”

Like most utopian concepts, this all sounds great except for one glaring, fatal flaw: We can’t predict the future, or the judgement of history. For example, in their press release, WFC notes the problem of rainforest destruction due to oil drilling – ignoring the fact that most rainforest destruction in the past decade or more has been financed by proceeds from European emissions allowance auctions, because “carbon neutral” biofuel plantations were considered until fairly recently to be eligible carbon offset projects. Deforestation on the scale of hundreds of thousands of square miles was enabled by social engineers of WFC’s ilk, their misguided utopian idealism only matched by their political savvy. In this case, the judgement of the future is already here – and the guilty parties are the same people who are proposing we create a new area of international law to prosecute who, themselves? Clearly, in the case of rainforests, futurists didn’t see the future very well at all, nor are they being honest today about what really happened.

Another obvious example of the simplistic arrogance of the WFC’s press release is their distaste for nuclear power, despite the potential of nuclear power to make significant contributions to global energy supply. Nuclear power is cleaner and safer than ever, but to read this press report you would think Chernobyl was yesterday. The irony is fascinating – these people presume to be so certain of the judgement of history some time in the future that they wish to prosecute those of us today whose projects may not fit their world view, yet these futurists have no faith in the potential for technology to ever deliver safe nuclear power! What technologies do they like, and why, and will their assessments be any more accurate than the ones that lead to the incineration of Indonesian rainforests to plant oil palms?

If crimes against the future are going to be prosecuted, perhaps we should prosecute those who in the name of environmentalism, fought, often successfully, to eliminate nuclear power, eliminate coal power, banned DDT and genetically modified crops, and in general restricted resource development of all kinds. Because when the history of the 21st century is written, it may be this version of environmentalism will be to blame for condemning humanity to a dark age of scarcity that was completely, utterly avoidable. So where are the legal briefs for this case? In what international court shall we file this lawsuit against environmentalists for “crimes against the future?”

Environmentalism today has been hijacked by powerful vested interests, including public sector unions, corporate cartels, and the “international community,” whose shared concern is preserving their elite status and squelching competition. They are abetted by irresponsible journalists who have not taken it upon themselves to verify all of the doomsday predictions coming out of the PR mills such as that of the WFC, nor are willing to consider alternative world views that might embrace entrepreneurial activity and resource development. They are also abetted by ambitious consultants, service professionals and entrepreneurs of all stripes who see in the green mania a good way to grow their businesses – and if they don’t think too hard, they may even consciously think they are saving the planet. But when the judgement of history is upon us, one hundred years hence, maybe it will be those who wanted to reform environmentalism, right-size government, and roll back the power of big labor who will be seen to have fought the good fight. Green is a complex color – it reflects a great deal of genuine beauty and promise, but shades of darkness as well.

Prosecuting “crimes against the future” is a snake pit, writhing with opportunists and their useful zealots, and nothing more. It is dangerous, it discredits the genuine values and challenges of environmentalism that should be addressed, and threatens our freedom.

Exposing Public Sector Unions

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Several years ago a consummate Sacramento insider told me “unions run this town,” and subsequent research and observations have confirmed the truth of this statement. Slowly, very slowly, this reality, and the disastrous fiscal consequences of this reality, are being recognized. Criticizing unions is still something responsible people do with some reservations, after all, in the 19th and through much of the 20th century, unions played a vital role in securing basic worker’s rights. These contributions should not be dismissed. But unions today, especially in the public sector, are a different beast entirely. In our current anti-capitalist political climate, unions are getting far less criticism than they deserve, particularly because in the case of state, city and county governments, the unchecked power of public sector unions are almost the sole reason we have a fiscal crisis. Here are some points to consider:

(1) Compensation to public sector employees is not limited to their wages, but must take into account the value of their increased number of paid days off (AND the “9/80” program which equals another 26 paid holidays per year), as well as the current year funding requirement (less whatever they contribute out of their paychecks which is usually only a fraction of the cost) for their retirement health and pension benefits. This “overhead” can easily double the annual cost for public sector employees, whereas in the private sector, overhead costs of this sort rarely exceed 25%. This overhead must be included when assessing how much public sector employees actually make each year.

(2) The state budget not only includes state employees but also payments to cities and counties. The overall personnel costs as a percentage of the state budget should include any payments that aren’t directly to state worker salaries but also payments to other entities (public sector contractors and other public agencies/governments) that in-turn are used to fund salaries.

(3) The state worker pension funds were NEVER as solvent as they were being represented by their managers. The internet bubble, then the housing bubble, were used as justification to beef up retirement benefits that were already unsustainable to still higher levels (in some cases retroactively!), at the same time as the required annual inflow of payments were actually reduced.

(4) State worker unions don’t have to strike – they control elections. To verify this, simply investigate the amount of money they are spending in statewide, city and county elections to finance campaigns of compliant candidates. California Assemblyman Niello recently told me he met with some fiscal conservatives to evaluate what it would take to successfully pass an initiative that would bring about genuine reform and the minimum campaign funding required was $100 million. As you know, the state worker unions spent a lot more than that in 2005 to crush Schwarzenegger’s initiatives. Why is this legal? Isn’t this the taxpayer’s money? Isn’t there a conflict of interests?

(5) Unions at the state, city and county level don’t just bankrupt public entities by virtue of the bloated salaries and benefits they coerce out of politicians whose survival depends on their campaign funds, they also do so by requiring public sector jobs to be far less efficient than they could be. When negotiating their contracts these unions are able to require higher staffing than necessary and narrowly defined job descriptions in order to create more jobs. Equally significant to these crippling work rules, union contracts also take away the meritocracy – they undermine the incentives for any public employee to take individual initiative. There is staggering additional cost for all this.

(6) One reason most voters are still unaware of the role of unions in bankrupting our government entities is because of the lack of balanced media reporting and commentary on the benefits of capitalism as well as the mounting quantity of credible arguments against global warming alarm. The welfare state creates jobs for government workers by breeding dependence. Global warming fees are the only way to inject significant new taxpayer dollars into government coffers. Media influencers need to take a 2nd look at the virtues of the private sector as well as the fallacies of mainstream environmentalism through the perspective of how government unions benefit financially from liberal politics and environmental alarmism.

(7) Unions were a necessity 100 years ago. But it is obvious that they have created legacy obligations that are totally unsustainable and completely unjustified. It is common for journalists to point the finger of blame at Wall Street, with good reason. It is also easy – and accurate – to blame the politicians who failed to regulate the mortgage lending industry. But why aren’t journalists looking at the collusion between public sector unions, politicians, and Wall Street? Over the past 25 years, one of the reasons the financial sector evolved and attracted the best and brightest entrepreneurs is because the manufacturing sector was taken over by unions. Who wants to work or invest in such an anti-entrepreneurial environment? And then the public sector unions demonized “corporate profits” at the same time as their pension funds took major stakes in these corporations. There is a lot of connectivity here, and very few reporters are trying to expose it. Does anyone really think public sector union bosses don’t get the fact that artificially scarce land, “urban service boundaries” and inflated home prices means more property tax revenue?

(8) Public sector unions provide the farm team for political office. The depth of the field of political candidates coming from the public sector simply dwarfs anything possible from the private sector. In the private sector we have to work all the time. In the public sector they get 2-5x more days off each year with pay, then retire early. And they have more incentive to get involved, because the politicians directly control the salaries they receive. If you look at the candidates for the entry level political offices; school board, water board, firefighters commission, whatever, the candidates and officeholders are nearly all current or retired public sector employees. When I visited the California State Republican convention last February, my unscientific survey indicated nearly ALL of the party activists are government workers. Three public sector unions were the primary sponsors of the event! There wasn’t a corporation in sight. What does that tell you?

Because of the failure of politicians and voters to adequately confront the crucial differences between unions in the public sector vs. unions in the private sector, government workers have taken over our government. The result is a far less efficient government, a government with a self-serving political agenda that skews towards more self-defeating entitlement spending and more environmental alarmism, and a government that has poured all their financial resources into paying themselves far more than the rest of us earn with comparable skills. Crucial investments in infrastructure are deferred under the pretext of environmental concerns, when in reality, that investment money is being diverted to pay grossly overmarket salaries and pensions for unionized public sector workers.

What needs to happen in Sacramento and at every city hall and county seat in California is the salaries and pensions of government workers need to be cut at least 20% (or more) across the board; in the case of pensions these cuts should be as much as 50%. That is the solution, NOT cutting jobs or services. And it would be nice to see a major newspaper support this editorially, and lay the blame where it belongs – on the decades-long failure of voters, journalists, and politicians to recognize and restrict the political power of public sector unions.

Californian Exceptionalism

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The golden state is aptly named. The state of riches and opportunity. California is High Sierra and endless ocean shores, redwoods, saguaro, rice, cotton, alfalfa, snow melt and seasonal squalls, rolling hills of oak and granite cliffs, breathtaking vistas and vast, varied terrain. California is rich in beauty, rich in natural wonders, rich in resources.

California’s people are a reflection and embodiment of the golden state, they are as varied as the landscape, and drawn from around the world, Californians have both created and sought this destination of dreamers. From Silicon Valley to Hollywood, from those who rushed to find the Mother Lode or worked to harvest the timber, the oil, the fruit of the land, the bounty of the sea, California’s people do its natural riches justice.

California is indeed unique, a teeming nation unto its own, drawing peoples from all the nations of the world. California is a geographically isolated region over a quarter-million square kilometers in area, located on the temperate western shore of North America, separated from the world by the Pacific Ocean to the west, the Rocky Mountains to the east, high desert to the south and dense forests to the north. And California’s people are equally exceptional.

From making movies to inventing megabits or engineering life, California’s contribution to global culture and economic development is impossible to overstate. California is Athens, California is Leonardo da Vinci, William Shakespeare, Friedrich Krupp. California’s culture and California’s technology are the vanguard of the world. This is California’s opportunity, this is California’s exceptionalism.

In this new century, among many other things, California now leads the world in green technology and green political savvy. This is ironic, of course, since California in 2009 is mostly perceived as mired in a political and fiscal crisis. But how this fiscal crisis is resolved – along with how California evolves in its environmental leadership – is California’s opportunity and challenge.

California’s finances are now in crisis because they, perhaps more than any other state in the U.S., have allowed their political class to become an elite, overpaid, anti-growth ruling class, completely alienated from their intrinsically entrepreneurial people. When California’s people reassert themselves, California will again surprise the world. Because the fiscal collapse happened first and was the worst in California, so too the cascading rebounds will also occur first in California. Few regions anywhere possess California’s literally incalculable innate wealth. If Californians can shrink government and roll back extreme environmentalism, the immense and diverse economic might that defines California will leap forward again.

Reforming government is relatively simple. Spend less. Stop borrowing.

Reforming environmentalism is harder, but here are a few suggestions:

(1)  Develop additional nuclear power, it is safer than ever. Reprocess and reuse nuclear fuel.

(2)  Build a liquid natural gas terminal off the California coast. Diversify and build overcapacity of electricity generation to become an electricity exporter.

(3)  Use high voltage underground direct current technology to upgrade California’s electrical grid.

(4)  With respect to air quality regulations, resume the emphasis on transitioning to clean burning fuel, instead of the inordinate, futile and flawed current emphasis on regulating CO2 emissions.

(5)  Develop massive desalination plants on or around Camp Pendleton and elsewhere on the Southern California coast.

(6)  Build a new statewide water conveyance system and upgrade existing facilities.

(7)  Build more and better roads and freeways, abandon the bullet train project, and develop intercity rail on existing tracks.

(8)  Let up a bit on the anti-growth, anti-sprawl fanaticism. Allow small homes on large lots in leafy suburbs to be affordable again.

California can still be green, but not at any cost, for virtually zero if not actual negative environmental benefit. If the metaphor for American exceptionalism is the city on the hill, then for California it is the green planet in the universe. That is our opportunity.