interviews
Water and the American West
by Richard Frank
October 25, 2021
This interview with Richard Frank, professor of environmental practice at the UC Davis School of Law and Director of the California Environmental Law and Policy Center, was conducted and condensed by franknews.
frank | Can you tell me a little bit about the story of water and how it's tied to the West, and to California in particular?
Richard | A friend of mine who's a Court of Appeals Justice here in California wrote an opinion on a water law dispute and started it with the quote, "the history of California is written on its waters." And I think that the point is true of the entire American West.
Water policy and legal issues are inextricably tied to the development of the Western United States; water is the limiting factor in so many ways to settlement, to economic development, to prosperity, and to the environment and environmental preservation.
Can you talk about the difference between groundwater and surface water– and the policies that regulate each?
There are really two types of water when it comes to human consumption. There's surface water: that is the water that is transmitted by lakes, rivers, and streams. Then there is groundwater, and a substantial amount of water that Americans and the American West rely on is groundwater. That is water that is stored in groundwater aquifers, which are naturally occurring groundwater basins. Both groundwater and surface water are critical to the American West and its economy and its culture.
Traditionally a couple of things are important to note, first of all, water is finite. Second, water gets allocated in the Western United States generally at the state level. There's a limited federal role. Primarily, policy decisions about who gets how much water for what purpose are made state by state.
I think allocation is really interesting in that it's more state-level than federal. How was water and the allocation of water in California designed? Is it a public-private combination? What goes on in terms of the infrastructure of water?
Another very good question. The answer is it depends. Most of our water infrastructure is public in nature.
Again, in the American West, the regulation of water rights is generally done at the state level, but the federal government, historically, has a major water footprint in the American West because it has been federal dollars and federal design and management that really controlled much of the major water infrastructure in the American West — you know, Hoover Dam, and the complex system of dams and reservoirs on the Colorado River in California, with the Central Valley Project that was built and managed by the federal government with Shasta Dam on the upper Sacramento River as the centerpiece of that project. But we also have a California State Water Project, the key facility being the Oroville Dam and reservoir on the Southern River that is managed by state water managers. If we were starting over, that kind of parallel system would make no particular engineering or operational sense.
But, we are captive to our history.
And then you have these massive systems of aqueducts and canals that move water from one place to another throughout the American West. They are particularly responsible for moving water from surface water storage facilities to population centers. In the last 50 to 75 years, these population centers have really expanded dramatically, so you need massive infrastructure to deliver water from those storage facilities, the dams, and reservoirs, which generally are located in remote areas to the population centers. So it takes a lot of time and energy to transport the water, from where it is captured and stored to where it is needed for human use.
California has faced continuous drought – what measures is the state taking now to manage water?
Just to frame the issue a little bit — we have, as I mentioned, a growing population in the American Southwest at a time when the amount of available water is shrinking due to drought and due to the impacts of climate change. We have growing human demand for residential and commercial purposes and at the same time, we have a shrinking water supply. That is a huge looming crisis.
And it is beginning to play out in real-time. You see that playing out in real-time. For example, several different states and Mexico rely on Colorado River flows based on an allocation system that was created in the 1920s, which is overly optimistic about the amount of available water. From the 1920s until now, that water supply has decreased, and decreased, and decreased. Now you have interstate agreements, and in the case of Mexico, international agreements that allocate the finite Colorado river water supplies based on faulty, now obsolete, information. It is a real problem.
What measures do you take now, knowing this information?
If you look at the US Drought Monitor, it is obvious the problem is not limited to the Colorado River. We are in a mega-drought, so cutbacks are being imposed by federal and state water agencies to encourage agricultural, urban, and commercial water users to cut their water use and, and stretch finite supplies as much as possible through conservation efforts.
In California, we have the State Water Resources Control Board, the state water regulator in California, and they have issued curtailment orders. Meaning, they have told water rights holders, many of whom have had those water rights for over a hundred years, that, for the first time, the water that they feel they are entitled to, is not available. Local water districts are also issuing water conservation mandates; the San Francisco water department is doing that, in Los Angeles, the metropolitan water district, is urging urban users to curtail their efforts.
And then agriculture. Agricultural users — farmers and ranchers — have had to get water rights in many cases through the federal government, as the federal government is the operator of these water projects. They have contracts with water users, individual farmers, ranchers, or districts, and they are now issuing curtailment orders. They're saying, we know you contracted for X amount of water for this calendar year, but we are telling you because of the drought shortages we don't have that water to supply. Our reservoirs are low at Lake Shasta or at the Oroville Dam.
When you drive from San Francisco to LA on the five, you see a lot of signage from the agricultural farming community about water. There's apparently some frustration about this. What are the other options for them?
About 80% of all human consumed water goes to agriculture. That is by far the biggest component of water use, as opposed to 20% used for urban and commercial, and industrial purposes.
Over the years, ranchers and farmers, and agricultural water districts assumed that the water would always be there — as we all do.
And the farmers and ranchers have, in hindsight, exacerbated the problem by bringing more and more land into production. You see on those drives between San Francisco and Los Angeles, particularly in the San Joaquin Valley, all these orchards are being planted. Orchards are more lucrative crops than row crops — cotton, alfalfa, and rice. But, if you are growing a row crop, you can leave the land fallow in times of drought.
We don't have to plant. If the water stopped there, or if it's too expensive to get, it may make economic sense, but if you have an orchard or a vineyard it's a high value, those are high value crops, you don't have that operational flexibility and they need to be irrigated in wet years and in dry years. Now, you see these orchards, which were only planted a few years ago, are now being uprooted because the farmers realized that they don't have the water necessary to keep those vineyards and orchards alive. For ranchers, the same thing is true with their herds. They don’t have enough water for their livestock.
The water shortage has never been drier than it is right now. Farmers and ranchers are being deprived of water that they traditionally believed was theirs and they're very understandably, very unhappy about it. They see it as a threat to their livelihood and to the livelihood of the folks who work for them. Their anger and frustration are to be expected, but it's nobody's fault.
To say, as some farmers do, that it is mismanagement by state and federal government officials, I think is overly simplistic and misplaced in the face of a mega-drought. Everybody's going to have to sacrifice. Everybody's going to have to be more efficient in how they use water. All sectors are going to need to be more efficient with the water that does exist.
Looking at this percentage breakdown of water use – is it actually important for individual users to change their water habits?
Well, every little bit helps. When you're talking about homeowners, about 70% of urban water use is for outdoor irrigation. So we're talking parks and cemeteries and golf courses and folks' yards. You know, that used to be considered part of that American dream and the California dream — you would have a big lawn in front of your house and behind your house. Truth be told, that has never made much sense in an arid environment. That's where the water savings in urban areas is critical in the way it really involves aesthetics rather than critical human needs, like water for drinking and bathing and sanitation purposes. There is a growing movement away from big lawns, and away from the type of landscaping that you see in the Eastern US — there is no drought in the Eastern United States. As Hurricane Ida and other recent storms have shown, the problem is too much water, or rather than too little in most of the Eastern United States. So it really is a tale of two countries.
We just need to recognize that the American West is an arid region. It has always been an arid region, we can't make the desert bloom with water that doesn't exist. We need to be more efficient in how we allocate those water supplies. And it seems to me in an urban area, the best way to conserve and most effective way is to reduce urban landscaping, which is the major component of urban water use.
You also write about water markets and making them better – for those who don’t know, what is the water market?
Water markets, that is, the voluntary transfer of water between water users, is more robust in some other Western states. Again Arizona and New Mexico come to mind. California somewhat surprisingly is behind the curve. We are in the dark ages compared to other states. Water markets are kind of anecdotal. There is not much of a statewide system. It is done at the local level, through individual transactions without much oversight and without much transparency. And I have concerns about all of those things.
I believe conceptually watermarks are a way to stretch scarce, finite water resources to make water use more efficient. I can, for example, allow farmers or ranchers to sell water to urban uses or commercial usage or factories in times of drought.
Farmers sometimes can make more money by farming water, than they can by farming crops.
There are efficiencies to be gained here.
The problem in my view is really one of transparency. The water markets are not publicly regulated, and some of the people who are engaging in water transactions like it that way, frankly, they want to operate under the radar.
In my opinion, water markets need to be overseen by a public entity rather than private or nonprofit entities. We need oversight and transparency, so that folks like you and myself can follow the markets to see who's selling water to whom, for what purpose, and make sure that those water transfers serve the public interests and not just the private interests.
There have been a number of stories in the New York Times and the Wall Street Journal and the Salt Lake City Tribune about efforts in some parts to privatize water transfer. Hedge fund managers are buying and selling water, as a means of profiting. And it strikes me that when you're talking about an essential public resource — and in California, it is embedded in the law that public water is an inherently public resource, that water is owned by the public and it can be used for private purposes, but it is an inherently public resource — the idea of commoditizing water through the private, opaque markets is very troublesome to me. I think it represents a very dangerous trend and one that needs to be corrected and avoided.
Why is California so behind?
There's no good reason for it. It's largely inexplicable that since the state was created on September 9th, 1860, we've been fighting over water. In the 19th century, it was miners versus farmers ranchers. In the 20th century, with the growth of urban communities, the evolution of California into one of the most populous states with 40 million Californians, it has been a struggle between urban and agricultural uses of water.
In the second half of the 20th century, there was a recognition that some component of water had to be left in streams to protect ecosystems, landscape, and wildlife, including the threatened and endangered wildlife. That suggestion has made agricultural users in California angry. You will see those signs that allude to the idea that food and farming are more important than environmental values. I don't happen to believe that's true. I believe both are critically important to our society. But the advocates for the environment have a proverbial seat at the water table. So that's another demand for water allocation that exists.
Do you maintain optimism?
Yes. I think it's human nature to look on the bright side. I try to do that through research scholarships and teaching. There are models for how we can do this better in the United States. Israel and Saudi Arabia and Singapore are far more efficient with their water policies and efforts. Australia went through a severe megadrought. They came out of it a few years ago, but they used that opportunity to dramatically reform their water allocation systems. That's an additional model. I think most people would agree in hindsight that their previous system was antiquated, and not able to meet the challenges of climate change and the growing water shortage in some parts of the world.
Here in the United States, we can learn from those efforts. There are also some ways to expand the water supply. Desalination for one. Again, Singapore and Saudi Arabia have led the world in terms of removing the salt content from ocean water and increasing water supply that way. In Carlsbad, California, north of San Diego, we have the biggest desalination plant in the United States right now, and that is currently satisfying a significant component of the San Diego metropolitan areas’ water needs. It's more expensive than other water supplies, but the technology is getting more refined, so the cost of desalinated water is coming down at a time when other water supplies, due to shortages and the workings of the free market are going up.
At some point, they're going to meet or get closer. Unlike some of my environmental colleagues, I think desalination is an important part of the equation.
In a proposal that came up in the recall election, one of the candidates was talking about how we just need to build a canal from the Mississippi River to California to take care of all our problems. That ignores political problems associated with that effort, as well as the massive infrastructure costs that would be required to build and maintain a major aqueduct for 2000 miles from the Mississippi to California. That's just not going to happen. Some of those pie in the sky thoughts of how we expand the water supply, I think, are unrealistic.
interviews
Buy Now, Pay Later
by Martha Olney
September 2, 2020
This interview with Martha Olney, Professor in Berkeley's Economics Department, was conducted and condensed by franknews.
Martha Olney | My name is Martha Olney. I'm a faculty member at UC Berkeley in the economics department. I've studied economic history and macroeconomics. I'm most known for the work I've done on consumer debt in the 1920s to 1930s.
frank | How did the practice of using credit to pay for things become so commonplace?
So, people who would borrow in order to buy a home or people who would borrow in order to buy a farm or people who would borrow in order to buy farm equipment - none of those people are taking on consumer debt. Consumer debt is borrowing in order to buy consumer goods.
In the late 19th and early 20th centuries, there were societal norms about “good debt” and “bad debt.” If you were going to use credit or going to buy something “on time” as it was called then, it was because the good would generate an income stream, and you were going to use that income stream to discharge the debt. If you bought a plow, you are going to use the plow to plow the fields, to grow the crops, to sell the crops, to get the money from the crops, and to pay for the plow. In the late 19th century it was not the norm to use credit to buy something just for pleasure.
We see a change in society over the course of the 1920s. Buying on time becomes not the exception, but the norm. It loses its moral tone. Buy now, pay later - that is the push.
You see a big increase particularly in credit sales of appliances and automobiles and furniture in the 20s.
To have that sort of societal shift happen in a decade seems pretty remarkable. How did it happen so fast?
A lot of marketing from several new industries.
For one, this is also the electrification decade, so there's a whole lot of new electrical appliances that are being pushed on people - because if people are not paying for electricity, the very costly process of getting electricity to these places is not getting paid for.
Additionally, each of the major car manufacturers established a credit company. The car manufacturers are pushing the use of credit to buy a car because these are expensive purchases and also because they are trying to reduce the seasonality in car purchases.
What are some other shifts in credit that lead us to the modern version of the way we use it?
Well, FICO scores started in the 1980s. FICO is an algorithm that uses different points of information to give you a number to reflect the riskiness you pose to a lender. Before the FICO score, sales finance companies would report to a bigger company that kept basically records of the same information that builds FICO scores today. They used three by five cards for every individual and would write down the same information now that FICO gathers electronically. So that information has been gathered since the 1920s, it is just now in a computer file.
What role does consumer debt play in a financial crisis? Does it cause a crisis, or does it just make it worse?
I think you have to be careful with what it means to say, "to cause the crisis." Some people hear that and say, "Oh, they're blaming the 2008 crisis on people who took out debt or they're blaming the Great Depression on people who took out debt." That's not the way in which I would say that the household debt contributed to both the Great Depression and the Great Recession.
In the Great Depression, household indebtedness contributed to the crisis because the terms under which people had borrowed were very strict. It created an incentive for people to cut back on consumption rather than default on contracts, which had a macroeconomic impact.
Whereas, if they were to default on the contract, it would hurt the lender, but not the borrower.
To understand the extent that that has a macroeconomic impact, you have to add in some of the work that has been done more recently about the differences in the marginal propensity to consume between high income and low-income households. People in really high-income brackets losing some of their income has a smaller effect on consumption than those in low-income brackets losing their income
You wrote a paper in a paper called “Avoiding Default: The role of credit in the consumption collapse of 1930” that stated, “whether high household indebtedness will lead to a collapse of consumption when expectations changed, depends on the consequences of default.”
What would the designing credit contracts with the right incentives look like to you? And what role does default have on the macroeconomic impact of debt?
I don’t have an answer to what the perfect contract is. Talk to Elizabeth Warren. This is her field of research; she will have a better answer. But I do understand the scope of the problem.
Specifically what I was writing about in that paper, was that when credit was new in the 1920s and early 1930s, stipulations in the credit contracts were very severe. If you missed a payment, they would repossess the item and the creditor would keep any money that you had paid on the contract. Today, if your car gets repossessed, they'll sell the car, they'll pay off the debt with the proceeds, and if there's any money left over, it goes back to you.
In the 1920s and the early 1930s, that wasn't the case. The difference between the value of the car and what you still owed on was retained by the creditor. Because of that threat, in the 1929 downturn, you did not see people defaulting on those car contracts. Instead, you saw consumption collapse. In order to not default on the car contract, people have to cut back consumption in other places.
We saw that type of reduction in spending again in the wake of the 2008 crash. People were at risk of losing their homes when they couldn't make HELOC payments or other mortgage payments. Covering those payments caused big drops in other consumption. We had pay cuts here in Berkeley that hit the faculty and the staff. When I would walk along the street with restaurants that are usually full of staff and faculty, and once the pay cuts were instituted, there'd be just one table occupied, if that.
In either period repossession is costly because you lose your wheels, but it was more costly in the 1930s because you lost your wheels as well as the money you had already put into the car.
The concern on the part of lenders is always that if the cost of default is too low, then people will strategically default -- they will have a plan basically to default on their debt if it's not too costly. They'll buy a car and use it for three months and then not pay and let them repossess the car because they don't need it anymore. And there's no cost to them of doing so.
That happens now on larger scales with large corporations, right? Giant companies have bankruptcy as a backup plan?
It is different. A company can dissolve itself and then reform as a different company. An individual can't dissolve themselves and reform as a different individual. That's where the personal and the corporate bankruptcies are really different.
How do race and credit intersect today?
The technical legal answer is that lenders are prohibited from taking race into account in making loans. The actual answer is it shows up in a whole lot of different ways.
You have to start with the racial wealth gap. Individuals who start out with less wealth, are going to have a different credit history and therefore a different credit score than people who start out with more wealth.
(At the same time, it’s important to remember that these are averages across demographic groups. There will always be people who are on the tails of any distribution.)
The second piece is going to be when you look at when people buy homes and take out mortgages. The mortgage company can't gather information about race before they decide to lend; these days, they're not allowed to have any information in their files about the race of the borrower. But what they do know is where the property is, and we still live in a country with quite segregated neighborhoods. The segregation of neighborhoods contributes to the difficulty in getting mortgage credit. An article in the New York Times this last week discussed racial differences in the appraisal. If you want to borrow $300,000 and the appraiser says the house is worth $340,000, you're not going to get the loan. The value of the house has to be sufficient so that the loan to value ratio meets the standard guidelines. If the appraisers are lowballing the value of houses in traditionally Black or Hispanic neighborhoods, it is going to be harder for those folks to get loans.
So, in terms of credit and race, there's a bunch of different pieces that all play in, none of which are you walk into a bank or a lender and they say, "Oh, we don't make loans to Black people."
I am curious if there are other parallels you see - beyond even macroeconomics, or credit or bankruptcy - between the 1930s and today?
The one thing I'll say is that as somebody who's done a lot of reading on the twenties and thirties I keep going back to how dark and scary everything felt in the fall of 1932 when we were coming up to a presidential election. There's an awful lot of parallel to today. We can look at the rising levels of inequality - the twenties and the last ten years are very similar in that respect. We can look to the language of the conservatives. The conservatives were constantly painting FDR as a socialist who was going to lead to the downfall of America. Then and now, conservatives are very much focused on the idea of individual responsibility. They would blame the people who had lost their jobs and were unemployed then.
At the same time, in 1932, the majority of the country on average was ready for really big changes. We may be in a time where enough forces are coming together at the same time that people are ready for a big change. I try to hold that thought.