Bastiat’s Bastions

Lob STER WARS

On a small island off of the coast of Maine, lobstermen are shooting at each other (Lobster wars rock remote Maine island, Clarke Canfield, Associated Press Writer).  Much like urban gangbangers, they are fighting over profitable territory.  And just like their urban counterparts, the territory under dispute is “un-ownable” or for the lobstermen, un-ownable under current state laws.  But, just as with the gangbangers, they are enforcing their property rights themselves.  With both street territory and fishing territory, agreement as to ownership or property rights reduces conflict and violence. 

When property rights are under dispute, conflicts arise.  When property rights are not enforced by a more powerful authority, such as the state, these conflicts are not settled in courts with lawyers and judges, but in the streets or the seas with AK-47s or 12-guage shotguns.  This is especially costly in human lives.  It also causes people to invest in weapons and armor and shooting skills rather than in boats and fishing skills. 

The violence in the Maine lobster fisheries is nothing new.  J.M. Acheson (Capturing the Commons: Devising Institutions to Manage the Maine Lobster Fishery, 2003) discusses how gangs of Maine lobster fishermen restrict access to what they consider their territory by cutting lobster trap lines, so that they cannot be retrieved.  Ahceson notes that in areas where gangs defend their territory, the lobsters were bigger and more pounds of lobsters were caught per trap.

Property rights are the rules of the game, telling us who gets to make what decisions in what circumstances.  Different property rights result in different outcomes.  Certain property rights regimes allow who ever gets there first to rule.  For instance, open access fisheries where the fish are considered private property only after being caught, can have disastrous results.  Think for a moment about a population of fish where anyone can take whatever fish they can catch.  As long as the fish can be sold for more than it costs to catch the fish, a profit is available to fishermen, more people become fishermen, prices of fish drop and costs to fishing rise.  As more people turn to fishing and total fishing effort intensifies, the population of fish drops.  This continues until the prices drop far enough and the costs to the fishermen rise enough, that it is no longer more profitable than other ventures for these fishermen and the number of fishermen levels off. 

There is just one problem with all of this.  The fishermen, as individuals, do not bear all of the costs of their actions.  There are two distinct cost categories that we should recognize. 

One of these costs is the cost of catching or harvesting the fish.  These costs are born completely by the individual fishermen.  This includes not only their fuel, boat, and fishing gear, but also the cost of their time spent fishing.

Another cost of catching or harvesting fish is the cost of reduced populations in the future.  When the future populations of the fish drop, it becomes more costly to catch the same amount of fish.  This cost from increased future scarcity is sometimes called “scarcity costs.”  In the case of open access fisheries, this scarcity cost from of a reduced future population is borne by all of the fishermen, as a group–it is shared, so that each fisherman only faces a small part of their own costs.  This also means that all of them face costs imposed on them by the rest.

What happens when costs are borne individually is that the action is only undertaken when the benefits of the action exceed the costs.  But when someone bears only a portion of the costs of their actions, they do more of that action than they would if they bore the entire costs.   So, when fishermen harvest so much that the fish population decreases, no fisherman connects their fishing activity this year with the falling fish population and the rising difficulty of catching fish next year.  Also, each fisherman recognizes that even if he reduces his fishing this year to make fishing more sustainable, other fishermen will just catch what he did not, nullifying his individual efforts toward sustainability.  Under these circumstances, no fisherman has an incentive to cut back on fishing, and the population of fish dwindles.

While the defense of territory by these lobster gangs increases the incomes of lobstermen and moves lobster fishing toward sustainability, it could be pushed even further toward sustainability and the level of violence and destruction of traps could be brought down if Maine would follow something that we do in Louisiana with oyster production.  Louisiana leases areas to oystermen, establishing state recognized property rights.  While the state cannot always be there to enforce leases rights against encroachment (and theft), the oystermen are backed up by the state.  Anyone caught tampering with oysters on a leased bed face state-enforced penalties.  While oystermen do often have to protect their own property, they clearly have an advantage by being backed up by game wardens, sheriffs, and the courts.  They do not have to point guns as much as they would if they had no recognized claim. 

-MC

Last year, at this blog site I wrote about the terrible drought facing Atlanta and their trouble dealing with it.  And now, after facing two years of below average rainfall, Gov. Schwarzenegger has declared a drought in California. (And see this article on California’s problems, too.)

The availability of a sufficient supply of fresh water is getting to be a more frequent problem in the U.S. and in the rest of the world, and the problem is likely to be getting worse, not just because of global warming, though that may be a contributing factor, rather because of our institutions governing or perhaps, failing to govern the way we extract and use water from our aquifers, well water.

The financial gurus of New York and London are now seeing shortages of water as the major problem of this next century (as suggested in this article from the U.K.’s The Telegraph), as being more of a problem than rising food prices or rising energy costs.

Our energy troubles and rising food prices are making things even worse for our water prospects.  With more emphasis being placed on agriculture for “growing” energy, the water tables, our aquifers, will get tapped more and more as many farmers continue to tap into those aquifers, our main source of pristine water, for wells for irrigation rather than for human consumption as drinking water. 

Lord Stern in the Telegraph article was right that water from aquifers is not a renewable resource and that the problem is that we have never priced water, especially water from aquifers, well water, in a way that reflects its scarcity (by contrast, surface water is renewable through regular evaporation and condensation cycles).

Another problem with water from aquifers is that aquifers are an open-access common property resource. In legal terms, this is referred to as res nullius property rights.  Anyone can take water from aquifers and face no charge for the depletion of this resource.  As far as I know, no state charges those who deplete aquifers.  Such a charge, a depletion allowance, would be cause for farmers and others who mine our aquifers for one of our most crucial resources, water, to be careful of how they use it.  Since it is now almost free to the user, the way that sunlight is, those who mine it pay no attention to the future value of the water, because they cannot profit by that future value—if they don’t use it now, somebody else will.  Unlike sunlight, our aquifers are replenished at a such a slow rate that the replinishment rate is of little consequence relative to our use.  Of course, also unlike sunlight, our aquifers have been built up over centuries, but are being depleted rather rapidly. 

Farmers have more incentive to use underground water to irrigate fields, where much of the water evaporates, than to divert water from streams in canals or pipelines, relying on less pristine surface water.  Of course, cities and suburban residents also contribute to this depletion as well.  Some businesses, such as some electricity generating firms, are also contributing to this overuse of water.  The problem is not who is depleting it, but rather that we all refuse to face the real cost of using water from wells, rather treating it as free.  However, the more water we pump from our aquifers, the less will be available in the future.  Cities that rely on water wells will be in for a shock when they drill ever deeper and still can find no subsurface water.

This is the same problem that led to the over-hunting of the American Bison.  A hunter could not own the beast alive, but could own any bison he killed.  To the society as a whole, the bison were worth more alive, but to the individual hunter, they were only worth something dead.  Water left in the aquifer is worth more to society than water that is mostly allowed to evaporate in a field.  Farmers and otherw who use well water can only get value from the water they pump out of the ground rather than the water they keep in the ground.  Hence, water from our aquifers is being pumped out at alarming rates, mostly to evaporate into the air and fall as rain elsewhere.  We need to change the property rights concerning sub-surface water.

-MC

As we have seen recently, high energy prices along with rent-seeking from Midwestern farmers have prompted politicians in the U.S. to subsidize ethanol production.  This has, raised the price of corn, other crops that grow on land that could grow corn, and other crops that could serve as substitutes for consumers for corn.  With crop prices going up, farmers are encouraged to grow more and to grow more on the same amount of land, so with a high output price, the derived demand for inputs has gone up as well.  In class, we concentrated on the derived demand for labor.  Take a look at this story from the New York Times on the demand for fertilizer in Vietnam. 

Higher output prices for corn, rice, wheat, barley, soybeans and other crops has driven up the price for an important input in agriculture–fertilizer.  We begin with a surplus of fertilizer in Washington, D.C. and end up with a shortage of fertilizer in Vietnam, but we cannot seem to get rid of that fertilizer surplus in D.C. Talk about a misallocation of resources!

-MC

In this recent front page headline story in the Thibodaux Daily Comet, Landrieu calls for imported-shrimp ban, Sen. Mary Landrieu follows the lead of the AFL-CIO in calling for a ban on shrimp from Thailand and Bangladesh. The reason, the AFL-CIO and Sen. Landrieu cite for requesting a ban on importing shrimp from these countries is the condition of labor in these countries. The real reason, of course, that Sen. Landrieu wants to ban any foreign shrimp is to curry favor with Louisiana shrimp fishermen. Of course, as we know from basic consumer and producer surplus analysis, the gains of Louisiana fishermen are more than offset by losses to U.S. consumers who are being asked to pay more for shrimp while they are already paying subsidies for ethanol, higher prices for corn and other grains, and so, for meat, as well.

Of course, a U.S. ban on shrimp from Thailand and Bangladesh will only slightly depress the prices and production of shrimp from those Asian countries. But, for the life of me, I have a difficult time grasping how putting Asian shrimp fishermen out of business or reducing the prices of shrimp in those countries could ever hope to do anything but worsen the working conditions in those countries. If the AFL-CIO or Sen. Landrieu cared anything about foreign workers, they would work to increase their sales of shrimp in the U.S. Surely she would not advocate that other countries ban our shrimp, or any other product from Louisiana as a way of helping Louisianans.

What she and the AFL-CIO are protesting are the low prices that these countries are able to sell shrimp at–prices that worry Louisiana producers.

Here is a short essay written by this blog’s namesake, Bastiat, about a similar request for a ban of an inexpensive foreign import. So cheap, in fact, that the foreign supplier was giving away this cheap subsidy for domestic production of energy.

Consumers, of course, don’t speak up for their own interests because most do no realize that they are in line to be fleeced. Even if they knew, few, except for a handful of seafood restaurants are in a position to realize what is going on or to have an incentive to fight these attempts to take more money out of consumers’ pockets to buy votes for politicians, like Sen. Landrieu, who owe their offices to special interest groups such as Louisiana shrimpers and the AFL-CIO.

-MC