Tuesday, March 01, 2005

BEE ENDORSING FREE MARKETS? NOPE

Remember the Klamath River Basin problems in Oregon that happened several years ago? The federal government restricted the amount of water that could be diverted to irrigation because drought conditions reduced the amount of water flowing in the rivers. This reduced water level purportedly threatened endangered species living in the rivers. Now, the farmers are in jeopardy of losing their subsidized electricity when an agreement with the local utility expires in 2006. If the farmers were charged the market rate, the rate they pay would over 10 times the amount they currently pay.

In a March 1 editorial, the Bee stated that the electricity problem is simply solved by forcing the farmers to pay 2005 prices for electricity instead of the low rate they have been granted under a long-term agreement. (Online version) The Bee's sole reason for justifying the end to the subsidy is to achieve efficient allocation of water between the farmers and the fish. Whoa. This sounds downright . . . laissez faire.

What is the Bee's devotion to the free market grounded in? Well, it isn't a love for the free market, as it routinely attacks free market principals and endorses regulation, various subsidies, and preferential treatment of citizens based on, well, how about skin color, income, age, etc. In a February 19, 2005 editorial, the Bee supported the concept of subsidizing farmers if it results in "contributing . . . to the state's environmental health." You see, market rates are good to enhance efficient allocation of resources even if it wrecks havoc on communities, but market rates are bad if it prevents the extra allocation of resources to projects that enhance the "environmental health." People bad, environment good.

No doubt the farmers should pay the market rate for electricity. The problem with the editorial is that the Bee is dishonest in its characterization of the problem faced by the the water users in the Klamath Basin. Charging the farmers the market rate for electricity to many of the may not be easy.

According to the Klamath Water Users Association (KWUA), "the farmers of the Klamath Basin have certain legal rights that are reflected in the conditions on the current FERC license, and any entity that acquires a new license will be required to offer low cost power to the farmers, or equivalent consideration." (Cite) The KWUA summarizes, "In essence, the water users have a right to power benefits. . . .[because the] Reclamation Act was enacted in 1902 to encourage irrigation and homesteading in arid western states. It was anticipated that the irrigation would require two interrelated resources: water and power." Needless to say, all sides are represented by lawyers and are negotiating the matter.

Also, the reason charging the market rate is not so simple is because the government explicitly created the various dams, canals and water delivery system to arid regions of the Klamath Basin in order to attract farmers to the area. ("185 miles of canals, 516 miles of lateral ditches, 45 pumping stations, and 7 dams"; this fact from here) That is a lot of investment that may become useless if high electricity prices drives out many of the farmers. The agricultural communities supported by cheap water and electricity would be significantly affected by the price hike currently contemplated.

So why endorse the market here? Because they know exactly what the outcome will be. Marginally profitable farmers will go bust, thereby freeing up water for use by the fish. Environment over people at just about any cost. After all, the solution for the is simple.

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