Wednesday, December 18, 2002

What is cost?

It's useful to contrast this nostalgic piece on rural America with this article concerning water rights in California. Essentially, the subsidized farmers in the Imperial Valley pay $15.50 per acre-foot for water, while nearby San Diego pays $258 an acre-foot. So, what is the real cost of water to Imperial Valley farmers?

"Cost" is not about money, it's about what you have to give up to get something else, and money is merely a medium of exchange. One way to think about rich people is that "they have a lot of money", and another way to think about it is "everything, to them, is cheap" because they don't have to give up much to get stuff. This means the "subsidized" Imperial Valley farmers actually pay $258 per acre-foot for their water because this is the amount of money they have to give up by not selling their water to San Diego for that price. That's a healthy chunk of change, and I don't think most Imperial Valley farmers value water that much.

Which brings us back to the nostalgia piece. If the value of something you own goes up, then so does the cost of you using that thing (because you bear the opportunity cost of not selling it to someone else). And if you don't use that resource in the most productive way, then you bear the costs of that inefficiency too. That's not to say the cost may not be worth it, but let's be honest about the cost being there. The only folks who can make a cost/benefit trade-off are those who enjoy all the benefits and bear all the costs. Nostalgics, like tourists, do not fit in this category and so are unreliable guides to "what is best"--their sense of "what makes me feel most good" is too short and narrow to make a useful proxy.

But that's not to say that nostalgia isn't a powerful force, nor does it mean there is not real disruption when reality changes prices and makes something that used to be cheap (rural American land) very expensive. Personally, I would prefer to see disenfranchised groups be paid off because it seems more humane than charging them $258 per acre-foot for "free" water. But there seems to be something deep about human psychology that makes economics (which is really pretty simple) often so counter-intuitive and emotionally distasteful. (link via Arnold Kling)


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