The Supply Of Fresh Water

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Consider a scenario in which Heaven rains manna in huge quantities but does not distribute it in equal amounts everywhere. The price of manna would vary with its distance from the deposits. This is consistent with the Von Thuenen model in which location is everything. What has value - what is scarce relative to demand - is not the manna, which is superabundant, but either (1) residential real estate close to the sources of manna or (2) the labor and technology needed to transport manna to where it is consumed.

Fresh water is a resource that nature provides through the hydrolog-ical cycle in vaster quantities than humanity can use. The sun evaporates water from the oceans, the wind moves the clouds to land, and the distilled water precipitates like manna over the Earth, but in some places more than in others. Overall, humanity uses about 2,100 km3 of fresh water a year - one-fiftieth of the amount that precipitates over land. The runoff from rain that is accessible - rainwater that is collected behind dams or in lakes, rivers, or aquifers near large human populations - equals slightly more than one-tenth of the total rainfall on land or 12,500 km3 annually. This provides ten times more water than the average European and three times as much as the average American consumes.44

For the residents of New York City, like those of many municipalities, abundant, pure, clean rain water falls like manna from Heaven; it has little "exchange" value. City residents must pay, however, for expensive dams, reservoirs, pipes, and tunnels, in other words, capital improvements, to gather and deliver the water from upstate sources, primarily the Catskill watershed. People who live in the watershed are required (and subsidized) to build septic systems because nature will not treat sewage for them. Since the 1920s, the city has chlorinated its water in part to kill fecal bacteria and other pathogens associated with the fecal wastes produced by 350 vertebrate species that thrive in the Catskill region, including huge populations of deer, beaver, and waterfowl. In the reservoirs, "the background contamination from wildlife populations is apparent."45

Let us suppose for a moment that over time the Catskill watershed ecosystem became overwhelmed by sewage, industrial and agricultural runoff to the point that the water quality in the city fell below EPA drinking water standards. An economic analysis provided costs of two alternatives for restoring water quality. The cost of purchasing and restoring the watershed so that it could continue to provide the service of purification and filtration was calculated to be $1 billion. The cost of building and maintaining a water purification and filtration plant was $6-8 billion in capital costs, plus annual operating expenses of $300 million. The City has opted to buy and restore the watershed, i.e., to let nature work for people.46

According to this suburban legend, New York City authorities determined that "preserving habitat in the watershed and letting the ecosystem do the work of cleansing the water" was worth the price of buying up land and development rights in the watershed.47 Accordingly, the city floated a bond issue to "use the proceeds to restore the functioning of the watershed ecosystems responsible for water purification."48

If any of this had actually happened, it could offer an example of a willing buyer (New York City) who purchased land or development rights and thus put a market price on an ecosystem service, namely, on the ability of natural habitat and biodiversity to disinfect and purify water.49 The story is constantly invoked because it provides a clear and compelling example of an economic "return" to nature. That the story represents a fiction or fabrication does not matter because it demonstrates the "correct" academic theory.50 Thompson has correctly cautioned that the hope that the downstream users of watersheds would bargain to keep those landscapes undeveloped may easily be overestimated. "One should have a healthy dose of skepticism regarding how often water companies, local governments, and other entities will find it worthwhile to preserve watershed lands."51


What about fish captured in the wild? Economists use the concept of resource rent, developed by Ricardo in 1817, to measure the value of fisheries. The rent on a natural resource is the amount left over when the costs of exploiting a resource are deducted from the revenues it brings. In theory, the resource rent approximates the maximum the owner of the resource could charge for its use.52

To estimate the resource rent of wild populations of diverse kinds of fish, resource economists typically begin with a model that relates the total costs of exploiting the resource, including a normal return on investment, to the total revenue computed as the dockside price of fish per pound times the number of pounds of fish caught.53 In this model, the difference between the costs paid and revenue obtained represents the economic value or rent on the resource. When the fishing industry attains profitable levels of effort, new boats will be attracted to the resource, quickly moving the industry beyond the sustainable yield of the fishery. At this "open access equilibrium point," the total cost coincides with the total revenue and resource rents are dissipated. Governmental financial transfers to the fishing industry (subsidies) push the fishing effort even beyond the open access equilibrium and thus boost the total costs of fishing farther out beyond the point where the catch is worth more than the cost. The point where the costs stand today.

Fisheries experts often lament that "the main problem is that in the process of the expansion of fishing effort, resource rent has been completely dissipated. It has gone to finance the overexpansion of the fishery."54 At fault are subsidies paid by many nations to support their fishing fleets in competition with the fleets of other nations. In 1999, a representative year, Organization for Economic Cooperation and Development (OECD) countries alone paid about $6 billion to subsidize their commercial fishing fleets. Some nations, such as Finland, paid far more in subsidies than the fish it sold brought in revenues; other countries, such as the United States, paid subsidies in excess of 25 percent of the total revenues.55 Under these distorted conditions, capture fishing operates at a deficit supported by taxpayers. Potential resource rents are more than dissipated; the natural capital or ecosystem service realizes an economic loss.56

Even if the capture fishing industry optimized its effort, whatever resource rent it earned would be ephemeral. Capture fisheries must compete with aquaculture, which offers lower costs, reliable year-round supplies at huge volumes, uniform and consistent quality, just-in-time delivery, traceability, proximity to markets, and virtually every other competitive advantage imaginable. "By the year 2030," according to the Food and Agriculture Organization, "aquaculture will dominate fish supplies and less than half of the fish consumed is likely to originate in capture fisheries."57 Aquaculture accounts for over a third of the fish humans consume, and over the next two decades, according to the Washington Post, fish farming will largely "replace the last commercial food-gathering system based on hunting wild animals."58

The future of the fish industry lies with transgenic fish genetically engineered for rapid growth, disease resistance, inexpensive feeds, and table appeal.59 Genetically engineered varieties are now in development for at least thirty-five commercial species.60 The next few decades will see a rapid decline in capture fishing as the large fleets of the past are replaced by intensive, biotechnology based, vertically integrated, closed-system, highly capitalized industrial aquaculture, controlled -as the hog and poultry industries are controlled - by a few multinational corporations. It is hard to see how capture fisheries, already subsidy dependent, can survive competition from aquaculture except in special cases, as when for aesthetic or spiritual reasons people prefer "wild-caught" rather than farmed fish. Where ecosystem services and wild stocks are inexpensive and superabundant, the economic return to nature is negligible. Where they are not, technology quickly develops to capture economic rent by making cheap and inexpensive resource flows, such as genetic information and plentiful organic matter, do the work of more expensive ones.

The transition from hunting and gathering in the wild to plantation-based industry, expected to occur in fisheries over the next two decades, has largely taken place in forestry. According to a report in Issues in Science and Technology, "The United States today finds itself in a world of timber surpluses and increasing competition." Industrial tree plantations are rapidly underpricing and out-producing wild forests. "Particularly important has been the expanded use of intensively cultivated, short-rotation tree plantations in temperate and subtropical regions of the Southern Hemisphere. These 'fiber farms' have proved to be extraordinarily productive."61

When farming declined, the region east of the Mississippi reforested. In a fine article, nature writer Bill McKibben celebrates the resurrection of the Eastern forests to their pre-Columbian expanse. He quotes a Forest Service official who wrote that the forest of the East and South "has come full circle. By the 1960s and 1970s, the pattern of forest, fields, and pastures was similar to that prior to 1800, its appearance much like it must have been prior to the American Revolution."62 A survey of fifty nations in the boreal and temperate world found results similar to those of the eastern United States. In the 1990s, the forest biomass in every one of these countries increased.63

So much timberland now exists in the United States and so much inexpensive pulp and paper can be shipped in from South America - a 10 percent tariff followed by stiff quotas has reduced the glut of lumber easily imported from Canada - that big firms are selling off their forest holdings to conservation groups, speculators, developers, and individuals. The firms may invest some of the proceeds in high-technology plantation operations in Brazil and other southern nations, where trees can be genetically engineered for quality and growth. In 2004, International

Paper announced its decision to sell off 5.1 million acres of timberland in the United States, an area larger than Massachusetts. In separate deals arranged by the Nature Conservancy and the Conservation Fund, the company sold a million acres for aesthetic preservation.

The demand for forests as objects of love and appreciation seems more robust than the demand for them as sources of timber. "Based on market components," said David Liebetreu, International Paper's vice president for forest resources, ''our forestlands are worth a lot more to other people than they are to us.''64 According to a newspaper account, urbanites "are looking for play forests and country home sites."65 The aesthetic properties of a forest make it desirable. A forest appraiser involved in these land transfers opined, "It used to be that timber production was the primary objective for someone buying timberland, but today, recreation and investment is their main motive."66

The transition we are seeing from capture fishing to aquaculture and forestry to silviculture is unsurprising. Environmental economists such as John Krutilla had noted decades ago that advancing technology has "compensated quite adequately for the depletion of the higher quality natural resource stocks."67 If an ecosystem service - such as the provision of wild turkeys - becomes scarce, advances in technology supply substitutes and drive prices down. A hundred million turkeys appear on dining tables on Thanksgiving without anyone firing a shot. It is hard to think of a renewable resource the price of which has increased over the past decades. Krutilla observed that "the traditional concerns of conservation economics - the husbanding of natural resource stocks for the use of future generations - may now be outmoded by advances in technology."68

Biotechnology can even create better products at lower prices - wood, for example - than intact natural ecosystems. Transgenic trees offer the same advantages - fast growth, cold-hardiness, uniform and predictable quality, disease resistance - as transgenic fish. According to Roger Sedjo, "High-yield plantation forestry has the potential to meet the world's industrial wood needs while simultaneously protecting existing natural forests and thereby conserving their environmental values."69


In his famous "Canticle of the Creatures," St. Francis of Assisis praises God for the work of "Father Sun" and "Sister Moon." One might ask if praising God for the diurnal rotation of the Earth properly "values" this gift to us. Why not put a "price" on the work of the sun and the moon; why not compute our WTP for the force of gravity that keeps us all from floating off into space? In "St. Louis Blues," Bessie Smith wailed, "I hate to see the evening sun go down." Maybe she did. We would be willing to pay a lot, however, not to see it coming up.

One could not imagine a more fatuous, deluded, and irrelevant pastime than to try to compute the losses that would occur if gravity dwindled in power, the moon no longer lit the night, or the sun refused to shine. Since none of these scarcities is in the cards, it is a waste of time to worry about them. I want to argue that this is generally true of the ecological services to which many environmentalists seek to attach economic values. It serves as little purpose to consider what losses would occur in the absence of the labor of insects, for example, as what losses would occur in the absence of the force of gravity, the sun, microbes, photosynthesis, and so on and on.

Everyone recognizes the "vital ecological services provided by insects."70 The important or relevant question is whether any of these services is scarce enough - whether the demand for it so exceeds the free supply - that it could conceivably generate a competitive market price.

Consider, first, the pollination of crops, which "is perhaps the best-known ecosystem service performed by insects."71 To associate an economic value with this service we could try to estimate the price that an incremental unit of it would fetch in a competitive market. To see how this could be done, consider the basic cereal crops: wheat, rice, and maize or corn. These are all wind pollinated. If you take bellows to Kansas and offer to blow pollen around the fields, you will not be hired. There is no demand for additional wind. In this example, pollination has a zero price because there is so much of it anyone can have all he wants for nothing. One cannot overestimate our dependence on the wind -an instance of solar energy - in carrying pollen between plants. The economic value of this service in the sense of competitive market price, however, equals what you could earn with your bellows - nothing.

The same analysis applies to insect pollinators if they function as ubiquitously and freely as the wind. One could as meaningfully try to estimate what society would pay - or how much it would lose - if it had to find some substitute for insects (in insect-pollinated crops) as for wind (in wind-pollinated crops). In a study of the economic value of the ecological services provided by insects, John Losey and Mace Vaughan have written, "We base our estimations of the value of each service on projections of losses that would accrue if insects were not functioning at their current level."72 To show how price is relevant, however, one must demonstrate the prospect of scarcity - in other words, the prospect that someone might be interested in purchasing the next or incremental unit of the service. Instead, ecological economists tend to associate value with benefit - and by ignoring the question of scarcity, they abandon any meaningful relation to price.

A good way to determine whether agricultural production is ever limited by the human-caused decline of pollinators is to find out if beekeepers are hired to employ their hives to provide pollination services nature once supplied. The prices beekeepers receive for the pollination services of their bees could be ascribed to the loss of a natural service if, indeed, native or natural pollinator populations had declined. It is extremely difficult to get data, however, that tell what rents may be paid to apiarists to make up for a lost ecosystem service rather than to provide a service nature never supplied.73 The leading paper in the field notes that even when the local decline of a pollinator has affected production (of blueberries in New Brunswick, for example), "it did not affect the overall market price for blueberries because that was set elsewhere by broader, regional effects." The essay observes bleakly that "the economic impacts of pollinator declines have not been well recorded" and pleads for more data.74

Losey and Vaughan point out that dung beetles decompose (often by burying) the waste produced by cattle on the range, "resulting in significant economic value for the cattle industry."75 They estimate this "economic value" as the losses the industry would incur in the absence of dung beetle activity. No one suggests, however, that dung beetles are becoming scarce. If you set up a stand on a highway in Texas advertising "Dung Beetles for Sale," it is doubtful that anyone would stop but the police. You would do as well with your beetle business in Texas as with your bellows business in Kansas.

In fact, if you permit me to anthropomorphize, I would suggest that the cattle industry pays the beetle for its work. Indeed, the cattle industry has created dung beetle Heaven. Any rancher within the natural range of the beetle can acquire as many as he or she wants or can use by making a direct exchange with the beetle itself. The beetle works for dung. The farmer provides the dung; the beetle provides the decomposition. What's not to like - if you are a dung beetle? You can have a big family. It's the same with the pollinating insects who visit the flowers of fruits, nuts, and vegetables to acquire the nectar or pollen or whatever it is they seek. They are paid for their work - and supported in vast numbers by the farmer's compensatory planting of crops. Indeed, one could argue that the farmer is just the pollinator's way of making another pollinator.

Ecological economists view the work of the insectivorous classes (along with that of nature's other servitors) as Marxist economists regard the work of the laboring classes. Both the insect worker and the human worker, on this general approach, produce the "surplus" value captured by the agriculturalist or the capitalist, respectively. What is a dollop of dung, a nosh of nectar, or a worker's wage in comparison to the value these laborers add to the product of capitalism - the surplus value that accrues to the capitalist but is truly earned by the laboring masses (in this instance, of insects)? The sentimentally appealing but intellectually empty effort to ascribe economic value to nature's services may at bottom constitute little more than the labor theory of value redivivus. Marx had a recommendation: the workers of the world should unite to throw off their chains. What recommendation do ecological economists offer the laboring insectivorous classes?


What about the economic value of biodiversity? Biodiversity represents nature's greatest largess or excess since species appear nearly as numerous as the stars the Drifters admired, except that "scientists have a better understanding of how many stars there are in the galaxy than how many species there are on Earth."76 Worldwide the variety of biodiversity is effectively infinite; the myriad species of plants and animals, not to mention microbes that are probably more important, apparently exceed our ability to count or identify them. The "next" or "incremental" thousand species taken at random would not fetch a market price because another thousand are immediately available, and another thousand after that. No one has suggested an economic application, moreover, for any of the thousand species listed as threatened in the United States.77 To defend these species - or the next thousand or the thousand after that - on economic grounds is to trade convincing spiritual, aesthetic, and ethical arguments for bogus, pretextual, and disingenuous economic ones.78 As David Ehrenfeld has written,

We do not know how many [plant] species are needed to keep the planet green and healthy, but it seems very unlikely to be anywhere near the more than quarter of a million we have now. Even a mighty dominant like the American chestnut, extending over half a continent, all but disappeared without bringing the eastern deciduous forest down with it. And if we turn to the invertebrates, the source of nearly all biological diversity, what biologist is willing to find a value - conventional or ecological - for all 600,000-plus species of beetles?79

The disappearance in the wild even of agriculturally useful species appears to have no effect on production. The last wild aurochs, the progenitor of dairy and beef cattle, went extinct in Poland in 1742, yet no one believes the beef industry is threatened. The genetic material of crop species is contained in tens of thousands of landraces and cultivars in use - rice is an example - and does not depend on the persistence of wild ancestral types. Genetic engineering can introduce DNA from virtually any species into virtually any other - which allows for the unlimited creation of biodiversity.

A neighbor of mine has collected about 4,000 different species of insects on his two-acre property in Silver Spring, Maryland. These include 500 kinds of Lepidoptera (mostly moths) - half the number another entomologist found at his residence.80 When you factor in plants and animals, the amount of "backyard biodiversity" in suburbs is astounding and far greater than you can imagine.81 Biodiversity has no value "at the margin" because nature provides far more of it than anyone could possibly administer. If one kind of moth flies off, you can easily attract hundreds of others.

The price of a building lot in suburban Maryland, where I live, is a function of its proximity to good schools and to Washington, D.C. The thousands of kinds of insects, weeds, and microbes that nature lavishes on the typical suburban lot do not increase its price. No one wants to invest to see if any of these creatures contains a cancer-curing drug, although a raccoon in my attic did test positive for rabies.82 No one thinks that property values are a function of biodiversity; no one could suppose that a scarcity of critters looms that might create a competitive advantage for housing lots that are more generously endowed with deer, opossums, muskrats, raccoons, birds, or beavers. (A neighbor who has a swimming pool plays unwilling host to a beaver who at night jumps off the diving board into the pool, swims around, and jumps out again.) The astronomical variety of biodiversity is thrown in with every residential acre. Buy an acre or two, and an immense amount of biodiversity is yours for nothing.


To suggest that ecosystem services possess only a negligible "exchange value" or market price is to invite at least the following four objections. First, one may earnestly assert that ecosystems "act to purify air and water, regulate the climate and recycle nutrients and wastes. Without these and many other ecosystem goods and services, life as we know it would not be possible."83 The team that pegged nature's services at tens of trillions wrote, "The services of ecological systems and the natural capital stocks that produce them are critical to the functioning of the Earth's life-support system."84 Bromides such as these, however edifying, tell us nothing about competitive price or exchange value, which is a measure of scarcity not dependency.

I understand, of course, that when economic development changes a landscape, for example, when a university such as Stanford takes the place of a savanna, some of the ecosystem services the landscape once provided will be lost. No one would suggest, however, that in view of the diminished ecosystem services, the landscape be restored and the offending university removed. What is needed is an example of an ecosystem service that is worth more in market terms than the privately built housing, schools, hospitals, and farms because of which that service diminished or declined.85

For example, one could speculate that downstream towns vulnerable to flooding - New Orleans is an example - could conceivably pay farmers upstream to let their lands flood during the rainy season (thus delaying or forgoing planting their crop) to approximate the ecosystem service - in this instance, retaining water - the forests, fields, or wetlands once supplied. This sort of brokering might be worthwhile to attempt at least as an experiment. Researchers have found instances in which towns have purchased land in flood plains to mitigate flooding,86 although on inspection, these examples may be dubious, in part because of huge financial incentives from the federal government and in part because flooding occurred anyway that might have been prevented by infrastructure such as levees. The literature cites examples, but when one follows the footnotes, one often finds much less there than one might hope.87

Consider a second objection to my argument. The Nature Conservancy and other groups raise and spend enormous amounts to acquire and retire for aesthetic and ethical reasons "the last great places," as the Conservancy calls them. The appreciation of the spiritual, moral, and aesthetic aspects of nature - an obligation to protect undeveloped places - is exactly the kind of commitment environmentalists share and should act on. Aesthetic and moral value, however, is not to be confused with economic value, even though it requires funding. It would be a mistake to say that natural areas have value because people are willing to pay to preserve them - as if WTP were the locus or source of value. Rather, people contribute to organizations like the Conservancy because they recognize the beauty and glory inherent in nature and a duty to protect the aesthetic, moral, historical, and religious value of particular places.

A third objection is obvious. Nothing has been said here about minerals, such as diamonds and gold, which are obviously scarce relative to demand and thus have a high value in exchange. These goods, however, are priced competitively, more or less, and there is little need for government officials to second-guess these markets. The argument here would not apply to diamonds and other minerals, in any case, but to goods associated with the functioning of today's ecosystems, such as clean water. It would not apply to petroleum since it is not supplied by living ecosystems.

Fourth, one may object that the argument presented here extends only to exchange value, competitive market price, or the intersection of supply and demand. If ecosystem services are plentiful and free (like manna) they will have little value at the margin. No way of conceiving "economic value" other than in terms of competitive market price, however, allows one to compare the "marginal utility" of ecosystem services with that of ordinary consumer goods, which are "valued" at competitive market prices. A group of ecological economists has wisely written that the real test "of whether an ecosystem service will facilitate conservation is not whether academics can valuate it, but whether someone -or some organization - is able and willing to do what is necessary to secure it."88

Everyone agrees, of course, with platitudes about how dependent we are on Nature's lavish beneficence. Everyone imagines the wonderful time the Drifters enjoyed up on the roof and under the boardwalk down by the sea. Nature plentifully and freely sustains us, comforts us, and inspires us. We recognize that the preservation of the beauty, complexity, and integrity of the natural world represents an aesthetic opportunity, a spiritual duty, and a moral obligation. Large-scale atmospheric systems, such as those that regulate climate, demand political will for their protection. They cannot be marketed or "priced" at the margin any more than liberty. From the perspective of economic value in the sense of a competitive market price, however, Locke was right. "Nature and the Earth furnished only the almost worthless materials as in themselves."

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