Febrile, spineless morons and water trading.

http://www.businessday.com.au/business/new-crops-could-help-murray-20081026-591w.html?page=1

This is the best article (today's SMH) I have ever read about the decline of the Murray Darling, water trading and the bizarre outcomes when market operators and the government become bedfellows.

The government's buyback scheme is fundamentally screwed for one simple reason. The scheme enters the water trading market, where prices are set by supply and demand. Only, the government's regime of value is inverted - they buy up licences when the water is gone.

These two regimes of value - water is valuable vs no water is valuable begets the worst of both worlds. Davidson is right. If the government wants to intervene in saving the Murray Darling it needs to become involved in the process of making money off the land. That is, encourage less water intensive crops.

I could go on - this is the kind of public/private partnership (which is exactly what it is) that sends economists into a froth. Actually, it's worse than that. It's embarrassing. One day, when I am not doing something else, I am going to write a short simple book, called "The pitfalls of trading in things that don't exist". Everyone does it, And those who say they don't are liars.

From hedge funds to futures and currency speculation, the speculative market is basically a form of relativised insurance. Sometimes it works and makes money. And sometimes it doesn't as we are all learning at the moment. The system is already imperfect*, even when operating on shared principles of value. When governments begin trading in opportunity costs, with private players, and inverted, contradictory notions of value, everything gets very, very scruffy.

So, until I write this book, (a hilarious romp through the pitfalls of the speculative market!! stand by for eye-watering profanity) you should read this astute and concise article. It's got EVERYTHING.

The sad reality is that it is simply unlikely the buyback scheme will work. We will see, in our lifetime, the end of a unique ecosystem, including the River Red Gums. These are pretty trees. Which is why the critters live in them.




*of course, this is what makes the money - imperfect information.