WHY MOST EVERYONE DISLIKES ECONOMISTS

If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.  ~ John Maynard Keynes

Over the past several decades economists have established a larger presence in the world of policy formulation. The sun never sets on economic experts making pronouncements that are reported 24/7; everything from inadequate GDP growth to the price of kale[1] and quinoa. Despite this prominence, economists are far from cherished. We lament, "Why aren't we loved?"

We're disliked because, mostly for the best of reasons, we often espouse and support policies that raise the prices of products that people actually purchase. Many economists argue that goods like petroleum products, food, water and sugary drinks are priced too low and should be raised. When offered a choice, most everyone wants lower, not higher prices.[2] Hence the negative feelings folks have with economists (and politicians) who endorse higher prices. 

The rationale for raising prices sometimes focuses on how we can be saved from ourselves – or can save "other people" from themselves (this is more popular than policies that raise prices on goods or services we ourselves buy) – because our consumption of some goods creates negative public externalities like air and water pollution (perhaps remedied by a carbon tax that raises fuel prices). Consuming other goods creates detrimental personal consequences like lung cancer or obesity (resolved in part by implementing a cigarette tax or soda tax that raises these goods' prices, so consumers buy less of them).

Speaking of soda taxes, a growing list of localities have attempted, so far uniformly unsuccessful, to implement various types of soda taxes. This list now includes San Francisco and Berkeley, CA that have each placed differing tax propositions on sugared drinks on their November ballots. The debate about the tax is already bubbling over in both cities.

The advocates of Berkeley's intricate Prop D state it's a 1-cent per fluid ounce tax on distributors of some sugared-drinks (called "Big Soda" by proponents). the Berkeley city attorney states that "The tax would be payable by the distributor, not the customer," which seems to hope that voters will forget such taxes almost always get passed along to final consumers in the form of higher prices. Pro-D'ers say the tax will reduce the incidence of obesity and diabetes. That may be possible in the longer term, but there are many other (known and unknown) factors that contribute to obesity and diabetes. Unfortunately, available information about using soda taxes as a fiscal means of reducing America’s growing obesity epidemic is fairly dispiriting. We'll see if a notably progressive city's citizens will vote to raise the price of many of the sugared drinks they consume in the name of public health.

Does anyone really want to pay higher prices if they have a choice not to? Nope.[3] Witness the popularity and permanence of a myriad of sizeable government subsidies that artificially lower prices for consumers and/or producers. These subsidies include those to industrial agriculture that ultimately reduce commodity food prices (e.g., wheat, corn, milk, cotton) and tax subsidies provided to oil and natural gas exploration and to home mortgage interest payments. Subsidies to agriculture have been estimated to be from $10 billion to over $20B per year. The home mortgage interest payment tax deduction (subsidy) was estimated to cost $80B in foregone revenues in 2010.

The Australian carbon tax "experiment" offers an unusual case study in the fecklessness of politicians raising prices, in this case energy prices. A carbon tax is a tax on the production and/or consumption of fossil fuel based on the fuel's carbon content. Most economists and virtually all environmentalists strongly support such a tax as a means of improving air and water quality, even though many politicians remain extremely wary of imposing one. Their well-founded fear is connected with creating an unpopular policy that raises energy prices.

Australia initiated a national carbon tax in July 2012 under Labor Party Prime Minister Julia Gillard, principally on large industrial and electricity-generation firms' emissions. The tax on carbon that companies paid was about A$25/metric ton in mid-2014. CO2 emissions went down. The price of electricity and other goods increased. And Australians were not at all happy about these price increases. So unhappy that voters threw out the Labor government in the next election. The tax was then repealed in July 2014, under the new leadership of Liberal Party (conservative) PM Tony Abbott, who said the tax was a “9 percent impost on power prices, [and] a A$9 billion handbrake on our economy.” Mr. Abbott probably doesn't spend much time chumming around with economists who advocated for the ex-carbon tax. Australia is thus the only country that has both implemented and annulled a carbon tax.

Closer to home, let's consider the price of water – perhaps the most precious resource that sustains our lives, next to oxygen in the atmosphere. I believe that California's current, devastating drought is caused in large part by the price of water being too low for way too long – ever since the first dams were built in the early 20th century principally to supply water to Central Valley agribusinesses and Southern California consumers. It's true that residential, commercial and industrial users also have benefited from paying low prices for their water. But the biggest beneficiaries have long been agricultural (ag) irrigation users, who all by themselves consume close to 80% of California's fresh water. And who have paid downright benthic-level prices for decades.

For more than half a century, federal and state water policy has been established in California and other Western states to keep irrigators' water prices very, very low via significant government subsidies. As Marc Reisner states in his classic book Cadillac Desert about water policies in the mostly arid West, ''What federal water development has amounted to, in the end, is a uniquely productive, creative vandalism."

Here's a prime example of preposterously low ag water prices, taken from Reisner's book. Through the 1980s the Westlands Water District, one of the largest in California and therefore in the US^[4], charged its ag customers between $7.50 and $11.80 per acre-foot. Economists estimated the actual cost of delivering this water was $97 per acre-foot. Thus, these customers were paying only 8% to 12% of the cost of providing this resource. This degree of public financial support is at the very deep end of the subsidy pool. Who paid (and continues to pay) the remaining 90% of the cost? Us taxpayers. Adding more water to this vandalism fire caused by low prices, the dominant planted crop at the time in Westlands was cotton – a very water-thirsty, "surplus crop" whose price is itself heavily subsidized by the federal government. Talk about going from worse to terrible.

With its slight cost, California ag irrigators have had no economic incentive to conserve or efficiently use water. They continued to greedily guzzle until the rivers, reservoirs and wells have almost dried up during this latest drought. This unsustainable water gluttony itself has also created significant environmental damage in the Central Valley.

 Water prices have finally started to increase for ag irrigators; some of Westlands' customers are now paying over $1,000 per acre-foot – nearly 10 times more for water than right before the drought. Irrigators' allotments of water also have been cut– making the price of that water infinite.

However, few if any residential consumers are now paying more for their water. In fact, over 250,000 water users in California do not even have meters to determine their actual water usage. These unmetered customers are charged a flat fee, sometimes as low as $20/mo. Cities and areas where unmetered water usage is significant include South Lake Tahoe (62% unmetered), Merced (52%) and Sacramento (47%).

Thus, it's no surprise that we haven't reduced our water consumption much, in spite of Gov. Jerry Brown's January declaration to cut water use by 20%. In July 2014, statewide water usage was cut 7.5%, compared to a year ago. Southern California consumers reduced their usage a trifling 1.7%. Is it time also to raise non-irrigator water prices? Probably so, but it's also time to further incentivize water conservation by giving credits to customers who have reduced their usage more than 15% to 20% and/or installed water-saving methods.

Are water policy economists popular when they support such needed price increases? Not at all; everyone is completely comfortable with their long-time, subsidized, rock-bottom water prices. But water pricing policy must change from a subsidy-based system, if existing water resources can ever sustainably accommodate both the arid West's significant population growth and increasing agriculture needs. Appropriately set market-based prices can make every user recognize that water is indeed a precious and limited resource that must be used wisely.

But economists and other folks who advocate for such higher prices aren't praised, they are usually disparaged. As always, it's very hard to be loved when you're reducing people's disposable income by increasing prices with higher taxes or reduced subsidies in the name of efficient allocation of resources. Very few people care about efficiency once there's less money in their wallets. So, maybe we'll never be thought of as well as dentists. Still, it's strange that we struggle to be liked as much as folks who grind down worn-out molars. So it goes for those of us affiliated with the dismal science.  L

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[1] By the way, October 1^st is apparently National Kale Day. Who'd of guessed. 

[2] Recall from your Econ101 course the Law of Demand, which states that ceteris paribus as a product's price increases, the quantity demanded will fall. Rarely-seen examples that dispel the Law of Demand include Giffen and Veblen goods –where as price increases the quantity demanded of the good also increases.

[3] There is a thin sliver of conspicuous consumers who might choose to buy certain goods because they're more expensive. We call such consumers the 1%. As mentioned above, economists call such goods Veblen Goods – think of the Rolls Royce Wraith.

[4] Reisner states that in the 1980s, just 1/4^th of Westlands Water District's annual available water would completely accommodate New York City's total annual water needs.