An article in the New York Times today discusses the fate of Quillagua, a town with very little water in the desert of northern Chile.
My favorite quote is the, "market can regulate for more economic efficiency, but not for more social-economic efficiency." I'm not sure exactly what that means, but there's a grain of truth to it.
There are a few interesting issues here: first, if the town doesn't have enough water, it seems like it should die, and that might be sad but unavoidable. The twist at the end of the story, though, is that it sounds like the mining company that's taking all the water may be forcing that end by taking more water than it has water rights for. If that's the case, then trust in markets has blinded economists and policymakers to the potential for abuse- and that abuse, that externality, is killing the town.
Show me a transaction with no externalities and I'm a libertarian too- I just don't see too many of them out there!
-- James
