The Abundance Choice, Part 13: The Lords of Scarcity

One of the farmers who supported our attempt to qualify the Water Infrastructure Funding Act for the November 2022 ballot was John Duarte. It was a privilege to speak with Duarte, because his reputation had preceded him. Duarte is the man who had the temerity – and uncommon courage – to sue the U.S. Army Corps of Engineers when they ordered him to stop farming one of his properties. The Corps argued that the rain puddles that formed on Duarte’s 450 acres in Tehama County were vernal pools.

The case was eventually settled in 2017, but only after the government counter-sued and a federal district court rejected Duarte’s claims. Facing the infinite resources of the federal bureaucracy, Duarte decided against filing an appeal and paid the fines. During our first conversation, and subsequently, it was Duarte who coined the phrase the Lords of Scarcity. It is a vividly accurate way to describe the many special interests, public and private, that benefit from regulations and rationing.

This economic fact remains underappreciated: When regulations are imposed on businesses and public agencies that make it almost impossible for them to build something, whatever that something produces becomes more expensive. This fact rests on the law of supply and demand, and only requires a minor intuitive leap from that foundation: When demand exceeds supply, because supplies have been restricted, whoever owns existing supplies makes more profit. These owners are the Lords of Scarcity, and California is their citadel.

One of the profound ironies of our time is how, especially in recent years, financial and corporate interests that once were pariahs to the American Left have now become their champions. There’s plenty to chew on in that statement, since social issues have been coopted now by corporate America almost to the point of parody, but let’s stick to the issues of economics and the environment. Corporations and financial special interests have long since realized that environmentalism is a means to control markets and capital.

The consequences of that realization are predictable and have been in full effect for years. Environmentalist overregulation is no longer an economic burden to large corporations, if it ever was. Rather, it is a way to create barriers to entry to emerging competitors, and a way to wipe out existing competitors that lack the scale or the financial resilience to comply with new environmental edicts. And here again, irony abounds.

Our initiative campaign was vilified as a vehicle for “wealthy landowners” and “powerful multinational corporations” to “subvert environmental protections” and “create a bottomless slush fund for the super rich.”

But what is really happening? Could it be that the biggest, wealthiest landowners do not want the price of water to go down? Why would they want that? They also do not want the price of land to go down. The more these necessities cost, the wealthier they get. Here is the exact transcript of an email I received from a wealthy landowner, in response to my request to support our initiative:

“I am not for it. I think it will not be helpful.”

You don’t have to try too hard to read what is unwritten in that statement. Affordable land and abundant water are unhelpful if your wealth is tied up in land with water rights.

As for powerful multinational corporations, here is the exact transcript of an email I received from a member of a partnership formed to financialize water markets:

“Thanks for the details, Edward. Unfortunately, I can’t support this as I think it is fundamentally the wrong strategy. More supply? Really? The exact opposite of my beliefs.…”

Precisely. There is no incentive for wealthy landowners or powerful multinational corporations to see the value of land or water go down. There is no incentive for companies that want to privatize water supply infrastructure to see the value of water go down. And yet the environmentalist community, which derives its support from millions of left-leaning voters and activists who digest left-leaning rhetoric that opposes the privatization of water, somehow became apoplectic over our initiative, which would have socialized significant costs for water infrastructure, thus lowering the market price of water for everyone.

Years of successful environmentalist opposition to more water supply infrastructure is driving a consolidation of property ownership, as smaller farmers, lacking the financial resiliency to outlast the drought, are being forced to sell their holdings. The buyers are huge agribusiness corporations or hedge funds. Often the motive for the buyers isn’t even to grow food, but merely to acquire the water rights. In a drought, water becomes more expensive — and the more water costs, the more valuable their investment.

This explains why Harvard’s $32 billion endowment is buying land for the water rights in Central California, and why Saudi investors are buying land for the water rights in the Imperial Valley. It explains why Trinitas Partners, LGS Holdings Group, Greenstone, and other out-of-state investment firms and hedge funds are buying out California’s financially stressed farmers and ranchers. Their profit model relies on water scarcity.

The Lords of Scarcity have correctly identified energy and water as essential prerequisites for almost every other product or service. In a guest editorial published in Eurasia Review on April 20 by Michael Shellenberger, a writer who is currently running for governor against Gavin Newsom, he identifies nuclear power and desalination as two game changing options that have been suppressed.

In his column, Shellenberger, who has long advocated for construction of more nuclear power plants, presents the original blueprints for Diablo Canyon nuclear plant, showing that PG&E originally planned to construct six reactors. As it is, Diablo Canyon’s two operating reactors are scheduled to be shut down by 2025, which Shellenberger alleges is 40 years premature based on their design life. With its continuous output of 1.1 gigawatts, just one reactor at Diablo Canyon produces enough energy to desalinate over two million acre feet of water per year. But there’s much more to this story. Shellenberger writes:

“Why is Newsom talking out of both sides of his mouth? Because he cares more about running for president than he does about the people of California. And he believes that running for president requires the support of pro-scarcity environmentalists like Sierra Club and Natural Resources Defense Council (NRDC), and their financial backers. The two groups oppose desalination and favor closing Diablo Canyon nuclear plant. They have a combined annual revenues of nearly $300 million, a significant share of which comes from the very same natural gas and renewable energy companies that stand to make billions replacing the energy from Diablo Canyon. [italics added] Naturally, many of the same financial interests back Newsom. Some pro-nuclear people think they can change Newsom’s mind by appealing to his donors, but a big part of the reason Newsom sought to kill Diablo Canyon was to deliver a scalp to his pro-scarcity donors.”

This is yet another economic agenda that favors the policies of scarcity. The more expensive energy becomes, the more investment goes into renewables. This is a good thing if you believe renewable energy is more sustainable and planet-friendly than conventional energy, but it certainly doesn’t make the case for shutting down Diablo Canyon. The reason continuous energy from nuclear power is a threat is not only because it displaces renewables, but because it also displaces natural gas power plants which, unlike nuclear power, can be rapidly brought on and offline and thus are needed to fill in when intermittent renewable power falters.

Energy scarcity in California is the result of political choices, driven by economic special interests that profit from that scarcity. The evolution of Shellenberger, who was honored in 2008 by Time as a “Hero of the Environment,” is a defining example of how the conventional wisdom could change in California. One of Shellenberger’s earliest works was the EcoModernist Manifesto, which proclaimed that prosperity and environmentalism are not in inherent conflict, and that we can achieve both. Taking this inspiring message from concept to implementation, however, is undermined by the Lords of Scarcity. Shellenberger, who recently authored a book about environmentalist alarmism with the self-explanatory title “Apocalypse Never,” came to realize that excessive environmental laws and regulations are very profitable for the few, at the expense of prosperity for the many.

Another critical resource that must be abundant and affordable in order to nurture economic prosperity is land. Here again the Lords of Scarcity have managed to use environmentalism to create prohibitive barriers to land ownership and land use. It isn’t as if there is a shortage of land in California. But the process of clearing the land for any sort of development requires so much time and money and political connections that most people don’t bother. New housing is the obvious example. What few parcels of land are approved for subdividing aren’t nearly sufficient to make up for the demand.

The many cost variables that combine to make housing unaffordable are all attributable to environmentalist policies. Water infrastructure isn’t built, which means fewer homebuilders are able to identify a source of water to supply to the homes they intend to build, which means fewer building permits are issued. California’s timber industry has been decimated – one of the unheralded true reasons for super fires – which means more expensive imported lumber has to be purchased by homebuilders. And then there is the land itself, thousands upon thousands of square miles of open land, most of it only suitable for grazing, situated along the major freeway corridors.

California is only five percent urbanized. Five percent. The significance of this bears further explanation. The state of California sprawls across 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land. Of that, 14,000 square miles are prime agricultural land. You could put 10 million new residents into homes, four per household, on quarter acre lots, with an equal amount of land set aside for roads, parks and commercial districts, and you would only consume 1,953 square miles. If you built those new cities on the best prime agricultural land California’s got, you would only use up 14 percent of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3 percent of it.

The reason this doesn’t happen is because in every case, on every potential building site, there is an irreplaceable ecosystem that must remain pristine, and well funded environmentalist attorneys prepared to engage in endless litigation to preserve it. If California’s current land use policies were in force for the last hundred years, where would anyone live? Would anything have ever been built?

The Lords of Scarcity, using an extreme and self-serving interpretation of environmentalism as moral cover, have declared war on every essential resource necessary to deliver Californians an affordable and decent quality of life. Every building block of prosperity and every enabling economic foundation of the civilization we enjoy – water, energy, housing and food – is under attack.

The consequences of unaffordable housing only hurt ordinary families who want to own a home and build wealth. By contrast, unaffordable housing benefits the investment community which has recognized that by limiting the supply of real estate, they can invest in real estate and realize spectacular profits. So now families that aspire to own their own homes must also bid against real estate trusts, hedge funds, and major “multinational corporations” that stand to earn billions thanks to the policies of scarcity.

At this point, and once again, we must step back and reaffirm that everyone cares about the environment. The problem isn’t the value of environmentalism, which any conscientious person acknowledges. The problem is the balance between the needs of the environment and the needs of ordinary working families has been lost. And the reason it has been lost is because environmentalism is a useful political weapon for any financial special interest that benefits from scarcity.

Most people critical of environmentalist overreach will correctly point out that these policies cause disproportionate harm to low income and underserved communities. That observation has been repeated so often it has become a cliche. But it’s true and it’s tragic. The Lords of Scarcity are California’s privileged elites, unwilling to accept the lower profits that come with a more competitive marketplace, or a vision of environmentalism that embraces resource development and rejects self-serving anti-growth extremism.

The Lords of Scarcity have taken over California. They hide behind environmentalism to further their financial interests. If broad based economic prosperity is to return to California, the narrative they’ve successfully sold to voters must be challenged, and the power they wield must be broken.

Read all of the articles in The Abundance Choice series.