9.12.07

THE WORLD'S GREATEST WATERPARK. Where many policy wonks like to speak of "problems" that have "solutions" or "crises" that can be "managed," economists think about tradeoffs. A USA Today article notes that, in the Rust Belt, there are environmental consequences to preserving manufacturing.

In all, the eight Great Lakes states have lost 1.2 million manufacturing jobs since 2001. During that time, the hospitality industry added 300,000 jobs. The trend is even more extreme close to the water.

State legislators worry more today about invasive aquatic species in the ballast water of cargo ships than about dredging harbors to keep the freighters running full. Oceangoing vessels are blamed for bringing more than 140 non-native species into the Great Lakes, wreaking havoc on the ecosystem.

"We used to treat the lakes as a resource to make beer in Milwaukee and steel in Gary (Ind.)," says John Austin of the Great Lakes Economic Initiative at the Brookings Institution in Washington, D.C. "We've evolved into thinking it's a scarce resource that can't be touched."

The future, he adds, should lie between those extremes.

People who love the Great Lakes complain that they are the nation's neglected treasure, ignored in Congress and overshadowed by the East and West coasts. The Florida Everglades, for example, are a sensitive subject in the region.

"The Everglades are a wonderful place, but it's a minor ecosystem compared to the Great Lakes," says Wisconsin Gov. Jim Doyle. "Yet the federal government stepped in to help the state of Florida. The Great Lakes need the same kind of national attention."

Some of that is the public choice dynamic at work, and it probably doesn't hurt to have a bit of brotherly love in the White House, but there's serious thinking behind the special pleading.
The Great Lakes need $25 billion to restore the ecosystem from its days as a waste dump, the Brookings Institution estimates. Even today, many cities dump raw sewage into the lakes after heavy rains.
That would include Chicago and Milwaukee, both of which have intercepting sewers that intercept about as effectively as the Panthers' secondary.

Last month, the Council of Great Lakes Governors challenged the presidential candidates to say how they would protect the lakes. The most notable response came from New Mexico Gov. Bill Richardson, who committed a Great Lakes faux pas by suggesting that their water be shipped to the arid Southwest.

That idea would violate an agreement the governors and Canada negotiated in 2005 to keep all water inside the region. The water compact, which still needs approval by Congress and state legislatures, is designed to help the economically struggling region by locking in Great Lakes water — 95% of the USA's surface
freshwater.

"Freshwater is becoming the most valuable resource in this country and planet," says Doyle, chairman of the governors council. "We're trying to get the presidential candidates to better understand what we need."

The compact originated in the Great Lakes states, particularly when some Michiganders thought exporting water to the Southwest (where they don't price the subsidized water efficiently) could make up for the loss of the automobile business (a corrupt bargain in which the state was residual claimant on monopoly rents divided among the Big Three and the United Auto Workers if ever there was one). The existence of such a large water resource is going to tempt people outside the watershed, and in my gloomier moments I suggest to students that the next Civil War could break out along the Des Plaines River, which rises almost in view of Lake Michigan yet drains to the Illinois River. I'm also contemplating investing in real estate in the Wolf River watershed west of Green Bay. Read a map.

But contemplate the tradeoffs.

The Waukegan waterfront, for example, includes two Superfund environmental cleanup sites, the former headquarters of asbestos manufacturer Johns Manville and Outboard Marine Corp., which left 1 million pounds of cancer-causing PCBs in the harbor.

Industry promises to spend what's required to be environmentally sensitive. Oil giant BP proposes spending $3.8 billion to expand a Whiting, Ind., refinery on Lake Michigan — originally built in 1889 by John D. Rockefeller — so it can refine heavy crude from Alberta, Canada. Murphy Oil wants to spend $6 billion on a refinery on Lake Superior in Superior, Wis. The refinery expansions face uphill battles to win regulatory approval from state and federal governments, even in a time of $3-a-gallon gasoline.

Superior Mayor Dave Ross wants the refinery. It would bring in $25 million a year in property tax revenue to his community of 27,000. His support, however, hinges on the company polluting far less than the law allows.

In Indiana, BP promises to dump no extra pollution into Lake Michigan if it's allowed to increase capacity by 115,000 barrels per day. About $1.4 billion of BP's $3.8 billion construction cost would go to environmental controls, BP spokesman Scott Dean says.

However, the plant would produce more air pollution than it does now and continue to discharge 1,000 pounds of ammonia into the lake daily. "It's ironic people complain about $3-a-gallon gasoline," Dean says, "when we've got crude oil next door in Canada but can't refine it."

Higher living standards involve many things, and sometimes that means balancing one gain against another.
"People forget that the Great Lakes were the superhighway of North America for 150 years," says historian Christopher Gillcrist, executive director of the Great Lakes Historical Society in Vermilion, Ohio. In the early 1900s, the Great Lakes transformed America through the development of steel mills and related industries.
Don't forget the timber and the cement.
But foreign competition and technology started driving big factories out of business, a trend that accelerated in the 1970s and 1980s. The abandonment of toxic industrial sites coincided with the rise of environmentalism.
We also had containerization and railroad deregulation. The ore and cement carriers that are confined to the Upper Lakes have their use but the international shipping works out to fewer carloads a day than the North Shore Line handled in the years immediately before it was abandoned. Environmental awareness is a minor force.
Longtime conservation activist Lee Botts, 80, of Gary, Ind., says environmental laws in the 1960s and 1970s changed everything. The public won the right to challenge pollution before it occurred. "Before that, you couldn't take legal action until the damage had been done, and only then if you were personally harmed," she says. "Industry … didn't understand that things would never be the same."
Again, a tradeoff. Coasian bargaining may imply neutrality as to assignment of rights, but reassignments of rights do have income effects.
Today, mayors in Milwaukee, Manistee, Mich., and beyond want to remake Great Lakes waterfronts into upscale developments. Few plans have succeeded so far, despite government subsidies.
Suggest a more accurate conjunction than "despite."

The region's troubled economy and the legacy of toxic waste are big hurdles, too. So are disastrous urban-planning decisions made during earlier times.

A common problem: shorelines separated from downtowns by highways and railroad tracks, a remnant of a time when industry occupied the waterfront and people lived downtown.

In Waukegan, for example, a four-lane highway runs along the harbor. The highway doesn't go much of anywhere because the state never finished it. The road makes it nearly impossible to walk or bike to the 1,400-acre waterfront, which includes a public beach and the Superfund sites.

A hint for that "despite": Federal matching funds for superhighways. That, and a fundamental proposition from economics, a corollary of which was "If an expressway along the lakeshore were desirable, someone would already have built it." Sometimes that someone is the despised developer.

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