What to do about looming water shortages?
Georgia is in the midst of its most serious drought in decades. But it is not alone in having trouble securing water for its people. Florida is growing so rapidly that it is expected to also have to ration water. And in some of our western states, such as Arizona, people growth, in both legal and illegal residents, is coming faster that water growth.
A recent news item suggests that more than half the the states in the U.S. and many other nations face serious water shortages and may have to resort to serious measures.
The problem, and its solution, are not as difficult as it may seem. Municipal water supplies are often controlled by municipal governments, and are usually not profit-maximizing organizations, but are instead, vote-maximizers.
Profit-maximizing organizations would have an incentive to let all who want water to pay the going price. Water would not be given away at below costs in such a way as to gain votes, but sacrifice the future water supply, because the water in the future could fetch a high price. Opportunity costs would have to be met.
If you ever drive through Arizona along I-10, you will notice that there are pecan orchards along the way. If you know anything about pecans, you know that they need a lot of water, especially in the arid Arizona climate, where evaporation rates are higher than here. Why do farmers grow pecans in Arizona? Because they get their water for irrigation at a subsidized rate, at less than the opportunity cost of the water. The subsidized water allows them to profitably grow pecans in the desert. With water subsidized enough, a farmer could grow rice in the desert (rice requires a flooded field).
If the captain of a 18th century ship found that rats had eaten half of the crew’s food reserves that were expected to last until reaching the next port in 4 weeks, a responsible captain would cut rations. Prices do that automatically, and at the same time, give those who know about the shortage an incentive to develop other food supplies. In other words, a water shortage, if it would raise water prices, would provide an incentive for people to be creative in finding ways of developing new water supplies.
Now, some farmers in Louisiana are pumping water from the water table, depleting the water table, which has high-quality drinking water, instead of using surface sources. The reason is that they do not face the opportunity cost of the water that they could sell in the future. Sub-surface water is a common-property resource, but that could be changed.
The bottom line is that owners of resources are better managers of natural resources than are government bureaucrats and politicians. Future citizens do not vote, but firms do consider about lost sales in the future because we sold things too cheaply now.
- Morris Coats
November 28th, 2007 at 6:22 pm
Water rights should be sold to private suppliers to create a market for water. How can a water supplier generate a larger market for the uses of water? How can a supplier extract more water for use? These are just a couple of questions that would be answered if the municiple water supplies were privatized. The bottled water industry is a prime example of the profitability of making water a private commodity. Each brand touts their own “spring”, some are even filled from municiple water supplies. What keeps these companies in business selling municiple water? The answer is money!