Water: It’s Valuable, So If You Don’t Price It You Get Waste
I know this is a controversial view, but today I wade back into the case for using market prices for water to promote conservation with the authority of Grist, the internet’s premiere source for environmental news, behind me. Robert Stavins, professor at Harvard’s Kennedy School of Government and Chairman of their Environment & Natural Resources Faculty group writes at Grist:
In a white paper, “Managing Water Demand: Price vs. Non-Price Conservation Programs,” [PDF] published by the Pioneer Institute for Public Policy Research, Professor Sheila Olmstead of Yale University and I analyzed the relative merits of price and non-price approaches to water conservation. We reviewed well over a hundred studies, and found strong and consistent empirical evidence that using prices to manage water demand is more cost-effective than implementing non-price conservation programs.
In general, when you take something that’s valuable—fresh water, space on an arterial highway at rush hour, the right to put carbon dioxide into the atmosphere—and give it a sub-market price, the result is overconsumption. Wasted water, polluted air, crowded highways, etc.
85 Responses to “Water: It’s Valuable, So If You Don’t Price It You Get Waste”
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March 18th, 2009 at 8:51 am
Your fascination with market pricing for auto travel and water is interesting. Surely it has ocurred to you that these bland endorsements of using market pricing to discourage waste also apply directly to health care? I know you think that health care is ‘different’, but you should really think about why those differences matter and what that might say about the case you are making for using market pricing in these other arenas.
March 18th, 2009 at 8:55 am
Hmmm… I can certainly see the argument. However, as with transport policy I’d ideally like to see any additional levy laid on to the price of water be fed back into the infrastructure in a way that disproportionately benefits those who can least afford the charge. How could this work?
March 18th, 2009 at 8:59 am
People should pay for pollution, not consumption of necessary things like clean air and water — these should be free; it’s a genetic right of all living creatures.
The problem you’re dealing with here is overpopulation, which should be viewed as another form of pollution. And we have two choices: we can control our numbers through planning and our usage through conservation, or mother nature will do it for us through war, disease, and natural disaster.
March 18th, 2009 at 9:00 am
MPowell – I see where you are going with your argument, however what Matt is trying to do here is price externalities, costs of consumption that don’t currently get paid for in the fees set. In the case of Health Care, there are massive costs of individual and social costs of NOT using it, that don’t get included in the current pricing system. For instance, people who don’t seek health care for a medical problem because they can’t afford to pay their deductable are more likely to be off work, to be infectious, to wind up on disability etc. etc.
March 18th, 2009 at 9:01 am
Not to mention education.
If we charged every parent out the kazoo for their kid’s education do you think we might get better educational outcomes?
Seems to me that you are willing to draw totally arbitrary distinctions about where to impose market pricing and where not.
March 18th, 2009 at 9:05 am
Plus, you can get all those poor people to finally do us all a favor and die off!
The market is efficient, not “right.” When efficiency is the best solution to a problem, the market is great. Other times, not so much.
March 18th, 2009 at 9:11 am
As someone with a passing familiarity with how “non-market” water allocation has been handled in the U.S. it is not surprising to see this kind of conclusion. Considering how irrational our current water policy is, a study that says a system of price signals is more efficient than the current one still isn’t much of an argument for pricing water. Its hard to imagine any system being more inefficient than the current one.
March 18th, 2009 at 9:12 am
Maybe you should talk to some people who are connected to privatized water systems and paying out the ass for it.
There’s money to be made here, boys!!!
March 18th, 2009 at 9:21 am
Yes this is a great 2 step idea thought out by Lord Yglesias.
Step 1: Market pricing for transportation, which will cause people that cannot afford to pay high road taxes onto public transportation, making buses and trains more crowded. These crowded spaces will be even hotter than they already are in the summer time.
Step 2: Market pricing for water to force people to who cannot afford high water bills to cut down on their water intake. And since these people most likely do not have green lawns that need watering their water savings will come in the bathroom and the laundry room. They will skimp on showers and washing their clothes.
I don’t know how anyone could find a potential flaw in congestion prices crowding more people onto buses and trains and market priced water forcing them to cut down on their showering and clothes washing.
March 18th, 2009 at 9:23 am
Slate here you come!
1. Maybe efficiency isn’t the highest value in an economy.
2. All markets fail eventually. The failure of a water market would really suck for the week or so before everybody dies of dehydration.
I think Matt exposes one of the big problems with our Ivy League-based governing class: they’re all rich, and so they miss the 120-lb starving gorilla in the room.
March 18th, 2009 at 9:37 am
Why would Matt support market-based health care allocation just because he supports market-based water allocation? It seems to me that it’s obvious that health care and water are different in many ways. Different resources, different issues and problems, different solutions — it’s not hard to understand.
March 18th, 2009 at 9:40 am
As an economist, it’s bizarre to me that anyone would think that you shouldn’t have market prices for water. Part of the problem, from what I understand, is that in mnay parts of the country water is much cheaper for farmers than it is for other uses. So water is overused in agriculture, and farmers are loathe to change the system. Also, there are water-sharing compacts between states that mess things up.
One solution would be to assign property rights to water, and then let the parties buy and sell; the Coase theorem would take care of the rest.
March 18th, 2009 at 9:40 am
They’re right, but when you start to recognize the scarcity of water through pricing you will inevitably begin to have people treat it as a commodity. Would you be comfortable having a Donald Trump casino buying up millions of dollars worth of water in Arizona while lower-income neighborhoods are forced to pay increasingly more every year?
You know it will happen that way. Eventually, the government will have to step in and dictate water limits and mandatory conservation and we’ll just wind up where we are now. We need to find a different way of defining how we treat things like water and clean air.
March 18th, 2009 at 9:47 am
That’s ridiculous. We don’t owe parents an education for their children; we owe children an education.
March 18th, 2009 at 9:49 am
Ah! Braden points out the obvious–and I guess MY hasn’t read Marx.
COMMODIFICATION of water is disastrous. Market-pricing, in and of itself, is fine; the trouble is that water PRIVATIZATION will inevitably become commodification and kill lots of poor people.
So I guess the question is how to market-price water without privatizing it. The other question is if there are more efficient methods of water allocation than market-pricing.
March 18th, 2009 at 9:50 am
Yes, of course. Peons don’t need water to grow corn. Golf courses in gated communities need that water, and under the Yglesias plan, they will get it (not that they have ever been denied). So you peasants just suck it in; Yglesias has just joined the new world order.
March 18th, 2009 at 9:52 am
The study you cite is not comparing price and sub-market prices, its comparing price and no-price. No-price policies mean that decisions are made by central planners. You could for instance prevent global warming by having the government decide what sources of energy we were going to use and how much. That’s an inefficient system because it forces central planners to make too many decisions with too little information and in some cases they lack any ability to make a decision at all. We could force people to get government permission before they drove anywhere. Obviously congestion pricing makes more sense. Obviously setting the price wrong is also bad which is why we usually let it be set by the market. There just isn’t any way to do that for some types of goods. Libertarians would probably prefer for all water, land and air to be owned by the private sector, but selling the Grand Canyon to private investors seems like a bad idea to me.
March 18th, 2009 at 9:55 am
Luke: That’s not how market failure works. Market failure is just when the market produces inefficient results; it is not inherently more catastrophic than the failure of non-market institutions. Granted, markets come with their own unique risks, but to say that market-izing the water supply will inevitably lead to drought and destruction is a bit much.
March 18th, 2009 at 9:57 am
Why are we supposed to consider people who grow corn as a favored class. If the people who want to build golf courses are willing to pay more than the people who want to grow corn then golf courses it is. That is how markets are supposed to work.
March 18th, 2009 at 9:58 am
“As an economist, it’s bizarre to me that anyone would think that you shouldn’t have market prices for water. “
Yes, after the tremendous success of market pricing for electricity in California how could anyone be opposed to market pricing for water. Snark.
One solution would be to assign property rights to water, and then let the parties buy and sell; the Coase theorem would take care of the rest.
The wikipedia link you have states “The theorem states that when trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.”
As an economist you might not recognize the applicability of the 1st and 2nd laws of thermodynamics which makes the assumption of no transaction costs infeasible. Basically there is friction and gravity which necessitates work to transport that water. That work gets done by pumps, which need energy, which comes from electricity or steam, which comes from fossil fuels, which cost $$. Also there is the simple matter of the pumps and pipes costing $$ to construct and maintain.
March 18th, 2009 at 10:02 am
I was being a little snarky above, but pointing out that whenever you are thinking about these things, there are some obvious reasons to be wary of the markets are great! attitude MY evinces towards various issues. With water, the big problem is that we are normally talking about keeping the subsidy going for farmers and using ‘market pricing’ for everyone else. Yeah, that’d be great!
March 18th, 2009 at 10:04 am
It’s really depressing that this is controversial. Liberals’ approach to some economic issues is not unlike conservatives’ approach to evolution.
March 18th, 2009 at 10:04 am
JimboSlice
He’s an economist, his job is to use theorems to prove his assumptions!
March 18th, 2009 at 10:05 am
Chilean Town Withers in Free Market for Water
Tomas Munita for The New York Times
Pipelines to mines siphon water from some of the driest towns on earth, in northern Chile.
By ALEXEI BARRIONUEVO
Published: March 14, 2009
QUILLAGUA, Chile — During the past four decades here in Quillagua, a town in the record books as the driest place on earth, residents have sometimes seen glimpses of raindrops above the foothills in the distance. They never reach the ground, evaporating like a mirage while still in the air.
Water for Quillagua’s residents is trucked in. They say mining companies have polluted their river and bought up water rights
What the town did have was a river, feeding an oasis in the Atacama desert. But mining companies have polluted and bought up so much of the water, residents say, that for months each year the river is little more than a trickle — and an unusable one at that.
Quillagua is among many small towns that are being swallowed up in the country’s intensifying water wars. Nowhere is the system for buying and selling water more permissive than here in Chile, experts say, where water rights are private property, not a public resource, and can be traded like commodities with little government oversight or safeguards for the environment.
Private ownership is so concentrated in some areas that a single electricity company from Spain, Endesa, has bought up 80 percent of the water rights in a huge region in the south, causing an uproar. In the north, agricultural producers are competing with mining companies to siphon off rivers and tap scarce water supplies, leaving towns like this one bone dry and withering.
…
Some economists have hailed Chile’s water rights trading system, which was established in 1981 during the military dictatorship, as a model of free-market efficiency that allocates water to its highest economic use.
But other academics and environmentalists argue that Chile’s system is unsustainable because it promotes speculation, endangers the environment and allows smaller interests to be muscled out by powerful forces, like Chile’s mining industry.
“The Chilean model has gone too far in the direction of unfettered regulation,” said Carl J. Bauer, an expert on Chile’s water markets at the University of Arizona. “It hasn’t thought through the public interest.”
Australia and the western United States have somewhat comparable systems, but they contain stronger environmental regulation and conflict resolution than Chile’s, Dr. Bauer said.
Chile is a stark example of the debate over water crises across the globe. Concerns about shortages plague Chile’s economic expansion through natural resources like copper, fruits and fish — all of which require loads of water in a country with limited supplies of it.
…
Fernando Dougnac, an environmental lawyer in Santiago, said that balance was particularly difficult because the “market can regulate for more economic efficiency, but not for more social-economic efficiency.”
Lately, the country’s approach to water has been showing some cracks. In the Atacama desert city of Copiapó, unbridled water trading and a two-year drought mean that “there are many more water rights for the river than water that arrives from the river,” Mr. Dougnac said.
Quillagua is in Guinness World Records as the “driest place” for 37 years, yet it prospered off the Loa River, reaching a population of 800 by the 1940s. A long-haul train stopped here — today the station is abandoned — and the town’s school was near its 120-student capacity. (Today there are 16 students.)
That prosperity first began to ebb in 1987, when the military government reduced the water to the town by more than two-thirds, said Raul Molina, a geographer at the University of Chile. But the big blows came in 1997 and 2000, when two episodes of contamination ruined the river for crop irrigation or livestock during the critical summer months.
An initial study by a professor concluded that the 1997 contamination had probably come from a copper mine run by Codelco, the state mining giant. The Chilean government then hired German experts, who said the contamination had a natural origin.
Chile’s regional Agriculture and Livestock Service, part of the Ministry of Agriculture, refuted those findings in 2000, saying in a report that people, not nature, were responsible. Heavy metals and other substances associated with mineral processing were found that killed off the river’s shrimp and made the water undrinkable for livestock. (Drinking water for residents had been transported in for decades.)
Codelco, the world’s largest copper miner, rejects any responsibility…
But the debate is largely academic, because without suitable water to raise crops, many residents saw no reason to continue resisting outside offers to buy the water rights in their town. One mining company, Soquimich, or S.Q.M., ended up buying about 75 percent of the rights in Quillagua. Most residents moved away; those who remain average around 50 years old.
“Quillagua cannot resist much longer,” said Alejandro Sanchez, 77, pointing a cane at a parched, grassless field where he once grew corn and alfalfa.
In 2007, the national water agency started investigating claims that Soquimich was extracting even more water from the Loa River than it was due. The inquiry is still pending, officials said, though the company says it has never taken more water than it owns rights to.
But early last year, the regional water authority started satellite monitoring along the Loa. After recording no water at all in the summer of 2007, Quillagua suddenly received small amounts last year, and again this January.
That has made water authorities suspicious that companies had been draining more water than permitted, according to Claudio Lam, a regional director for the Chilean water agency.
Even so, the water arriving in the summer is still not enough to produce crops, said Victor Palape, the chief of the Aymara Indians in Quillagua.
In a cruel twist, the town survives only because of daily water trucks that are partly financed by Codelco and Soquimich, the two companies that residents blame most for their troubles.
March 18th, 2009 at 10:05 am
My conclusion from the comments is that progressives are simply unable to allocate scarce resources. They will fail at handling the CO2 problem.
March 18th, 2009 at 10:07 am
The usual way to price water is to make the amount of water normally consumed by a family inexpensive. Additional water consumption becomes more expensive and is often progressively priced – i.e. first 10,000 gallons $.0001/g, up to 50,000 $.0008/g, etc. You can base the original allocation on household use only, no lawn, or include some lawn care water.
Worked as an editor on a Water Management manual a while back. No recollection of the scale of the numbers, but this is how the basic premise works.
March 18th, 2009 at 10:07 am
Ok, as a California water lawyer, this is actually something I know a fair bit about.
1. There is no such thing as a market price for water, because water is the purest (pun intended) of monopolies. Just how many water mains run down your street? Nobody is going to establish a competitive retail market for water.
2. Until this year, pricing water in California to encourage conservation was illegal. A new law (Water Code 370) may be sufficient to satisfy the constitutional limitations on imposing costs in excess of the cost of service, but it has yet to be tested in court.
3. Try sitting in a rate-setting meeting. Many people would prefer to have water cops in times of shortage than higher rates for higher consumption.
4. Many people also prefer to have their government, not a private corporation, serve them water. For one, people want to have some say in the service of such a vital necessity. Second, the purported inefficiencies in being served by a government agency can be more than offset by the fact that there is no profit motive.
5. Public officials are supposed to be responsive to their constituents. If their constituents don’t want conservation pricing and it’s imposed anyway, then the old board gets thrown out and the new board hires a general manager who will develop a price structure consistent with the public’s views.
6. The idea that a market in water can solve many problems is, simply, stupid. The physical water is free; it just falls from the skies. The cost of water is in getting it from where it falls to the person who wants it and cleaning it. That takes massive infrastructure. And all things considered, water’s pretty cheap. Right now, very expensive water in California is running less than $1,000 per acre foot (which is about 380,000 gallons). So, the only transfers that make sense are very large ones, which brings us right back to getting the government involved.
March 18th, 2009 at 10:09 am
Matt, you attract some real lulus.
It would not be hard to introduce market pricing for water in which a basic subsistence level is kept cheap so that poor people are not deprived of or impoverished by otherwise increased prices. Why golf courses, suburbanites watering their oversized lawns, lettuce growers in the desert and people who like to take absurdly long showers should receive under-priced water is beyond me.
March 18th, 2009 at 10:15 am
I guess Dave the Economist has never been out West, where you can’t even keep the rain that falls on your roof and where we have things called “water court.”
March 18th, 2009 at 10:18 am
Market pricing of water is an interesting theoretical discussion but ultimately irrelevant to public policy. When it comes to efficiently using water in the US, job #1, #2 and #3 is to revise our asinine agricultural policy. Continuing to massively subsidize agriculture will overwhelm any efficiency gains from water pricing – especially since those subsidies will take the form of sub-market prices for politically connected farmers.
On a somewhat related note, establishing a global free water market would probably lead to the following scenario:
-WaterCorp decides it wants to buy some water
-WaterCorp enters agreement with a corrupt third world government, where it buys up as many water rights as it can at a discount in exchange for money which that government spends on armaments
-Third world government’s political enemies (i.e. everyone not on its payroll) die of thirst
All economies are political economies to some degree. When it comes to something as important as water, there’s simply no way to cut through all the politics.
March 18th, 2009 at 10:25 am
The reason this is such a brilliant insight from JT is because, like the water system, the problems we face in our educational system stem from overconsumption.
Umwhat?
March 18th, 2009 at 10:27 am
The main problem here, as Francis points out, is that the term “market pricing of water” is absurdly undefined. A scheme in which water consumption up to a certain level is subsidized and the rest is artificially inflated is not market pricing under any known definition. Water delivery is in almost all cases a monopoly, and it is difficult to imagine that changing. There are serious questions about who “owns” most water sources (i.e. rivers and aquifers) and without clear ownership a market is impossible.
So what exactly does “market pricing” mean for water?
I’d be totally in favor of pricing external costs in some way that discourages excessive consumption, but when you start talking about making water a privately traded commodity I get very nervous.
March 18th, 2009 at 10:30 am
In response to Francis I would make several points.
1. We are not talking about a market price for water we are talking about a price for water.
2. California needs to rewrite its constitution
3. People who prefer water cops to a water price are in disagreement with me. Isn’t it better to decide whether watering your lawn is affordable then to ask the government for permission? For me it is obviously better to have a price and the money I pay can go to public services or lower taxes.
4. You can have the government provide water or have a regulated private utility provide water. Obviously there are problems with having a marketplace providing water because it is very infrastructure dependent. This has nothing to do with having a price.
5. Public officials are also supposed to educate their constituents and to implement policies that would be good for their constituents. Bad policy is often sustained by special interests, but when it is changed the interests are weakened an the changes prove sustainable. Its necessary to determine what the correct policy would be and let that inform real world reforms.
6. Water is not free. We are perfectly capable of completely destroying the earth and choosing not to will mean expending resources. A purpose of a price is to efficiently allocate a resource of which their is a limited supply. As you noted earlier if you don’t have a price then you have water cops.
March 18th, 2009 at 10:31 am
It’s always about the wonders of market forces around here and its always connected back to transportation policy because the traffic in Mass sucks so bad and Matt thinks he deserves a VIP express pass.
March 18th, 2009 at 10:33 am
On the contrary solarjetman the need for a price on water only serves to emphasize the need to lower ag subsidies.
March 18th, 2009 at 10:33 am
At the risk of offending more people:
Pipelines to mines siphon water from some of the driest towns on earth, in northern Chile.
Maybe if it’s one of the “driest towns on earth,” it might make sense to live somewhere else! You might as well legislate against cold in the Arctic Circle to get more people to live there!
March 18th, 2009 at 10:34 am
After re-reading the post I’m even more confused about what we’re actually talking about. It doesn’t look like the article cited is saying anything about “market” pricing, just pricing water to encourage conservation.
March 18th, 2009 at 10:35 am
I guess Dave the Economist has never been out West, where you can’t even keep the rain that falls on your roof and where we have things called “water court.”
Actually, the West is water pricing makes the most sense. Allow people to buy and sell water rights, and you get a much more efficient allocation of water. Farmers who get access to cheap water would sell it to others who value it more highly.
March 18th, 2009 at 10:40 am
But isn’t that the point mpowell ? … by sharing the true costs across the entire tax base both programs for universal health care and utility/energy supply can become sustainable in the long term … if the true costs of pollution/etc from coal/oil were included in the price consumers pay then alternative forms like wind/etc would be more competitive and the free market would take care of the rest … if the true costs of gas/fuel/water/electricity were carried by the consumer directly then we would see much more basic conservation in the short term and much more sustainability in the future … plus health care is different
March 18th, 2009 at 10:46 am
Or, Dave, you get a private corporation to by all/most of the water, then sell it at a higher price. This seems to be what has happened everywhere that water has been commodified.
The US is mediocre (at best) at regulation of a priced resource. I think California’s electricity is the most probable outcome; of course, people can only go a week or so without water. Hence the massive deaths.
March 18th, 2009 at 10:52 am
Dave-
if you read that article you will find that it was a town that once was irrigated by a river until a mining company siphoned off so much water from the river (which they had bought the rights to) that the former oasis disapeared, and the people are leaving. This is the nightmare scenario of market pricing.
March 18th, 2009 at 11:03 am
Yes Lowell joe, when you have a classroom of 45 kids being “taught” by one teacher I’d say you do have over consumption of our teaching resources.
You might say the same about students being forced to share textbooks, etc.
The examples do go on ya big lug!
In fact wasn’t one of the arguments for Stimulator that we had too little infrastructure in too poor a condition for our students’ needs? What is that but over consumption?
Why yes it is!
So think joe.. I know you are from Lowell but really, just think…
March 18th, 2009 at 11:03 am
Indeed; considering that I don’t live there, you won’t get any argument about that from me. This has nothing to do with the fact that the corporations that bought the water rights are evil and completely fucked the place–not just by diverting the town’s supplies and polluting the water, but also by actively stealing water (until they were watched). Hasn’t the AIG debacle taught our good neoliberals that if you give a corporation a chance to steal anything it will? The Enron experience also bears this out.
How many times do you fucking idiots have to get robbed before you get a clue?
March 18th, 2009 at 11:13 am
A couple of points: first, safe public drinking water for all is a good with significant positive externalities in the areas of public health (when was the last major cholera outbreak in your city?) and social stability (when was the last major water riot in your city? probably longer ago than in Cochabamba). The second is that providing drinking water to poor people is almost never an “efficient” use of the resource given the narrow slice of information that a privatized water market is able to incorporate.
I agree that charging the heaviest users (industry and agriculture) a price closer to the market price for water would be smart, provided you had set-asides in place for necessary residential use, in-stream flow, aquifer-non-destruction, and the like. It would be very bad to go to a pure market pricing system, due to the massive negative consequences that would have for people who need water but might not afford it at market rates (if you haven’t heard of the Cochabamba incident, it’s worth looking up). It would be even stupider (as some, though not all, who favor market-priced water would like to do) to privatize control of water on the pretense that a resource so fundamental to human survival can be safely treated as a commodity.
March 18th, 2009 at 11:13 am
Actually there is a big difference. Liberals do not object to teaching about markets in schools and classrooms. What we do object to is imperfect method in which markets are administered which create situations like the California energy crisis, the high food prices of ‘07, and this past summers peak in oil prices.
Its sort of like the difference between teaching evolution and survival of the fittest in classrooms but objecting to Nazi death camps aimed at creating a master race through Darwinism.
March 18th, 2009 at 11:24 am
If we don’t want one teacher in front of 45 students, we hire a second teacher. If students are sharing books, we buy more books. More “teaching resources” can be bought, if we so desire.
As opposed to water. We don’t add more water resources to a watershed by increasing the water department’s budget.
For the water/class size comparison to make sense, you’d be proposing that we raise the cost of attending school in order to encourage half of those kids to not go to school, or maybe to only take one or two classes a day. You didn’t even think through your example long enough to realize that, did you?
March 18th, 2009 at 11:27 am
This is completely backwards, btw. An example of “overconsumption of teaching resources” comparable to the overconsumption of water would be 4 kids being taught by one teacher, while crowding the other kids out of the classroom.
March 18th, 2009 at 11:36 am
Actually we do. That is what the massive irrigation system in California that has turned a desert into an oasis is all about. That is what the massive water tunnels into New York are all about. That is what dams and reservoirs are all about. That is what desalination plants are all about. That is what water treatment and reuse is all about.
March 18th, 2009 at 11:40 am
This is the nightmare scenario of market pricing.
This is just a standard allocation vs. distribution question. Market pricing leads to efficient allocation. Who gets the proceeds of the allocation process is a distribution question that is far more political in nature. The “nightmare” scenario has nothing to do with market pricing per se.
March 18th, 2009 at 11:48 am
Actually, I think what we might call “conservation pricing” is largely the case where I live,probably where you live, and becoming more so all the time. As the volume of water used increases, the per-unit price on the margin increases faster.
But in effect what this means is that water is reallocated to those who can afford it. Those who don’t care if the water bill is $80 or $200 will keep their cars washed, lawns green and will spend Saturday morning powerwashing the deck. The dusty rest can suckle hind teat. I’d be cool with that, I guess, except that it means that those with excess money contribute to the scarceness of an essential and create hardship on the less well-to-do. When you get serious supply issues, the socially equitable solution is not conservation pricing but regulation of use.
Meanwhile, the cost of the first X,000 gallons for the dusty rest is also increasing due to factors not related to use. The EPA issues more stringent water quality rules and the filtration plant must be upgraded, so the cost rises (I gather that the prospect of having to remove pharmaceuticals is a major freak-out for water system mangers). The mains are old and deteriorating and must be upgraded, so users, particularly in small municipal systems, get hit hard with the capital costs of those projects. Or the small town says fuck it, gets out of the potable water business, connects to a larger nearby town and the users are stuck paying for THAT. Or the the local government gives up entirely, seeing a big chunk of operating cash sitting there to be plucked by unloading a public utility, the system gets privatized and a profit layer gets added on top. And then we go back to the previous paragraph on steroids.
Meanwhile, on the ground here on Colorado’s east slope (where water rights were largely divvied up in much wetter times — a share from a source produced more “wet” water), we appear to be heading into a drought year, which means the price of water rental (yes, you can “rent” water) and shares will be on the rise again.
March 18th, 2009 at 11:53 am
DMonteith-
I don’t get your point. The water was allocated to the people who had money to buy it, the mining company. That is efficient in the very limited sense in which markets are inherently efficient.
Please explain what you mean by “allocation vs. distribution” it is unclear to me.
March 18th, 2009 at 11:55 am
Jimbo Slice,
Actually we do. That is what the massive irrigation system in California that has turned a desert into an oasis is all about.
No, that’s tapping water that’s already in the watershed, and just hasn’t been turned over to human use yet. There is a finite amount of water in the watershed. Beyond a certain point, if you dig more wells, they will just come up dry. The money is not the limiting factor, the actual amount of water is. None of the things you mentioned add water to the watershed; they just make more use of the water that is already in the region.
(Except the desalination plants.)
As opposed to schools, where there will be more books and more teachers when money is put up.
March 18th, 2009 at 11:56 am
No, no, no, market pricing of water would not lead to more efficient allocation. It would mean that those who could afford to waste it would be the only ones wasting it. Why you be wanting to start a class war?
March 18th, 2009 at 11:59 am
and while your at it, please explain what you mean by “market pricing” as that is unclear to me as well.
I take the term to imply that there is a market somewhere for water which will determine what it’s value is. I should have said “nightmare scenario of a water market” rather than “nightmare scenario of market pricing” but if one implies the other then the point stands.
March 18th, 2009 at 12:01 pm
and if you give it a super-market price, you get lots of unnecessary packaging and stuff.
March 18th, 2009 at 12:06 pm
Joe, most of those projects stop water from leaving the watershed. If you stop water from leaving the watershed you are increasing the water in the watershed. Like if the hired teacher was otherwise unemployed.
If we define
In = rainfall
Out = drainage to the ocean
Consumption = Water use by humans and other biotic species
Generation = Desalination / other water producing activities
The balance requires
In – Out = Consumption – Generation
Or,
Consumption = In – Out + Generation
So you can increase the Consumption by decreasing the Out or increasing the Generation. Or we could create a weather machine to increase rainfall, but that is years away.
March 18th, 2009 at 12:12 pm
I never have lived anywhere that municiple supplied water was free, so I suppose the article seemed strange to me.
Today in LA
http://www.latimes.com/news/local/la-me-water18-2009mar18,0,1076068.story
L.A. water rates revised to penalize heavy users
Changes probably won’t raise rates for low-income users, but residents who don’t cut usage by 15% would pay more than normal. The city still expects a water shortage this summer.
March 18th, 2009 at 12:20 pm
DTM — beyond household use and drinking water in public places, all the other uses I can think of are grey water or worse; they’re polluted uses and should be paid for in terms of polluting water.
Even agriculture typically results in a runoff of nitrates, so I’m not sure I’d give an exception for farming.
March 18th, 2009 at 12:21 pm
I couldn’t disagree with you more on this point. Water is a right, not a privilege (unlike driving, which is the opposite, and why your congestion analogy is flawed). Water pricing schemes in Africa and South America are run by international cartels. It has resulted it several disgusting outputs: the poor being unable to afford water, and the occasional renationalization of water supplies due to public outrage.
If you think it’s a good idea to charge people who consume A LOT of water, then you’re barking up the wrong arbol. We already do that, at least here in CA. The base rate reflects the radical notion that water should be cheap and clean. Once my household has consumed way more than should be required to keep the clothes clean, the kids bathed, and the tomatoes red, the rate triples.
March 18th, 2009 at 12:23 pm
Lowell Joe: “None of the things you mentioned add water to the watershed; they just make more use of the water that is already in the region.”
This isn’t right. Note the Colorado River Aqueduct.
March 18th, 2009 at 12:31 pm
Changes probably won’t raise rates for low-income users, but residents who don’t cut usage by 15% would pay more than normal. The city still expects a water shortage this summer.
Then the prices for high users will be set too low.
March 18th, 2009 at 1:14 pm
Hey Francis! You still reading these comments? I’ve been wanting to get in touch with you. Could you please email me at the address under my name?
Megan, formerly FTA
March 18th, 2009 at 1:19 pm
I don’t pay for water, I pay for construction and maintenance of the delivery system(s). I get clean water that way, worth paying for
March 18th, 2009 at 1:52 pm
California farmers get cut-rate water (courtesy of California taxpayers). I don’t object to this (California grows more than half the country’s fruits, nuts, and vegetables) but people who grow their own food in the state shouldn’t be penalized with higher water prices. Ultimately the solution though is not permanent rationing, high prices for regular people, or mass migrations (should people in the upper midwest or northeast have to pay market rates to heat their houses? they choose to live in cold places, right? would the cost of nuclear power to homeowners and renters reflect the waste storage costs and other massive government inputs?); I think it’s technology. Some kind of desalination (maybe nanotech) will I’d guess make it finally cheap enough to be worth the trouble.
March 18th, 2009 at 2:40 pm
“But what is wrong with also pricing to get a scarce resource to the highest value users (assuming we hold aside households and public drinking water)?”
It seems like there are a few necessary users (hospitals, schools) and then for-profit business uses. In a time of rationing, it would be easy enough to mandate where the water goes; pre-rationing (and building in the loopholes) doesn’t seem any more effective.
It actually makes it more likely that the necessary businesses DON’T get any water; can a school spend more money than a Budweiser plant? The Bud plant needs it more, doesn’t it?
That’s how capitalism works, after all.
Neolibs are fools.
March 18th, 2009 at 3:48 pm
Anybody that has more than a passing interest in the issue of water/economics should check out economist David Zetland’s blog – http://aguanomics.com/
March 18th, 2009 at 7:13 pm
Household use accounts for a tiny fraction of total water consumption, here or anywhere. Those of you who are lambasting people for taking 20-minute showers, though hardly wrong to make that criticism, are punching a straw man, as a lifetime of 20-minute showers uses less water than an industrial slaughterhouse does in a week. Water is at once an irreplaceable source of sustenance for living beings and a component of industrial production. To increase the cost of using water for industrial purposes, or even for agriculture, makes sense, since agriculture and certain industries use a lot more water than they need (and in some cases, use water for purposes that could be achieved without it), and raising the price would have the positive effect of encouraging these businesses to find ways to save money by using less water. On the other hand, raising the price of water for households would add to the financial burden of people who are already strung out, while producing little benefit in terms of water conservation. That an individual should be denied water because they are too poor to buy it is among the most unconscionable ideas I can imagine–and indeed, as we’ve seen in parts of the developing world, total privatization of water and the concomitant speculation and price-fixing produces exactly that effect.
The best solution I can see is to sell water at market price (assuming one can figure out what that price is) for agricultural and industrial use, but subsidize it substantially for household use. While this is unfair in a free-market sense, from a humanitarian perspective, it’s a hell of a lot more fair than leaving the poor at the mercy of an unregulated water market.
March 19th, 2009 at 1:33 am
I’m amazed at all the “progressives” whose first thought was of the ordinary people who’d supposedly have their water rates raised–when, in fact, the biggest leeches are the agribusiness plantations that get subsidized irrigation water, the manufacturing corporations that waste water inputs, etc.
A “progressive” just naturally assumes that anything provided at government expense must be something “we” are doing for the benefit of “all of us,” and not a Baptists-and-Bootleggers scam.
Just another example of what a useful idiot Art Schlesinger Jr. was in crafting an ideological defense of the corporate state.
March 19th, 2009 at 10:33 am
MPowell,
One key difference for health care, is that if you have a big medical emergency (heart attack, broken arm, etc), you don’t have time to shop around for the best price.
Not only that, but the price of your hospital stay is not known to you in advance because who knows what costs you will incure down the road for exams and treatments. So market pricing does not work because there is essentially no competition between hospitals on price.
March 19th, 2009 at 10:35 am
Who Owns the Water?
Call me an idealist but I think that water should be a Public resource not a private one. I also feel the same way about Air. If you start charging for Water who gets the revenue? A bunch of people rich enough and well connected enough to buy water rights from corrupt politicians? Or do you disperse the money to the Public who rightfully are the owners?
If you can own rivers and lakes why can’t you own the mountains and glaciers that feed them? Should the people who own the rivers be charged by the people who own the glaciers and snow?
What’s the going price on a unit of Air, I want to get in on that market.
March 19th, 2009 at 10:52 am
Take the California example. Out there the water is drastically subsidized for agriculture, with farmers paying pennies on the dollar for the water they use. The justification is that food prices will rise if the water isn’t subsidized.
But what’s the result? Huge agribusiness farms create rice paddies by flooding acres of semi-arid land because the water is so cheap. This complete waste of water is causing water shortages around the state. But no one dares raise the prices farmers pay for the water.
As the largest water users in most states, farmers could cut their water use by 50%+ if they had any incentives to do so. Unfortunately, so far, with water next to free, they can be as inefficient as they want without consequence.
March 19th, 2009 at 12:45 pm
FWIW, out where I live you typically do not own the water that drains off your own roof when it rains.
The idea is “to protect people who do have water rights” in your watershed. According to a state water engineer, “Obviously if you use the water upstream, it won’t be there for the person [who owns a water right] to use it downstream.”
See here: http://www.ksl.com/?nid=148&sid=4001252
March 19th, 2009 at 1:23 pm
I know lots of people who bought houses in distant suburbs because they can afford a large, comfortabe house, send their kids to pretty good suburban schools with relatively lower taxes, and keep their grass green and pool filled with probably below-market water. Sure, they drive 20+ miles each way to work, but it’s in a Ford Explorer bought on a zero-interest loan and gas is back down to $1.70 per gallon. Because the mortgage, car note and taxes are pretty good, the wife may be able to stay home and shuttle the kids to soccer. They neighborhood is pretty diverse. Most of these folks think they’ve got a pretty comfortable life, all things considered. They don’t see the advantages to my DINK life in a smaller house in a congested neighborhood inside the Loop. Are you going to tell them they made the wrong choices? As a society and economy, we’ve invested in all those roads, schools, water systems and subdivisions.
March 19th, 2009 at 1:24 pm
Of course we shouldn’t use the market to allocate water; look how much harm it’s done with food. Bill Gates builds mansions from twinkies and snickers while the rest of us starve! Food is scarce in these dark times, and most of us are forced to hunt for small game in public parks. Oh for a return to the good old days, when food couldn’t be bought on the market, and the government provided sustenance.
March 19th, 2009 at 1:28 pm
There’s water, and then there’s water…
I live in Colorado, with some of the strangest water law on earth – yes, the water that falls on my roof is not mine to do with as I please, but “belongs” to whomever owns the water rights (seldom the homeowner).
I’ve come to view this issue as two-fold – most of the water I “consume” in my home is not really “consumed” – it leaves my house to be “recycled” in a sewer treatment plant (or some fancier name).
However – the water I dump on my lawn is not recycled. I think this type of usage should be metered and billed separately at a much higher rate. I actually considered eliminating much of my lawn to reduce water usage. Guess what? It would take many, many years of water savings to pay off the capital cost of eliminating the grass. (If I was the original owner, I wouldn’t have put in all that grass, if allowed – my HOA requires a large percentage of the yard be sod.)
March 19th, 2009 at 1:31 pm
For those comparing water markets to health care markets: stop. Health care is largely an insurance issue–which has all sorts of different issues (e.g. funding, participation, etc.). And you can’t equate “privatization” in the U.S. with, say, Latin America. Latin America has all sorts of property rights, corruption, and other political problems that the U.S. largely doesn’t. Markets do tend to do a better job than central planning of allocating scarce resources, provided property rights and other institutions are stable. There really isn’t a good argument against that–unless you think markets are for some reason inherently immoral (which, in my opinion, is ridiculous). This isn’t to say that regulation isn’t desirable in a lot of areas, but rather that markets can serve very, very useful and important functions.
March 19th, 2009 at 1:47 pm
And why can’t you just use a price mechanism without rationing? If the market is functioning properly, rationing sounds like a really stupid idea.
March 19th, 2009 at 1:54 pm
Frank, don’t worry about the food shortages. Soon they’ll roll out that new food conservation advertising campaign they’ve been talking about, and then individual cities will pass laws saying you can only eat pork every other day. That should solve everything.
March 19th, 2009 at 2:08 pm
It’s not unreasonable to tier pricing. You could establish a baseline human right of x amount of water per individual, and then price excess gallons at a steeply rising luxury rate.
March 19th, 2009 at 3:31 pm
the baseline idea is a good one, although I’d wonder about the practical implementation of such a right; would everyone get a water-card or something?
For more on the impact of scarcity in America’s urban/economically disadvantaged areas, check out the movie linked here:
http://www.glu.org/news/2009/03/“thewaterfront”-film-comes-to-daemen-college/
March 25th, 2009 at 5:58 pm
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