Let water seek its price level in a free market

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The West has been parched by drought for 15 years. Lake Mead stands at 39 percent of its capacity. Thousands of acres of agricultural land lie fallow. Fruit and nut trees are dying. Cities are banning lawn watering.

The dwindling waters of the Colorado River Basin alone currently bathe and slake the thirst of more than 40 million people and irrigate 4 million acres of agriculture in an area that accounts for more than a quarter of the United States’ gross domestic product. Groundwater tables across the region are being drawn down to such a degree that it will take millennia to recover.

The powers that be are tossing out various ideas to increase supply and/or decrease demand for that increasingly scarce water.

But some thinkers at the Brookings Institution think-tank have thought of something so old that it is new.

Currently water in the West is allocated on a first-in-use, first-in-rights basis. Stop the use and the rights stop, too. A water right is not a property right that can be bought, sold or bartered.

But the authors of “Shopping for Water: How the Market Can Mitigate Water Shortages in the American West” suggest water bought and sold in an open market would find its level, so to speak, balancing the supply with demand through pricing.

It is a concept spelled out by Adam Smith in “The Wealth of Nations” in 1776 as “an invisible hand” and advocated by free-market economists ever since, though the reasoning has largely fallen on the deaf ears of the central planners who think they know best and free markets are somehow unfair to the poor — a fallacy Smith long ago debunked.

Many wags have observed over the years that “nobody washes a rented car,” meaning that ownership of a thing results in better care being taken of it.

“As impressive as our water infrastructure may be, over the decades, water management in the West has also created perverse economic and legal incentives that have led to the overdraft of critical groundwater reserves and
depleted reservoirs, and that have promoted the overallocation of Western rivers and streams,” write the Brookings authors.

The communal ownership of water offers little incentive to invest in equipment or technology that might conserve water for profitable sale to another user.

“Market pricing for water can encourage conservation and wise use of water in our cities and industry,” the study suggests. “Farmers who have an opportunity to sell or lease a portion of their water have an incentive to conserve, invest in more efficient irrigation systems, and/or adjust existing cropping patterns in order to free up water for trade.”

For example, California and Nevada farmers are growing water thirsty alfalfa for export to Japan, China and the Middle East. That is tantamount to exporting water overseas during a prolonged drought that has no end in sight.

One of the study’s three authors, University of Arizona professor Robert Glennon, calculated the irrational rationing and pricing of water across three different current uses.

It takes about 135,000 gallons of water to produce a ton of alfalfa, which would sell for about $340. The same volume of water could produce approximately 11,000 pounds of lettuce in Yuma and sell for $2,000. Meanwhile, the Intel Corporation uses about 10 gallons of water to produce a microprocessor. “In other words, an acre-foot of water used to grow alfalfa
generates approximately $920; if used to grow lettuce in Yuma,
it would generate approximately $6,000; if used by Intel, it
would generate $13 million.”

If water were traded on the open market, it could flow to the highest and best uses. It would become practical to enhance the treatment of sewage to near potable levels and to build desalinization plants along the ocean, allowing inland communities to trade for river water by paying for the power to operate downstream water purification systems.

This is nothing new. Former UNLV professor of economics Murray Rothbard wrote in 1995 in “Making Economic Sense”:

“All it (government) has to do is clear the market, and let people conserve each in his own way and at his own pace.

“In the longer run, what the government should do is privatize the water supply, and let water be supplied, like oil or Pepsi-Cola, by private firms trying to make a profit and to satisfy and court consumers, and not to gain power by making them suffer.”

When will we ever learn?

Thomas Mitchell is a longtime Nevada newspaper columnist. You may email him at thomasmnv@yahoo.com. He also blogs at http://4thst8.wordpress.com/. Awarded first place by Nevada Press Association in 2014 for community columns and for editorials.

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