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Water Shortage?

October 13, 2000

So it's come to this: using water in Birmingham, Alabama, and
surrounding suburbs, is a crime, punishable by a $200 fine and up to 180
days in jail. The same system of rationing is appearing in many other parts of the country.

Jail time for watering your yard? With a little digging,
I could surely find hundreds of people convicted within the past 6
months of truly heinous, anti-social activity like assault, robbery, sex
crimes, theft, etc. who served no jail time whatsoever.

This type of
police state, command and control 'solution' to the recent lack of
rainfall in Alabama not only represents an unwarranted violation of
individual liberty, it has two overwhelming drawbacks: (1) it rips apart
the social fabric of the community, and (2) it is unforgivably
inefficient public policy.

On point (1), the Birmingham News has printed stories about
people being snitched on, cursed at, or otherwise abused for their
supposedly illegal water use, when in fact they had their own private
sources of water. One of the funny things about the righteous though is
that they seldom, if ever, admit when they are wrong or that their cause
is wrong. A single misguided comment can, and frequently does, lead to
years of acrimony between neighbors that won't be soothed by next year's
abundant rainfall.

Moreover, who among us enjoys having other people
make judgements about how we live our lives? Are those who so willingly
and easily cast stones at others about their water use willing to have
others cast stones back at them for other reasons (whether they smoke,
the kinds of food they eat, whether they own a gun--the list of
government attempts to control our behavior is long and potentially
endless)?

But the real point here is not only that this ripping apart
of the social fabric is terribly costly, we get precious little in
return to justify the cost. Restricting water use by arbitrarily
distinguishing between internal and external use constitutes horrendous
policy.

It is a serious mistake to think that the water 'shortage' is
either a short-term problem or that it is 'caused' by our current
drought. In fact, the current water 'shortage' results from a
combination of lack of precipitation recently and inefficient local
distribution.

But more rainfall won't really solve the problem. The
current water shortage is a harbinger of the future, not only in
Birmingham, but all over the country; the return of normal rainfall
locally only postpones a day of reckoning that approaches inexorably.

The ugly truth is that our more-or-less dependable 'average' amount of
precipitation each year eventually will be outstripped by increasing
demand caused by population growth, economic growth, and growth in per
capita income. The eventual and enduring question that must be faced up
to in Alabama, and elsewhere, is who is going to get the water that we
have available? This is the more critical and encompassing problem of
distribution.

Efficient use of water (or any commodity) requires that it
somehow be allocated to those who place the highest value on it. The
efficiency of having local bureaucrats declaring what is and is not
permissible water use is elusive, at best. Such edicts reflect only
what some bureaucrat thinks is appropriate water use; there may be
little, if any, connection between the (normally self-serving) opinions
of bureaucrats and the values that individuals actually place on their
water use.

A case in point was provided in one of the several articles
published by the Birmingham News recently. In this story, John David
Krantz, the head of the garden department at the WalMart on U.S. 280
lamented that the ban on outdoor watering likely would result in the
death of $50,000 worth of plants. The critical question in this case,
and hundreds of thousands of other water use decisions like it that are
made each day, is whether this outcome is efficient. The answer is a
resounding 'NO'.

Suppose we gave Mr. Krantz the choice of watching his plants die
or paying $10,000 for the water needed to keep them alive. It seems at
least reasonable to suggest that he would have been willing to pay
$10,000 to save $50,000 worth of plants. But with the wisdom typical of
bureaucrats who think a one size fits all regulation is efficient, they
did not offer Mr. Krantz the choice. Consequently, the only outcome for
him is the destruction of $50,000 worth of inventory.

Why wasn't such a
choice offered? The normal response from government officials is that
the water is 'needed' by private citizens for drinking, eating,
cooking, bathing, etc. and that these 'needs' are more important than
Mr. Krantz's need. This is, of course, demonstrably false.

If I lived in Birmingham and had the opportunity to contract
privately with Mr. Krantz, I would happily sell him some of the water I
use for personal 'needs', assuming he was willing to pay me a high
enough price. This is unmistakeably efficient: I get what I value
more highly (Krantz's money) and Krantz gets what he values more highly
(my water). No doubt, there are plenty of other individuals who would
be willing to lower their private consumption of water if the price was
sufficiently high.

There is a double-sided point here: prices lead to
efficient (i.e., value-maximizing) choices being made voluntarily by
citizens and, by implication, command and control policies that do not
permit such value-maximizing choices to be made are inefficient.

So, the fundamental cause of the current water shortage problem
plaguing Birmingham is inefficient distribution, a consequence of rigid
prices that are too low and the inability of people to trade water
rights.

The answer is to completely privatize water distribution. However, in terms of rationing demand, a municipally-owned and operated
water works could experiment with charging different prices depending on
consumption and set prices that permit them to 'manage' water consumption that is
consistent with water availability. While this may seem like a
relatively simple job, it is simply out of the question
for bureaucrats, if for no other reason than than politicians simply
couldn't leave it alone. They would start handing out favorable water
rates to specific constituencies that would, in turn, tie the hands of
the water authority.

If water is a necessity and poor people cannot afford to pay
high water prices there is a simple way to proceed. Establish what is
known as a 'lifeline' level of daily consumption with a relatively low
price per gallon, with escalating prices per gallon beyond the lifeline
amount. The lifeline amount is based on the average quantity of water
used for drinking, cooking, bathing and other essential activities. The
higher per gallon price schedule beyond the lifeline amount helps
allocate demand efficiently and voluntarily to those who value the
incremental water the most.

Truly efficient allocation of water requires the
granting of water rights to each person in the relevant watershed
jurisdiction. These rights could then be bought and sold via an
electronic market. Individuals and firms who value
water highly could then purchase it from those who value their rights less than the money they have been offered.

This really is a simple,
straightforward solution to the long-term issue of water use in
Birmingham, and elsewhere in the United States. Surely our government
of the people, by the people, and for the people can do better than
criminalize water use. It's time to take the 'con' out of water
consumption.


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