Jay-Z: Water Is Free!
Thanks in part to the California Drought, people are starting to realize that water is not a limitless resource, and that not even all those government subsidies and graft will make it so. But rapper Jay-Z has not gotten the memo. The NYT reports:
The challenge is to get everyone to respect music again, to recognize its value,” said Jay Z, whose real name is Shawn Carter. “Water is free. Music is $6 but no one wants to pay for music. You should drink free water from the tap — it’s a beautiful thing. And if you want to hear the most beautiful song, then support the artist.
It's a safe bet that Jay-Z doesn't personally see to it that the water bills for his houses get paid every month, but most people do know that one must actually pay a water bill, even if they have no idea what determines the actual unit price of water. (Jay-Z has since been mocked for his water declarations, and Denver Water issued an open letter explaining water to the rapper.)
In Jay-Z's defense, he comes from a place (Brooklyn) where it rains a lot and big rivers are nearby. One could argue that rain water is nearly "free" beyond the opportunity cost and cost of materials necessary to capture and store it. (I'm sure anyone familiar with water delivery in NYC would happily point out water is no where close to "free" there either.)
But out west, where it rarely rains more than 15 inches a year (compared to the 50 inches per year it rains in New York) you're going to need to buy water from someone who can get it from a mountain stream somewhere.
Without realizing it, however, Jay-Z has touched age-old water-diamonds paradox. Except in this case, it's the water-recorded music paradox. Even if he's wrong about it being free, Jay-Z recognizes that a single glass of water is very inexpensive, and costs much less than an album of recorded music. But, this seems odd since we need water to live, and few of us need a Jay-Z album at all. Ever.
Bob Murphy sums it up:
The most famous application of marginalism is the solution to the so-called water-diamond paradox, which seemed to stump Adam Smith in his Wealth of Nations. The problem is this: Why do diamonds have a higher exchange value than water, when diamonds are a mere frippery while water is essential to life? Shouldn't people be willing to offer more in exchange for a unit of water than for a unit of diamonds?
The solution, of course, is that no individual is ever in the position of choosing between all of the diamonds in the world and all of the water in the world. A given choice is made on the margin. If offered a choice between a cup of water and a handful of diamonds, most people would pick the latter because the marginal utility of those particular diamonds is higher than the marginal utility of that particular cup of water.
Some economists would describe this situation by saying that diamonds are scarcer than water, because the demand for diamonds relative to their supply is so much higher. Yes, water is more important for human welfare than diamonds, but there is so much water to go around that even if ten trillion gallons were to disappear, no one would care. On the other hand, if only a few pounds of diamonds were to vanish, some people would be very upset.
I have to disagree with that penultimate sentence. If ten trillion gallons of fresh water disappeared, some people would definitely notice and be very alarmed. On the other hand, that sentence also illustrates an additional aspect of the diamond-water paradox, which is the reality of geography. A gallon of water in the desert is not the same as a gallon of water near the shores of the Great Lakes. While both are "water," they're obviously not the same thing. The fact that there is an immense amount of fresh water in Lake Superior and in British Columbia doesn't help people in Los Angeles very much, unless the people of Los Angeles can afford to built an aqueduct from Wisconsin (or a Canadian glacier) to LA. And that costs money. Obviously, some water is more "free" than others.