April 17, 2007, 9:55 am

Apparently the next "crisis" is that America is running out of water. This is mostly an issue in the west, where growth is high and fresh water is rarer than in the east. Here is one example of the brewing panic:

The growing human population is creating cities where desert or scrub

land used to be. Rainfall always has been and always will be in short

supply. Only so much water can be diverted from rivers to satisfy the

water needs of these desert dwellers. The aquifers are being drained.

Soon there will be demands to divert water from large inland lakes like the Great Lakes which would put those bodies of water in peril.

Oh my god, I can see it now - fish flopping on the muddy exposed bottom of Lake Michigan.

Look, the problem is not lack of water. The problem is lack of market sanity. Water in the west is regulated and sold in a hodge-podge of complex arrangements and negotiations. The whole system is too complex to describe here, but at least one general conclusion can be safely drawn about the whole system: Water is under-priced.

For reference, lets look at my home city. If building cities in the desert is the new evil, then I live in that great Satan called Phoenix. And while my electricity charges are enough to get my attention (higher efficiency AC: check; compact fluorescent bulbs: check; solar: still too expensive), my water bill seldom grabs my focus.

And now I know why. Check out this analysis, conducted apparently by the city of Austin but which I found on the Portland Water Bureau's web site:

City Monthly cost for water service of 8,500 gallons Memphis, Tennessee $14.16 Phoenix, Arizona $16.27 Charlotte, North Carolina $17.52 Dallas, Texas $20.04 Austin, Texas $23.15 Portland, Oregon $23.44 Louisville, Kentucky $23.47 Houston, Texas $26.49 Milwaukee, Wisconsin $27.86 East Bay MUD, Oakland, California $31.13 Atlanta, Georgia $33.60 San Diego, California $37.52 Seattle, Washington $39.75

Can you believe it? We here in Phoenix, out in the middle of the largest desert on the continent, during a multi-year drought (yes you can still have a drought in the desert), while everyone laments that Lake Powell and other reservoirs are getting sucked dry, Phoenix has one of the lowest water prices of any city in the country. Can you get over the irony of Seattle having some of the highest priced water in the country and Phoenix the lowest?

And you know what - I have not seen a single article in any of our local media that has once mentioned this fact. Look here -- the articles blame global warming and lack of conservation and development and too many lawns and not enough low-flow faucets and talk about the need for government rationing, but never once mention PRICE. We have the scarcest water in the country and one of the lowest prices for water. Talk about ignoring the elephant in the room. I should have just labeled this post "Duh!"

And these are the consumer water prices. The situation actually gets worse when you look at agriculture. In most of the southwest, farmers get water prices subsidized below the rates paid by ordinary consumers. When you combine these water subsidies with massive subsidies already rich groups get for growing crops in the desert from farm programs, you get an enormous distorted incentive to grow water-hungry crops that are totally inappropriate for the desert.

So here is my five minute plan: We may be a ways away from creating an actual market in water, but in the mean time, the quasi-governmental agencies providing it need to raise the prices (to everyone) up to a level that demand matches supply. More conservation will occur, and marginal commercial, residential, and agricultural development will disappear. If the price goes high enough, someone may even go out and find a new, innovative source of water for the area.

Unfortunately, this is just too dang easy, and, from reading recent articles in the media, not even in the menu of options being considered. Government bureaucrats are much more comfortable with rationing and limitations on development, because it gives them more power and creates a new set of winners and losers who will donate more to future political campaigns.

Update: Daniel Mitchell at Cato has similar thoughts, based on water shortages in Florida of all places:

So here we are, in the spring of 2007, with rain below

average, with a low lake level, little else in the way of reservoirs,

and a water shortage. What is the response? Well, a rational response

might be to price a scarce commodity such that people will use it only

as they need it, and not frivolously. "¦Instead, we get the response of

the local commissars. So, not allowing the market to work, and not

allowing prices to provide signals to the participants, they have

decided to run our lives for us. "¦I live at an odd numbered address. That means that if I want to

water my lawn, I can only do it on Monday, Wednesday and Saturday

mornings, from four to eight AM. I can water my plants with a hose on

the same days, but only between five and seven PM. My neighbors across

the street, and behind my house on the next block, get Sunday, Tuesday

and Thursday. "¦Over thirty years ago, in the first OPEC oil embargo, the

government, rather than allowing prices to rise to account for the

reduced supply, told people when they could purchase gas based on the

parity of their license plate "” even one day, odd the next. My

recollection was that this did nothing to alleviate the shortage "” the

lines remained. The problem was only solved when Nixon-era price

controls on oil were lifted, the market was allowed to work, and oil

prices eventually (and it didn't take all that long) fell to historical

lows. "¦[H]ere's a radical concept. How about pricing the commodity to the

market? Maybe, if people had to pay more for water to water their lawn,

they'd use less of it? Yes, I know that it's hard to believe, but there

really are some people out there who buy less of something if the price

is higher.

Update #2: The more I think of it, the more this situation really ticks me off. In their general pandering and populism, politicians are afraid to raise water prices, fearing the decision would be criticized. So, they keep prices artificially low, knowing that this low price is causing reservoirs and aquifers to be pumped faster than their replacement rate. Then, as the reservoirs go dry, the politicians blame us, the consumers, for being too profligate with water and call for ... wait for it ... more power for themselves, the ones whose spinelessness is the root cause of the problem, to allocate and ration water and development.