Saturday, January 18, 2014

Murray Rothbard, Milton Friedman and Jerry Brown on California Water "Shortages"

California is going through one of its drought periods, rain has been significantly below average for the last three years. Governor Jerry Brown has stepped in and, as a typical politician, there is no thought about turning water production over to the private sector and allowing free market pricing to resolve the crisis, instead he declared a drought emergency.

According to the SF Chronicle:
Gov. Jerry Brown officially declared a drought emergency in California, as the state faces a serious water shortage[...] 
Brown committed to using his executive powers to steer water where it's most needed, direct state agencies to immediately scale back water consumption and seek the help of the federal government in combatting [sic]what he called "the worst drought that California has ever seen since records (began) about 100 years ago."
Perhaps more importantly, the governor called on Californians to voluntarily reduce their water use by 20 percent, a plea that water experts say has proved effective in past periods of dry weather. He noted that mandatory restrictions could be coming soon.
Friday's declaration is the third statewide drought declaration since 1987, the previous coming during the 2007-09 drought. There is really nothing new about these droughts--or the government reaction. In the June 1977 issue of Libertarian Forum, Murray Rothbard discussed the then-water "shortage," with some bonus coverage of supposed-free marketer Milton Friedman's position on the 1977 "shortage":

As everyone knows, the West, and especially northern California, has been suffering from a year-long drought, leading numerous statists and  busybodies to leap in to control, ration, and ordain. The water "shortage"  may not be exactly blamed on the private sector, but it is there,  supposedly, and surely government must leap in to combat it-not, of course, by creating more water, but by mucking up the distribution of the greater scarcity. 
The first thing to be said about this is that on the free market, regardless of the stringency of supply, there is never any "shortage", that is, there is never a condition where a purchaser cannot find supplies available at the market price. On the free market, there is always enough supply available to satisfy demand. The clearing mechanism is fluctuations in price. If, for example, there is an orange blight, and the supply of oranges declines, there is then an increasing scarcity of oranges, and the scarcity, is "rationed" voluntarily to the purchasers by the uncoerced rise in price, a rise sufficient to equalize supply and
demand. If, on the other hand, there is an improvement in the orange crop, the supply increases, oranges are relatively less scarce, and the price of oranges falls consumers are induced to purchase the increased supply. 
Note that all goods and services are scarce, and the progress of the economy consists in rendering them relatively less scarce, so that their prices decline. Of course, some goods can never increase in supply. The supply of Rembrandts, for example, is exceedingly scarce, and can never be increased-barring the arrival of a Perfect Forger. The price of Rembrandts is high, of course,but no one has ever complained about a "Rembrandt shortage." They have not, because the price of Rembrandts is allowed to fluctuate freely without interference from the iron hand of government. But suppose that the government, in its wisdom, should one day proclaim that no Rembrandts can be sold for less than $1000-severe maximum price control on the paintings. We can rest assured that, if the decree were taken seriously at all, a severe Rembrandt shortage would promptly develop, accompanied by black markets, bribery, and all the rest of the paraphernalia of price control. 
If the water industry were free and competitive, the response to a drought would be very simple: water would rise in price. There would be griping about the increase in water prices, no doubt, but there would be no "shortage", and no need or call for the usual baggage of patriotic hoopla, calls for conservation, altruistic pleas for sacrifice to the
common good, and all the rest. But, of course, the water industry is scarcely free; on the contrary, water is almost everywhere in the U.S. the product and service of a governmental monopoly[...]
Meanwhile, how is "libertarian" Milton Friedman, now resident in the San Francisco area, taking to the water crisis? Is he advocating privatization, free competition among private water companies? Is he at  least advocating the setting of a market-clearing price by the government water company? The answer to all of these is, remarkably, no. In his
Newsweek column, Friedman favored keeping government water rationing, but making it more efficient through a typically elaborate scheme for surcharges for consumption over a certain quota of water, to be financing rebates for consuming under the quota. Thus, once again Friedmanism descends to being an efficiency expert for statism


  1. "But suppose that the government, in its wisdom, should one day proclaim that no Rembrandts can be sold for less than $1000-severe maximum price control on the paintings. "

    I think you meant to say "no Rembrandts can be sold for MORE than $1000"

  2. Should we point out to this bunch of morons that they live on a planet where three quarters of the surface is covered with water, in some places eight miles deep?

    Yeah, I know, like talking to a box of rocks...

  3. If water service had been privatized in California when Rothbard had advocated it, prices would have gone high enough that this ocean-bordering state would now have many efficient desalinization plants. Prices would be nominally higher than at present, but volatility should be quite low in the face of such a consistent source. Instead, too-low prices to appease voters creates a situation where these same voters will increasingly frequently find that they cannot get the water they need - at any price.

    1. And the threat of draining the aquafir that gives most of the southwest clean water would be minimal. Absent a MAJOR change in water usage, or a dramatic breakthrough in desalination, the SW is going to find water a scarce commodity in the next few decades.