Thursday, March 19, 2015

The Economics of the California Water Shortage

Alex Tabarrok writes:

The NYTimes has an article on California’s extreme water drought with the usual apocalyptic imagery (see the video especially):

California is facing a punishing fourth year of drought. Temperatures in Southern California soared to record-high levels over the weekend, approaching 100 degrees in some places. Reservoirs are low. Landscapes are parched and blighted with fields of dead or dormant orange trees.

The apocalyptic scenario needs to be leavened with some basic facts.

California has plenty of water…just not enough to satisfy every possible use of water that people can imagine when the price is close to zero. As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty.

So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents. As Matt Kahn puts it:

Where in the Constitution does it say that the people of California have the right to pay .5 cents per gallon of water?


  1. This topic begs the questions:
    1) who owns the water..the federal government? The states or city? The people of america? private land owners? nobody?
    2) who will sell this water to me..the owners, or some crooked water board, where the Board gives each other fat government salaries, at the taxpayers expense...

    Yes, we know this article infers the economic-social concept called "Tragedy of the Commons", whereby products or resources owned privately (apple orchards, gold etc) are protected to maximize the value or utility to the owners, yet public resources typically get ravaged and overstriped or utilized, because human nature compels some people to take all they can, because why should they leave some, that may benefit another tribe or unknown individual.

    This perhaps is the root of the leftist rant, that wealthy are stripping the prosperity from the poor and middle class. Of course, lefties dont know enough economics to realize that wealth is nearly unlimited, and wealth for the top x percent, does not come at the expense of wealth for the poor.

  2. probably averaged out per person in the county but it seems unowned is the only one paying for that water.

  3. This is a difficult subject because there are no market prices and so no way to determine the demand and supply situation. We all fly blind because of the government enforced water monopoly. I live in SD county and pay about $.035 per gallon but this is meaningless. It is a politically determined rate and has nothing to do with supply and demand for water. However, the interview referred to is not helpful. Comparing SD to Sydney where water is also monopolized is useless. And the suggestion that SD should use less water or get rid of their lawns has no basis in economic fact. The facts are obscured by the lack of non-coerced negotiated prices and so only special interest group coercive politics prevails. An indication of the magnitude of obscurity is revealed by the fact that SD county is 4,200 sq. miles and in the last ten years as of 2013 the average annual rainfall ranges from 9.1 inches along the coast to 30 to 40 inches in the inland mountains to the east according to the SD County Water Authority. While rainfall data is incomplete, available data suggests the inland valleys and local mountains (rising to 4,000 feet) average 20 inches per year. This covers an area of about 2,800 square miles. The USGA calculates that 1 inch of rain covering 1 square mile equals: 17,380,000.00 gallons. This would mean about 973 billion gallons of water per year in the middle to eastern portion of SD county. The SDCWA reports providing 177 billion gallons of water each year to the 3 million citizens in the county but 80% is imported. Even if evaporation took 70% of the rainwater this would leave 291 billion gallons of harvestable water every year. And the cumulative excess over ten years would equal about 1.7 trillion gallons. This would require ten times the current storage capacity and is probably uneconomic. But doubling the storage capacity might be appropriate. But there is no way to know without free market prices. The only solution is to get rid of the government monopoly.