The water shortage myth

We have been told for months that there is a water shortage in California. However, I have always contended that the price of water is too cheap in California; the price is set by municipal water districts. Because water is so inexpensive, any calls by state officials to conserve go unheeded. Residents simply do not have the incentives to really conserve. And like I always say--incentives always matter. A recent article at Forbes summed up the situation and a solution rather nicely:

California is perpetually portrayed as suffering from a shortage of water. Case in point: Gov. Arnold Schwarzenegger recently declared a statewide drought, telling citizens to prepare for rationing. But the state's problems are not a result of too little water.

The real problem is that the price of water in California, as in most of America, has virtually nothing to do with supply and demand. Although water is distributed by public and private monopolies that could easily charge high prices, municipalities and regulators set prices that are as low as possible. Underpriced water sends the wrong signal to the people using it: It tells them not to worry about how much they use.

Americans don’t want to return to the 1970’s

From CNN: As much as Americans fret over the rising price of gas, one thing worries them more: the possibility of having to wait in long lines to buy rationed gas.

A CNN/Opinion Research poll released Tuesday shows that 55% of those surveyed are more worried about long lines at gas stations and rationing than about the high prices that drivers have paid in recent months. The poll shows 40% of the respondents are more concerned about the high prices.

While gas rationing is not expected at this time, it was a hallmark of the 1970s- era energy crisis, when drivers lined up outside gas stations and sales of gas were limited to certain days of the week.

However, at that time, gas was in short supply, which is not the case today.

I’ll tell you this, if current politicians repeat the mistake of enacting price controls in order to placate the public and to pander for votes, we will see gas stations run out of gas and the return of rationing.