Economics

Water, Water, Anywhere? Or: Please Don't Talk About the Price System

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While I genuinely love the magazine The Week–it's a marvelously entertaining and efficient summation of what's happening and what's being said about what's happening in everything from world news to books to food (though, strangely, nothing about sports) and everyone should check it out –I regretfully have to call it out for a very curious lacuna in its recent coverage in its "briefing" section about a burgeoning American water crisis.

In over a thousand words about supposed horrific shortages developing in a commodity, there is not a single word about rising prices (UPDATE: especially in a system where government decisionmaking and subsidy has more to do with the price than free markets) as a conceivable means of encouraging less use of the supposedly disappearing commodity. I had hoped that general public consciousness about markets would mean that somewhere in a detailed public analysis about people's (and government entity's) consumption choices in whatever, price would come up, but I guess I was wrong.

And, while I'm practicing toughlove on my beloved The Week, the "briefing" section in the latest issue, on disappearing bees, repeats as fact the urban legend (according to Snopes , invented from whole cloth in 1994 by French beekeepers) about Einstein, that noted entomologist, saying that "If the bee disappears from the surface of the Earth, man would have no more than four years to live." Recent research has discovered, though, that Einstein was the first man to say "Gas, grass, or ass–no one rides for free." (And I always thought it was Lincoln. Guess I was wrong!)

NEXT: Phelpsian Foreign Policy

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  1. “Einstein was the first man to say ‘Gas, grass, or ass– no one rides for free.'”

    Nice joke, but everyone knows it was from William Jennings Bryant’s first draft of the cross of gold speech.

  2. Regarding water, my understanding (correct me if I’m wrong) is that farmers get artificially cheap water as a matter of policy, resulting in the insanity that is farming in the California desert.

    I’m all in favor of consumers responding to the price mechanism, but let’s not ignore the elephant in the room.

    Correct me if my recollection of the facts is in error.

  3. In over a thousand words about supposed horrific shortages developing in a commodity, there is not a single word about rising prices as a conceivable means of encouraging less use of the supposedly disappearing commodity.

    I imagine rising prices in water would encourage less use only by the people who are not using it excessively to begin with.

  4. How do you search H&R for old comments by author? Because I wrote about this a few years ago and I’d like to at least link to my earlier post. In an earlier life I worked a lot with drinking water…

  5. Thoreau—Of course, and mostly what I meant, though I didn’t say it clearly. I’ve amended the piece to make govt policy’s role in stymieing the price system in water more clear…

    Brian

  6. Thoreau–everyone gets artificially cheap water.

  7. thoreau,

    It’s been a while since the last Agriculture vs Urban California water dust up. I thought they all got subsidized water.

  8. db,

    Not me. My water is imported from the rings of Saturn.

  9. Thoreau–everyone gets artificially cheap water.

    Not Evian drinkers.

  10. Yeah, but think how expensive it would be if NASA hadn’t subsidized it!

  11. According to the Coase Theorem, giving farmers low cost water isn’t a problem, but not letting them sell it is.

    If we gave farmers all the water in California but let them sell it, we would have no shortage at all. On the other hand, we would stop pouring water into the desert to grow cotton. But then what would the illegal immigrant farm workers do?

  12. On the other hand, we would stop pouring water into the desert to grow cotton. But then what would the illegal immigrant farm workers do?

    This is where I have to say that I agree with MikeP.

  13. As shocking as you might find this, I have a Big Government solution.

    We need to build a series of desalinization plants along the coast of southern California, and stop the importation of water from the states to its east.

    The Great Salt Lake is shrinking, and turning into a toxic stew. The Colorado hasn’t reached the ocean in decades. These things come with costs.

  14. joe:

    desal plants are definitely a good way to go if one can afford the capital and O&M costs. I don’t think the gov. should be involved in them–why not private ventures?

    and btw, its “desalination” not “desalinization.” Pet peeve of mine–even water industry professionals make this mistake.

  15. Right. “Desalinization” would mean taking salt out of something you put salt into, wouldn’t it?

  16. God put the salt in the ocean. What God has joined, let man not sunder.

    Desalinization plants are the new Towers of Babel. Consider yourselves warned.

  17. “We need to build a series of desalinization plants along the coast of southern California…”

    Those things take a lot of power to operate – so we can build some nuclear power plants along with then to supply the necessary electricity.

  18. “Einstein was the first man to say ‘Gas, grass, or ass– no one rides for free.'”

    Nice joke, but everyone knows it was from William Jennings Bryant’s first draft of the cross of gold speech.

    While your statement is technically true, it wasn’t original to WJB, either. He was quoting from the Sermon on the Mount.

  19. By the way the issue with the cost of water is not just the availability of water itself but the degraded state of the infrastructure that transports it.

    Government owned water utilities have underinvested in maintaining and upgrading their systems for decades and the bill will be coming due. A lot of smaller municipal water systems are selling off their utilities to investor owned water utility companies like Aqua America rather than try to deal with it themselves. When 100 year old pipes have to be replaced, the cost will be borne by the water users regardless of whether it’s done by a municipal system or an investor owned system.

  20. Gilbert,

    Since they’re on the ocean and at a low lattitude, there should be plenty of opportunities for wave, solar, wind, and tidal power.

    How about building them at a lower elevation, so the enterring seawater provides its own hydropower?

  21. How about a perpetual motion machine to power it all?

    Damn 2nd Law keepin’ us from getting a free lunch.

  22. Just hook a generator up to Al Gore’s mouth and you’ve got your perpetual motion machine.

  23. Building them below sea level is a clever idea, joe, but you’ll still need energy to pump the water out.

  24. How about building them at a lower elevation, so the enterring seawater provides its own hydropower?

    As Scooby insinuates, this won’t work.

    You need exactly that much energy to get the desalinizatisized water back up to the ground level distribution system as well as to shove the waste supersalinizatisized water back into the sea.

  25. I apparently agree with thoreau.

  26. Ah, mention Al Gore’s name and then you win any debate with a person greener than yourself. Or something.

    This also works with Michael Moore’s name, I believe.

  27. People in SoCal really do have their heads in the sand.

    1) here in San Diego, I was shocked to find that only about 25% of my water bill is related to how much I consume. Fixed fees make up the vast majority of the bill. Which means I could bust my ass to conserve water and it won’t matter much on my final bill- so not much incentive, other than a sense of personal responsibility, to conserve water.

    2) I believe twice now the city or county have tried to push a water recycling project, which takes waste water and cleans it up and put it back in the supply. Nay-sayers scare people by calling this “toilet to tap”. It has been shot down by the “don’t bother me with science, it’s icky” crowd.

    Meanwhile, while walking through my neighborhood, I often see people *cleaning their driveways and sidewalks* with a hose. No, couldn’t be bothered to sweep with a broom, just hose it off with a scarce resource. Real smart.

  28. Thoreau–everyone gets artificially cheap water.

    So who is subsidizing my well, and where’s my GD check?!

  29. joe,

    a typical reverse osmosis desalination plant requires differential pressures over the RO membranes of 200-300 psid. A column of water one foot high exerts 0.433 psi. So to run an RO on gravitationally induced pressure loss you would need have a drop of least 462 feet (actually a tiny bit less because of the higher specific gravity of seawater). And then, as T notes, you would have to pump it back up to at least that much plus whatever your storage tank elevation is.

    Other methods of dealination such as EDR (electrodialysis reversal) require at least as much energy and are highly maintenance intensive. There are some new RO membranes that operate on lower differential pressures but cannot function efficiently on highly fouling waters.

    In addition, RO systems require high levels of prefiltration to remove physical foulants which impede the efficiency and over time reduce the capacity of the membranes. For a 7 million gallon per day (MGD) facility that I helped design a few years ago, the ultrafiltration pretreatment system alone ran to about 1.2 million dollars.

  30. James B.,

    All water belongs to the public. The fact that the state lets you pump it yourself does not change that situation. That the public does not charge you for the water you pump is itself a subsidy.

    You’re not one of those people who thinks that vital community resources like water can be controlled by private interests, are you?

  31. What type of desalination plants did they build in Saudi Arabia?

  32. Through property taxation all private homes belong to the public. The fact that the state lets you live in it as long as you pay your taxes does not change that situation. That the public charges you for the home you live in is itself an alternative to a subsidy.

    You’re not one of those people who thinks that vital community resources like housing can be controlled by private interests, are you?

  33. In Saudi, mostly RO plants.

  34. I was being sarcastic, db. I trust you were too.

    Sorry for any confusion.

  35. But if you could clarify, db, how is all water artificially cheap? Does that include James B.’s well?

  36. In over a thousand words about supposed horrific shortages developing in a commodity, there is not a single word about rising prices as a conceivable means of encouraging less use of the supposedly disappearing commodity.

    The other major omission is the realization that no one “uses” water. We actually borrow it. We’d worry less about where it comes from if we were more careful where it went.

    desal plants are definitely a good way to go if one can afford the capital and O&M costs. I don’t think the gov. should be involved in them–why not private ventures?

    Prediction: In California funding will not be the dealbreaker, environmentalism will. Who builds the plants will be irrelevant.

    Those things take a lot of power to operate – so we can build some nuclear power plants along with then to supply the necessary electricity.

    And why doesn’t California already have power plants? See above.

    Since they’re on the ocean and at a low latitude, there should be plenty of opportunities for wave, solar, wind, and tidal power.

    Since they’re on the “fragile beach ecosystem,” not.

  37. MikeP, thoreau, db,

    I’m not claiming desalinizination can be energy-neutral, just that the problem isn’t as inherently cost-prohibitive as certain people desperately want to believe it to be.

    And let’s not forget – pumping water from Utah to LA requires energy, too.

  38. MikeP: I figured you were being sarcastic but figured I’d underline the problems with that line of thinking.

    Perhaps saying all water is artificaially cheap is overreaching, but as I wrote in my comment a few years ago (which I still can’t find in H&R’s archive!), I have been all over North America working in water treatment (in a previous phase of my career) and have found that without exception, prices do not reflect the actual cost of producing quality drinking water. Typically municipal systems are built using grants or very low-interest loans (think 1% for 30 years) and are maintained poorly. Maintenance isn’t an issue if you can get a grant to improve or replace the capital equipment. Since no one spends money on maintenance and operations, rates are lower than the real cost of production to society.

    Because of this we see situations like in Salt Lake City Utah, where, even though everyone I talked to in 2002 could parrot the daily papers’ and news shows’ harping about lack of adequate snowpack to replenish the surface water and aquifers, you could still see on a daily basis patches of grass no larger than 10 square feet being watered by their own dedicated sprinkler heads. Wow that was a major run-on.

  39. Larry A,

    Trading off some acreage of beach for the replenishment of the parched west, which has had its water diverted for decades, would be a major winner for the environment.

  40. and no it doesn’t include his well. Nor mine. Wells are not cheap to drill.

  41. joe, it may be that there will be clever ways to bring down the cost of desalination. But what you proposed made no sense from a basic physics standpoint: Whatever energy you get out of that little trick you propose, whatever savings you get, you still have to pay for in transport. So it saves you nothing.

    Your general point about how innovations may be possible is a reasonable one. But the innovation that you suggested just doesn’t work.

    I think I’ll put your idea on my midterm exam this fall. (That’s a compliment.)

  42. I live in a city that gets its water from a large river, and has a very higher % of impervious surface.

    So the way I figure it, watering from the municipal supplies provides significant environmental benefits.

    It takes water out of a river that isn’t anywhere near going dry (as opposed to many undergorund aquifiers), and soaks into the parched groud that isn’t moving nearly as much sub-surface water as it should be. This, in turn, helps to move the system back towards more natural levels of peak and ebb water flows, as water that entered the riven faster than it should have because of impervious surface upstream is released back into it at non-peak periods after having been soaked into my lawn.

  43. thoreau,

    In this country, we transport our water undergound anyway. Lifting the water from a subsurface elevation into people’s bathrooms is a cost we’re paying already.

  44. So isn’t the core problem with water being distributed by a free market the fact that in order for a free market in any product or service to work, we have to be comfortable in our society with a % of people simply not being able to afford it?

    It’s very similar to the health care problem. People are not going to willingly sit around and peacefully accept that they can’t afford the very things they need to stay alive.

  45. Dan T:

    Even if water were expensive enough to discourage wasteful use, it would still be cheap enough for anyone to afford it for essential purposes. Cooking, drinking, bathing, and washing clothes require far far less water than washing a car or watering a lawn or filling a swimming pool.

  46. joe, you proposed running the water even deeper, 462 feet according to db. That’s deeper than your average sewer.

    That means you get no savings from your idea.

    You stick to laying out cities, and let the scientists and engineers calculate the potential energy gained or lost when transporting water.

  47. joe: thoreau,

    In this country, we transport our water undergound anyway. Lifting the water from a subsurface elevation into people’s bathrooms is a cost we’re paying already.

    I’m not sure what you mean by this…what T meant is that you pay to transport the desal’d water back up the 462 feet that you had to drop it to force it through the RO membrane. And that does not account for having to pump the concentrated brine waste stream to a disposal location either (even in a sub-sea-level system, the brine would have to be pumped to overcome the water pressure outside the plant).

  48. Dan, the better solution is to let private suppliers produce and sell the water in a competitive market (with all the efficiency advantages thereof, at least in the long term), and if you want a policy to help the poor give them money to buy water at market rates. This maximizes overall efficiency in water production and usage, yet still provides for the poor.

    By way of comparison, we give the poor food stamps to use at the grocery store, rather than instituting state-run farms.

    (OK, we do have farm subsidies, but that’s not really about helping the poor.)

  49. Better explanation of the water and energy:

    So a big part of the cost of desal is energy. So somebody says “Ah, instead of buying energy, we’ll just do the process underground! Then we get the energy from the falling water!”

    So you do it underground, and you don’t have to buy any electricity or natural gas or whatever to run your plant. And you’ve got all this water sitting around that you’re ready to sell, and you’ve produced it cheaply, so you figure you can sell at a low price and beat the competitors. You’re set to go!

    Then somebody says “Hmm, we’ll have to transport all of this water back up above ground…”

    So you buy energy. How much do you buy? At least as much energy as you got when the water fell to your underground plant. (More, actually, due to inefficiencies.) But this is the same amount of energy that you were hoping you wouldn’t have to buy in the first place.

    So you didn’t save any money.

    And that’s not taking into account the energy to remove any waste products from your underground plant.

    See the problem now?

  50. And before anyone calls me on the 200-300 psi pressure drop on an RO membrane and says that their home “RO” system doesn’t need that much pressure, I will say now that those systems are not true reverse osmosis systems. Most are simply “nanofiltration” membranes–they filter better than micro- or ultrafiltration units, but nowhere near the level of a true RO.

  51. It has been shot down by the “don’t bother me with science, it’s icky” crowd.

    They must think that the water they’re drinking now is “new” water and that the “old” water drops into a singularity, never to be seen again.

  52. In fact, you wouldn’t want a true RO in your house–because the water is so free of salts, the minerals and salts in your blood will transfer back across your stomach membrane into the highly pure water. You’ve heard the stories about “water poisoning” that can happen by drinking so much water that the body’s electrolytes are diluted to the point of nonfunctionality–RO water will do that much more quickly.

    Hence all “RO-filtered” water sold as drinking water at the store is re-mineralized.

  53. Those things take a lot of power to operate – so we can build some nuclear power plants along with then to supply the necessary electricity.

    They can use the exact same power sources that are already used to pump the water from the Colorado and other rivers.

  54. And what makes you think there is enough additional power available from those power sources to do both?

    The goal is to obtain ADDITIONAL fresh water, in the areas already using the Colorado river water – not merely substitute one source of water for another.

  55. thoreau,

    My suppliers simply shoot giant ice chunks out of Saturn’s orbit towards the sun with mass drivers, then, with a few strategically placed tethers, direct them to my backyard. These chunks of Saturn’s rings melt in the Florida sun, thus supplying my family with all the water that we need, but I use some ice fragments to make my famous mojitos and agave libres.

  56. Gilbert, you could have shot down whoever you want to argue with by just observing that Michael Moore is fat.

  57. Since 80% of all water use in California is for agriculture seems reasonable that that’s where the focus should be. Disclaimer: depends on the spin, some insist that we have to include all the water we don’t use that runs out into the ocean. In that case the ratios are the same but the numbers are far lower.

    You can rip out every one of Joe’s dreaded suburban Chem-Lawns? and not make any meaningful difference in the water issues that face the southwest.

    Disclosure: TWC does not have a lawn, however I use clean, clear, precious water to keep other things green around here. I also irrigate with gray water.

    Tee, you’re right about farming the desert but they do get three or four crops a year on that land. I’d be interested to know how the land use efficiency would stack up if they had to use market rate water.

  58. California: Greatest Single Threat to the Health of the Environment? Discuss amongst yourselves.

  59. I’ve been seeing LOTS of honey bees this season.

  60. Dan, the better solution is to let private suppliers produce and sell the water in a competitive market (with all the efficiency advantages thereof, at least in the long term), and if you want a policy to help the poor give them money to buy water at market rates. This maximizes overall efficiency in water production and usage, yet still provides for the poor.

    That might work, although I wonder how the distribution problem would work? If I’m a Standard Water customer and decide that American Water has a better product, does American have to come out and build its own pipeline to my house?

  61. “Gilbert, you could have shot down whoever you want to argue with by just observing that Michael Moore is fat.”

    How about Al Gore?

    He’s fat too, although not quite as fat as Moore is.

  62. If I’m a Standard Water customer and decide that American Water has a better product, does American have to come out and build its own pipeline to my house?

    No. You simply need to have a pipeline from your house to a central distribution point (perhaps at the end of your street) where it can connect to one of the mains of one of the water companies.

    If for some local reason that is less than efficient, your street can decide on one or two suppliers that the limited lines that run down your street connect to, and you connect to one of those.

  63. I imagine rising prices in water would encourage less use only by the people who are not using it excessively to begin with.

    The reality is that all Americans have access to relatively cheap water and use it more than the barest subsistence level. If water did actually get so expensive that poor people had to think twice before taking a shower, they would find ways to cut down on its use. It could get pretty stinky.

  64. Dan, I don’t claim to know the best way to manage logistics. For all I know, it may be that water is better delivered via some agreement between a group and a company (e.g. what MikeP said about everybody on the block agreeing on a supplier) rather than between an individual and a company.

    However, whatever the logistical issues, these do not apply to your point about equity. You said that free market delivery of water will leave some without, and implied that it’s an argument in favor of public utilities. That needn’t be the case, if the needy are given subsidies to buy water on a competitive market.

    Logistics may still argue in favor of public utilities (I’m skeptical, but I don’t claim to know enough to say) but not equity.

  65. If I’m a Standard Water customer and decide that American Water has a better product, does American have to come out and build its own pipeline to my house?

    Good point. In many cases, shopping for a new water supplier might only be feasible at the municipality or regional level.

    But, another thing to think about is that the market could differentiate more between different types of water. Already, many people buy separate bottled drinking water, while using perfectly potable water to water their lawns. Why? Because the clean water is there, in abundance and cheap.

    Different types of water could be delivered to the consumer in different ways: bottled water for drinking, non-potable water for gardening delivered by truck, more sales of systems for waste water recycling and rain water capture.

  66. So isn’t the core problem with water being distributed by a free market the fact that in order for a free market in any product or service to work, we have to be comfortable in our society with a % of people simply not being able to afford it?

    Also a good point. Although, what you have just made is a really good argument for providing a safety net for the poor, either through government or private charity.

    You have not made a killer argument against free markets. It’s clear that free markets promote general prosperity.

  67. thoreau,

    I guess I’ll just have to take his word that a desal plant would have to go that deeply.

    Gilbert Martin,

    The goal is to obtain ADDITIONAL fresh water, in the areas already using the Colorado river water – not merely substitute one source of water for another.

    That’s not my goal. I want California to take less, or ideally no, water from Utah, Colorado, Nevada, and its other suppliers. Parching those states is doing terrible damage.

  68. joe, did you read my 3:10 pm post?

  69. “That’s not my goal. I want California to take less, or ideally no, water from Utah, Colorado, Nevada, and its other suppliers. Parching those states is doing terrible damage.”

    That response was to Russ 2000 who claimed the power now being used to transport that water to California could be used to run the desalination plants.

    Regardless, desalination plants would create additional total sources of freshwater – and it would be the only way to get California to let go of the other water it’s getting from those other states now. And there would have be scalable capacity in the desalination plants to handle increasing demand as well – because that isn’t going to stop.

    That is true in the other states that California is getting that water from as well by the way. That Colorado river water that California gives up under that scenario isn’t going to stay in the river. Other areas in Utah, Colorado and Nevada will be grabbing it for their own increasing demands – like in Las Vegas.

  70. Forget it, Jake. It’s Chinatown.

  71. I get my methane straight from Titan. Great for cookouts!

  72. (1) The state public service commissions set the cost of water utility bills, but don’t set the price which the utility buys the water. They also decide whether supply projects get the green light. Since the PSCs are political entities, there’s a lot of nimbyism going on, and no PSC wants to be the one that raises prices to an astronomical level, even though the capital investment might be needed. Be clear on this: much of the investments are done by private businesses, but they are so heavily regulated that they are only slightly more efficient than municipal utilities.

    (2) Desalination costs a lot, so people should be ready to have their bills go up. Sometimes the PSCs put the costs in rates, but the new trend, and one I think is better, puts the cost of supply projects in surcharges. Sure, it still makes your bill higher, but at you have a clue as to why.

    (3) The concept of “Free Markets” in regulated utilities is always a shrewd pitch. These are regulated markets, and you can’t just add a free portion (purchased water or bidding on supply projects) and call it a free market. It’s gov’t regulated all the way. Given California’s super-awesome experience in regulated markets (Enron), I can’t imagine they’d be any more wonderful in the water markets. Utah and Colorado might be slighly better, but they also have a slightly bigger water problem.

    (4) 99% of the regular people (here’s where I assert my super awesome regulatory knowledge) don’t know the things that cause private companies to avoid major supply projects like desal. The consolidated tax adjustment is one regulatory trend that is so wrong, but looks so good to fat bureaucrats. I’m not a swell enough lawyer to explain it, suffice to say that the real reason, as Brian Doherty notes, is due to government trying to get their sleazy mitts on all the money going into all the corporate money. Yes, it looks good on paper to disallow those greedy corporate bastards their outrageous profits. Of course, that’s just how politicians characterize the money that is sometimes needed to fund new capital projects.

  73. Everyone misses the bees…

    but what about the fleas?

    Here it is, July 5, and my three hounds have yet to show up with fleas.

    In years passed, they’ve always had fleas by the 4th.

    THE FLEAS HAVE FLED!

    ECONOMIC (oops, I meant ENVIRONMENTAL) COLLAPSE CAN”T BE FAR BEHIND!

    oh noes..

  74. If I’m a Standard Water customer and decide that American Water has a better product, does American have to come out and build its own pipeline to my house?

    Maybe. In 190x Rhyolite Nv was a thriving mining town of 10k at the edge of Death Valley. There were many competing water companies providing sufficient water that in some places residents had flower gardens. That was all done without local water sources or government oversight. Moral is: we don’t know exactly how it might evolve but we do know it will evolve.

  75. “it may be that there will be clever ways to bring down the cost of desalination.”

    Thoreau, I can’t comment on the specifics, but desal has gone through an exponential increase in cost efficiency in the last 5 – 8 years. Before, water companies would dig wells and dam rivers just to reach a reliable peak supply, and now they have no problem throwing their lot in with desal plants. Transport is still a problem, as it would be with all purchased water, but desal is like a whole different thing these days.

  76. Lamar,

    The advances have mainly been made in low-pressure RO membranes (but they still need 100-200 psi driving force). Also advances in membrane chemistry that allow improved resistance to fouling. However, the low-P RO membranes can require more frequent replacement.

  77. To be clear, I wasn’t trying to say that transport costs are some insurmountable barrier. I was just responding to joe’s idea that doing it underground gets you something for nothing in terms of energy costs. It doesn’t. Whatever you save on energy by doing underground you spend on energy bringing the water back up. The savings that joe was referring to aren’t there.

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