Government Dries Up California's Water Supply

Price and other controls make it much harder to deal with the drought.

Click here to read this WSJ article by Edward P. Lazear. Mr. Lazear, former chairman of the President's Council of Economic Advisers (2006-09), is a professor at Stanford University's Graduate School of Business and a Hoover Institution fellow. Excerpts:

"Government-dictated prices, coupled with restrictions on the transfer of water, have made a bad situation much worse.

Shortages are generally caused when governments place ceilings on prices or when they prevent markets from operating freely in some other way, like restricting trade. Gasoline is a case in point. Thanks to the 1970s oil shocks, gas became less abundant and prices rose. The U.S. government's response was to put ceilings on gasoline prices, which caused shortages and long lines at gas stations.

The current water situation resembles oil in the mid-1970s. Prices are determined in large part by state and federal government dictates rather than by the market. When drought hits, the price to some users, most notably agriculture, is too low to clear the market and shortages result."

"Markets would encourage farmers to sell water to urban users, thereby increasing residential supply and driving residential water prices down, as the University of California's Howard Chong and David Sunding showed in a 2006 study"

"San Francisco Bay Area residents obtain much of their water from the Hetch Hetchy reservoir. The pipes from Hetch Hetchy to the Bay Area intersect the California Aqueduct, which supplies water both to agriculture and urban areas. Residential users of aqueduct water in San Diego pay rates that can be more than five times as high as those paid by the farmers in Kern County. 

So if some people, businesses or localities have rights to water and others would be willing to pay more for those rights, why not trade? Answer: government controls and lawsuits."

"In 2012, the Public Policy Institute of California reported on the morass of regulations that continue to restrict the exporting of local water to other communities."

"To solve California's water problem, the first step is to let all owners of water sell their rights with minimal government limitations. This would ensure that water goes to its highest valued use.

Second, federal and state agencies that redirect water to environmental use should pay the market price for it."

"Third, farmers who now receive water at below-market prices should be compensated for having to pay higher prices by giving them the rights during a transition period to use or sell the water that they typically use."

cities across California have encouraged residents to tattle on their neighbors for wasting water