This is a duplicate thread, so I'm reposting Murray Rothbard's essay on this topic . . . from nearly 40 years ago!
The Water "Shortage"
By Murray N. Rothbard
This first appeared in The Libertarian Forum, Volume X, NO.6, June, 1977
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.
When the drought hit northern California, raising the price of water to the full extent would have been unthinkable; accusations would have been hurled of oppressing the poor, of selfishness, and all the rest. The result has been a crazy-quilt patchwork of compulsory water rationing, accompanied by a rash of patrioteering ecological exhortation: “Conserve! Conserve! Don’t water your lawns! Shower with a friend! Don’t flush the toilet!”
Well, the amusing aspect of all this is that these imbecile exhortations were as manna from heaven to the wealthy liberal elitist ecofreak population of the San Francisco Bay Area. The California water authorities were hoping and shooting for a decline of about 25% in 1977 water consumption as compared to 1976. But, lo and behold, in late June, the figures rolled in and it turned out that Bay Area communities had responded by voluntarily cutting their water consumption by 40-50%.
The “morality” of the Bay Area masses had exceeded everyone’s expectations. But what was the reaction to this onrush of patriotic altruism and self-sacrifice? Oddly enough, it was mixed and ambivalent—thereby pointing up in a most amusing way some of the inner contradictions of statism. For suddenly, many of the local governmental water districts, including San Francisco’s, realized that dammit! they were losing revenue! Now, water shortage is all well and good, but there is nothing more important to a bureaucrat and his organization than their income. And so the local California water districts began to scream: “No, no, you fools, you’ve ‘over-conserved.’” (To a veteran anti-ecologist such as myself, the coining of the new term “over-conserving” was music to my ears.) The water districts began to shout that people have conserved too much, and that they should spend more, for which they were sternly chastised by the state water authorities, who accused the municipal groups of “sabotaging” the water conservation program.
Meanwhile, other local ecologists and statists got into the act. They groused that the over-conservation had induced people not to water their lawns, which led to the “visual pollution” “unsightly” lawns, and also caused the dried leaves to become fire hazards, which is apparently another ecological no-no.
I can see it now: a debate within the wealthy liberal ecofreak community: Mr. A.: “Dammit, you’ve over-conserved water; your lawns are visual pollutants, and your dry leaves are endangering the environment through fire.” Mr. B.: “You’re a blankety-blank no-good sellout water waster. You guys have been urging me for years to conserve, and now I’m doing it and all I get is hassle.”
The culminating irony has been the reaction of the local water districts to the “threat” of “over-conservation” of water and the consequent loss of revenue to the governmental water districts. The response of the Bay Area districts was: “Sorry folks, we have to raise the price of water in order to maintain the beloved revenue of the water district (us.)” So, “over” conservation has led to an increase in the price of water. It is intriguing that raising the price of water in order to ration increased scarcity is universally considered to be reactionary, selfish, and Neanderthal, while raising the price of water in order to keep governmental water district revenues at their former level is considered perfectly legitimate, and barely worth commenting on. And so, the water price goes up anyway, though for the wrong reason and of course not in order to clear the market.
The most amusing aspect of this California water caper was the argument of a water district apologist on San Francisco television:
Q. But wouldn’t the poor be hurt by the water district raising its water prices?
A. No, for since everyone has cut their consumption of water, the total water bill of each poor person will not increase.
In short, the poor are not being hurt by the higher price because, being forced to cut their consumption, their total bill has not increased. Thus, a price rise by aprivate firm is always selfish and oppressive of poor people; but when a monopoly governmental agency increases its price, the poor do not suffer at all, since if they cut their purchases sufficiently in response to the higher price, their total dollar payments will not increase. It is this sort of nonsense that our statists and busybodies are now being reduced to.
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.
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