8 May 2008


California is in a drought. There are many stories on that fact. Here's one:
The snowpack, a key source of California's water supply, has fallen well below normal levels after California experienced its driest March-April period on record.


The amount of water running into streams and reservoirs is only 55 percent to 65 percent of normal, according to the figures collected by the DWR.


Gov. Arnold Schwarzenegger called for voluntary rationing almost immediately after receiving the snowpack figures Thursday.

Others think the situation is much worse.

"It's going to be a rough decade," said Tim Quinn, executive director of the Association of California Water Agencies. "You will see mandatory rationing, I believe."

Schwarzenegger also renewed his call for the construction of more dams and reservoirs.
What to do in a drought? Voluntary rationing -- wrong. Mandatory rationing -- wrong. Dams -- wrong and more wrong.

Remember the gas "crisis" in the 1970s? The reason that cars were in lines was because of rationing, which just leads to queues and is ineffective. Notice that there are no lines for gas today. Why? Because the price went up when supplies went down. Now people who are facing higher prices use less gas.

What's the difference between water and gas? Only one thing: People need water to live. Fine, give people a "lifeline" quantity of water for free, and then charge more for people who want to grow lawns, play golf in the desert, wash their cars, grow low-value agricultural crops, keep fish happy, etc.

I know I sound like a broken record, but I continue to see hardly any mention of higher prices from politicians, water managers, reporters, etc.

Bottom Line: Allocate scarce water via markets. Given a fixed quantity, price will rise until demand falls to that level of supply. Drought or no drought, markets will allocate the water in a way that no one can complain about.