The Economics of the California Water Shortage

by on March 19, 2015 at 7:26 am in Economics, Science, Uncategorized | Permalink

The NYTimes has an article on California’s extreme water drought with the usual apocalyptic imagery (see the video especially):

California is facing a punishing fourth year of drought. Temperatures in Southern California soared to record-high levels over the weekend, approaching 100 degrees in some places. Reservoirs are low. Landscapes are parched and blighted with fields of dead or dormant orange trees.

The apocalyptic scenario needs to be leavened with some basic facts.

California has plenty of water…just not enough to satisfy every possible use of water that people can imagine when the price is close to zero. As David Zetland points out in an excellent interview with Russ Roberts, people in San Diego county use around 150 gallons of water a day. Meanwhile in Sydney Australia, with a roughly comparable climate and standard of living, people use about half that amount. Trust me, no one in Sydney is going thirsty.

So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents. As Matt Kahn puts it:

Where in the Constitution does it say that the people of California have the right to pay .5 cents per gallon of water?

Water is such a small share of most people’s budgets that it could double in price and the effect on income would still be low. Moreover, we don’t even have to increase the price of water for residential or industrial uses. As The Economist points out:

Agriculture accounts for 80% of water consumption in California, for example, but only 2% of economic activity.

What that means is that if agriculture used 12.5% less water we could increase the amount available for every residential and industrial use by 50%–grow those lawns, fill those swimming pools, manufacture those chips!–and the cost would be minimal even if we simply shut down 12.5% of all farms.

Moreover, we don’t have to shut down that many farms, we just have to shut down the least valuable farms and use water more efficiently. If you think water is cheap for San Diego residents it’s much cheaper for Almond-Trees-and-Flood-Irrigationfarmers. Again from The Economist:

Farmers flood the land to grow rice, alfalfa and other thirsty crops….If water were priced properly, it is a safe bet that they would waste far less of it, and the effects of California’s drought—its worst in recorded history—would not be so severe.

Even today a lot of CA agriculture uses the least efficient flood irrigation system.

According to data from the state Department of Water Resources, 43 percent of California farmland in 2010 used some form of gravity irrigation, an imprecise method that uses relatively large amounts of fresh water and represents a big opportunity for water conservation.

The NYTimes article is worried about farm loss:

“I’m going to fallow two acres of my land immediately,” said Geoffrey C. Galloway, who has a citrus grove on his ranch near Porterville, in the Central Valley. “Depending on how the season goes, we may let another four go.”

…Last year, at least 400,000 acres went unplanted, and farmers reported losses of $2.2 billion, said Mr. Wenger, the head of the farm bureau, who owns a farm in Modesto. “This year we could see easily 50 percent more,” he said. “We are probably going to be looking at well over a million acres.”

California has approximately 25 million acres of farmland. And while our bodily fluids might be precious not every acre of farmland is. A few less acres of farmland producing low value crops in return for a lot more water is a very acceptable tradeoff.

Addendum: Low prices are not always wasteful. David Zetland’s short primer on water policy is available for free as pdf. Matt Kahn’s Fundamentals of Environmental and Urban Economics is on Amazon for Kindle for just $1. Both are very good.

Addendum 2: See also this later post, The Misallocation of Water.

1 Rich berger March 19, 2015 at 7:35 am

No comments allowed on NYT article? Too bad. I always get a kick out of the opinions of their readers.

2 Anon March 19, 2015 at 8:29 am

I tend to find the comments poorly thought out and badly written with endless repetition of political talking points. I find that more objectionable than the fact that I often disagree with the positions the NYT commentariat takes. More interestingly do they permit/deny comments on certain articles because they worry about comment pushback or is there some underlying method.

3 anon2 March 19, 2015 at 1:10 pm

“I tend to find the comments poorly thought out and badly written with endless repetition of political talking points”

Just like here!

4 Anon March 19, 2015 at 6:02 pm

Maybe but the NYT is supposedly the best paper in the world and whatever the faults of the MR commentariat at least here there is a broad range of views.

5 Nyongesa March 19, 2015 at 10:28 pm

Well the range might not be so broad but their is depth of perspectives on here, and some well developed argumentation. The NYT comment sections is actually pretty frightening to me even when the underlying article mirrors my own mood affiliations. Like everyone else here I suspect, I grew up reading newspapers and the “letters to the editor” with their article critiques/corrections, were part of the whole package of being informed. The Economists letter section were a must read, you could go back and forth between the letters and the article and get your understanding somewhere new. Whereas, now the internet comment section of the Economist is a must avoid if you want to continue to be deluded that humans can be rational. I’m strongly of the opinion that a dark matter equivalent of silent observers populates the internet that skews the cognitive mass of the whole shabang towards the center. That opinion is impervious to intrusion from of a reality that does not involve a fist meeting my face.

6 Mogden March 19, 2015 at 12:32 pm

Just imagine some plaintive wails about excessive consumerism, how this is the fault of Republicans, global warming, and the need to impose government mandates to control everyone’s behavior. You’ll be 98% of the way there.

7 gab March 19, 2015 at 12:55 pm

“… how this is the fault of the Republicans…”

If you drive I-5 along the west side of the San Joaquin Valley, you’ll see billboard after billboard blaming Reid, Pelosi, Boxer and “Washington (Democratic) politicians” for the water problems. Farmers (“Food grows where water flows”) want all their federally provided water and when they don’t get their full share of subsidized water, they blame Democrats.

I’ll leave it to you to guess which party those farmers belong to…

8 adam March 19, 2015 at 4:15 pm

Do the people those farmers allegedly vote for actually hold office? The CA government appears to be basically dominated by democrats. Whatever the merits of the farmers’ complaints, I think it’s fair for them to hold the people actually in office accountable for government water policies.

9 derek March 19, 2015 at 6:03 pm

“I think it’s fair for them to hold the people actually in office accountable for government water policies”

Their federal D representatives? No, that makes no sense for a state issue. Yet those ARE the names on the billboards, and as gab wrote, they are all over the highways in the farm belt. But knowledge and comprehension of fact of government is not closely associated with ag, IMHO. They mostly just want handouts. I don’t get what the R party sees in farmers, as I think they are the biggest welfare queens in the nation, starting with Iowa all the way to us in CA.

Meanwhile, if you recall a fella named Arnold, you might remember that our state sometimes has R governors and leadership. Ever hear of a former actor by the name of Ronald Reagan. He was a R and also our governor for a stint in the past. I’m not saying we don’t lean D. Thankfully, we do. But we’ve got plenty of R districts, policies, and leadership.

Why is it the bad pricing and allocation of water the fault of Republicans? Well, because they are a political force for the status quo. It’s just bad economic policy that reveres farmers as “the salt of the earth” whether what they’re doing makes economic sense or not. But it is the fault of farmers who insist on their right to cheap water to waste, and the farmers are staunch republicans. As such, our CA R platforms, policies, and candidates cater to them, as they are the base.

And here’s your proof

10 Agra Brum March 19, 2015 at 10:20 pm

What policy is that? Let the farmers waste water, and also let there be drought?
The cry of the farmer is ‘gimme gimme gimme cheap water forever – no matter what the cost to anything else in the environment.’

11 c1ue March 22, 2015 at 2:36 pm

They do, but while the inland/farming regions are Republican, the much more populous coastal cities are heavily Democrat.
Thus while there are Republicans in California – they are so outnumbered at the state and federal political levels that it’s not even funny. It is equally impossible for these farmers to hold the California State government or even its federal representatives accountable since they have literally no say over those offices due to the disproportionality of representation.

12 Harun March 20, 2015 at 2:32 am

Those signs have been up since before the drought.

The main issue is the Democrats decide that the Delta Smelt deserves all the water, not farmers.

While I agree that everyone should pay for water, some of the environmentalists who divert water to their pet projects don’t pay either.

13 Mrs. Renard March 20, 2015 at 7:51 pm

Too true. Environmentalist regulation has been responsible for a big portion of increased water consumption in CA.

Page 21:
“The most obvious element of the new role for the environment is the rise in direct purchases for instream uses
and for wildlife refuges through federal and state programs, including USBR’s new Water Acquisition Program
(introduced under the CVPIA) and CALFED’s new Environmental Water Account. As a beneficiary of DWR’s
drought purchases, the environment already accounted for 8 percent of purchases during 1987–1994.

Between 1995 and 2002, this share rose to 21 percent. On an average yearly basis, environmental purchases
increased more than six-fold, nearly three times faster than the market as a whole.
The less obvious component of demand related to environmental policy changes is the increase in water
purchases by San Joaquin Valley farmers. Although this group’s change in market share is less dramatic
(growing from 31 to 41 percent between the first and second period), its increase in average volumes—by
over 320,000 af per year—accounts for nearly half of total market growth. Much of this growth can be linked
to the changes introduced under the CVPIA in 1992, which mandated that a portion of project water be
returned to instream uses and wildlife refuges. Since then, CVP agricultural service contractors located south
of the Delta have received full project deliveries in only three very wet years (1995, 1998, and 2006).33 One
outcome has been an active water market, as some contractors (most notably Westlands Water District)
sought to offset reductions in deliveries through market purchases.
These two components of the environmentally-related water market were not without tension. On the one
hand, the environmental water purchase program could be viewed as a benefit to other water users, because
it avoided additional uncompensated regulatory cutbacks to protect fish and other wildlife. On the other
hand, the sheer size of these relatively well-funded programs meant that some farmers wishing to purchase
make-up water viewed them as a source of tough competition.
The corollary of growth in environmentally-related demand was a decline in the relative importance of
municipal and industrial users following the drought years. Whereas cities were the main recipients of
traded water during the drought, accounting for 45 percent of all purchases from 1987–1994, their share in
the following eight years fell to 28 percent. With the exception of 1991, when urban purchases reached nearly
500,000 af, volumes remained relatively flat throughout the 1990s, averaging around 230,000 af (see
Technical Appendices Tables B3a and b). This began to change by 2000, as some cities successfully
negotiated long-term and permanent deals to purchase water.”

14 bilejones March 25, 2015 at 9:52 pm

Up until this year the Democrats did control the Senate. they certainly control the California government.

15 bob April 13, 2015 at 1:56 pm

You my sir are typical liberal loon. California and the other crazies blame global warming blame republicans have no common sense solution but more government more spending. Hey California here is an idea how about quit dumping water over smelt. Or how about building more resovours. The bill of 1994. Hasn’t California received a lot of rain already in the past six months? I guess easier to play the blame game and force these implications on the average Joe because after all they can’t fight back they just roll with the punches. There is no sense to your argument. No one wants to realize bad policies are to blame. But what better to push an agenda than smoke and mirrors. Are the plush mansions in Beverley Hills cutting back on water? Nope just the people that are making peanuts. Your claim that its global warming should offend all of Hollywood elite. With their huge mansions and private jets. No they don’t contribute do they? How about you go after all of them. Does someone need a 10000 foot square house? With a huge lawn? I guess they do. But the average Joe doesn’t need a 6 minute shower. Hmm I guess we should all become liberal thinkers we can revolutionize the world with hypocrisy and self righteousness. Imagine how great this country would be then. Don’t drop the soap in that 5 minute shower might make it turn to a 6 minute shower and lead to an arrest and huge fine.

16 Robert March 19, 2015 at 2:28 pm

Yes! The NY Times comments are always some combination of “But the Rich Bankers on Wall Street get away with murder” followed by a dash of the “Koch Brothers” and then crying about “inequality.”

17 mkt March 19, 2015 at 9:31 pm

As a sort of second best, you can comment on Mark Bittman’s column, in which he discovers that the Bay Area is a pleasant place to live, and commenters snarkily say “just wait until the water runs out”.

At least one other commenter beside me pointed out that California in fact has plenty of water, but those are lost amid the sea of other comments.

Bittman’s discovery of the Bay Area reminds me of his discovery that microwave ovens are good for quickly heating stuff. He does have a willingness to delve into and write about a wide range of topics, but he sometimes has a stunning lack of awareness of some obvious facts of life.

18 Andrew Weaver March 26, 2015 at 2:07 pm

The California Governors office declared a state of emergency due to drought conditions. Yet the governors office, state departments and agencies are knowingly jeopardizing the health and safety of California citizens by poising our water supplies due to Fracking. And depleting our water supplies by expanding economic development. You can’t declare a state of emergency for water conservation to only then pump toxic chemicals into wells and expand houses, businesses, strip malls and schools with known limited water supplies. This is an outdated policy that is harming the public and needs to be fixed.

19 ChrisA March 19, 2015 at 7:52 am

I wonder how bad it will have to get before some Coasian bargaining can get started.

20 David Zetland March 19, 2015 at 8:37 am

Pretty far, give that it’s more like a tragedy of the anti-commons than a Coasian situation. Who’s driving it? Mostly the farmers whose unsustainable use would be stopped if their harm to others (and the future) was quantified.

21 Lord Action March 19, 2015 at 9:51 am

“tragedy of the anti-commons”

What does that mean? Isn’t it just a regular tragedy of the commons?

22 bdbd March 19, 2015 at 12:13 pm
23 Lord Action March 19, 2015 at 2:30 pm

Okay, but this is just a commons, right? The description in the articles doesn’t seem to apply. This is more like the town meadow than a case of conflicting deeds.

24 ChrisA March 19, 2015 at 9:00 pm

“Mostly the farmers whose unsustainable use would be stopped if their harm to others (and the future) was quantified” – it seems pretty optimistic that if someone quantified the harm of the poor water allocation resources in California, all of a sudden people would wake up and change the laws.

And Coasian bargaining can apply to both anti-commons and the regular type of commons tragedies. Coasian bargaining simply says that if a more favorable equilibrium exists, a way will be found to get to that equilibrium if the benefits sufficiently outweigh the transaction costs, regardless of ownership rights (or lack of them). The fact that there is still clear misallocation of water in California at the moment suggests to me that, despite the hand-wringing, the situation isn’t that bad, otherwise it would have been resolved already. My question was the – how much worse will it have to get before the bargaining starts. Will it require people to actually stop washing in the major cities? Or will it actually take people dying of thirst? Or will it start earlier? What will be the trigger among those who are knowledgeable about this situation?

25 MikeP March 19, 2015 at 11:41 pm

Did you get any answers from the article cited in the comment immediately below?

I didn’t read the article all the way through, so I don’t know whether it talks about how many people have actual allotments they can sell as opposed to access to commons water without an owning entity authorized to sell it. That fraction would be the interesting parameter in whether Coase can solve this problem. And as noted in the original post, the fraction doesn’t need to be that high to provide all the water households need.

26 aphrael March 20, 2015 at 11:22 am

> it seems pretty optimistic that if someone quantified the harm of the poor water allocation resources in California, all of a sudden people would wake up and change the laws.

It’s actually worse than that.

Under California’s system of water rights, many consumers of water have *vested property interests* in the amount they are consuming. Those property interests are circumscribed in many ways and so they aren’t like true property, but they are sufficiently like property that a change in the law could only be prospective and could not damage the vested rights – unless California paid for it.

27 Nary March 20, 2015 at 10:58 pm

Not necessarily. The federal law on the issue isn’t entirely clear. It’s possible that if California changed its constitution and, preferably, Congress passed an enabling act, California could get away with dropping the awful prior appropriation system without running afoul of the takings clause.

28 c1ue March 21, 2015 at 12:22 pm

Your comments might be received more warmly if they weren’t being pushed by cities built in desert like Los Angeles.
The reasons for the water issues in California have far more to do with population growth than anything else. The water rights you decry largely exist because farmers traded land rights for the construction of the aqueducts moving Northern California water to Southern California. That Southern California has grown so much more rapidly than envisioned and now is pushing politically to renege on its past agreement has nothing to do with Coasian or tragedy of the commons, and everything to do with money and power.

29 MikeP March 19, 2015 at 12:42 pm

I wonder how bad it will have to get before some Coasian bargaining can get started.

None badder…

“We’re going to make a lot more selling the water than planting the rice,” Lance Tennis, whose family owns about 900 acres of farmland in southern Butte County, about 80 miles north of Sacramento, said Tuesday. “This is a huge deal.”

30 MikeP March 19, 2015 at 2:13 pm

None badder…

…which, incidentally, is a statement on just how out-of-whack the water pricing for agriculture is!

If Coasian bargaining pays off this early in the “crisis”, there is likely a serious misallocation of water in normal times as well.

I’ll know California is serious about the drought when they throttle the water agricultural users consume. This throttling would ideally be accomplished through pricing, but it is amazing the parade of little fascists that rise out of the woodwork when there’s a chance to show one’s concern by forcing people to behave.

31 Steve Sailer March 19, 2015 at 7:59 am

“Even today a lot of CA agriculture uses the least efficient flood irrigation system.”

Similarly, the flood immigration system for providing farm labor isn’t necessary to Keep the Crops from Rotting in the Fields.

32 ab March 19, 2015 at 8:33 am

You really are a one trick pony.

33 David Zetland March 19, 2015 at 8:41 am

Well, you’re nativism is silly and there are no rotting crops, BUT it’s true that cheap labor and cheap water make it profitable to do flood irrigation.

Close the gates? That doesn’t take care of cheap water. Improve water markets? THEN you will see more efficient irrigation and higher-paid workers.

The pity is that all the migrants to California (like you and me, Steve) seem to think it’s better to shut out others instead of adopting institutions to make the State work better — like the expansion of the States higher ed in the 60s…

34 dearieme March 19, 2015 at 8:45 am

What a brilliant argument by false alternative.

35 thomas March 19, 2015 at 8:26 pm

That’s it, we can solve CA’s water problem by increasing immigration and spending more money on higher education. Brilliant analysis, aquanomics guy.

36 aphrael March 20, 2015 at 11:22 am

> there are no rotting crops,

There are, actually. It’s not as common as Steve implied, but there are many orchards which have died because the orchards take too much water to maintain.

37 c1ue March 21, 2015 at 12:30 pm

Sorry, but the unbridled brandishing of the “market” for any and all justification is ridiculous.
Lower food prices and food self-sufficiency is a good thing. Subsidizing farming helps with both.
But more importantly, you’re ignoring the entire body of existing legal agreements in order to “do the right thing”, but you’ve chosen the “right thing” as decided by the more numerous, collectively richer Southern California cities.
I do find it highly ironic that you are effectively pushing to increase the population in the Southern California desert while reducing the amount of food California produces.
Surely that’s sustainable? /sarc

38 HL March 19, 2015 at 11:30 am

What is noteworthy is that we have both a water and an immigration crisis over a whopping 2% of a state’s economy.

39 HL March 19, 2015 at 11:31 am

How much does that alfalfa really cost?

40 Steve Sailer March 19, 2015 at 6:57 pm

It costs a lot more to the taxpayers and ratepayers of California than it does to the farmers: Privatize profits, socialize costs.

41 Cooper March 19, 2015 at 7:00 pm

That alfalfa is exported to China. We are draining non-renewable water reserves to grow a very low value crop with high water needs.

If water prices for farmers increased to the levels that San Diego urban consumers pay, no one would grow alfalfa in California.

At least with wine production we capture a large portion of the value added from grape to Sauvignon Blanc. There’s no domestic value-adding industry when we export hay.

42 c1ue March 21, 2015 at 12:25 pm

Gravity irrigation may be less efficient water-wise, but it is far more efficient in every other respect: capital, infrastructure, ongoing costs.
More importantly, the article ignores that the farmers aren’t using water randomly assigned – they’re using water which was agreed upon in order for the construction of the aqueducts which brings said water to Southern California through the San Joaquin valley.
This article then is presuming to insist on telling farmers what to do with their own property using the “good of all” justification. Well, what about the same justification used to slow down growth in population in the Southern California desert?

43 Shane L March 19, 2015 at 8:18 am

Ireland is currently undergoing an enormous controversy over the government’s attempts to roll out water charges. Until now many (depending on what part of the country) residences paid no direct charges for water usage, which was funded through other taxes. The government are now trying to tie water usage to charges: those who use more will pay more. Opposition to this has been furious in the left and far-left who claim that water “is a human right”. It must seem strange from the outside, where left-wing parties typically support higher taxes and the right oppose them; here it is the opposite in this case.

44 David Zetland March 19, 2015 at 8:38 am

It’s clear that the new system is going to hit the poor harder than before. They COULD have insulated that shock with higher payments to poor households (due to poverty, not linked with water use), so that was a missed opportunity.

45 TMC March 19, 2015 at 10:41 am

Or tiered pricing, the first 1000 gallons, or whatever, cheap.

46 David Zetland March 19, 2015 at 1:23 pm

That *could* work, if it’s 1000gal/person, not per household

47 rayward March 19, 2015 at 8:19 am

It’s not solely a California issue, as much of the water used in California comes from elsewhere, the elsewhere also experiencing water shortage issues. The laws and regulations governing the use and control of water are in many ways counter-intuitive, protecting downstream users at the expense of those upstream. In the west, residents of Colorado and California compete for the right to use water that flows from east to west. In the southeast, residents of Georgia and Florida compete for the right to use water that flows from north to south. It’s fertile ground for lawsuits. In Florida, the issue isn’t so much water use restrictions, which have been in effect for many years, it’s the effect of decreased flows on water quality: the flow of water into rivers and streams has declined significantly, as runoff, fertilizers, and sewage (from septic tanks) has infiltrated the underground aquifer, causing massive algae blooms that have choked both the rivers and streams and the marine life. Rivers I knew as a child, crystal clear at the time, so clear you could see the bottom of the river, are now opaque due to the algae bloom and decreased water flow from the aquifer. The competition for finite natural resources is costly, in lives and treasure, as the competition for oil has shown. Water is the next battleground. I expect no more cooperation in resolving disputes over the use of water as we have experienced over the use of oil.

48 David Zetland March 19, 2015 at 8:39 am

You’re right, and the root of the problem is that older institutions are not set up for scarcity. That’s why I called my first book The End of Abundance (as in, time for change!)

49 Charger March 19, 2015 at 8:40 am

More than $1600 a acre-foot ($0.05/gallon) is a really really high price, not a low one. At that price there’d be no ag users at all, with the possible exception of some high end vineyards.

Domestic use is a red herring, and domestic conservation is theatre. The water is being squandered to subsidize farmers. And much of it isn’t even for domestic consumption (before one of the welfare queen sympathizers gets in on food security).

50 TMC March 19, 2015 at 9:20 am

Residential water goes through the treatment plant where AG water does not. This adds much of the expense, as well as distribution to each house.

51 Charger March 19, 2015 at 10:50 am

If your convinced its all in the treatment plants and distribution mechanism, then surely you want mind a uniform auction for all water in the state? Buyer responsible for transport costs?

52 David Zetland March 19, 2015 at 1:25 pm

The water is “free” — it’s the cost of the distribution system that urban users pay for. Farmers pay the same (system costs) but they get muddy water in ditches, occasionally (e.g., IID @ $22/af)

53 Gene March 19, 2015 at 2:08 pm

It is terrific for David Zetland to stand up and answer questions in this forum. Even if you do not agree with him you have to applaud his taking the time. This is RARITY in comment-land.

Thanks, David.

54 thomas March 19, 2015 at 8:29 pm

Fair enough but we get things like “water is free”. This is a false argument that should be squashed in micro-101, not broadcast to further pollute the minds of people opposed to markets.

55 Chargers March 19, 2015 at 4:40 pm

Right. That’s what needs to change.

56 Floccina March 19, 2015 at 9:39 am

Where did you get $1600 a acre-foot ($0.05/gallon). you can desalinate for that,I see he said .5 cents per gallon of water

57 Dan Weber March 19, 2015 at 10:46 am

Yes, $1600 for an acre-foot is reasonable:

And that’s enough for 2 households for a year. For the second most necessary life requirement (after air and before food) that’s pretty good. Tell someone a hundred years ago that a month’s supply of water will cost them less than 8 hours of minimum wage work and they would throw you a party.

Just an idea, but we should probably stop trying to grow food in the desert.

58 Dan Weber March 19, 2015 at 10:55 am

($1600 is reasonable for desalination, I meant)

59 bilejones March 25, 2015 at 10:58 pm

Why do you think an arbitrary number is “reasonable”?
Is gas at 99 cents or $5.00 “reasonable? both have occured in the past 15 years.

In a free market, the price is not set, it is discovered.

60 Charger March 19, 2015 at 10:53 am

You’re right, I was off by an order of magnitude.
1 acre-foot = 325851.429 US Gallons
325851.429 US Gallons * $0.05 / US Gallon = $16,292.57145

That’s an even more ridiculously high price.

61 Rob March 19, 2015 at 12:28 pm

Except that the price quoted above is 1/2 CENT per gallon (78 cents for 150 gallons), not FIVE cents per gallon. At that price, one acre foot is 325851 gallons times $0.005/gallon or $1629 and we’re back where we started.

62 Chargers March 19, 2015 at 4:39 pm

Mea culpa

63 Michael B Sullivan March 19, 2015 at 11:15 am

I was briefly thrown by your characterization of “domestic” use, which I immediately contrasted with “foreign” use. In case anyone else is similarly confused, I believe Charger intended “domestic” use to be synonymous with “residential” use.

64 Hazel Meade March 19, 2015 at 1:33 pm

The water is being squandered to subsidize farmers. And much of it isn’t even for domestic consumption

Considering how much we import from Mexico, I would guess that most california crops are indeed for domestic consumption. Although, there is probably a substantial amount of comparative advantage at play with respect to nut trees and avocados.
In any case ,whether it is for domestic consumption ought to be irrelevant. If California is a prolific producer of almonds that are distributed worldwide (which it is), raking in billions in profits, those profits get spent importing foodstuff from other parts of the world to our net benefit. I would wager that high-yield almond production is a greater net benefit to society than everyone having a green lawn.

But why don’t we let the market set the price? Lets see whether residential consumer demand causes water prices to rise to the point that supplying consumers is more profitable than growing almonds.

65 Chargers March 19, 2015 at 4:39 pm

The exports are mostly to China, not Mexico. And it’s 2% of GDP not sone super valuable activity. But letting the market decide is a great idea. Eliminate this prior appropriation nonsense and do an annual auction for the right to withdraw water from rivers or the ground.

My bet is that there will be zero acres of alfalfa or rice planted.

66 Nyongesa March 19, 2015 at 11:04 pm

The core question though is quite relevant for libertarians. This debate in California goes to the heart of how to re-negotiate the social contract of the group versus the individual. Allot of California water rights, claims against the colorado river, belong to farmers who arrived long before city dwellers and acquired their rights fair and square. Since city dwellers have been electing politicians that either did not plan for, or failed to make provisions for water to sustain the population growth, why should farmers be forced to accommodate them if they don’t want to. Isnt it a form of wealth transfer.

But on the other hand a properly functioning water market would see farmers who were water millionaires selling rights to people who value it more. In Newport Beach, by example, what was once thousands of acres of ranch land is now some of the most expensive real estate on the planet. That’s wisdom/good luck/savvy business thinking of the Irvine family or Donald Bren if you prefer. I agree a free functioning water market would see proper market redistribution to more valuable use, but how do you account for the capital built up by a farm community in their commons. Farmers need other farmers around them to make them viable, as well as share in resources such as pickers, millers etc. I guess my concern is that redefining the commons, has a wealth extraction element that does not get captured fully in the price.

I agree market signals are the best tool we have but there’s still a smell coercion in this process. “we’ve decided you need to give up your water for all our benefit” Its my understanding that resistance to this kind of thing is why Americans own allot of guns.

67 Hazel Meade March 20, 2015 at 4:21 pm

I’m curious as to why there aren’t already water millionaires. What is stopping the farmers who own the water rights from selling their water to the highest bidder? Surely if city customers are willing to bid up the price of water, then farmers will soon discover they can earn more by selling water to the city than by growing crops.

Is it simply lack of distribution or is there some regulatory problem that prevents utilities from buying water from farmers?

68 Mark Thorson March 19, 2015 at 5:13 pm

Not just nuts. California exports alfalfa to feed cows in China. Alfalfa is among the most water-hungry crops.

69 dearieme March 19, 2015 at 8:43 am

“Sydney Australia, with a roughly comparable climate”: well, very roughly. Annual rainfall 48.1 in. He missed rather a good point there, which would have emphasised San Diego’s extravagance.

70 Nyongesa March 19, 2015 at 11:17 pm

San Diego is a particularly interesting comparison, because its the one urban county with a highest proportion of pro market, small government Californians. There is an excellent podcast by Ira Glass on the radio show “This American Life”. that describes in painstaking detail how San Diego repeatedly refused to fund efforts to acquire firefighting aircraft, and would simply “borrow” state equipment and reimburse them accordingly, despite near misses and well documented warnings. Then between 2003 and 2007 a series of fires could not be contained easily due to firefighting aircraft shortages.

71 David Zetland March 19, 2015 at 8:45 am

Glad to see this topic on MR. I’ll add:
(1) Water markets are mostly absent from California. Their expansion would improve agricultural efficiency as well as free water for sale to cities.
(2) Groundwater is STILL not monitored/regulated, which is why it’s being overused (an actual tragedy of the commons). The State is moving VERY SLOWLY to address this.
(3) It’s quite easy to raise urban prices (per unit) and rebate excess revenues (per meter) if you want to reduce Q_demanded without killing poor households.

I wrote some stuff on California this week

72 Gopchik March 19, 2015 at 2:16 pm

Who’s got time to solve water? Our democrat establishment has other critical priorities:

build a bullet train to Yreka.
commit felonies (3 sitting senators!)
undoing pension and redistricting reforms
Landing their next professional politician position (stupid term limits)
And the like

73 prior_approval March 19, 2015 at 9:15 am

‘The apocalyptic scenario needs to be leavened with some basic facts.’

Like these? – ‘Another heat wave in California this weekend (the high was 90 where I live). This is the fourth year in a row with little rain or snow in the mountains (the statewide snowpack is about 17% of normal for this date). California is the largest agricultural state, and an ongoing drought could have an impact on food prices – and on the economy.’ Ah, but that was written at calculated risk a week ago –

And as noted in that link, here is a bit more local reporting on what is going on – ‘January was the driest in California since record-keeping began in 1895. Groundwater and snowpack levels are at all-time lows. We’re not just up a creek without a paddle in California, we’re losing the creek too.

Data from NASA satellites show that the total amount of water stored in the Sacramento and San Joaquin river basins — that is, all of the snow, river and reservoir water, water in soils and groundwater combined — was 34 million acre-feet below normal in 2014. That loss is nearly 1.5 times the capacity of Lake Mead, America’s largest reservoir.

Statewide, we’ve been dropping more than 12 million acre-feet of total water yearly since 2011. Roughly two-thirds of these losses are attributable to groundwater pumping for agricultural irrigation in the Central Valley. … Wells are running dry. In some areas of the Central Valley, the land is sinking by one foot or more per year.

As difficult as it may be to face, the simple fact is that California is running out of water.’

The problem is not ‘markets’ – the problem is an ongoing lack of precipitation. A problem which could also solve itself, by having precipitation return to the accustomed level for an extended period of time. Which essentially won’t happen for at least a year in terms of snowpack, by the way – regardless of what the market thinks or provides.

But when all you can imagine is markets, every day is a blue sky day, without any rain clouds getting in the way.

74 TMC March 19, 2015 at 9:24 am

California has always had drought issues, many worse than the past four years.

75 dan1111 March 19, 2015 at 9:31 am

You are just repeating the conventional wisdom, without addressing Alex’s arguments at all.

At this point, one would think that the burden of proof should be on those predicting doom, given their track record.

76 prior_approval March 19, 2015 at 9:51 am

Really? The point is that ‘markets’ don’t create rain. The idea that we could reallocate water is one thing – an already ongoing process by the way. As illustrated here – ‘The rice industry in the Sacramento Valley is taking a hard hit with the drought. Some farmers are skipping out on their fields this year, because they are cashing in on their water rights.

Many fields will stay dry because farmers will be doing what was once considered unthinkable: selling their water to Southern California.

“In the long term, if we don’t make it available we’re afraid they’ll just take it,” said Charlie Mathews, a fourth generation rice farmer with senior rights to Yuba River water.

He and his fellow growers have agreed to sell 20 percent of their allotment to Los Angeles’s Metropolitan Water District as it desperately searches to add to its dwindling supply.

It’s not really surprising that Southern California is looking for a place to buy water. But what is making news is how much they’ve agreed to pay for it: $700 per acre foot of water.’

But here is the kicker to how the market is working out when it comes to still dwindling water supplies – ‘The ripple effect of this will be felt around the entire state. If a Bay Area water district needs to buy more water, it will now be competing with Los Angeles to do it.

“They have to pay whatever the last price, the highest price, people will pay,” Mathews said.’

The market can shuffle things around – as in the quoted example, above. However, it cannot make precipitation fall.

But why bother with an actual empirical reality when faith is so much more satisfying – just trust that the market will provide.

Much like how that cited LA Times article talked about Lake Mead’s capacity, without actually adjusting it to the reality of the last decade and a half – ‘The water level in Lake Mead is lower than it has been in over 40 years. The water is going down because the Colorado River runoff over the last decade starting in 1998 has been far below normal.

In 2000, for example, the runoff was only 56 percent of normal. The runoff has continued to be well below normal. Because of this decreased runoff, Lake Mead has received only slightly more than the minimum required amount of water from the Upper Basin. But the amount of water going out from Lake Mead has remained at normal levels. So, there has been more water going out of Lake Mead over the past decade starting in 1998 than there has been coming into the lake. This causes the elevation to drop a little more each year.’

What has been going on is not new, nor is it exactly a surprise. And the ‘market’ is not going to be restoring any water to emptying reservoirs. In reality, it is the ‘market’ that has been draining them, actually.

77 MOFO. March 19, 2015 at 10:43 am

“Really? The point is that ‘markets’ don’t create rain”

That would be relevant if anyone actually believed that it did.

78 Charger March 19, 2015 at 10:55 am

>> “In the long term, if we don’t make it available we’re afraid they’ll just take it,” said Charlie Mathews, a fourth generation rice farmer with senior rights to Yuba River water.

They should just take it. It belongs to the people of the state of California. Charlie Mathews and his ancestors never paid for it.

79 Nyongesa March 19, 2015 at 11:19 pm

Taken or bought… you said something else earlier.

80 dan1111 March 19, 2015 at 11:37 am

Alex’s point is that there isn’t an actual shortage, only an artificial one caused by artificially low prices for water. There is not enough water to continue with current usage patterns, but that is his entire point: with market pricing, usage would be lower, including less farming. Nothing in your comments even begins to refute that.

So yes, you definitely have not responded to him.

81 Agra Brum March 19, 2015 at 10:29 pm

Yep. Cut back (don’t stop, but cut back) on rice, almonds, and cotton, and the problem is solved.
The farmers know that in the end, the Cities always win – they have the votes in the legislature, because they have the people. So they’ll sell the water and stop some of their farming, or they will see it taken.

82 Dan Weber March 19, 2015 at 10:58 am

It could be doom for California’s agriculture business, but I’m not sure why anyone should cry about that. We are causing massive economic and environmental damage to grow crops where they don’t want to be growing.

83 Joey_33 March 19, 2015 at 3:03 pm

And they’re growing RICE in a drought-stricken area. I just cannot believe that. We grow it here in Louisiana because we’re already a bloody swamp. Also a great crop for Asian countries that experience monsoons. But in an area with a water shortage? That baffles my mind.

84 Cooper March 19, 2015 at 7:09 pm

My father was a rice farmer and his father before him! How dare you suggest that I be forced to change with the times! Don’t you know that farming is an integral part of the American Dream…something something Freedom…something something Apple Pie.

But seriously, politicians need to stop giving 2% of the economy 80% of the water (and around a fifth of the electricity when you factor in the costs of moving all this water around).

85 Nyongesa March 19, 2015 at 11:25 pm

Why not cry about it?. There is rich history and some nice communities tied to it. Doesn’t mean sympathizing with the plight of those undergoing change requires us to be also anti-market.

86 dan1111 March 20, 2015 at 5:50 am


87 Cliff March 19, 2015 at 9:33 am

Lol, p_a would rather have farmer subsidies use up the little available water and call in the rain dancers.

88 prior_approval March 19, 2015 at 9:57 am

No, prayers for rain is happened here – ‘Georgia received rain late Wednesday and early Thursday, one day after Gov. Sonny Perdue led a public prayer for rain to end the region’s historic drought.

“Certainly, we’re not gloating about it,” the Associated Press quotes Perdue. “We’re thankful for the rain and hopefully it’s the beginning of more. … Frankly, it’s great affirmation of what we asked for.”

Mainstream press is quick to point out that the prayer came as the National Weather Service predicted rain. Still, the Atlanta Journal Constitution is also quick to say “The faithful ought to keep praying.” Forecasters say that the storm likely did little to ease the state’s drought.’

You know, in that nation that is no longer as Christian as it used to be.

89 mofo. March 19, 2015 at 9:45 am

So in another attempt to sound smart, p_a points out that California is experiencing a drought.

90 prior_approval March 19, 2015 at 9:54 am

A historic, ongoing drought. One where some owners of water rights (see above) are already concerned that their water will be taken from them if they don’t agree to what a 400 mile away water agency demands.

91 Dude March 19, 2015 at 10:43 am

Then some of that food production can shift back to places in the country that actually have water. That doesn’t sound so horrible.

92 Joey_33 March 19, 2015 at 3:04 pm

Yes – we have plenty of water and farmland in Louisiana – there’s no reason to grow rice of all things in California.

93 MOFO. March 19, 2015 at 10:46 am

Oh its a historic, ongoing drought? I guess Alex should have informed us of that fact by saying something along the lines of “The NYTimes has an article on California’s extreme water drought” If he had opened with that line, there would be no confusion that, yes California is experiencing a (historic/ongoing/extreme) drought.

94 Dan Weber March 19, 2015 at 10:59 am

they don’t agree to what a 400 mile away water agency

I wonder what p_a thinks about the Federal Government managing affairs thousands of miles away.

95 TMC March 19, 2015 at 1:13 pm
96 Nyongesa March 19, 2015 at 11:30 pm

It’s only historic on short time cycles. Just like the lull in forest fire’s just when California was being settled led to an underestimation of the fire environment. Both water usage, and, land use planning, are being forcibly re-adjusted to mean expectations reflected in more realistic longer time cycles.

97 louis March 19, 2015 at 9:48 am

Whatever the proximate cause of the shortages, the fact of shortages means any improvements in water use would be welcome. Introducing prices and markets is a proven way of improving the efficiency of resource allocation and minimizing waste. It’s low-hanging fruit.
The whole point of markets is to improve allocation of scarce resources. If resources weren’t scarce, we wouldn’t need markets.

98 Floccina March 19, 2015 at 9:18 am

Some info on desalination:
Texas: From Shale Boom to Water Revolution

99 Ray Lopez March 19, 2015 at 9:25 am

Excellent article by AlexT, and some knowledgeable posters upstream (of this post). Indeed Israel gets by with less water than Sydney, and, by contrast, there are water shortages in Thailand and the Philippines, where it rains at least six months a year (and in PH pretty much 10 out of 12 months, and it really comes down hard in May to October). Price and infrastructure are the keys.

When Iived in LA during the 90s, they had several water rationing years, and I ignored the ban, much to the consternation of my landlord, and even wrote a letter to then mayor Tom Bradley, more or less calling him an Uncle Tom since he catered to the farmers rather than the city folk that were electing him. No reason to grow lettuce in the LA region, which is a desert climate. Price water correctly, be it from the Colorado River or groundwater. Wasn’t the movie Chinatown based on water rights?

Bonus trivia: they ship fresh water to certain dry Greek islands, and water cisterns that catch rainwater are popular there and in Thailand. What is a bit off-putting is that I notice the tiles in certain older Thai water catchment systems found on farms, which have a roof that drains into a reservoir, are lined with asbestos. It’s not a problem if the tiles are new, their integrity intact, since asbestos is only a problem if the fibers come loose. But the tiles are cracked, worn and frayed… go on, drink your asbestos laced, pesticide filled cup of water, or, if you’re in DC (or San Diego), from the recycled toilet water of Washingtonians (San Diegians), or, if you’re near a nuclear power plant like North Lake Anna in Virginia, from the potentially radioactive source there, or, in Athens, Greece, Lake Marathon water, which has become calcified with salts. Manila water is actually very good in most areas, ranking with generally very good LA water in taste. Bottoms up!

100 Daniel in VA March 19, 2015 at 9:54 am

Nuclear plants’ reactor coolant is isolated from the turbines whose water is isolated from the water source. All water has been through some critters’ bowels.

101 Ray Lopez March 19, 2015 at 12:04 pm


102 Daniel in Va March 19, 2015 at 12:46 pm

They have monitors and federal inspectors on site.

103 Floccina March 19, 2015 at 9:33 am

Does anyone propose putting urinals in homes. Do you save much water? I use something like this:

Also farmer can often switch to more drought tolerant crops and only be marginally worse off.

104 Ray Lopez March 19, 2015 at 9:54 am

A chamber pot, the ultimate in green! Or just use an outhouse. But if said outhouse flows near a creek in the USA, watch out, the environmental police will fine you for despoiling a wetlands! Never mind that urine and feces are natural fertilizers. And that urban legend about how 10 feet of sandy river bottom will clean any fecal matter from flowing water…in theory rather than practice.

105 prior_approval March 19, 2015 at 10:09 am

They could use waterless urinals from Uridan –

Including ones for females, as the Danes tend to have that certain European outlook that suggests peeing is something both men and women do, and there is no good reason not to design urinals for women too. Though oddly enough, Uridan does not have a sales partner in the U.S.

And here is a bit of history and comparison between much of the EU and the U.S. when it comes to toilet water use – ‘In 1988, Massachusetts became the first state in the U.S.A. to mandate the use of low flow toilets in new construction and remodeling. In 1992, U.S. President George H. W. Bush signed the Energy Policy Act. This law made 1.6 gallons per flush a mandatory federal maximum for new toilets. This law went into effect in January 1, 1994 for residential buildings and January 1, 1997 for commercial buildings. However, now it is mandatory in many countries around Europe to use toilets with no higher than 2.5 liter per average flush (0.6 gallons per flush)’ (I should add, it is mandatory for German toilets to also be stopped from flushing when the user wishes – that is, the maximum amount of water does not need to be used each time the toilet is flushed.)

106 Dan Weber March 19, 2015 at 11:02 am

A significant fraction of the people looking to buy housing have no men. (See the Ferguson post.) Urinals are useless for them, and even with men in the house you will eventually want to sell, and even if the people you sell to have men in the household, they still have to worry about to whom to sell.

Of course this is just a few hundred bucks but home-buying is hardly rational.

107 Ronald Brak March 19, 2015 at 11:57 am

There’s no need to purchase a urinal to save water. Just don’t flush the toilet after peeing. Maybe that’s why people in San Diego use twice as much water as people in Sydney, they’re a bunch of pee flushers? Using the half flush button is socially acceptable if one’s urine is particularly fetid. But I suppose you are going to tell me your toilets don’t have half flush buttons? What next? It’s not a crime to use a lawn sprinker in the middle of the day? Perhaps there is much we can teach you. Once you find yourself judging the strength of one’s own urine odour to decide whether or not to half flush one’s half flush equipped toilet, then Grasshopper, you will have truly learned to conserve water.

108 OldCurmudgeon March 19, 2015 at 2:06 pm

>Just don’t flush the toilet after peeing.

I’ve often wondered why low flow toilets matter… After all, the water isn’t destroyed. Just run it through the treatment plant and then pump it back to the users.

Isn’t this what Midwesterners call this the “Mississippi River system”?

109 Ronald Brak March 19, 2015 at 8:59 pm

It costs a lot of money to get sewage water fit for human consumptiion. Having one of the largest rivers in the world to dilute it in would certanly help, but care still needs to be taken to prevent Mississippi water becoming a dangerous source of infection like the Ganges river.

110 Robert March 19, 2015 at 2:34 pm

My Toto Neorest automatically senses the size of my personal effulent and adjusts its flush volume to compensate. Why can’t Joe sixpack in San Diego do the same?

111 Ronald Brak March 19, 2015 at 10:59 pm

You’re okay with Joe Sixpack using your toilet? That’s very generous of you. Let’s hope he can hold on till he gets there.

112 Sbard March 19, 2015 at 1:53 pm

Just buy a dual-flush toilet: the handle goes one way for a small flush, the other way for a big one.

113 Chip March 19, 2015 at 9:37 am

I dunno, maybe water should be allowed to flow where it flows without boundaries or borders, and certainly without addressing costs.

It’s a moral issue.

114 John Mansfield March 19, 2015 at 9:57 am

In no way is agriculture only 2% of the California economy.

115 hamilton March 19, 2015 at 10:32 am

If you measure by percentage of income earned in the state, it’s not even 1%. If you measure by employment, it’s just over 1%. Both of these use data from 2013 from the Bureau of Economic Analysis. What data do you think we should use?

116 Ryan R March 19, 2015 at 10:32 am

I think this is an important point, especially at the county level. I was born in the Central Valley and raised way up in the North State, and agriculture plays a role there that is under-appreciated by state-level statistics.

On a related note, the USDA ag census figures I’ve found suggest that over 50% of the 25 million acres of farmland includes pasture for cattle, and I would venture to guess a large amount of this is outside the Valley. Not all of California is capable of producing almonds, tomatoes, etc., and suggesting that those 400,000 acres must not be important relies on some significant assumptions…

117 Charger March 19, 2015 at 10:57 am

Sorry, farming is a low value profession. We should be looking to outsource as much of it as possible to countries with low labor costs. Just like textiles.

118 Dan Weber March 19, 2015 at 11:04 am

A world economy where Africa is exporting food to the rest of the world sounds like a win-win.

119 Harun March 20, 2015 at 2:41 am

Can africa grown pistachios?


Not everything is as simple as people think.

120 haha March 19, 2015 at 1:36 pm

Running and maintaining complex mechanized machinery, managing an array of chemicals in mass quantities, doctoring animals, and managing the financial leverage that is required for the infrastructure are all truly peasant work. You do realize there are large agriculture departments in universities right? You thought they were studying scratching the dirt and using a hoe?

No one is stopping you from getting your large and modern ag operation started in Africa. Go get em slugger.

121 Joey_33 March 19, 2015 at 3:08 pm

He meant Louisiana, not Africa. And by all means – we have plenty of water and would be happy to do this farming for you!

122 Chargers March 19, 2015 at 4:43 pm

2% and that’s with massive subsidies (such as free water).

123 Herb Webber March 19, 2015 at 10:22 am

The first best is so obvious, it is week 2 of ECON 101. It does not require any “knowledgeable” experts. Where does the blame always lie when there is scarcity?

How about trying to understand the forces underlying why California is in this sad equilibrium? Obviously farmers are against any increase in water prices, and we bend over backwards for these people who in many cases are multi-millionaires and not in need of any offsetting subsidies to prevent wealth effects. And if they were poor, good luck getting a politician to understand marginal taxing and rebating in lump sum.

124 George Judson March 19, 2015 at 10:26 am

Read or listen to several examples of the economics of cheap water in “Water: the high price of cheap,” a series by Marketplace. California agriculture indeed is going to have to change, and given long-standing water rights, price is what’s going to do it.

125 Mike March 19, 2015 at 10:26 am

You mention Australia. They had a severe drought a few years ago. They implemented a pricing scheme that priced water for what it costs. This came with a quota system and a market for selling unused parts of your quota — basically, cap and trade for water. It worked very well.

126 Ronald Brak March 20, 2015 at 3:10 pm

I think you’re giving us too much credit. I’m guessing you’re referring to the Murray-Darling river water buyback scheme, which was fine for what it was, but it really was the absolute minimum that was required to stop Australia’s largest river system operating in reverse and sucking salty badness hundreds of kilometers inland. After it was implemented the scheme ran into local opposition from people selling irrigation gear and others, a fear campaign started claiming farmers would be forced to give up their water allotments when it was entirely voluntary, and so the government, not wanting to lose votes and wanting to save money, more or less gave up on it. Some water buybacks have continued but it hasn’t been enough and without adequate rain we’ll be in a mess again.

127 Ronald Brak March 20, 2015 at 3:17 pm

Here is information on the new water buyback scheme for 1,500 gigaliters with $3.2 billion ($2.4 billion US) in funding. It’s not enough for safety but it gives us some breathing space as we head back into drought. If things don’t get too dry there we’ll pull through without too much damage to the river system:

128 Highgamma March 19, 2015 at 10:44 am

Alex, read “Cadillac Desert”. Water politics is part of California’s DNA.

129 gab March 19, 2015 at 1:03 pm

“Whiskey’s for drinkin’ and water’s for fighting over.”

130 Linus March 19, 2015 at 10:49 am

“Trust me….” Really? Is that an argument at all.

It may be OK to say “No one is going thirsty in Sidney yesterday and today.”

Taking time axis off the climate/ resource impact discussion as this one is, is probably more disingenuous than the chest beating on NYT.

And us readers are left with the choice of choosing between two manipulative POVs. I am reminded of Harry Frankfurt’s little book “On Bullshit”.

Alex, you bullshit us.

131 Rgregory March 19, 2015 at 11:17 am

According to the SYdney Water website, the per gallon price for residential users is about USD 0.0067 at current exchange rates and Sydnet Water has been imposing varying levels of customer restrictions since 2003 (See for example the source at So I’m am confused as to how “higher prices” in Sydney contributes to a 50% reduction in quantity used due to the huge price difference3 of 0.0017 or a difference of 25%. This implies a demand elasticity of water of -2…well in excess of the estimates in the literature

132 charlie March 19, 2015 at 11:42 am


Markets are good at pricing, not so good at allocation?

133 Rgregory March 19, 2015 at 1:52 pm

Sorry. For the typos. Too many things going on. My point being that as price demand elasticities for water are typically in the -0.3 to -0.7 range, interpreting the differences in water usage solely due to pricing is difficult to support. More likely, about a quarter of the water use difference between Sydney and San Diego might be attributed to “market discipline”. The rest is likely social and the Water Authority making use of the powers of local government. I always find it best to determine actual government involvement before making determination of the success of free markets.

134 mw March 19, 2015 at 11:34 am

Yet another piece decrying “agriculture” without making it clear the extent to which “agricultural” water use is actually *livestock* water use. Wouldn’t wanna upset the meat eaters.

135 B.B. March 19, 2015 at 11:50 am

My old (and, alas, late) teacher from UCLA days, Jack Hirshleifer wrote a book at the RAND Institute, “Water Supply: Economics, Technology, and Policy” in 1969.
It is out of print, but used copies are available at Amarzon.

He was decades ahead of his time. Folks, the mispricing of water in California is a very old story. It is just coming to a head now because of the heat and drought.

Jack was invited by the state to do a cost-benefit analysis of competing water supply projects. He found that all of the projects had negative net present value. The state ended up choosing the project with the more negative NPV. Jack stopped doing cost-benefit analysis, and started using economic techniques to understand government. He wanted to know why governments made such bad decisions. Well, we all do.

It is just strange that California grows rice. Really. And why are their lush green golf courses in the hot arid desert of Palm Springs? Golf was invited in Scotland, where it rains every day of the year. It is not a game for the desert. Alfalfa is water-intensive, but it is used to feed livestock for beef and milk.

And then there are all those stupid, giant lawns in Beverly Hills.

As for Steve Sailer, if water were correctly priced, and energy also, I wonder if California would receive fewer immigrants. At the same time, more expensive water could reduce land prices.

In defense of agriculture, California’s climate allows a wide variety of fruits, vegetables, and nuts as long as their is water. And of course the wine industry. Rice can come from someplace else, but our diets need the produce from California. Better irrigation and pushing out low-value crops might safe the special farming in the state.

136 HL March 19, 2015 at 12:00 pm

Between subsidize water and subsidized immigrant employees the brave job creating entrepreneurial farmers of California are leeches of the state.

137 prior_approval March 19, 2015 at 1:45 pm

‘Folks, the mispricing of water in California is a very old story.’

Apparently not for Prof. Tabarrok.

138 Hazel Meade March 19, 2015 at 1:51 pm

It’s not necessarily stupid. A year-round growing season with lots of sun may produce high enough yields to justify the cost of the water.
We just need the cost of the water to reflect scarcity.

139 prior_approval March 19, 2015 at 2:31 pm

Highest in the world, according to an article that cannot be linked, apparently because it is hosted at a *.jp address – ‘California rice production: Economic and environmental partnerships’ presented at the World Japonica Rice Research Project Conference and Workshop, March 7 – 10, 2001, Kyoto, Japan

The relevant passage – ‘The clear, warm summer days and dry growing season are highly favorable for rice production, making California the highest yielding rice area in the world. Statewide average yields have exceeded 9.5 t/ha (8,500 lbs/acre) with maximum yields exceeding 12.3 t/ha (12,000 lbs/acre). Medium grain Japonia varieties represent nearly 90% of California rice production.’

Just another example of how things work in an imperfect world where filtering links is a necessity.

140 Hazel Meade March 19, 2015 at 4:23 pm

Correct. Although without factoring in the cost of the water we can’t tell whether producing rice in California is overall more efficient than other places. And there may be other water uses that are even more benefiticial than maximizing rice yields. Since rice is generally very cheap and plentiful, extremely high rice yields still might not be the best use of the water.

141 Hazel Meade March 19, 2015 at 9:36 pm

I mean the true price of the water – what it would be if prices reflected the competing demands.

142 Sbard March 19, 2015 at 1:56 pm

You grow wine grapes in marginal land that won’t productively support anything else.

143 Cooper March 20, 2015 at 4:19 pm

Wine grapes support a high value add domestic industry.

Given a higher water price, it’s likely that Sonoma and Napa would continue to practice viticulture. They can always make the bottles look nicer and tact an extra buck or two to the price.

It’s much harder to do that with a commodity crop like rice.

144 prior_approval March 19, 2015 at 2:24 pm

Let’s see if removing a link to a Japanese web site helps –

‘It is just strange that California grows rice. Really.’

Commented too fast, but that comment is seemingly unaware of where rice is actually grown in California.

Because it isn’t surprising in the least that a part of California grows rice. As noted here (boosterism alert in general – but of the sort that this web site tends to adore) – ‘California’s great Central Valley once contained 2 to 4 million acres of seasonal and semi-permanent wetlands. Most are now converted to anthropogenic uses, including agriculture. Only 300,000 acres are estimated to remain in natural wetlands. Rice is produced mostly on former wetlands – heavy, poorly drained clay soils of the valley floor which are relatively unsuited for other crops. Commercial rice production began in Butte County, California in 1912 and is now an important field crop in acreage and value.’

Do note the ‘wetlands’ part of that overview – rice growing in that area made sense, much like it does in the Po region in Italy. Whether it still makes sense today, at least as currently practiced, is already changing – see link above about rice farmers selling their water (rights).

145 prior_approval March 19, 2015 at 2:26 pm

Well, it seems like a link to a *.jp domain gets filtered when in a comment.

146 Hazel Meade March 19, 2015 at 1:18 pm

So, perhaps a little background is in order.
How are water prices set in California? Is it determined by a state board? If we let prices float freely on the open market does anyone have any idea what they would be?

I don’t think we want to arbitrarily raise prices for farmers and lower them for residential consumers. After all, S. California has a year round growing season and produces crops for the entire country. What we want is to allow a market price for water to balance the demands of agriculture and residential consumers.

147 David Zetland March 19, 2015 at 1:29 pm

There are no “state-set” prices. Most prices reflect the cost of delivery. Most water is “free” to those who have permits. Some permits are VERY valuable; some not at all (depends on seniority). They are hard to transfer (no markets) and urban utilities set prices to cover distro costs, not “scarcity” so D>S in many places. The same is true in many countries.

148 Hazel Meade March 19, 2015 at 1:48 pm

So the limiting factors are that trade in water permits is limited – so there aren’t market prices for the permits, and thus the original resource cost is essentially zero to the utility. Second, the water utilities are regulated and set prices according to distribution costs, instead of raising prices to attempt to profit from increased demand.
That means that consumer prices are going to be mostly unrelated to the relative scarcity of water.

I would think the solution would be to auction water permits on a yearly basis or something to that effect. Then let profit motive on the demand side drive the price that residential vs. agricultural providers are willing to pay for the water.

149 triclops March 19, 2015 at 6:30 pm

HM, you fool…
Using price signals instead of the wise edicts of our betters to allocate water usage is a recipe for Somalia!

Water pricing, like oil and bread pricing, is too important to leave up to the magical fairy you call the free market.

150 uair01 March 19, 2015 at 1:34 pm

If you’d like to read a weirdly fascinating (if left-leaning) book touching on this issue – then I can recommend:
The Dutch reviewer wrote: “No normal writer writes such a book, no normal reader reads such a book.” I recommend it.

151 improbable March 19, 2015 at 1:44 pm

I thought Joan Didion’s “Where I Was From” (amazon) was very good on this… meaning California’s history and politics, including water. And just how far from reality the self-sufficient, libertarian, frontier self-image has always been.

152 Gerd March 19, 2015 at 3:34 pm

I remember driving through Nevada a few years ago and all you could see was dry sandy land and skinny cattle. You could see their ribs. Then a luscious green bright golf course and then nothing again for miles.
Yes even in the worst conditions its possible to have a beautiful luscious green landscape but less water does mean more problems.

153 FC March 19, 2015 at 6:32 pm

If this thread were a movie it would be Chinatown meets The Last Wave. “Forget it, Jake. It’s Dreamtime.”

154 david March 19, 2015 at 7:04 pm

“So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents.”

That’s quite possibly the market clearing price. We can put a ceiling on water price by the cost of reverse osmosis, which has become very cheap. It’s about $1/m^3 or 0.4 cents per gallon. Indeed cheaper than San Diego residents pay now! Of course, I am not including pipes and sewer fees though I do not know if that is in your number either. DC pays $3 to $4 / m^3 for residential all inclusive.

155 Jer March 19, 2015 at 7:21 pm

Geez. glad that not too many economists are in politics or other positions of influence. Nothing destroys productivity (morale) as lecturing us on scarcity, optimization, and our many wasteful ways. Economists – the new preachers from up on high. I am surprised that many can stand to function in the US or UK where a desire for plenty is the mother of all invention (and thus growth, prosperity, and the pursuit of happiness).
Witness the tech as the solution to all in Texas:

156 chuck martel March 19, 2015 at 7:39 pm

“…Last year, at least 400,000 acres went unplanted, and farmers reported losses of $2.2 billion, ”

What does that mean? Does it mean that since .4 million acres were unplanted, farmers had to pay someone else $2.2 billion or that their income was that amount less than it had been previously? Or does it mean that their income simply fell by that amount? If somebody writes a book and it doesn’t become a best seller does that mean that they “lost” a couple of million dollars, including movie rights? If farmers were unable to utilize .4 million acres of land due to a lack of water that might mean that they didn’t realize $2.2 billion in income but it doesn’t mean that they actually lost that much money.

157 Richard Cheese March 19, 2015 at 9:54 pm

Butt-plug say what?

158 mikeInThe716 March 19, 2015 at 10:15 pm

“So how much are people in San Diego paying for their daily use of 150 gallons of water? About 78 cents.”

In the Buffalo metro (on top of the Great Lakes – 21 percent of the worlds fresh water), you’ll often pay more. In a few cases, 100 percent more.
The local variation is a function of the bloat in your local water department. And this IS New York, so the opportunity for Soprano-grade inefficiencies / no-showism is very high.

Sink hole areas of Florida are also have their water market insanity. Water is metered, often expensive, and at times rationed. Market based variable pricing, with large step increases for high use, is (of course) Verboten. Instead, bans on car washing are a regular grand-standing tactic of local pols – which often including a profile of a self-important water department thug watching homes for violations. Of course, there’s an out if you’re rich and have a large lawn/garden. Certain times of the day, for an hour or so, are ‘off-meter’. Niagara-grade valves are appropriately timed to open onto acre-size lawns, gardens and swimming pools.

159 unblinkered March 19, 2015 at 11:41 pm

The only bill urban Californians pay attention to is their electric bill. For apartment dwellers, the bill is so small that it’s covered by the landlord and folded into the rent. Trash and water are so marginal that they don’t register as costs to be concerned with outside of the professional complainers. In 24 years I’ve never heard anyone lament they were looking for money to pay the water bill.

160 Wodamark March 20, 2015 at 6:33 am

Thank God that the water we get in Georgia is from the 3rd largest watershed on the US Atlantic coast and untouched by any other state:
We have water out the wazoo…

161 W Krebs March 20, 2015 at 9:41 am

Nothing here is actually new. I heard all of this laid out in much the same fashion while I was in college 40 years ago.

Two things do strike me as curious. First, the original post points out that California doesn’t have a functioning water market, leading to great inefficiency in water use. The obvious solution would be to establish a market and let it seek equilibrium. Nevertheless, there are a striking number of commenters who wish to excoriate wasteful farmers. I would think the logic of the market is that you should let them do whatever they want with their own money; the market will sort out the wasteful from the productive uses.

162 W Krebs March 20, 2015 at 9:45 am

The second curious thing is that this issue would seem to be low hanging fruit for the political coalition that controls California. Efficient pricing would tend to benefit urban users on the coasts, the base of the California Democratic party. As I have pointed out, all the facts Tabarrok relates have been known for decades. Why hasn’t the California Democratic Party harvested this low-hanging fruit?

It seems to me that part of the reason is that it would be impossible for the Democrats to do this without revealing that a large water supply is available to urban California. But for nearly five decades, California environmentalists have used the water shortage argument to oppose urban growth. And, it would be very difficult for them to turn themselves around on this issue.

163 Dan Holstein March 20, 2015 at 4:21 pm

The biggest waste of water is flushing billions of gallons into the Sacramento Delta even now to support the Smelt and try to get Salmon to spawn in the Delta. Salmon have not been there for many, many years. The extremist environmentalists are making people suffer because they choose the fish over people. Many extremist environmentalists will tell you people are the problem for the environment and need to be eliminated or dramatically controlled.

Take back power from the extremist environmentalists and we can have a lot more water.

164 Ronald Brak March 20, 2015 at 11:14 pm

Allowing river water to flow out to sea might be good for fish, but it also helps control salinity which is good for agriculture in the area. Unfortunately rising sea levels are contributing to increased salinity in river deltas across the world and is just one of the many costs of living in a warmer world.

165 Wodamark March 20, 2015 at 6:35 pm

What is amazing about California is that water customers do not have to have a water meter on their individual services until 2025!

In Georgia it has been required for a number years that each customer have a water meter.

A great place to look at/compare water and wastewater rates/financial sustainability for individual Georgia systems (and some other states) is at the UNC Finance Center –

166 Ed Joe March 21, 2015 at 8:05 pm

Canada’s western Premiers huddled together in a small room on June 15, 2010, and came to an unprecedented historic agreement to

“manage Canada’s valuable fresh water supplies”,

“recognize our collective obligation to be responsible water stewards for North America and the world”,

“increase our water monitoring effort and cooperate and share information on water conservation and water quality”

and, finally,

“to collaborate with State governments on trans-boundary issues”.

Click here to view accompanying press release and full text of June 15, 2010 Agreement

Premier Campbell, fresh from his meeting with the Bilderberg Secret World Rulers in Spain on June 5 and 6, 2010, Chaired the extraordinary conference which saw unprecedented co-operation on water issues between Canada’s four western provincial governments and Canada’s three northern territories.

Knowledgeable watchers recognize that western Canada is in the process of setting up a supra-provincial watershed management structure that will be integrated with similar structures being constructed in western the United States for water management in American western states. It is expected that the over all responsibility will be managed by the US Army Corps of Engineers that has been responsible for the management of the facilities established in Columbia River Basin Treaty – a water management and water sharing agreement entered into between Canada, British Columbia and the United States in 1964.

Learn more at

167 Amazed March 23, 2015 at 4:38 pm

Where is it written in the Constitution that the Government is okay to charge a penalty for using as much water as you pay for? Is it the Government’s business to make more money off my gallon of water than the utility providing it?

168 Your God March 23, 2015 at 7:18 pm

There is a quick fix to this, the more you use the MORE YOU PAY! So if you run an inefficient Farm then you will pay through the nose for it.

I ride my bike in the mornings in Livermore and my god it’s disgusting how these jerk wineries are dumping water where it’s not need. The are feeding weeds mostly with almost all the wineries using freaking rain birds as their water distribution system. Yet they want me to kill all my trees which offer my house shade when it’s hot and it reduces my electric bill which in turn reduces the amount of water they need to generate the electricity….duh

There are a few responsible wineries in Livermore who have installed drip systems but not very many, raising the cost by volume of use will force them to invest in better systems for the long term, which they should have done 15 years ago.

The problem is the Anti-environmentalists are the problem and they have always been the problem because of their lack of knowledge and understanding that it’s impossible to live in a vacuum or in their case they live in a bubble in which no knowledge of any kind may penetrate.
There are salmon and steelhead in the sac delta, I know I catch them and they all move up river to spawn, but these repub / religious nut jobs can not comprehend what will happen when you kill off those species in that river completely.

169 Jesse Curtis March 24, 2015 at 1:20 am

The fact of the matter is that reducing water consumption of either farms or the general public of California is not a solution to the problem; it is going to take a reduction from both parties. Approximately 80% of California’s water consumption is from farms, but the state is also one of the largest producers of crops in the country. The farms in California are a necessity that cannot be avoided. California farms cannot be shut down, but they need to become more efficient in how they use water. Shutting down farms and letting land lay fallow is only going to hurt the economy in California and also throughout the country. The smaller more inefficient farms in California are still producers for the country, and I can’t think of why allowing farms to shut down is better than a collective population conserving water.

The people of Sydney, Australia are using about half of the amount of water that people in San Diego are using, why can’t a reduction in water consumption come from the general public? If the people of San Diego are consuming per person on average 150 gallons of water daily, then shouldn’t they also be held responsible for reducing water consumption? The population of San Diego is about 1.3 million people; this means that on average San Diego consumes 195-million gallons of water daily. This number is only for San Diego, what about other major cities such as San Francisco and Los Angeles? The fact is that a reduction in consumption of water by the general population in California could help reduce the amount of farms that need to be shutdown. A reduction in consumption by the general public would be economically beneficial to California and the other states its production of crops provides for.

Neither farms nor the general public will solve the solution to California’s water crisis individually, but it will have to be a collective effort. However, I do feel that a reduction in water usage by the general public will help limit the damage by the water crisis the most. It seems to be the most economically viable option from an outsider looking in.

170 David Viel March 27, 2015 at 3:52 pm

This article is based on the “scarce resource” argument of British economics. The solution is to ditch the economic system for an American one. In America we don’t say “it can’t be done because of this, that and another thing”. Instead, we ask “how can we do it?”. Then we go out and do it.

So, the question is: how can we get more water to those in California who want it at a cheap price? Well, several ideas have been floated in the past and were almost implemented. One in particular, was to build canals and pipelines that would bring water from way up north, including Alaska. That was when America thought big. Things like the Hoover dam and Golden Gate bridge. People believed that the perpetual benefits of such big minded projects outweighed the current costs.

Maybe some kind of solar desalination plant would work as well?

So, how about trying this again. Let’s find a long term way to bring more water to California, and just do it!

171 Dmitry A. Chernikov March 27, 2015 at 8:24 pm

Yes, I can see how this little slice of the economy can be equilibrated with net social benefits.

172 Gordon April 1, 2015 at 9:59 pm

We as humans are encapsulating water with each housing expansion.
There are 13.8 million housing units in California according to the 2014 US Census. If each unit is storing 60 gallons of water (hot water heaters, pipes, fire sprinkler systems, etc). That would be 828 million gallons of water locked up. Add to that the city water system which would add another 2% or 16 million gallons under storage.j
How can the atmosphere operate properly when this much water is locked up on any given day. Multiple this by the rest of the country and of course their is a water shortage for the environment to work properly. Of

173 Stan April 5, 2015 at 12:44 pm

David Viel, I have noticed that due to weather patterns that generally when one part of the U.S. mainland is experiencing a shortage of rainfall, other parts of the country are experiencing too much rainfall. Both can be damaging so the idea of a series of canals say from the west coast to the east coast to help equalize water levels have come to my mind. I am not sure how practical or politically feasible this would be though.

174 Devin April 9, 2015 at 5:21 pm

It just shows the problems you have when you get away from free markets. If the farmers had to pay for the full value of the water they would grow crops that use less water, more efficient irrigation. Any shortages are corrected by growers elsewhere that can grow the crops that need more water more efficiently.

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