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California's Governmnet-Produced Water Shortage

We regularly mock the Soviet bureaucracy for imagining it can organize means and ends in place of a market system -- the perennial picture of bumper crops and empty bread shelves. But we tend to neglect the log in our own eye, as in the case of the California water "shortage."

Behind all the bloated propaganda about California's five year drought lies a rather interesting truism. Water has never been naturally plentiful in California, but neither has milk. In fact, milk is much more difficult to "naturally" acquire than water (you don't have to squeeze an animal to get water), but California has never had to ration milk or send out "Milk Police." Why the difference? We all use more water than milk, but this is irrelevant to the issue. The answer is that one product, milk, is provided by a relatively free market, but, the other product, water, is "managed" by a deeply entrenched, monopolistic, government bureaucracy. California doesn't need government rationing, it needs to get rid of its Soviet-style water management system, and water would be as plentiful as milk.

Zealous Centralized Planning

The two major water projects in California, the Central Valley Project and the State Water Project, are both creatures of centralized government planning. They weren't motivated by natural cost-benefit growth of market development but by tax money and government agencies which induced artificial expansion.

The CVP (1933) was part of Roosevelt's entire New Deal centralized planning efforts. The SWP (1960) arose under California governor Pat Brown for similar goals. One of the commissioners of the federal department who oversaw much of the artificially motivated California water projects would boast in the late 1960's that it was "fortunate that progress was not held in check while economists debated over the refinements of economic evaluations." The goal of California centralized planning was "new farms, new jobs, and increased production," apparently regardless of the consequences. Under these two programs, agricultural land increased from 4.9 to 8.6 million acres. But this sort of government produced expansion cannot last forever.

Central planning naturally creates distortions like the current water shortage by means of: subsidies, user fees, monopoly control, and a lack of property rights.

Water Subsidies

The centralized agencies would cause enough havoc if they charged a price for water, but influential agricultural interests and landowners have for decades notoriously sought and received direct water subsidies through the Californian legislature. Such "cheap water" was overused and wasted.

Under the Reagan admin-istration's federal Payment In Kind program, some farmers received state subsidies to irrigate new lands and at the same time received federal subsidies not to produce crops on the new land. What a deal.

User Fees Vs. Prices

The California water problem has been further exasperated by agency imposed user fees as opposed to prices. A user fee is determined by bureaucratic legerdemain regardless of supply and demand, whereas prices reflect supply and demand. If the price of lemons rises, then consumers cut-back on lemon consumption until more lemons enter the market and reduce the price.

User fees attempt to override this crucial process and so never pass on the costs to consumers. In the case of water, when prices don't rise, consumers continue to use water as if it were plentiful, thus further depleting the water supply.

Water Monopolies

California's government controlled water system created the water crisis not only by government subsidies and user fees but also by monopolizing water distribution. Consumers have no choice between potentially competing water distributors since local and state agencies rule out any competition.

Competitive water distribution would force suppliers to serve consumers and provide cost-efficient water service or face bankruptcy. Water bureaucracies cannot go out of business, and so they have no incentive to protect the supply of their product. Analogously, imagine how bad milk distribution would be if it were controlled exclusively by the U.S. Postal Service.

Lack of Property Rights

California's government also created the water crises by failing to define property rights for water. Without clearly defined and transferable property rights, the problem of "the commons" will always arise. If many people attempt to share some resource at little or no cost, then the incentive is to use up that resource as quickly as possible since none of the users has to bear responsibility for the loss.

California farmers sit over some of the largest groundwater deposits in the world. However, since the groundwater is commonly shared with others, farmers have an incentive to pump as much out on to their land as possible, thus creating the problem of "overdraft" -- like a group of children with straws in the same milk shake. Both farmers and the children have every incentive to use the resource before their neighbor does, thus quickly depleting the supply.

California Governor, Pete Wilson, has messianically joked that, "If I'm to fulfill my place in history, I'm going to have to learn how to make wine into water." Perhaps that's the problem: the government should stop trying to play messiah with the water and stick to its Biblical role of administering justice and defense.

But instead of dissolving the centralized system, California Senator John Seymour is already planning to appeal to the federal government for more subsidies, unemployment benefits for farmers, and low-interest loans for new wells.

Jason Peltier, manager of the Central Valley Project Association, invoking another Biblical image, declared that the only way out of the current water shortage is "forty days and forty nights of rain." Maybe he is saying more than he knows.

Copyright © by Covenant Community Church of Orange County 1991
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