This article originally appeared in the Charlotte Observer — September 29, 2007
The closest thing in the Carolina mind to manna from heaven is water from the garden hose. People have long thought that since it falls from above, it ought to be cheap and free-flowing. Our fescue needs a drink. We like our cars squeaky clean. Long showers wake us up in the morning. But as soon as a drought hits, we are forced to implement water restrictions, bans and other Soviet-style rationing schemes. Isn’t there a better way?
How about market pricing? You know: that magical mechanism that means you pay the full cost of what you use — whether a little or a lot. No need for government functionaries to write out tickets if people know they are going to get hit with bigger bills.
We respond rationally to scarcity when we have to pay the full cost of what we consume and when that cost is transparent. Water, like anything else in the world, can be scarce, as we’ve seen recently. And scarcity means that H{-2}O — like bread, books and iPods — is subject to the law of supply and demand.
It therefore seems odd that we’re stuck in such an old-fashioned system of resource allocation.
Fair and efficient system
"Marginal-cost pricing of municipal water in water-scarce regions is both an efficient way to achieve conservation goals and an efficient revenue source for municipalities," says economist John Merrifield of the University of Texas at San Antonio.The trouble is, charging people for water in the same way we charge for other things is viewed as "unfairly regressive." Merrifield and colleague Robert Collinge find in their 1999 study, however, that not only is full-cost pricing comparable to traditional water systems in "fairness," but that two-part pricing (a fee plus a per unit rate) can make the system more progressive (i.e. less burdensome to the poor).
Tracy Mehan, a former EPA assistant administrator on water, puts things differently:
"American households spend an average of $707 a year on soft drinks (carbonated) and other (non-carbonated) refreshment beverages compared with an average of $474 a year per household on water and wastewater charges. It’s clear that our prices and expenditures hardly reflect the true value of water."
Forward-thinking cities like Seattle have embraced water pricing and have been able to promote conservation the natural way — through markets. And what about the poor? Seattle’s budget billing program helps folks who need financial assistance.
It’s a scarce commodity
How many droughts will we endure before we embrace the truth about water — that it’s a scarce commodity? Successful water conservation programs in cities like Seattle illustrate the value of price signals in informing consumers, providing incentives for conservation, and avoiding bans like those that people all over North Carolina are suffering through today. Who knew that something so base as capitalism could help us conserve a resource?
Indeed, the paradox of markets is that they are inherently conservationist. When any resource is subsidized, people have a tendency to over-consume. So whether we’re talking about health care or water, if it’s offered at "free" or reduced cost, we have to resort to bans, restrictions and rationing to make sure we don’t run out.
But such heavy-handed demand-side management is unnecessary when markets run their natural course. It’s time we stopped understanding water as manna, and started understanding it as a good like any other. When we do, we can keep the bureaucrats off our doorsteps, ward off a neighbor’s sideward glance, and think twice before we get out the Slip-n-Slide.
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