Montreal, November 15, 2009 • No 272


Bradley Doucet is a writer living in Montreal. He has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness. He also is QL's English Editor.




California Water Woes Need Market Solutions


by Bradley Doucet


          The state of California used to be known above all else for its sun, surf, and sexy film stars. Lately, though, news stories about massive budget problems have obscured this idyllic vision. With many of the rich and famous among its tax base, and with an economy bigger than that of most countries, the government in Sacramento has its hat in its hand. And as if that were not enough to take the shine off the Golden State's 24-karat image, residents have been living through a prolonged drought, now in its third straight year.


          The drought has forced cities in the southern part of the state to ration water supplies. Its impact has been felt most keenly, though, by the farmers of the San Joaquin Valley, nestled between the Sierra Nevada and Coastal mountain ranges. In this dry but fertile land, sometimes called "the nation's salad bowl," farmers depend heavily on irrigation to grow most of the country's fruits and vegetables. Less rain means less water for thirsty crops, and less work for farm labourers as more fields lie fallow. Adding insult to injury in many farmers' eyes was a 2007 decision by Federal Judge Oliver Wanger. According to a recent article in The Economist, in order to protect the endangered delta smelt, Judge Wanger decreed that the amount of water pumped out of the Sacramento Delta—which supplies both valley farms and southern cities—had to be reduced by a third.

Enter the Gubernator

          To the rescue last week—arriving, no doubt, in his retooled hydrogen-fuelled Hummer—came California Governor Arnold Schwarzenegger. The Gubernator signed the Safe, Clean, and Reliable Drinking Water Supply Act of 2010 at the Friant Dam near Fresno. The measure, which still needs to be approved directly by voters, would spend $11 billion that the state doesn't have in order to improve water supply reliability. Federal and local governments would kick in an additional $30 billion or so, making this a $40-billion infrastructure program.

          What will taxpayers get in exchange for all of those greenbacks, exactly? The finer details remain to be worked out, but there is talk of aging canals and pumps being upgraded, and new dams and underground water storage being built. The Governor has also apparently said he will resurrect the "Peripheral Canal" idea rejected by voters in the 1980s. Said canal would bypass the Sacramento Delta, hence avoiding the need for those nasty pumps that are killing off the delta smelts.

          Not everyone is applauding, though. California farmer and water expert Alex Hildebrand thinks bypassing the Delta would "increase salt water intrusion and lower water quality for fish as well as agriculture in the eastern part of San Joaquin County." Hildebrand says the governor's office has ignored alternate proposals that would be both cheaper and more effective, like the "Delta Corridor Plan" that would use "low lift pumps and removable barriers" and cost about one tenth the price of a bypass canal. He also believes the planned additional water storage capacity is far too meagre to supply future demand. And he worries about the proposed creation of a Delta Commission that would apparently issue decisions without being answerable to elected officials.

"Addicted to plentiful, cheap water, many California farmers are suffering now that reality has kicked them in the face. The government's current plan will surely treat some of the symptoms, but it will just as surely leave the underlying condition unaddressed."

Let the Market Work

          It's not just that the government's plan for addressing the current crisis is flawed. Government has actually made the crisis worse by encouraging wasteful water use for decades. They do so either directly, by subsidizing the price farmers pay for water, or indirectly, by subsidizing the planting of crops that use a lot of water. According to Don Carr of the Environmental Working Group, writing this past April, "the federal government has subsidized California and Arizona farmers to the tune of nearly $700 million in the past two years to plant thirsty crops like alfalfa, rice and cotton on arid land." Such subsidies encourage farmers to use more water than they would if they had to pay the actual cost of collecting, purifying, and transporting it. This stresses the water system in the best of times, with taxpayers from around the country picking up the tab. In a prolonged drought, the stress reaches the breaking point.

          There is an alternative: the government could keep its hands off the economy and stick to protecting individual rights to life, liberty, and property. Instead of a top-down, inefficient, rigid, poorly maintained system, a bottom-up, innovative, flexible network of private players could build and maintain a system of pumping stations, water pipes, treatment plants and all the rest in response to actual demand. Instead of privileged pricing for big agribusiness with political pull and taxpayers stuck with the bill, everyone could pay for what they use with market prices directing scarce resources to their most valued uses. Instead of trying to grow rice in the desert, farmers could make crop decisions based on actual real-world data packed into market pricing information.

          Would this mean that some farms in arid parts of California and elsewhere in the West would cease to exist? William L. Anderson of the Mises Institute thinks so. Writing a few years ago, before this latest drought, Anderson points out that decades of wasteful government policies have led to the kind of development in the region that one would expect to see in a rainforest, not a desert. In the language of Austrian economics, government policies have led to malinvested resources and a truly unsustainable situation. What is really needed is a free market in water to uncover price signals that have been submerged for too long, thus allowing all of that malinvested capital to be liquidated at long last.

          Addicted to plentiful, cheap water, many California farmers are suffering now that reality has kicked them in the face. The government's current plan will surely treat some of the symptoms, but it will just as surely leave the underlying condition unaddressed. Furthermore, whatever success it achieves will be at the taxpayer's expense, in a state that has already broken the bank. Withdrawing government subsidies and distortions wouldn't be a painless process, but then, recovery from addiction rarely is. The blame, though, does not lie with those of us who want the farmers to clean up their act; it lies with the government pushers of privilege who got them hooked in the first place.