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5 "Tells" that the Stock Markets Are About to Reverse

Government Water and Drought in California

Politics / Water Sector Mar 03, 2014 - 06:41 PM GMT

By: MISES

Politics

Kathryn Muratore writes: Everyone is well-aware of record snow in the northeast and a drought in the west. I think back to when I was a Philadelphian who had never crossed the Mississippi and realize how foreign the weather of California is to the average east-coaster. In the San Francisco Bay Area and the Central Valley, alike, it does not rain between about April 1st and October 1st. I don’t mean “it doesn’t rain much.” I mean it Does. Not. Rain. At. All.


In the Bay Area, the winters are quite wet, with a light rain falling most days in certain areas (microclimates are another foreign concept to much of the country). In Fresno and the rest of the Central Valley, rainfall totals 6-12 inches on average, with all of that accumulating from October to March. But, we have the Sierra Nevada’s to our east to catch moisture in the form of snow, and store it for the dry season. The snow melts and, historically, flowed through large rivers such as the San Joaquin, to the Pacific. Prior to federal water projects, steamboats came to dock in Fresno. Here’s what the San Joaquin River looks liketoday. And here it is about 100 years ago (or here’s another before and after comparison). There is a dam right outside of town, built during the New Deal, of course.

Clearly, the state has not been a good steward of the environment. But at least clean water is getting to people who need it, right?

It doesn’t matter what constituency you belong to in California; chances are you are unhappy with your allocation or quality of water. Last week, it was announced that some farmers in the valley are getting cut out in the drought. They think the city folks in San Francisco and Los Angeles are taking more than their fair share. The “city folks” think industrial agriculture is taking more than its fair share. Residents across the state are constantly being admonished to conserve, with rationing of various types taking place. Cambria, a coastal community (where fog is the predominant form of moisture) essentially ran out of water, and that was before the current state-wide drought. Studies of tap water in poor agricultural communities shows alarming levels of toxins. And, of course, environmentalists are concerned about the effect of diverting water to people or wildlife.

None of these special interests are specific to a drought; this is an ongoing battle, even in “wet” years. This year, however, the stakes are raised. Not only is rainfall low, but the snowpack in the Sierras is low. There hasn’t been enough precipitation in the mountains, and when there has been precipitation, it has often been too warm for snow and it has fallen in the form of rain. That gives us some water now, but does not bode well for the long dry season ahead.

Sadly, all eyes have turned to local water officials, Governor Jerry Brown, and, of course, President Barack Obama. Obama recently came to visit the Central Valley for the first time ever for precisely this reason. The same constituencies have the same tired arguments and complaints with no play being given to ideas outside of the box. It is no surprise to anyone who reads the history of the state’s involvement in water issues: the status quo is ingrained and it is extremely difficult to imagine an alternative. A transition out of this mess is even harder to imagine. But once you realize that it is not a question of if the system will fail, but when, you realize it is essential that we de-socialize water in the arid west immediately.

Real Water Rights

The total privatization of water is the best way to avert disaster in the arid west. The disaster is not necessarily imminent, but it is inevitable because there are no significant incentives to conserve this resource in its current socialized state. Privatization does not mean selling dams and reservoirs and municipal water companies to private investors who are then allowed to operate as protected monopolies. Privatization means that you own the rights of the water on your land, and individuals can own real estate in water (lakes, rivers, oceans). A transition to such a state of affairs is likely to be painful, as 100+ years of damage by socialization of water must be undone. But, I am certain that the process will be relatively quick compared to the long, drawn-out suffering that is in store if water socialism is allowed to continue.

I know that a private water supply would be an improvement over present conditions, but that is neither why I am in favor of it nor likely to persuade the mainstream. For those liberals who see that a free market in water certainly could be no worse than the economic and environmental destruction done by the government monopolies, a disdain for profit and misguided faith in democracy prevents their endorsing privatization. But, the history of the Bureau of Reclamation and the present state of local, state, and federal water ownership shows that water is not controlled by a democratic process. The very existence of several disparate groups, each with their own agendas, has meant that special interests control the water. Western farmers have been receiving water subsidies, paid for by taxpayers, and will continue to receive special water allocation regardless of droughts or environmental lobbying because they currently supply an enormous amount of food to the nation and the world, and constitute a substantial portion of the economy.

Most farmers of the valley, and many residents of the valley cities, vote Republican and espouse free-market rhetoric and a more individualistic attitude. Except, of course, when it comes to water subsidies. It is always the Democrats in D.C. who are at fault when water is tight, but Valley residents seem to be unaware that it was the Progressives of the past who built the dams and aqueducts.

The Progressives’s Bureau of Reclamation

Jim Powell’s Bully Boy brings up an interesting point about the Homestead Act luring poor people to farm the arid lands out west. This had several repercussions: deaths due to harsh winters, a glut of farmers and farmland (later leading to more lobbying by farmers for relief), and a need for irrigation (and distorting the market to invest capital in irrigation technologies). Rather than allow the west to remain unsettled as farmers and irrigation companies died, both figuratively and literally in the former case, Teddy Roosevelt’s bizarre focus on preventing foreign invasion led him to break rank with the Republicans and provide irrigation subsidies to western farmers. Powell adds, “It was curious that Roosevelt, who crusaded against private monopolies, approved of the Reclamation Service [now Bureau of Reclamation] as a dam-building monopoly.”

The Reclamation Act led to another market distortion and, ultimately, corruption. Land speculation took off as investors tried to predict where the feds would build a dam and encourage settlement. The Owens Valley scandal, in which water was unethically diverted from local irrigation to Los Angeles by the Reclamation Service, led to further distortions. The city government acquired the water monopoly and below-market water prices followed, encouraging a further increase in population.

Municipal Water Monopolies

This story continues to the present day. Until last year, residential water in Fresno (delivered by the municipal water monopoly) was not metered. Residents were charged based on the size of their lot. To encourage conservation, the city enacted rationing laws: you can be fined for watering your garden or lawn on the wrong day and at the wrong time of the day. But the laws are openly ignored because enforcement is too costly. In addition to rationing, my husband tells me that there were public service announcement campaigns when he was growing up describing when one should, and should not, flush his or her toilet.

In order to get residential metering to be politically palatable, promises were made that average water bills would not be higher, so rates were set low enough to ensure that residents would not face suddenly higher bills. These rates are too low to be sustainable in that water use is continuing to lower the water supply faster than it is replenished by nature. To the shock of no one who is paying attention, after the water meters were approved and installed city-wide, the city notified customers of proposed rate increases over the next several years. Hearings were held, and maybe, one day, water rates will increase, but probably not nearly enough to encourage true conservation. The kind of conservation that occurs when a free market pricing system encourages allocation of scarce resources is based on the most pressing needs. As Murray Rothbard wrote in 1977, “If the water industry were free and competitive, the response to a drought would be very simple: water would rise in price.”

We are in a drought and water prices have not increased on paper. The municipal bureaucracies can not react quickly to changing conditions (indeed, one may note that they can only react glacially). Water rates are a political question as much as they are an economic or ecological question.

The Perennial Left-Right “Battle”

But, for some farmers, water prices will increase to infinity in practice: there will be a government-induced shortage and farmers will not be allowed to use more water no matter how much they would be willing to pay. But the solution is not, as the local Tea Party implies, to continue to give farmers below-cost water while cutting off water to the big, liberal cities.

There are parts of the west where farming does make sense and would continue to thrive in a free-market water system. But the choice of crops, location of farms, and farming practices would have to be quite different from the average seen today. A distinct benefit of farming in the eastern Central Valley of California — where we can see the snow-pack on the Sierras that ensures some amount of water for irrigation year round and where rivers and streams flowed before various government water projects dried them up — is that the growing seasons are very long and, indeed, some vegetables can be grown year-round. Many vegetables have growing seasons that complement those where winters are harsh; lettuce does not do well in our very hot summers, but thrives from early fall through mid-spring, precisely when it is not growing in the east.

I know of a local organic farm that pumps water from wells on its land and eschews the aqueduct water allotment provided by the taxpayers out of principle. It can be done, but there is no economic incentive for the majority of valley farmers to conserve water and choose crops and farming practices that are a better match for the water supply. Thus the big-city liberals are correct that the valley farming practices are wasteful and it is environmentally harmful to divert ever more water to the farms. The supposedly free-market conservatives in the valley should understand that a socialized water system will lead to waste.

But I wonder if the big-city liberals are aware of the environmental irresponsibility of enforcing city-ownership of reservoirs hundreds of miles away. Returning to Powell’s analysis in Bully Boy, the aims of government control of water are internally at odds with each other:

[Roosevelt’s Inland Waterways Commission] offered platitudes promising something for everybody: “Plans for the improvement of navigation in inland waterways ... should take account of the purification of the waters, the development of power, the control of floods, the reclamation of lands by irrigation and drainage, and all other uses of the waters or benefits to be derived from their control.”

But some of those aims conflicted with others. If the primary purpose of a dam was to produce hydroelectric power, there had to be a reasonably full reservoir behind it. If the primary purpose was flood control, however, a reservoir had to be empty so there would be capacity for floodwater. If a reservoir was empty, or if water was substantially drawn down for irrigation or for industrial or household use, navigation would be impossible.

And where does environmental stewardship come into play when the city must make sure that residents, tourists, and businesses have cheap, running water so they can continue to pay taxes to cover city officials’ salaries?

It is hardly a paradox why the special interests on the left (protect the environment and send water to the cities) and the right (protect the farmers) ignore the history of water in the west and the obvious failings of the present system. “The alternative, of course, is unknown and unseen.” The alternative has certainly never been seen by those currently living in the arid west, and that is a survival tactic for the biggest special water interests of all: the Bureau of Reclamation and the state and city water authorities.

[LewRockwell.com, February 26, 2014]

See Kathryn Muratore's article archives.

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© 2014 Copyright Ludwig von Mises - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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