The 101-level "solution" is to just raise the price to account for demand. The problem with that is that it treats all usage the same, whether it's a residence's first gallon or an alfalfa field's last gallon. But the former is something we need to protect.
It makes sense to price water, and electricity, in a fashion where the first X costs a certain amount, and the next X has a higher rate, and above some percentile of usage it has a much higher rate, and at some percentile of usage, customers should be very nearly paying for new required utility infrastructure themselves. That allows using pricing to solve supply problems, without penalizing normal levels of usage.
Some utilities already do this. But if there are actual issues with having enough supply for both datacenters/farms/smelters/etc and residential usage, then they're not doing this well enough, or don't have the pricing correct.
We don't do this for gasoline (in most countries), even though it is also vital for life. And yet people can still drive, afford to eat food grown with fertilizers, use plastic, and so on.
Turns out markets are pretty good when you leave them alone. But when they're not left alone (as is the case with water today!!) you get some weird shit.
When hurricanes come to South Florida, the well off migrate North to wait out the storm while the poor suffer the dangerous conditions. Part of this is due to the price spikes of gasoline in the local market as supplies dwindle due to fewer truck shipments and refineries shutting down for the storm.
Water is similar. Both water rights and water utilities are gamed by people who have resources. The people that are hurt are usually poor utilities bill payers, rural residents who are the first to lose service when wells dry up, and anyone who thinks they have water rights until an upstream user exhausts their expected supply.
The “markets work” heuristic is frequently wrong if you don’t glaze over the very many counterexamples.
Rationing is an inevitable response. But to say that is like saying witch hunts are inevitable - they are. They're still bad ideas. People who can maintain access to their higher reasoning should resist them.
Sure, but OP is advocating that we should "systematically [use] a pricing structure that charges disproportionately more for usage above high thresholds." They're not arguing that this is something to be applied only in emergencies.
Similarly in your post, you use the need to ration gas after a hurricane to argue that we should ration water all the time. This does not follow.
> Both water rights and water utilities are gamed by people who have resources. The people that are hurt are usually poor utilities bill payers, rural residents who are the first to lose service when wells dry up, and anyone who thinks they have water rights until an upstream user exhausts their expected supply.
The logical extension of your argument here is that the world would be better if we subsidized gasoline for "poor utilities bill payers" and "rural residents".
But why gasoline and water specifically? Why not also healthcare, food, childcare, and other necessities?
Then consider, if we have a budget of $X per family to subsidize necessities, surely the government is not best suited to decide how to split up those dollars between water, gas, healthcare, food, and childcare? There's no right answer universally, some people need food more than they need gas, and vice versa. Surely an individual family would be better equipped to decide for themselves?
We have now invented "giving money to poor people instead of subsidizing demand", which I wholeheartedly support.
As with many things, markets do work, but people don’t make rational choices for their well-being.
No, but commercial trucks use diesel, which carries about 25% higher taxes per gallon. And vehicle registration on semi-trailer trucks is significantly higher as well. They pay, on average, between $25,000 and $30,000 in taxes and fees each year.
> Turns out markets are pretty good when you leave them alone.
No, they aren't. They're ridiculously bad when you leave them alone because someone captures the market, ramps up anti-competitive practices, and immediately begins rent-seeking as hard as possible.
Free markets are pretty good at finding good prices. Markets that are left alone do not remain free. That lauded "self-interest" encourages businesses that have reached nearly 100% market share to increase profit in other ways.
OK but the market intervention being discussed here does not create a free(er) market. Its intent and effect is the literal opposite.
> systematically [use] a pricing structure that charges disproportionately more for usage above high thresholds.
This is what I'm arguing is a bad idea, by using gasoline as an example.
If you want to argue that imposing this pricing structure systematically is good because it would help prevent a bad monopoly like Standard Oil, you'd need to explain (a) how this market intervention would prevent monopolies and (b) how it's a "better" way (according to however we decide to measure "better") to prevent monopolies than the alternatives. I don't see how this is true, though.
The problem is that water isn't traded on a normal market at all. Lots of people have historical water rights and pay nearly nothing for their water use. There's byzantine regulation and many have the right to use for some purpose on their land but not to resell, so the market cannot allocate to more efficient use.
If you just let the 101 level solution actually work, water prices will rise until inefficient uses like water-intensive agriculture (not even all crops!) are pushed out. Urban users easily outbid almost all agricultural use, even at what any person would consider dirt cheap prices. For example, desalinated water, which is considered expensive for agriculture, can be 40 cents per cubic meter of water. That's a lot of water! Usually the last mile of urban water delivery costs more than that.
The amount required to satisfy all urban use, including water hungry lawns etc, and datacenters, corresponds to a very minor reduction in agriculture. Perhaps even just changing which crop is grown or switching irrigation techniques.
Charging more to higher users, price discrimination, causes several problems. First, it creates an incentive to cheat. I'm not using all this water myself, its for this whole group of people who "live" here. Don't allow this kind of spreading (somehow...)? Now you actually screw any business or institution that serves a lot of people. A farm produces food for thousands- do they count as one user? A park uses much more water than a garden but serves many more people. Whatever framework you create will require another bureaucracy to run. Lobbyists will find or insert loopholes for their friends.
The heavy users actually improve the system robustness, in both electricity and water. Their higher demand pays for more supply infrastructure, which itself often benefits from economies of scale, and in a shortage they may even be more responsive to price increases due to their high use.
The heavy users have more influence over the laws which govern the infrastructure, as the history of water rights in the West clearly shows. We see it now when secretive organizations negotiate with water companies under NDA to get water for new data centers - something a smaller water user couldn't do.
The riparian doctrine of the East, with its high rainfall, don't work so well in the dry West, which is why it generally uses the prior appropriation doctrine. Water management was traditionally under a communal system. Some of these still exist as acequia associations, which include equity and fairness in their decisions, which doesn't follow the prior appropriation doctrine.
Econ 101 doesn't handle these issues.
If the Native Americans have water rights, they can also sell them. They can choose to use it inefficiently on subsistence farming, or they could sell at the going rate. A normal market itself doesn't imply any particular allocation of water rights, just that they should be as fungible and transferable as possible.
Why are the laws that govern the infrastructure particularly important? It only matters now because its a tangle of regulation. Yes, big users can often get bulk discounts or other special arrangements by committing to use. This happens in many areas.
There's no law governing what products my grocery store must carry. Yet, I can still choose a store with many things I like, at affordable prices. My store may (and frequently does) exclude all products containing some chemical considered harmful even if it isn't banned. Of course, water has more of a natural monopoly problem, but that's more for last mile infrastructure and not broader supply.
I don't understand the details of the riparian vs prior appropriation doctrine. How does this create an issue? If the water rights are defined somehow, in a usage-independent way, only in terms of the net water removal, to account for runoff from local use, and the water from them can be traded, then a market can work regardless of the specific nature of the right.
Any association holding the rights could allocate its water internally as it sees fit. Just like any other asset? Or it could decide to sell it and distribute the money instead- perhaps even better for fairness to it's members!
1. You're thirsty and need a sip of water? That should be free
2. You're an household and use water? That should cost progressively more the more you use if you use more than typically needed
3. Your business model requires you to evaporate every last drop of water in a desert region? That should be so prohibitively expensive that your business model does not work
This is basically just a low amount threshold and a exponential function. You just need to select the exponent.
