Editorial: Let the free market ‘invisible hand’ distribute water

As Ronald Reagan once said: “The nine most terrifying words in the English language are: I’m from the government, and I’m here to help.”

Those words came unbidden to mind when a gaggle of government satraps gathered in Carson City to discuss how best to dole out water during this drought.

The drought forum was set up by Gov. Brian Sandoval, who asked its participants to recommend how to deal with the ongoing water shortage.

The most frightening thing reported out of the session was talk about changing the state’s water law.

“I think ultimately water rights management has to evolve from the strict prior appropriation to more of a paradigm of shared risk,” John Entsminger, general manager of Southern Nevada Water Authority, was quoted as saying.

The first Nevada water law was passed in 1866 and recognized the vital role mining was playing in the state’s economic growth. Though all water within the state is subject to state regulations and controls, the law recognizes the basic principles of prior appropriation and beneficial use.

First in time is first in right.

But then those with the rights must use it or lose it. The holders of those rights may not speculate in water rights or hold on to water rights they do not put to beneficial use in a timely manner. “If they stop using the water, they will lose the water right,” the Nevada Department of Conservation and Natural Resources explains.

But water is a property right, and as such it may be bought and sold.

At the drought confab, according to press accounts, some questioned this concept and asked whether giving water right holders access to water at the expense of others in times of drought benefits the public good — whatever that means.

There appeared to be a sentiment for treating water as a communal commodity to be distributed by some government agency — to each according to their needs?

But just as water seeks its own level, so too free markets seek and find the fairest and lowest price and widest distribution for any commodity.

Murray Rothbard, one-time UNLV professor of economics, once wrote: “If the government wants to conserve water and lessen its use, all it need do is raise the price. It doesn’t have to order an end to this or that use, set priorities, or decide who should be allowed to drink more than three glasses a day. All it has to do is clear the market, and let people conserve each in his own way and at his own pace.

“In the longer run, what the government should do is privatize the water supply, and let water be supplied, like oil or Pepsi-Cola, by private firms trying to make a profit and to satisfy and court consumers, and not to gain power by making them suffer.”

This was echoed by newspaper columnist and economist Thomas Sowell in his book “Basic Economics”: “There is no need for government officials to decide arbitrarily — and categorically — whether it is a good thing or a bad thing for particular crops to be grown in California with water artificially supplied below cost from federal irrigation projects. Such questions can be decided incrementally, by those directly confronting the alternatives, through price competition in a free market.”

Creating a free market for water would encourage innovation and efficiency, allowing water to flow from low-value uses to high-value uses while providing both parties of the transaction a profit.

Public officials should resist the urge to “manage” the water supply and permit the free market to apply its “invisible hand.”

A version of this editorial appears this past week in the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Newspaper column: Let water seek its price level in free market

The West has been parched by drought for 15 years. Lake Mead stands at 39 percent of its capacity. Thousands of acres of agricultural land lie fallow. Fruit and nut trees are dying. Cities are banning lawn watering.

The dwindling waters of the Colorado River Basin alone currently bathe and slake the thirst of more than 40 million people and irrigate 4 million acres of agriculture in an area that accounts for more than a quarter of the United States’ gross domestic product. Groundwater tables across the region are being drawn down to such a degree that it will take millennia to recover.

The powers that be are tossing out various ideas to increase supply and/or decrease demand for that increasingly scarce water, as recounted in this week’s newspaper column, available online at The Ely Times, the Mesquite Local News and the Elko Daily Free Press.

But some thinkers at the Brookings Institution think-tank have thought of something so old that it is new.

Lake Mead at 39 percent capacity.

Currently water in the West is allocated on a first-in-use, first-in-rights basis. Stop the use and the rights stop, too. A water right is not a property right that can be bought, sold or bartered.

But the authors of “Shopping for Water: How the Market Can Mitigate Water Shortages in the American West” suggest water bought and sold in an open market would find its level, so to speak, balancing the supply with demand through pricing.

It is a concept spelled out by Adam Smith in “The Wealth of Nations” in 1776 as “an invisible hand” and advocated by free-market economists ever since, though the reasoning has largely fallen on the deaf ears of the central planners who think they know best and free markets are somehow unfair to the poor — a fallacy Smith long ago debunked.

Many wags have observed over the years that “nobody washes a rented car,” meaning that ownership of a thing results in better care being taken of it.

“As impressive as our water infrastructure may be, over the decades, water management in the West has also created perverse economic and legal incentives that have led to the overdraft of critical groundwater reserves and depleted reservoirs, and that have promoted the overallocation of Western rivers and streams,” write the Brookings authors.

Central Valley of California sign.

The communal ownership of water offers little incentive to invest in equipment or technology that might conserve water for profitable sale to another user.

“Market pricing for water can encourage conservation and wise use of water in our cities and industry,” the study suggests. “Farmers who have an opportunity to sell or lease a portion of their water have an incentive to conserve, invest in more efficient irrigation systems, and/or adjust existing cropping patterns in order to free up water for trade.”

For example, California and Nevada farmers are growing water thirsty alfalfa for export to Japan, China and the Middle East. That is tantamount to exporting water overseas during a prolonged drought that has no end in sight.

One of the study’s three authors, University of Arizona professor Robert Glennon, calculated the irrational rationing and pricing of water across three different current uses.

It takes about 135,000 gallons of water to produce a ton of alfalfa, which would sell for about $340. The same volume of water could produce approximately 11,000 pounds of lettuce in Yuma and sell for $2,000. Meanwhile, the Intel Corporation uses about 10 gallons of water to produce a microprocessor. “In other words, an acre-foot of water used to grow alfalfa generates approximately $920; if used to grow lettuce in Yuma, it would generate approximately $6,000; if used by Intel, it would generate $13 million.”

If water were traded on the open market, it could flow to the highest and best uses. It would become practical to enhance the treatment of sewage to near potable levels and to build desalinization plants along the ocean, allowing inland communities to trade for river water by paying for the power to operate downstream water purification systems.

This is nothing new. Former UNLV professor of economics Murray Rothbard wrote in 1995 in “Making Economic Sense”:

“All it (government) has to do is clear the market, and let people conserve each in his own way and at his own pace.

“In the longer run, what the government should do is privatize the water supply, and let water be supplied, like oil or Pepsi-Cola, by private firms trying to make a profit and to satisfy and court consumers, and not to gain power by making them suffer.”

When will we ever learn?

For every problem government tries to solve, it creates two or three more

ObamaCare is wrought with problems. In addition to a failed roll out of the federal exchange computer system, there have been canceled individual policies that Obama is trying to uncancel by fiat as he did by delaying of the employer mandate for a year and issuing assorted waivers to favored unions and companies, all to fix a broken law.

Who could’ve predicted it?

Apparently the late UNLV economics professor Murray Rothbard could. In his 1995 book “Making Economic Sense,” Rothbard wrote:

One of Ludwig von Mises’s keenest insights was on the cumulative tendency of government intervention. The government, in its wisdom, perceives a problem (and Lord knows, there are always problems!). The government then intervenes to “solve” that problem. But lo and behold! instead of solving the initial problem, the intervention creates two or three further problems, which the government feels it must intervene to heal, and so on toward socialism.

No industry provides a more dramatic illustration of this malignant process than medical care. We stand at the seemingly inexorable brink of fully socialized medicine, or what is euphemistically called “national health insurance.” Physician and hospital prices are high and are always rising rapidly, far beyond general inflation. As a result, the medically uninsured can scarcely pay at all, so that those who are not certifiable claimants for charity or Medicaid are bereft. Hence, the call for national health insurance.

Rothbard concludes that the problems with medicine were created by the government, beginning in 1910 with the Flexner Report that recommended all medical schools and hospitals be state licensed. The states essentially put out of business all medical schools that were proprietary and profit-making, especially those that taught disciplines other than allopathic medicine, such as homeopathy. The states closed medical schools that admitted blacks and women. Half of the medical schools in the country were put out of business.

Even before ObamaCare nearly half of all the nation’s health-care spending came from government sources, most of which do not pay what private insurance pays.

Rothbard concludes:

When managers such as trustees take over from owners financed by customers (students of patients), the managers become governed by the perks they can achieve rather than by service of consumers. Hence: a skewing of the entire medical profession away from patient care to toward high-tech, high-capital investment in rare and glamorous diseases, which rebound far more to the prestige of the hospital and its medical staff than it is actually useful for the patient-consumers.

And so, our very real medical crisis has been the product of massive government intervention, state and federal, throughout the century; in particular, an artificial boosting of demand coupled with an artificial restriction of supply. The result has been accelerating high prices and deterioration of patient care. And next, socialized medicine could easily bring us to the vaunted medical status of the Soviet Union: everyone has the right to free medical care, but there is, in effect, no medicine and no care.

Speaking of no care, the British press has been filled with stories of late all aghast at plans by the National Health Service to have patients operated on in India to save money.

Former Labour health secretary Patricia Hewitt told the MailOnline that NHS doctors could be flown to India to treat locals to raise money for cash-strapped UK hospitals, and less expensive Indian doctors could be brought to the UK to perform operations.

The MailOnline reported: “Mrs Hewitt said there was a growing number of areas, including a range of cardiac procedures, where Indian doctors could deliver similar or better clinical outcomes at substantially lower costs than the NHS.”

Heart bypass surgery in India may cost as little as £1,000, compared with £35,000 in the UK. More than 70,000 Britons already fly abroad each year for private surgery, the paper said..

The NHS has a projected £30 billion deficit by 2020.