One of the first lessons taught in an introductory economics course is that prices signal scarcity. Climate scientists are emphasizing that climate change will make water a much scarcer resource in the American West. In California, there is great concern about climate change causing the melting of the Sierra Mountains snowpack. This will reduce the state’s water supply. When a precious commodity becomes scarcer, the price should go up. When prices are allowed to fluctuate and reflect free-market supply and demand conditions, a low price means that a given commodity is plentiful. The irony is that California is already in drought, but prices are still very low. The reasons for cheap water pricing remain a mystery to me. (But I must confess that I also support Europeanstyle gas taxes; raise them to $2 per gallon, I say.)
A nonprofit called the Metropolitan Water District of Southern California sells the water to LA households. The agency is not interested in maximizing its profits, nor does it seem very concerned right now about preparing for climate change. Needless to say, the agency disagrees with my pricing strategies.
Let’s contrast the market for water with the market for high-quality coffee. Imagine if the mayor of Los Angeles seized control of all Starbucks located in his kingdom and ordered them to sell their products at a nickel per cup of coffee. Consumers would be happy for about a day as they received deep discounts on their triple lattes. But when the Starbucks shut down because the branches were losing money, the consumers would wish that the mayor would privatize this sector again and let prices rise. Because the Metropolitan Water District does not prioritize earning “profit” (revenue minus costs), the artificially low water prices can persist for a long time. These low prices lull California water consumers into a false sense that the water will continue to flow.
That attitude affects all (or nearly all; I’m exempt, but I’m an economist) Los Angelenos. Consider the case of Tony Villaragosa. Mr. Villaragosa is a successful UCLA graduate and is the mayor of Los Angeles. He is actively pursuing policies to make Los Angeles a “green city.” Yet this mayor used 386,716 gallons of water at his Mount Washington home in the year before he moved into the mayor’s mansion in October 2005. His water consumption was roughly double that of other households with similar-sized lots who live in his area. I would not call the mayor a hypocrite; I would say that he has responded to low water prices by not conserving. He is not alone. Of the 45,000 single-family homes in Los Angeles County that sold in 2008, 16 percent had swimming pools. In the subset of these homes that sold for more than $1 million, 35 percent had pools, and 46 percent of homes that sold for more than $5 million had pools. Presumably the founding fathers did not view private swimming pools as an inalienable right.
How Do We Allocate Scarce Water?
Growing Southern California faces a fundamental water challenge. If we are serious about getting ready to adapt to climate change, then we must allow the prices of water and electricity to reflect their true scarcity. By reducing the supply of available water, climate change will create an imperative, forcing reluctant governments to recognize that water prices must reflect the basic fundamentals of supply and demand. If demand is rising (due to income and population growth) and supply is declining (due to climate change), then the water authorities face a choice between allowing prices to rise or setting up a complex rationing scheme. Rationing makes economists nuts because it is the equivalent of handing a vegetarian a meat pizza to eat and telling the vegetarian that he or she cannot trade it to a meat lover. The authorities are struggling to cope with these expected imbalances in supply and demand caused by ongoing economic growth and climate change.
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17 Comments
Add CommentI really wanted to like this piece, but it relies too much on intellectual shortcuts. The anecdote about the writer's mother-in-law on page 7 is a prime example. The water agency is trying to cut water use by incentivizing saving, but the writer believes this is silly because his MIL got a check for cutting her water usage, when in reality she was overseas and hence her water use fell. Are you really using a single anecdote that relies on an outlying phenomenon (i.e., not everyone can afford to spend a whole month traveling in Italy) to dispute the generally accepted notion that financial incentives can influence human behavior? The same goes for example of how Candy Spelling's giant estate pays less per gallon of water used than the writer does. Is one rich person's anomalous water bill enough to toss out the entire idea of tiered rates? Finally, your view of L.A. is way too westside-centric. You should hang out in some other neighborhoods a bit. The fact that a handful of UCLA students won't venture downtown proves nothing. Oh, and you misspelled the mayor's name.
Reply | Report Abuse | Link to thishttp://www.notenoughtowaste.org/notenoughtowaste/Headwaters.html
Reply | Report Abuse | Link to thisSome of your facts are not totally correct, we do get 15 inches of rain not 11 and not everybody wastes water, check out more facts about Securing LA water future here. http://www.notenoughtowaste.org/notenoughtowaste
Reply | Report Abuse | Link to thisCurious. So Cal is heading towards the coolest summer on record. July 8 saw the lowest maximum high in 132 years of record keeping in San Diego. Lowest record highs breaking decades old records have occurred continuously this summer on the California coast. Didn't we have record snows this winter back east? And where exactly are the hurricanes the ;ast four years now? Certainly makes on wonder how this stuff is measured.
Reply | Report Abuse | Link to thisBTW, everyone talks about how bad LA/OC is but nobody seems to be leaving, apparently even you. That's why the song say's 'We love it!'. After an awesome day today around the pool it should be obvious to the most effete Eastern snob.
Reply | Report Abuse | Link to thisIndeed, climate is an important factor for attracting people living in LA, but LA has many different characteristics from other region for its charm. It's really interesting that the author discusses the climate issue on an economic view.
Reply | Report Abuse | Link to thisAs one lucky enough to take my family and escape the cesspool of SoCal, I can't imagine that anyone still believes the false claims that LA is some sort or nirvana or desirable in any way. The traffic alone is reason enough to hate the place. I live 65 miles from the nearest freeway.
Reply | Report Abuse | Link to thisMost of the article is about water. Typical LA attitude that the author thinks that water should be taken from farmers for the lawns of the city. What don't you understand about the fact that WE GROW YOUR FOOD!
Now that LA is just Tijuana Norte, I'm very happy that I don't live in Mexifornia anymore.
What is the reasonable/fair method of calculating the appropriate use of energy/resources by nation states on planet earth??? Should it be based on the resources used per person or per square mile???
Reply | Report Abuse | Link to thisHow may we support you? Your invention is desperately needed.
Reply | Report Abuse | Link to this"Climate change cant alter the blue skies or access to the beach and mountains, but it will pose four tangible threats: The summers will grow hotter, the air will be smoggier, there will be more fires, and there will be much less water."
Reply | Report Abuse | Link to thisOk, is it just me or how bi-polar is this statement? sure, whatever we do here won't affect the fact that there are stars overhead either.... WTF? worry, but, don't worry? at some point, this "writer" needs to take a stand and quit taking the middle road. its not all about profit. at some point, you have to take a stand - that is, if you believe in something.
the author is talking like a fool, you should pay more attention at how to exist in the earth longer, if you are all gone with the bad climate economy is zero, all things are 000000000
Reply | Report Abuse | Link to thisI take issue with a couple points. One is on the subway where you say it will have 200,000 riders a year. The current subway has 150,000 riders per day not per year, so basically you calculation is off by a factor of 365. That $1,000 taxi ride just went to $3.
Reply | Report Abuse | Link to thisAlso, you claim that the skies will become smoggier. As you correctly stated, air pollution has dropped dramatically in the last 30-40 years and continues to drop. With the advent of electric cars and more technological improvements this will likely continue, but you suddenly give a more doomsday scenario because of warmer weather. Also, warm weather is not necessarily a producer of smog. Los Angeles suffers from an inversion layer of cooler air below warmer air. If the cool air does not come in from the coast this inversion does not happen so warmer days are not necessarily the most smoggy. This is often true today as the warmest days are generally not the smoggiest inland necessarily.
Hard to get past the first page of name-dropping and tourist advertising. Kahn and his wife must be up for the next Real Housewives of L.A. Who the hell would read his stupid bool?This guy is just putting lipstick on a pig and calling it beautiful.
Reply | Report Abuse | Link to thisThe real issue is...where do these giant metro areas like L.A. and Vegas get their water? The reality is that they steal it from others. By doing so they desire to create a serfdom where the lowly rural inhabitants only exist to serve their city-dwelling masters. The most valuable commodity is fresh water.
The only way to stop the madness is to abandon the growth economy model and concentrate on a sustainable future. Mexifornia (nice one, notslic) is the present model for a failed state, with its $20 billion deficit and plan to again start handing out IOU's for the services it purchases. When it goes down the toilet, it will only end up where all the rest of its sewage does...3 miles out to sea.
"The summers will grow hotter, the air will be smoggier, there will be more fires, and there will be much less water", Matthew Kahn is talking Global Warming. The evidence for GW has evaporated. LA has bigger problems than climate.
Reply | Report Abuse | Link to thisWhen I arrived in SoCal 1972 from the NorthEast, I watched heat-infused sunsets, drank margueritas, ate chile rellenos, and thought I was in heaven (and picked up a BSEE). Having been to all 50 states and many countries, I still think SoCal is heaven. Please consider Shakespeare by the beach or opera at the Dorothy Chandler, cocktails at the Biltmore or dinner at the old train station. Take in the LA Marathon or volunteer at a soup kitchen. What's a little humidity? It's a very elastic and accepting social environment. And, very adaptable. Being rich is not how much you have but how little you need.
Reply | Report Abuse | Link to this"Almost everyone in Los Angeles was not born here."
Reply | Report Abuse | Link to thisHint...the vast majority of the Hispanic kids are NOT ousiders. They were born in greater LA. As were Vietnamese. Chinese, etc.
There are also outright twisted facts about precipitation, recent tremperatures, etc.
Are there no editors at Scientific American to weed out fluffy nonsense articles full of errors?
To me, it's clear that LA is not going to "adapt" so much as how the rest of the world is going to need to change. Different technologies and the use of completely clean power generation (say fusion in the future) could in fact make it very viable
Reply | Report Abuse | Link to thisWe'll see
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