I don't disagree, but it is still a scary prospect. Humans need water. We don't need gas, or oil, heck we can even survive without electricity. We can make do. But we die without water, and it is worrying to imagine a scenario where some people can no longer afford water because the price went up due to any number of factors. The price of a resource fluctuates for reasons not always related to the actual resources inherent cost and demand dynamic, and private companies don't have the same incentives as councils or government.

And it's not a scary prospect to me. I pay market prices for most things. And when the price goes up, I rethink my use. And when the price goes down, I don't worry so much. I may even use it to replace other things.

When water is cheap, you may see people spraying down a sidewalk during a drought when they could use a broom. Raise the price and their behavior changes.

And if you're worried that people can't afford water for they personal use, what I advocated was each citizen getting paid their share of the water revenue.

And that actually would go UP during a drought, more than the cost of their own direct personal use. That's because INDUSTRY uses the most water.

They would, of course, pay more for the products of industry.

And things like shipping bottled water from California during a drought might become a thing of the past. As it probably should.

The way I interpret that problem is that the pricing model itself is broken: it should be set up such at the cost of water increases the more water you use; if you are using a family's worth of water for drinking and cooking and showering, then you pay low rates, but if you are using an estate's worth of water then instead of just paying linearly more you should be forced to pay staggeringly more.

Another way to model this which some people will prefer and others will think is worse is that you just charge the correct/high rate for water at all scales but then hand people cash to subsidize their expected requirement for water, which they could choose to spend on water or which they could spend on something else, which maintains incentives to use less than the expected amount of water but which also doesn't cause weird effects in the market itself where people start trying to sell each other water from their different rate brackets.

(edit: Actually, I guess this is sort of how California has been trying to deal with this, with penalties to larger users... but in practice these penalties are of course being given to the people already not using much water and are not being levied against the richer people who are using tons of water :/. Here is an article about this from the New York Times, "In California, Stingy Water Users Are Fined in Drought, While the Rich Soak".)

http://www.nytimes.com/2015/11/22/us/stingy-water-users-in-f...

There's no need for penalties or some political determination of what constitutes waste. These themselves constitute waste, just not of water.

Its much simpler to have one price per water source and pay citizens their share of the proceeds after costs.

>We don't need gas, or oil, heck we can even survive without electricity. We can make do. But we die without water

I understand that this is not your primary point, and I even understand the sense in which it is true, but I think it's short-sighted.

People will die without oil, electricity and silicon chips because we've come to depend on them for such things as medicine, agriculture, waste processing, etc.

Things like your run-of-the-mill plastics are very much a matter of life and death.

To your point, recent reporting by the New York Times has highlighted the trouble with private equity firms replacing public utilities. For example: http://www.nytimes.com/2016/12/24/business/dealbook/private-...

Should we base (US) water allocation on the electoral college outcome or the popular vote? If you think it's scary having a market determine the allocation of water, the prospect of allocating it with political currency should be terrifying.

If you look at the great resource shortages in the US in the 1970s, they really only happened because the government imposed price controls.

I remember grade school being so cold in the winter because they used gas to heat the school. The US only used domestic natural gas back then, so it couldn't be blamed on some embargo.

Agreed.

If everybody in the Middle East were paying a market price for water, there would be less conflict, not more.

Instead of having to fight for a resource, they compete to sell it to you.

It is because it is so vital that we should get a clear signal of its value. We should be paying for what it is worth.

I don't think the supply of ground water and the demand for it vary wildly. And that is what market prices are based on.

But a sudden change in prices would definitely occur when it is depleted.

Rain water is a different thing. The supply varies greatly. But it is also completely renewable. Industries that use it should adapt to its potential scarcity and prices help to do that.

Besides, I wasn't suggesting selling off water to private companies. Only having realistic prices that communicate the actual scarcity of the resource.

You can't get industry to conserve without them. Because, as you pointed out, they don't have the same incentives as governments do. And industry is the biggest user in many places.

> Humans need water

Every person gets a free daily "survival" quota. Above that, you pay market. The latter subsidises the former. You pay less for your drinking water and more for your lawns and alfalfa.

In economics what you are describing is typically referred to as a Negative Externality (https://en.wikipedia.org/wiki/Externality#Negative). It's hard to reframe these for the obvious reason that the parties involved directly in the transaction benefit from ignoring them (at least in the short term...)

I think it's what they call the tragedy of the commons.

Wikipedia says an externality "imposes a negative effect on an unrelated third party". For example, pollution from a coal-fired power plant that pollutes the air of people living somewhere else.

Someone who pumps a watershed affects it for miles around, where presumably other people live and are negatively affected by reduced water supply.

Water rights in California are not at all market based, because of historical reasons and a previously mistaken notion of property/mineral rights.

> imposes a negative effect on an unrelated third party

yes, and i'd argue that is certainly the case here.

but the two are closely related.

http://ipeatunc.blogspot.com/2011/08/negative-externalities-...

i think the above is a bit over the top for my taste:

> Secondly, is it really clear that people in Bangladesh (say) have a rights claim to an climate environment that is not two or three degrees warmer than it is right now? How did they acquire this right?

... because yes, I'd say they do have that right, but the point about the expectations being tied to some kind of property rights [physical or fundamental] as a differentiating factor seems to be a strong one.

here they describe the tragedy of the commons as a specific sub category of negative externality (in direct contradiction to the preceding link):

http://web.mit.edu/11.203/www/econ/index.php%3Fid=14.html

You can argue that some ongoing tragedy of the commons also has externalities.

But is there such an externality in the use of water? Is there some side effect that doesn't involve the use of water itself? Isn't the tragedy, the depletion of the supply, the problem? That isn't external.

we're just quibbling here...

> You can argue that some ongoing tragedy of the commons also has externalities.

sure, two of the preceding opinions [wikipedia, mit], argue that the tragedy of the commons is a specific type of negative externality, rather than the other way around. one [north carolina] gravitates more towards your interpretation.

the fundamental issue remains though: our conception of time and consequence is woefully limited in scope.

I think I get it. The low cost is itself having a destructive effect. People, eventually, can't get the resource that is depleted. I just didn't register that as external, but it is if you consider the depleted future to be external to the wasteful present.

An important point, actually, if I understand correctly. Thanks.

That's not really correct. The GP is essentially describing standard price rationing of resources. Negative externalities occur when some activity or transaction imposes costs on some external party that has nothing to do with that activity or was not a participant to the transaction.

EDIT: To put it another way, if 'depleting a finite resource' is considered to be imposing a negative externality, then pretty much every act of consumption generates negative externalities. While I guess we can define it like this if we want, it turns it into a pretty uninformative concept.

Makes sense to me.

Thanks for externalizing that.

The question is, can we arrive at a system and culture of paying for the "underlying value" of a resource, as you put it, before those resources no longer exist?

Only if enough people understand the reasons for doing so.

And if we don't, the change will be forced upon us and at higher cost with more disruption and risk.

But that's true of most of the problems we fail to understand/choose to ignore.

I don't see how it follows that "public ownership of a resource doesn't work very well". From what I understanding, you're talking about inefficient over-consumption of some resource, and suggesting price-rationing as the solution. In most cases I think you'd be correct. In the case of public ownership then, the problem isn't public ownership per se, but rather when the public (i.e. government) does not set an appropriate price for using that resource.

Although economic efficiency is all well and good, it's worth remembering that there are cases where another thing should be considered: equity. While it might be 'allocatively efficient' to charge high prices for water when water is scarce, the result could very well be that rich people can still fill their swimming pools while poor people die of thirst.

In a market economy, people are a lot less likely to be THAT poor or to be surrounded by similarly desperately poor people unable to help them quench their thirst.

In the desert of San Jose, California where I live, water costs a half cent per gallon. Even if the market price is 10 times that, a gallon of drinking water would only cost a nickel.

In the US there is $300 billion a year in charitable giving. I'm not worried that no one will give free drinking water people who can't afford a nickel a day for water. In fact, there are free water fountains already.

So I don't think that is a serious consideration. The problem we would help solve by adopting more market oriented prices is vastly more important than edge cases that are already handled by other efforts.

As to your first point, public ownership generally does not set market prices for resources. Governments often don't even have the means to determine what the market price is. And then they don't change them in response to conditions.

Or they just give them away for free, making it impossible for the private sector to compete. Free things result in greater demand and shortages. And pressure to create more of the resource to give away, more than the population would use if there were a market price.

Our roads are a good example. At rush hour they are clogged with traffic. Drivers pay nothing more for traveling at 5 pm than they do at 5 am. More roads are built so more can be given away. And the additional capacity is only needed part of the time, making it even more expensive.

By contrast, a road with demand-based prices would be most profitable if the price was high enough to keep too many drivers from getting on the road. Too many drivers and traffic slows to a crawl.

And that happens every day. And that only happens because of the public ownership.

But you are right. One can say that if the decision makers understood this issue, public ownership would not be a problem. Roads would have market prices.

And they do in Singapore. It's not a democracy. The decision makers do understand the issue and you pay more to drive at rush hour there.

It sounds like we more or less agree then, in principle, on the government ownership side of things. However I do have a few minor quibbles (see below). It's also worth noting there are instances where the government pricing is inefficient because they are not giving certain things away for free.

A concrete example (from Australia), although you might again accuse me of 'picking edge-cases': the Australian government charges between $20 to $40 for downloading information from the national corporate registry (e.g. per-corporation information about shareholders, directors, company address etc.). This 'product' is very obviously provided by an automated script pulling information from the corporate registry database and shoving it in to a PDF template. In other words, the marginal cost of production is some number approaching zero and there's no argument for price-rationing given consumption is almost perfectly non-rivalrous. In effect, the government is levying a very narrowly based sales tax at a rate approaching infinity per cent. Not particularly efficient.

That aside, and more on your example (roads): I agree that road-usage is mis-priced by the government and it would be economically efficient to levy a 'variable congestion charge' (like Singapore, as you note). This would also naturally put a brake (heh) on government over-provision of road infrastructure. However, and this is what led the government into trouble in the previous example, when setting the price for using the road, the government's objective should not be profit maximisation. Rather, the government's objective should be maximisation of total social welfare (total social benefit - total social cost). In your specific example (roads) it's a near-certainty that the profit maximising price (i.e. private market price) and social welfare maximising price are very different, as roads tend to be natural monopolies.

So I'd suggest the phrase 'market price' in this context is probably not the best one to use: if public roads were privatised, the 'market-price' would be the 'monopolist profit-maximising price'. This produces a socially sub-optimal outcome as well as an economically inefficient one (i.e. monopoly pricing results in deadweight loss, except in the extremely unlikely edge-case of perfect price discrimination).

Lastly, it's pretty disingenuous for you to say I'm just picking out 'edge-cases'. Yes, you're correct that water is abundant at the moment (and therefore has a low market price). And yes, sometimes acts of charity by the rich (which are commendable) can alleviate minor equity concerns or correct minor market failures. But if you'd like me to choose something you might consider a 'non-edge case', I'm willing to give it the old college try:

It is estimated (conservatively) that 13% of the world's population suffer from undernourishment, and 9.6 per cent live in 'absolute poverty' (again using a conservative estimate i.e. the World Banks'). Reductions in global mal-nutrition and absolute poverty have been achieved, in part, due to massive government expenditures on overseas development aid (ODA), estimated at $160 billion in 2013 by the OECD. Private charities contributed an additional 15-20 per cent on top of this figure.

Even in the United States (a country noted for its culture of private philanthropy), it is estimated that roughly 1 in 4 children live in a state of 'food-insecurity'. It should be pretty obvious that (relatively minor) 'private charity' expenditures are hilariously inadequate for solving huge (and ongoing) equity problems like 'global hunger'.

So you'll have to pardon me when I say: your assertion that private charity can deal with 'edge-case' inequities and market failures is utterly insane.

I think it makes sense for a community to own its local roads, the last mile. But I don't think government control makes sense for highways, except perhaps where there is no competition. There are many ways to get to most places.

Even with a monopoly, there is a price level where the road makes the most money. You can't raise prices above that without losing money.

Even then, it is possible for communities to have contracts with road providers that pay a provider for each mile travelled but that give the community the proceeds of the surge pricing. And certainly communities have to agree to connect to and use a road for it to be profitable.

And we certainly don't want to have a situation like that privately owned bridge connecting the US and Canada where there are no other bridges nearby. But I pay an even higher bridge toll to drive to Queens.

I'm all for maximizing the benefits. That is the reason we should have to pay to use roads, especially at peak times. Because we waste a lot of time on them when they are free.

It's not about collecting the most money for the government. It's about maximizing the flow of traffic when demand is highest.

And yes, its hard to eat in places without strong markets and property rights. And things have improved greatly over the last 30 years where people now have more rights and markets set the prices for food rather than political decisions.

https://www.youtube.com/watch?v=jbkSRLYSojo

The more accurate prices are, the more sensible our decisions can be and the more opportunity there is, especially for the poor.