If the price of water were allowed to rise naturally, you'd see fewer green lawns in Arizona and fewer pools in L.A.
Andy Nelson / The Christian Science Monitor / File
Given the growth of population and jobs in the Southwest and the basic need for water, if the supply of water is threatened by drought --- how can this region continue to flourish? An economist would say that allowing water prices to reflect scarcity would take care of this problem. Consider Peter Gleick's quote:
"Part of the challenge we face in the Southwest is old-style thinking," said Peter Gleick, president of the Pacific Institute and an author of another analysis. "We brought to the Southwest very European ideas about water, developed in water-rich areas. ... That worked OK for a while, although not really. But now it's clear that green lawns and unlimited swimming pools and inefficient irrigated agriculture can't be sustained."
Gleick says the solution lies in a combination of encouraging the development of untraditional water sources, such as reclaimed wastewater, policies to encourage more efficient water use, efforts to coordinate water policy at local, state and federal levels, and planning to help water utilities adapt to climate change."
I agree with Peter but I would say that allowing water prices to rise would simply and equitably solve this problem. You would see less green grass in Los Angeles, fewer private swimming pools, and farmers (who use the majority of the water) would use water more efficiently and would make better choices over what to grow. Water engineers (such as my colleague UCLA's Yoram Cohen) would have strong incentives to innovate to figure out how to reclaim water and use it for the variety of tasks we need water for.
Many new economics students worry that such "price gouging" will hurt the poor. It doesn't have to.
Consider the following scheme.