There is California and then the Rest of the Country

by Kevin D. Williamson

California’s drought provides a useful lesson. I am glad California is having a drought. Not because I hate California (I love California) or Californians (I hate them only a little, for what they’ve done to California) or Central Valley farmers (some of my best friends . . .) or even Governor Jerry Brown, droll disco-era anachronism that he is, but because the episode presents an excellent illustration of the one fundamental social reality that cannot be legislated away or buried under an avalanche of government-accounting shenanigans and loan guarantees or brought to heel by politicians no matter how hard the ladies and gentlemen in Sacramento and Washington stamp their little feet: scarcity.

California has X amount of water at its disposal, and it has politicians in charge of overseeing how it gets divvied up. Which politicians? The same ones responsible for the current sorry state of California’s water infrastructure, of course. Should be a hoot.

The main claimants are these: Farmers, who by some estimates consume about 80 percent of the water used in California. Agriculture is a relatively small component of California’s large and diverse economy, but California nonetheless accounts for a large share of the nation’s agricultural output. Both of those things are, in a sense, the good news: If market-rate water costs were imposed on California farms, as they should be, then any higher costs could be passed along — not only to consumers, but up and down the supply chain — in a very large global market, where they should be digested more easily. People with lawns, including people with the very large and complex lawns known as golf courses, who account for an extraordinary amount of California’s non-agricultural water use.

In arid Southern California, and especially in the golf-loving desert resort communities of the Coachella Valley, keeping the grass green often accounts for more than half — and sometimes much more than half — of residential water use. How thirsty is grass? Consider that 200 square feet of California swimming pool uses less water over the course of three years than does 200 square feet of California lawn. (Yes, I know: volume versus surface area, but the math still works out.) And about half of the water used on lawns is lost to the wind, because sprinkler systems spray water in the air rather than on the grass. The goddamned delta smelt, a.k.a. “the world’s most useless fish,” whose comfort and happiness demanded the dumping of some 300 billion gallons of fresh water into the San Francisco Bay — and thence into the Pacific Ocean — in 2009 and 2010. That’s enough fresh water to cover the state of New Jersey nearly three inches deep. The smelt’s delicious friend, the salmon, is a co-claimant.

Governor Brown’s response is a textbook example of the central planner’s fatal conceit. He issued an executive order imposing 25 percent cuts on the state’s 400 local water agencies, which supply about 90 percent of Californians’ water but do not supply the farms that consume most of the state’s water. That 25 percent figure looks bold and authoritative, but when was the last time you saw the production, consumption, or price of a scarce commodity in the real world move by such neat increments?

When something disturbs the equilibrium of the world’s oil markets — which happens every single day — then the markets make minuscule, complex adjustments, and continue to make them around the clock — the markets never sleep — with producers and consumers both modifying their behaviors to accommodate the new economic realities as they emerge. Amazingly (but not amazingly), this happens with no Governor Brown in charge of the process. You’ve never seen the price of pork bellies or soybeans simply jump 25 percent and stay there indefinitely, or rice or wheat consumption fall by neat round numbers. But Governor Brown imagines that he can rationally manage by fiat the consumption of the most important commodity in the world’s seventh-largest economy. Good luck with that. Governor Brown’s solution/non-solution has been criticized for failing to impose serious new restrictions on farmers. There are several reasons for this: First, Governor Brown probably does not want to reinforce the impression that his administration is an instantiation of insular coastal soy-latte progressivism staffed by feckless urbanites of the sort who believe that grapes come from Trader Joe’s and who are therefore willing to see the state’s rural interior gutted; second, and to give a decent if often foolish man proper credit, Governor Brown probably is not much inclined to impose heavy new burdens on the state’s relatively poor and downwardly mobile agricultural corridor, and to see large numbers of the poorest Californians thrown out of work; third, farmers already have seen their water allowances docked.

Among tragedies of the commons, California’s water situation is Hamlet, a monumental work fascinating for all of the possibilities it raises and not given to easy resolution. But even given the underlying complications, from the hydrological to the legal (California’s system of water rights is remarkably complex), the fundamental problem is that nobody knows what a gallon of water in California costs. Water allocations are made mainly through politics rather than through markets, with the state’s legal regime explicitly privileging some water uses over others. There are two possible ways to allocate water in California: The people in Sacramento, Governor Brown prominent among them, can pick and choose who gets what, with all of the political shenanigans, cronyism, inefficiency, and corruption that brings. Or Californians can get their water the same way they get most everything else they need and value: by buying it on the open market.

This is an excellent opportunity to apply the cap-and-trade model that many progressives favor when it comes to carbon dioxide emissions, with an important difference: This deals with real, physical scarcity, not artificial scarcity created by regulation. (Incidentally, it here bears repeating that notwithstanding the inaccurate proclamations of Governor Brown and President Obama, California’s drought almost certainly is not the result of global warming; the climate models supporting the scientific consensus on global warming predict wetter winters for California, not the drier winters that have produced the current crisis. California’s climate is complex, but a great deal of it is dominated by desert and arid to semi-arid Mediterranean conditions.)

As the economist Alex Tabarrok puts it: “California has plenty of water — just not enough to satisfy every possible use of water that people can imagine when the price is close to zero.” As noted, the water-rights picture is complicated, but it is not so complicated that California could not 1) calculate how much water is available for consumption; 2) subtract preexisting claims; 3) auction off the remainder, with holders of preexisting water rights allowed to enter that market and trade their claims for money.

A gallon of water used to green up a lawn in Burbank and a gallon of water used to maintain a golf course in Palm Springs and a gallon of water used to irrigate almonds in Chico would be — and should be — on exactly the same economic and political footing. As Professor Tabarrok notes, San Diego residents use about twice as much water per capita as do residents of Sydney, a city whose climate is comparably arid and whose residents are comparably well-off, a situation that is almost certainly related to the fact that San Diegans pay about one half of a cent per gallon for household water. Governor Brown wants to be the man who decides what is and is not a good use of California’s water; in defending his decision not to impose further restrictions on farmers, he said: “They’re not watering their lawn or taking long showers. They’re providing most of the fruits and vegetables of America and a significant part of the world.” That is no doubt true. But the only way to discover what that is really worth — not in sentimental, good-enough-for-government-work terms, but in cold-eyed dollar terms — is to allow real prices for water to emerge. My own suspicion is that California’s almonds and avocados will remain in high demand when the water used in their cultivation is properly priced on an open market. Relatively small gains in the efficiency of agricultural irrigation would go a long way toward helping California live with the water it has. So would converting a few million suburban lawns to desert landscaping. So would ceasing to dedicate large amounts of fresh water to political projects of dubious value. Which to choose? Before that question can be answered, there is the prior question: “How to choose who chooses?” The rational answer is that water consumers should choose how water gets used, provided that each of them pays the real price for his choices. California’s largest crop is grass — by which I do not mean marijuana, but lawns. Until the day comes when a ton of fresh-cut grass fetches a higher price than a ton of avocados, my guess is that California’s farmers will do fine under a market-based water regime. But maybe not. Everyone has his own favorite drought bugaboo: suburban lawns, almond farms, the delta smelt, golf courses, illegal marijuana cultivation, etc.

Given enough time, somebody will figure out a way to blame this all on the Koch brothers, illegal immigrants, or the Federal Reserve. But the fact is that nobody knows — nobody can know — what the best use of any given gallon of water in California is. Californians can put their money where their parched mouths are, or they can let Governor Brown play Ceres-on-the-Bay, deciding which crops grow and which do not. Whether the commodity is water or education or health care, if you care about something, put a price tag on it. You can’t afford for it to be cheap, and you sure as hell can’t afford for it to be free.*** Now look at the legislative issues in your state to determine what similar actions are being taken. While you’re at it, how does your state compare to the others fiscally?

Is Your State on the Path to Prosperity or the Poorhouse?

States across the U.S. share the common goal of economic prosperity, but they differ vastly in how they set out to achieve it. The latest edition of the American Legislative Exchange Council- Arthur Laffer Rich States, Poor States competitiveness index examines policies that maximize economic growth and assesses which states are on the path to prosperity and which are more likely headed to the poorhouse.
For the eighth consecutive year, Utah has remained #1. Rounding out the top 10 for 2014 are: North Dakota, Indiana, North Carolina, Arizona, Idaho, Georgia, Wyoming, South Dakota and Nevada. At the other end of the spectrum, New York obtained the lowest ranking at #50. Working backward, Vermont ranked 49, preceded by Minnesota, Connecticut, New Jersey, Oregon, California, Montana, Maine, and Pennsylvania.

The rankings are a combination of past economic performance (economic growth, net migration and employment) and forward-looking policy variables such as taxes, debt, and the presence of right-to-work laws.

States at the top earned their rankings by implementing policies that energized their economies, attracted businesses and entrepreneurs, and expanded employment and income. So what are these energizing policies that could help states at the bottom boost their economies? Based on both past and present rankings, low income taxes and right-to-work laws provide the most bang for the buck.

Analysis provided alongside last year’s rankings showed economic growth in the nine states with no personal income tax averaged 62 percent from 2003 to 2013 while the nine highest income tax states grew by an average of only 47 percent. And states with no income tax experienced twice the rate of population growth (14 percent) as the highest income tax states (7 percent).

The growth gap between high-tax and low-tax states translates into more than a $100 billion in lost annual output for big, bottom-ranking states like California (#44) and New York (#50). And while it may seem counterintuitive, tax revenue increased substantially more in the nine states with no income tax than it did in the highest income tax states. Lower taxes produce a larger economic pie, and a larger pie means bigger slices for all—including the state tax revenue.

States with right-to-work laws that prevent workers from being coerced to pay union dues attract more businesses and workers, which in turn grow their economies. Compared to forced-union states, right-to-work states experienced twice the rate of employment growth from 2003–2013, one-quarter higher income growth, and one-third greater output growth. What’s more, right-to-work states experienced a 3 percent increase in net migration, while forced-union states suffered a 1 percent loss in net migration.

Competition is inherent in any ranking, and competition among the states is a good thing. Fortunately for states at the bottom of the rankings, research and analysis such as Rich States, Poor States provides an open playbook for prosperity.

Denise Simon