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?
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.