Babbling Little Girls? Or Markets?

By Doug French
  • Monday, September 1, 2003

By now, Las Vegas homeowners have received their August bills from the Las Vegas Valley Water District. The Water District has divided its customers into water groups—A through F. Included with the bill is a flashy color-coded glossy card that lists when a homeowner may water his or her lawn, depending on the time of year.

If a product is scarce, for whatever reason, and demand continues unabated, what should a supplier do? Divide their customers into groups? Tell them when they can purchase and use the product based upon which group some bureaucrat has selected? Run radio ads with little girls babbling about how hot it is, and that customers should stop purchasing so much of the product, so that the kids can have some when they grow up? Threaten to assess fines to people who use the product in the afternoon? What nonsense.

Instead, why not use the price system? This is America, after all. But that doesn’t come natural to a government agency, where law usually regulates rates. In fact, the amount the Water District charges for its product, it notes on its web site, “can cover only the costs of water delivery and the maintenance and building of facilities.” Despite its not-for-profit mission, the Water District generates an enviable bottom line: $64 million in 2002, after $77.6 million in 2001. Not bad for an enterprise directed by Clark County commissioners. Of course, it’s hard to screw up a monopoly.

As with other commodities, the price of water should rise and fall based upon market conditions—including weather. Prices serve as an immensely useful signal in the marketplace. If the price of a good or commodity increases, the market is telling other suppliers that more of that commodity is needed. The market is also telling buyers of that commodity that it is becoming scarce, and that they should cut back their use.

At the same time, profits provide incentives for businesses to innovate and find new ways to serve their customers, both now and in the future. No for-profit enterprise would gamble with its future by having only one supplier of the good on which it and its shareholders depend. Thus entrepreneurs continually look for more efficient ways to serve their customers; if they don’t, their enterprises are doomed.

The recent East Coast blackout illustrated our problem. Although the supply side of the energy business has been deregulated, the infrastructure that brings energy to the consumer has not. On MSNBC the night of the blackout, Fred L. Smith Jr., president of the Competitive Enterprise Institute, made the key point: Until the energy grid (infrastructure) is put into private hands, the incentives will never be in place to improve the delivery system. And more blackouts will occur.

There is water all over the world. And for the right price, any or all of it is available. Why panic over Lake Mead? Get water somewhere else. Besides, the lake may not be there forever. The Colorado River (which feeds Lake Mead), as Marc Reisner wrote in Cadillac Desert: The American West and Its Disappearing Water, “… is the most legislated, most debated and most litigated river in the entire world. It also has more people, more industry, and a more significant economy dependent on it than any comparable river in the world.”

And the fighting continues. The Associated Press reports that four bickering Southern California agencies are holding up a “75-year water sharing deal long sought by the Interior Department and the six other Western states that share the Colorado…” This water fight—raging for over 100 years—will likely continue for another 100.

If the problem were left to private enterprise, however, entrepreneurs would be piping or trucking water to Southern Nevada from wherever they could get it for the cheapest price. But a not-for-profit government agency doesn’t have any incentive to seek other suppliers. It can chug along, gradually raising rates, using command and control tactics to dispense its product and earn a smooth $60 to $70 million year to fatten the fiefdom of management. Meanwhile, homeowners are made to feel guilty if they stay in the shower an extra minute, or fill up their birdbaths.

Too many people and too much commerce in southern Nevada are dependent upon a profit-heedless agency to provide water. Only with private enterprise can we be sure that, in the future, kids in Southern Nevada will have water to drink.

Doug French is executive vice president of a Southern Nevada bank and a policy fellow of the Nevada Policy Research Institute.

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