Sunday, December 31, 2006

The easier, feasible alternative to Australia's water scarcity

Australia has instituted a complicated rationing system for punishing "excessive" water use. Large users won't have their water completely shut off, but you'll get enough pressure only for two liters per minute. A rather ridiculous statement in the article is, "The pressure in the taps will be barely enough for a glass to be filled." To be filled in what amount of time? A drop per minute can fill a glass -- it would take a very long time, of course, but it would eventually occur.

Had Australia's national officials merely read some Mises, they'd have known to use a price system instead: charge a certain amount of dollars per 1000 gallons. The meters are already there, so it would only require a computerized system to calculate a bill as opposed to an arbitrary figure of "excess." This way people who limit their water usage won't pay anywhere near as much as those who wash their cars, water their lawns and take frequent baths. The latter will still have the freedom to use all the water they want; they'll just pay for it.

Fundamentally, prices are information about an item's relative scarcity (at the margin, to be more specific), and they are far more fair than rationing because they allow certain people to use more of a resource if they are willing to trade more for it. This is evident today in New York City's practice of rent control, but it was already exemplified in the 1970s when price controls on gasoline were implemented: government mandated that everyone have the same chance at the same tiny, limited quantity of the resource, which only penalized those who needed more (for whatever reason) and were willing to pay more for it. Perhaps someone needs to make an emergency trek across the state, but if his gas tank is empty and it's not his day to fill up, he's out of luck. Perhaps a father wants to live in Manhattan and save time on his daily commute that he could then spend with his family. However, he must compete with others for housing made more scarce by rest-stabilized units. In fact, though he's willing to pay more for the convenience, rent control policies immediately disqualify him if he makes too much.

Worse, when government forcibly prevents higher prices, it prevents entrepreneurs from pursuing new ways of supplying the resource. "Rent stabilization" supposedly helps less wealthy individuals to afford expensive real estate (while allowing others to take advantage of the loopholes), but it creates an artificial shortage by discouraging others from creating new housing, making the situation even more desperate. Price controls on gasoline discourage new drilling, the pursuit of more efficient methods of refining and distribution, alternative energy sources, and true conservation.

I wonder if any Australian homeowners have already experienced a small, manageable fire that they tried putting out with a garden hose, only to have their water pressure reduced later (or in the middle?). Such an economic calculation becomes easy, almost instinctive, when prices are left free to adjust: you may not spend $20 to wash your car, but you will to put out a brush fire in your yard.

The drought has reduced Australia's agricultural output, pushing wheat prices to 10-year highs. How about this for a novel solution: if the U.S. and state governments didn't throw away $5 billion a year in subsidies (a conservative figure excluding the full range of tax breaks) so the ethanol industry so it could produce a mere 5 billion gallons, that's $5 billion American taxpayers would save, and the land could be used to grow wheat. In the end, everyone would benefit. Even if Australians didn't import American wheat, the additional production would help ease prices on the global market for everyone. Meanwhile, Americans wouldn't have tax dollars stolen from them and subsequently given to ethanol producers, nor would they pay such high prices at the pump (in no small part from the mandated switch to ethanol).

Incidentally, while some doomsayers are too quick to blame global warming borne of human activity, Barrie Hunt, a climate researcher with the Australian government has said the drought is a natural, cyclical phenomenon. In fact, at four years old, the current drought seems bad but is far from the longest:
"The longest sequence was 14 years in Queensland-New South Wales, 11 in the south-east and 10 in the south-west."

He said that each of those significant dry spells occurred at random times and had an unpredictable duration.

For example, the Queensland-NSW area went 800 years without a drought longer than eight years, "but there is another period of 462 years where you get five of these", he said.

"When people talk about it as a 1,000-year drought, they haven't got the information. They don't understand that according to natural variability we could get another one in 50 years or it might be another 800 years, and there's no way of predicting it," Hunt said.

However, he did not deny global warming risked raising Australia's temperatures, which CSIRO predicts will rise up to two degrees Celsius (3.6 Fahrenheit) by 2030 and six degrees Celsius (10.8 Fahrenheit) by 2070.
I suspect Hunt is at odds with the rest of CSIRO, which must be using one hell of a pessimistic model. Two degrees C in under three decades is a lot, even for Australia. But recall that only a few decades ago that scientists switched to global warming from the bogeyman of global cooling, also based on their climate models.

The most important quality to have is Hunt's skepticism, particularly his refusal to blame a single thing for what is a complex, unpredictable phenomenon. Like the discovery a few years ago of "global warming" 1200 years ago, based on growth rings of very old trees, he's going back hundreds of years to get the big picture. What was responsible for "climate warming" prior to two centuries ago?


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