Econ & Psych 101 and the Overconsumption of Water

We’re having a “gas crisis.” Have you noticed the long lines around the block of drivers waiting in line to fill their gas tanks? What? No lines? There were long lines in the 1970’s during the Arab-Israeli Conflict when OPEC cut off our supply of gas. Why no long lines today?

Thomas Sowell, author of “Basic Economics: A Citizen’s Guide to the Economy” states that the federal government instituted price controls in order to keep the price of gasoline artificially low to please the public. The best response, according to Econ 101, would have been to let prices rise, giving oil companies an incentive to produce more and consumers an incentive to conserve. Predictably, the artificially depressed pump prices imposed during the oil crisis of 1973 — which stayed in place in various iterations through 1980 — brought about lines at gas stations and an artificial shortage of gas.

Fortunately, this time the gas crisis was managed by people who remembered the lessons of Econ 101 and the oil crisis of 1973. The price of gas is subjectively abhorrent – this opinion from someone who paid 35¢ a gallon when he was in college. Nevertheless, in true capitalist fashion, we let the marketplace establish the price for gasoline and we are able to get our tanks filled without lines (except at Costco). Yes, there are people struggling to afford gasoline and rent increases and college tuition debt. How to help them is beyond the scope of this article; so, I would like to segue to a discussion of the “water crisis” which is the scope of this article.

In 2014, I wrote an article for our blog titled “We do not have a Water Crisis” in which I discussed how the limited availability of water rises to crisis stage when the water is incorrectly priced for the supply available. This was an attempt to apply our “gas crisis” experience to the problem. The result of my article was resounding silence and eight years later we still have a “water crisis” that’s even more of a problem.

In my hometown, ignoring the fixed charge which is not consumption related, the average single-family dwelling is charged $29.18 for the first 12,800 gallons of water on a bi-monthly basis. On the internet, I found three bottles of Arrowhead water in 5-gallon bottles for $13.48 or roughly 90¢ per gallon. Ignoring the time and expense of going to the store to buy the water instead of just turning on the tap, the same amount of water that my hometown charges $29.18 would cost over $760 if bought in 5-gallon bottles. So, what’s my point? Even if we’re in a “water crisis,” the price of domestic water is nowhere near what we are willing to pay for water that we want.

So, back to Econ 101, what is the effect of pricing a commodity below its intrinsic value? Consumers won’t value the product, and many will use more than “their share” because they can. Notice how I’ve brought Psych 101 into the picture of water conservation. I discussed this in another blog article in 2014 titled “Water Conservation and the Commons Dilemma” where I made the case that it is very hard to get people to think about the general “good” to society rather than their own personal “good.” Think about “overfishing”, “not recycling”, “air pollution” and the subject of this article, “overconsumption of water.”

“But I’m not overconsuming water, I’m just keeping my grass from dying.” If there is value to you in watering your landscaping, I have no problem with that as long as you are willing to pay accordingly. The average person uses 90 gallons of water that should be drinkable per day. For my hometown, the basic water price includes enough drinkable water for a household of 2.4 people. The water rate for the next two tiers is scheduled to go up to $6.85 per 1K gallons in the near future or $0.00685 per gallon. How does that even approach an incentive to conserve?

“Our town can’t raise the water rates too high because we’ll be out-of-step with our neighboring towns.” Now, we’re getting to the real problem. Just like with the 1973 gasoline rationing, “We don’t want to upset the public. Therefore, we will hire additional staff to police the watering restrictions that we impose and try to get neighbors to squeal on neighbors.” This sounds like a slippery slope to something I don’t think that I will like.

“Prop 4 and all the mini-prop 4s that followed require that we not charge more than our cost to supply the water.” Ah ha, the trump card. The law makes it illegal to use higher prices to discourage water consumption, so when we run out of water it’s the fault of the law not management’s fault. Years ago, we proposed false alarm charges for police calls that were related to equipment errors. The charge for the first several false alarms was the cost to have officers respond to the alarm. However, the charge for additional false alarms quickly escalated because a “fine” was imposed in addition to the actual cost to discourage false alarms.

Following that approach, cities could determine what level of water consumption is reasonable and impose a fine on additional consumption. No “water police” would have to be hired and neighbors would not have to report neighbors. The fine could escalate with the excess water consumption thereby permitting those who want to water their landscaping to do so if they’re willing to pay the increased price of water. This is an approach that applies the lessons of Econ 101 and maintains our system of capitalism.

Now that you know a better approach to solving the “water crisis,” it’s time to bring in another lesson from Psych 101. Human beings are herd animals. One or more leaders respected by “the herd” would have to adopt the above recommendations first. Consequently, even if you know that there is a better solution to the “water crisis,” most will have to wait until leaders emerges to validate a different approach. Okay! Where are you? I’m waiting!!