We’ve been hearing about the water shortage all year. If you’ve watched any of the Tour of California Bike Race, you may have seen them pass a reservoir with vastly less water than is typical this time of year. Blogger Scott Alexander decided to do an assessment of the water shortage to find if there was a simple solution. First, he figured out how California uses its water and created this helpful graph in millions of acre-feet (MAF):He then assessed home water consumption:

All urban water consumption totals 9 million acre-feet. Of those, 2.4 million are for commercial and industrial institutions, 3.8 million are for lawns, and 2.8 million are personal water use by average citizens in their houses. In case you’re wondering about this latter group, by my calculations all water faucets use 0.5 million, all toilets use 0.9 million, all showers use 0.5 million, leaks lose 0.3 million, and the remaining 0.6 million covers everything else – washing machines, dishwashers, et cetera.

In comparison, alfalfa farming alone uses an amazing 5.3 million acre-feet, which means that if:

…all the savings from water rationing amounted to 20% of our residential water use, then that equals about 0.5 MAF, which is about 10% of the water used to irrigate alfalfa. The California alfalfa industry makes a total of $860 million worth of alfalfa hay per year. So if you calculate it out, a California resident who wants to spend her fair share of money to solve the water crisis without worrying about cutting back could do it by paying the alfalfa industry $2 to not grow $2 worth of alfalfa, thus saving as much water as if she very carefully rationed her own use.

His conclusion was that it would be much more efficient and cost-effective to pay alfalfa farmers $860 million to not grow alfalfa, since they are the largest crop by water consumption than to try to get consumers to water every galllon

This is the type of “solution” I expect from Alexander. He’s a brilliant thinker and entertaining writer, but his instincts about economics and government action are not always thorough or on the mark.

And while I don’t believe Alexander was completely sold on his own solution, David Friedman (Milton’s son), offers a much more elegant solution in a comment on the blog by simply allowing the price of water to rise and letting people and industry adjust accordingly:

People who imagine that pricing water means the poor going thirsty have a wildly inaccurate picture of water consumption. Almost none of it goes for drinking.

Suppose the price of water increases enough so that nobody grows alfalfa in California. That means that the 5.3 million acre feet currently used for the purpose have increased in price enough to eliminate the profit currently made on revenue of $860 million. Call that an increase of $100 an acre foot, to estimate high… [or about] one cent per 30 gallons.

He continues:

In a previous post, I calculated a very rough figure of a price increase of about .03 cents per gallon to drive out the alfalfa farmers. That’s almost certainly much too high, since if you actually increase the price the result will be to make people economize on water usage in whatever are the least expensive ways, which is unlikely to be by abolishing one crop—call it .01 cent/gallon for a simple back of the envelope guess, I suspect still high.

Then, he brings it all together:

Drinking water is a necessity. As per my earlier posts, the price increase needed to deal with the California shortage would probably be under .01 cents/gallon. Do you think that would result in people dying of thirst?

You might consider that the main purpose of federal agriculture policy ever since the New Deal has been to hold up the price of farm products in order to buy farm votes, hence to increase the cost of food—by a lot more than the equivalent of raising the cost of water by $.0001/gallon.

If you don’t believe my figures, try a price of a penny a gallon, which also wouldn’t result in people dying of thirst. That comes to a bit over $3000/acre foot, or $3 billion/million acre feet, or $14 billion for the amount of water used to grow alfalfa. Compare that to a total alfalfa revenue of $860 million.

Treating water as a necessity on the assumption it is being drunk is a very natural mistake, but in the modern context it’s complete nonsense.

Since water is essential for life, people assume it must be a government monopoly, lest the poor go thirsty. A simple analysis of this situation shows this to be a laughably ridiculous worry. The vast majority of water is used for anything but human consumption. A complete restructuring of water use can be achieved with price changes of a fraction of a penny per gallon, unlikely to affect even the most meager of pocketbooks.

Increase the cost of water almost imperceptibly for the average person and you’ve solved the water crisis.