The Wonders of Water Pricing

Over at Marginal Revolution, George Mason University economist Alex Tabarrok argues that California’s current water woes are best understood as a direct consequence of the unbelievably low prices California’s utilities charge for water. The chief beneficiaries of these low prices aren’t households, which spend a negligible share of their total income on water, but rather agricultural users, which (per a February article in The Economist, which Tabarrok cites) consume four-fifths of California’s water while accounting for 2 percent of the state’s GDP. Lo and behold, California farmers are using extremely cheap water to cultivate low-value but extremely water-intensive crops, like rice and alfalfa. Moreover, a large share (43 percent) of California farms use inefficient irrigation methods, which makes perfect sense when you consider that these farms aren’t bearing the cost of their profligate water usage. Imposing sensible pricing would swiftly bring these wasteful practices to an end, and it would likely force a shift to other crops that are a better fit for California’s semiarid regions, or it would force some farms out of production entirely. Yet households would be almost entirely unaffected, and low- and middle-income households could easily be shielded from what would likely be a pretty minimal price hike. 

Tabarrok’s discussion of water policy reminds me of another area where California agribusiness interests hold great sway, namely immigration policy. Many California farmers insist that their farms couldn’t possibly survive paying water prices that reflect the underlying cost of providing a reliable water supply. Implicitly, they’re arguing that it is unfair to expect them to use water more efficiently or, if they simply can’t adapt, to find some other business. Similarly, some farmers (and allies) argue that without a readily-available supply of less-skilled immigrant laborers, they’d have no choice but to rethink or even abandon their labor-intensive business models. Those of us who favor limiting less-skilled immigration reply by saying that while an influx of less-skilled immigrants undoubtedly benefits agricultural employers seeking to suppress wage growth, it poses a number of challenges for society as a whole. If farmers had to bear the costs associated with ensuring that their immigrant laborers, and for that matter the children of their immigrant laborers, were able to meet their basic needs and become full participants in American society, they might reconsider the wisdom of sticking with labor-intensive agricultural practices. (I should note that while Tabarrok and I see eye to eye on the question of water pricing, I’m confident that we disagree on less-skilled immigration.)

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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