I while back, I wrote that I could fix our Arizona water "shortage" in about 5 minutes. I pointed out that we in Phoenix have some of the cheapest water in the country, and if water is really in short supply, it is nuts to send consumers a pricing signal that says it is plentiful.
David Zetland (via Lynne Keisling) follows up on the same theme:
The real problem is that the price of water in California, as in most
of America, has virtually nothing to do with supply and demand.
Although water is distributed by public and private monopolies that
could easily charge high prices, municipalities and regulators set
prices that are as low as possible. Underpriced water sends the wrong
signal to the people using it: It tells them not to worry about how
much they use.
Unfortunately, water is one of those political pandering commodities. Municipal and state authorities like to ingratiate themselves with the public by keeping water prices low. At the same time, their political power is enhanced if shortages are handled through government rationing rather than market forces, since politicians get to make the rationing decision -- just think of all those constituencies who will pour in campaign donations to try to get special rights to water from the water rationers.