For years it has aggravated me that politicians claim the need to make command and control decisions on water conservation, and they run advertisements trying to shame me for my water use, all while the state government has subsidized some of the cheapest water in the country.
This is crazy! If we are really drawing down reservoirs like Lake Mead and Lake Powell as well as underground aquafers, then raise the price until demand matches a sustainable supply level. Duh.
But water is one of those commodities like gasoline that politicians love to meddle with prices for populist ends. So we continue to have cheap water, and as a result we have 1) no incentive to find new sources and 2) no incentive to conserve. As I pointed out in the earlier post linked above, we here in the desert have water less than half the price of Seattle!. All while the government pays farmers over $100 million a year to grow water-hungry crops in the Arizona desert, using price-subsidized water.
Well, miracle of miracles, and for the first time in my experience, the AZ Republic actually published an article focusing on the absurdity of water subsidies. The article focuses narrowly on the cross-subsidy of our municipal power and water authority, charging higher electric rates to keep water rates lower.
Unfortunately, this is only a small part of the effective subsidy, for like most of the economically ignorant the Republic focuses only on the difference between the current price and cost (which is about $33 million). The real subsidy is the difference between the current price and the true market clearing price at a sustainable supply rate (sustainability defined here as the rate that maintains reservoir, both above and below the ground, levels constant or rising over the long term.) This is a MUCH larger number than $33 million.