Saturday, June 7, 2008

California developments halted over water

The NYT has an article about something I know little about despite its huge significance: the political economy of water. In California, for the first time, "water officials" are denying requests for developers' projects unless they can prove adequate water resources for the next 20 years. Presumably this only affects new developments, while in-fill projects are waived through because their water resources have already been guaranteed, but the article doesn't say. While the knee-jerk libertarian reaction might be disgust, I think the markets are probably ruined by the government, and current pricing isn't what it would be in a market setting. UCLA professor Edward Leamer corroborates this, saying "[w]ater has been seriously under-priced in California." So, the plan would have an effect similar to a liberalization: increased barriers on sprawling development. But obviously it's only a nudge in the right direction, and is a woefully inadequate mechanism compared to outright liberalization of water resources. To drive home this point, the last paragraph of the article (always a good place to look in NYT articles to find out what the author really thinks) mentions that despite agriculture's outsized consumption of water, it "is being asked to contribute little to conservation under the governor’s plans."

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