An editorial in Barron’s argues that hoarding water is “unfair” and the resource should be managed like oil, and “if water were traded like vegetables, if markets set the price for this scarce resource” then people can make money. However, water and oil do not mix, and selling water to drought stricken regions isn’t an adequate remedy to the problem, since smarter policies to manage water can solve many of the problems in areas where water is scarce. The Barron’s editorial offers an example of smart policy to better mange water: “subsidized lower-margin crops . . . should be left to farmers in other regions.” Why waste water on crops that can be grown in more suitable areas where water is plentiful?

However, I disagree that free markets and speculators should be managing local water resources (including the Great Lakes). I believe local governments should be managing water resources. People are often promised that by selling their local natural resources to outsiders, they will profit. However, the paradigm has been proven false many times before, because corporations profit and often give very little back to the communities that they extract the resources from.  What happens when those water resources are degraded or tapped?  What will the remedies be then?  Even the Great Lakes shouldn’t be though of as an infinite resource.

The policy for managing water has always been regionally specific. With water rights, especially when there are many potential owners, there is a duty of reasonable use.  If we all used natural resources reasonably, the world would be a much better place, and allowing other states such as Georgia, Florida, or Texas to draw water from the Great Lakes would be a unreasonable for several reasons.  First, individuals and governments always have a duty to use water reasonably, and in America, potable water is not thought of as a finite resource, even in some states where drought persists. However, recent drought conditions in states such as North Carolina has changed behaviors and local government policies.

Second, local governments should be developing policy frameworks to deal with water issues, because regions know what’s best for their communities. A lack of initiative and planning results in a lack of water. However, some regions have implemented successful methods to fight drought. From NPR:

But one community has not had to worry. Nearly two decades ago, Clayton County began building a unique water treatment system that includes wetlands and reservoirs.

“I like to say it’s raining everyday in Clayton County because we’re putting right now about 10 million gallons back in our water supply,” says Mike Thomas, general manager of the Clayton County Water Authority.

Thomas says the reservoirs here are full and have never been in danger of being too low. That’s because back in the 1980s, folks realized there wasn’t enough water to support the growth, so they decided to build a system of wetlands and reservoirs that would help them save water.

This case study from Clayton County, Georgia is important, because it illustrates how early planning and imaginative progressive policies are remedies to low water availability.

Exporting water from the Great Lakes region to thirsty areas such as Texas will do nothing to solve their water problems. These regions should be implementing smart policy initiatives. Just like our energy woes highlighted in the current energy debate (i.e., offshore drilling), we merely treat the symptoms of a chronic problem without curing or eradicating it with smart progressive policies. From Barron’s:

LIKE SPECULATION AND PRICE-GOUGING, HOARDING HAS A BAD name among economic illiterates, and for the same reasons: Hoarding is denounced as antisocial, unfair, vicious and that old standby, mean-spirited. As we have for speculation and price-gouging, we now put in a good word for hoarding. It helps make markets work for the benefit of all.

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When food is scarce, those who have stored it in granaries can sell it for the new higher price that scarcity demands. The hoarders get richer — and it will be a just compensation for their investment — but not more popular. As with speculation and price-gouging, hoarding is a chancy business because hoarders must deal with resentful customers.

The problem applies to other basic commodities, such as water. (Did you think we were going to discuss oil again? The lessons are the same.)

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Owners and consumers of resources traded in markets know how much to hoard and how much to sell, and when. Speculators participate to set the right price, despite humans’ general inability to predict weather and other important future events.

World oil markets, however much maligned, work well, compared to the water market, which is governed by political horse-trading.

Trade can enrich both sides of a bargain, but not if prices fail to reflect supply and demand. Water deals, if any, should reflect prices set in free markets.

IMAGE provided by the SeaWiFS Project, NASA/Goddard Space Flight Center, and ORBIMAGE

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