The Economics of Water

Water is the fundamental pillar of Life.  All life requires water, thus making its demand extraordinary high.  All living things are in constant competition for fresh, drinkable, healthy water.  Humans are no different.

Most of our access to this necessity of life is provided by government.  Local governments are typically in charge of the water supply and distribution.  While there are still people that get their water from natural springs, it is no longer the norm, and city water is much more common.  Most governments erect a water monopoly, “The Water Company” as it is known.  This means that there is little to no competition in the clean, healthy water distribution industry.

The reason behind government control of the water supply is that since it is such an important part of our daily life, and required for all life, all people should have access to affordable, healthy water.  The system works until there is a water shortage.  This is when the government steps in with brute force to “save the day”.

When there is not enough water for normal consumption, there needs to be a way to tell people to use less water.  There are two ways to do this; one peaceful and the other forceful.

Peaceful Resolution

The Free Market provides the best resolution to our water problem.  Since the supply of water has dropped, and demand has remained the same, the supply/demand equation must be rebalanced with a higher price.  This natural market feedback is called the “pricing mechanism” and is essential in a healthy, strong economy.

When the price rises, everyone knows that something has changed, and habits must change to compensate.  Instead of a 15 minute shower, it’s now 5 minutes because the price of water has increased.  Life goes on, and humans are able to adapt.  Nobody from the Ministry of Water needed to go door to door and tell you that there is a drought.  The rising price of water is sending the Free Market signals needed to better manage the water supply.  Hopefully the drought is temporary, but until then water will be used more carefully because of the higher price.

If the drought is not temporary, the high prices for water would draw the attention of businessmen.  Lured by the possibility of high profits, competition is created in the fresh, drinkable water industry.  Without the new higher prices, the risk/reward ratio for a businessman to open a new drinking water company may seem too low, and more risky when water prices are low.  All of the new competition applies downward pressure on water prices which helps the average person, and especially the lower class where high water prices hurt the most.

Forceful Resolution

The other way to attempt to solve our water shortage problem is by force.  This is how government attempts to solve the problem (and every other problem for that matter).  Only on certain days are you allowed to wash your car or water you lawn.  Businesses that use large amounts of water can no longer obtain the amounts required to stay open, and are forced to close down.  Showering may become less frequent not because you have chosen to save money and go without, but because you are being forced to go without by the Central Water Planners.

Even if you want to pay extra for water, you cannot.  It is not uncommon for once friendly neighbors to drive around at night spying on your illegal lawn watering habits.  Everyone feels that others should suffer as much as they are, and are willing to tell the authorities if you are being a bad, water-wasting citizen.

Once you are classified as a water-waster, you could be tightly monitored and fined.  All of this because you wanted to water you garden.  Don’t mind that you could be growing your own food, citizen, this is a national security measure.  Please turn off your faucet.

Since the price of water is not allowed to rise and reflect the water shortage, the people are willing to continue to use as much water as normal because it doesn’t cost any more.  They’ll sneak it, and create a black-market for water.  If people want water, they’ll get water.

This doesn’t solve our water crisis!  Water is the same price, and the usage hasn’t dropped by much, if any.  Until it affects people’s wallets, the water shortage will continue.  All the government can do to solve the problem is to use the force of law, fines, and eventually the gun to stop “free people” from using this colorless, odorless, flavorless miracle.


Using the pricing mechanism, the Free Market can efficiently manage the shrinking supply of water.  When the price of water rises, you skip giving Rover the Dog a daily bath, and give one to yourself instead.  This newly found water consciousness keeps prices down by temporarily removing some demand from the system.  The abnormally low supply of water is now balanced out in the equation by lower than normal demand, and the price can remain fairly stable.  No head-bashing or leg-breaking required.

Let’s give Freedom a chance.  I trust that we, as a free society, can peacefully solve life’s problems without resorting to the evils of force.  Using force in the name of charity is no moral virtue.



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  • Zane

    Makes a lot of sense. Glad you pointed out that the forceful method doesn't even solve the issue, despite the commonly held belief. Maybe one day governments will give peace a chance!

  • Zach

    Good article, Ashe. Very unique example. This does a great job of tying together the issues of supply/demand, the free market, and the use of force.