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Advancing Austrian Economics, Liberty, and Peace

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Making Economic Sense
by Murray Rothbard
(Contents by Publication Date)

Chapter 27
The Water Is Not Running

Most people agree that government is generally less efficient than private enterprise, but it is little realized that the difference goes far beyond efficiency. For one thing, there is a crucial difference in attitude toward the consumer. Private business firms are constantly courting the consumer, always eager to increase the sales of their products. So insistent is that courtship that business advertising is often criticized by liberal aesthetes and intellectuals as strident and unmannerly.

But government, unlike private enterprise, is not in the business of seeking profits or trying to avoid losses. Far from eager to court the consumer, government officials invariably regard consumers as an annoying intrusion and as "wasteful" users of "their" (government's) scarce resources. Governments are invariably at war with their consumers. 

This contempt and hostility toward consumers reaches its apogee in socialist states, where government's power is at its maximum. But a similar attitude appears in areas of government activity in all countries. Until a few decades ago, for example, water supplies to consumers in the United States were furnished by private companies. These were almost all socialized over time, so that government has come to monopolize water services.

In New York City, which shifted to a monopoly of government water several decades ago, there was never, in previous decades, any wailing about a "water shortage." But, recently, in a climate that is not conspicuously dry, a water shortage has reappeared every few years. In July 1985 water levels in the reservoirs supplying New York City were down to an unprecedented 55% of capacity, in contrast to the normal 94%. But surely, nature is not solely to blame, since neighboring New Jersey's water levels are still at a respectable 80%. It seems that the New York water bureaucrats must have carefully sought our nearby spots that particularly suffer from chronic drought. It also turns out that the New York pipelines were constructed too narrowly to increase water flow from wetter regions.

More important is New York's typical bureaucratic response to this, as well as to other periodic water crises. Water, as usual with government, is priced in an economically irrational manner. Apartment buildings, for example, pay a fixed water fee per apartment to the government. Since tenants pay nothing for water, they have no incentive to use it economically; and since landlords pay a fixed fee, regardless of use, they too couldn't care less.

Whereas private firms try to price their goods or services to achieve the highest profit--i.e, to supply consumer needs most fully and at least cost--government has no incentive to price for highest profit or to keep down costs. Quite the contrary. Government's incentive is to subsidize favored pressure groups or voting blocs; for government is pressured by its basic situation to price politically rather than economically.

Since government services are almost never priced so as to clear the market, i.e. equate supply and demand, it tends to price far below the market, and therefore bring about an artificial "shortage." Since the shortage is manifest in people not being able to  find the product, government's natural despotic bent leads it invariably to treat the shortage by turning to coercive restraints and rationing.

Morally, government can then have its cake and eat it too: have the fun of pushing people around, while wrapping itself in the cloak of solidarity and universal "sacrifice" in the face of the great new emergency. In short, when the supply of water drops, governments almost never respond the way a business firm would: raise the price in order to clear the market. Instead, the price stays low, and restraints are then placed on watering one's lawn, washing one's car, and even taking showers. In this way, everyone is exhorted to sacrifice, except that priorities of sacrifice are worked out and imposed by the government, which happily decides how much lawn watering, or showering, may be permitted on what days in the face of the great crisis.

Several years ago, California water officials were loudly complaining about a water shortage and imposing local rationing, when suddenly an embarrassing event occurred: torrential rains all over the drought areas of the state. After lamely insisting that no one should be misled by the seeming end of the drought, the authorities finally had to end that line of attack, and then the title of the Emergency Office of Water Shortage was hastily changed to the Office of Flood Control.

In New York, this summer, Mayor Edward Koch has already levied strict controls on water use, including a ban on washing cars, and imposition of a minimum of 78 degrees for air conditioners in commercial buildings, plus the turning off of the conditioners for two hours during each working day (virtually all of these air conditioners are water-cooled). This 78-degree rule is, of course, tantamount to no air-conditioning at all, and will wreak great hardship on office workers, as well as patrons of movies and restaurants.

Air-conditioning has always been a favorite target for puritanical government officials; during the trumped-up "energy shortage" of the late 1970s, President Carter's executive order putting a floor of 78 degrees on every commercial air conditioner was enthusiastically enforced, even though the "energy saving" was negligible. As long as misery can be imposed on the consumer, why worry about the rationale? (What is now a time-honored custom in New York of reluctance to serve water to restaurant patrons originated in a long-forgotten water "shortage" of decades ago.)

There is no need for any of these totalitarian controls. If the government wants to conserve water and lessen its use, all it need do is raise the price. It doesn't have to order an end to this or that use, set priorities, or decide who should be allowed to drink more than three glasses a day. All it has to do is clear the market, and let people conserve each in his own way and at his own pace.

In the longer run, what the government should do is privatize the water supply, and let water be supplied, like oil or Pepsi-Cola, by private firms trying to make a profit and to satisfy and court consumers, and not to gain power by making them suffer. 

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