California, Drought, and Water Policy

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In today’s Wall Street Journal, Stanford economics professor Edward Lazear provides an economist’s view of the California drought situation:

Many parts of the country, notably California and Texas, are experiencing intense drought… Yet weather isn’t the only problem: government-dictated prices, coupled with restrictions on the transfer of water, have made a bad situation much worse.

That is true. Freeing up markets would go a long way toward easing water battles and water shortages throughout the American West. Government controls on water transfers and prices suppress markets, and the resulting distortions harm the economy and the environment.

Lazear’s proposals make sense, but he overlooks one key reform: getting the federal government out of the water business. Much of the water infrastructure in the West is owned by the federal Bureau of Reclamation, and its policies are a fundamental problem, as Peter Hill and I discuss in this essay.

Hill and I examine Reclamation’s history of waste, bureaucratic arrogance, pork barrel politics, and environmental damage. We discuss water rights, water prices, and water economics. We recommend that Reclamation’s assets be transferred to state governments, or even better to the private sector.

Reclamation’s massive Central Valley Project, for example, should be handed over to the State of California. The CVP was originally supposed to be a state project. It was approved by the California legislature and by a state referendum in 1933. But then the state decided to lobby Washington for funding and was successful, so the federal government took it over.

But it is time to stop central-planning America’s water policies. Water issues in the West are far too complex for a distracted Washington to deal with properly. The states have different legal structures for water rights, different types of farming, and different access to groundwater. So the states should be the ones to control their water infrastructure, which would allow them to tailor their policies to the unique challenges they each face.