California’s ‘Drought’ Has a Monetary Metaphor

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Water policy in California is bizarre. I had no idea how bizarre until Jerry Brown declared his water emergency last week.

With 39 million people living in a semi-arid to desert environment (at least the southern 2/3 of California) doesn’t it stand to reason that at some point water might become a critical issue? A really critical issue? Doesn’t it also stand to reason that the people of California should be priority number 1 when it comes to water, not a politically powerful agriculture sector which only constitutes 2% of the California economy while taking 80% of the water? (Though there are of course apologists for ag.) But the “planners,” like they always do, thought they had the situation in hand.

My theory is that Governor Brown wanted to make a climate change statement with his emergency. But what he has really exposed are the ridiculous economics of the Golden State.

But boneheaded economics are not limited to the Cali Empire. (If only.) In fact a lack of faith in markets – you know reality – has caused miscalculation and pain for a very long time. (Pretty much since the dawn of human history, though it has probably gotten worse over the last 100 years.)

Markets clear – if we let them. Prices convey important information which help us maximize our money, time, and energy – if we let them. But humans always want to screw with things. Water supply, money supply, if it’s important we humans in our hubris will mess it up.

 (Real Clear Markets)

The point of using California as an establishing parable is that I have no idea how much water the state needs, and neither do you or anyone else. It is entirely unknowable. The same holds true of the “money supply”, namely that it cannot be determined in advance because it is entirely too complex, too dynamic and never actually stable (nor would we want it to be). But like the water arrangements out West, we can determine that the “money supply” these past four decades is not a “market” factor by what is revealed during the “drought.”

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