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Economics

What’s wrong with markets?

Georgia is facing a problem with the current drought. They are running out of water and they don’t seem to be able to come up with a way to fix the problem. This article tells, at length, the problems, the purposed “solutions,” and the various groups involved in the fight. People are blaming the Corp of Engineers, a species of mussels that has some sort of protection, and too much growth in the area. I’ve got a much simpler explanation and a very simple remedy for their problem. Raise the price of water. The reason they are running out of water is that they have not been pricing it properly. There is a finite supply of fresh water, if it is underpriced, people will use too much of it. If you want to limit how much water is being used, if you want people to conserve water, if you want people to fix leaky toilets and water heaters, raise the price. Everyone will pay attention if their water bill doubles or triples, and I guarantee that water use will fall. Pass more “You can only water your lawns twice a week,” laws and I’m sure not much of anything will happen. If the price is allowed to “float,” with the supply of water, you’ll never have to worry about water shortages again.

This is assuming that all people face the same prices. Frequently, businesses like agriculture, gold courses, and others get special (low) prices. Of course they are the largest consumers of water as well… If you are worried about “the poor,” you can figure out a way not to charge them the extra amount. The key is to make sure that the largest percentage of water users feel the price increase. Viola, no more water shortages!

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