Economic Rationality Is Not Political Rationality

Economics is a very useful discipline for figuring out how to allocate scarce resources. In fact, economics virtually assumes scarcity. Consider the severe water drought in California, a problem that other states across the American west also have been grappling with for more than a decade.

Some 60 percent of domestic use goes to watering landscape, it often is noted.

That almost always leads to calls for reducing lawn irrigation, which is useful enough advice. But all domestic use only makes up one percent of overall water use. Most water is used for irrigation and power generation.

Agriculture alone accounts for 80 percent of California water use. So simple economic rationality would call for reducing five percent of agricultural water use, which achieves the same savings as cutting 25 percent of urban water use.  

Though it is politically difficult, it makes more sense, in terms of economic rationality, to deal with inefficiency related to the 99 percent of water usage in California, not the one percent.

That does not appear to be what is happening. Instead, California will try to reduce urban water usage (the one percent) by 25 percent. Other western states that have implemented similar policies have indeed found it is possible to make gains. People do replace lawns with xeriscapes.

You might wonder why more is not done about any similar policies related to the 80 percent to 99 percent of water users.

The political reality is that agriculture now is built on “cheap water.” So raising agricultural or industrial water prices necessarily causes higher agricultural or industrial product prices. So far, that has made some logical choices difficult to impossible to implement, one might argue.

So it is politically rational --if not terribly economically rational--to make urban users bear the burden.

That is not to argue agriculture is unimportant. But Pareto optimality still matters. Less than 20 percent of actions produce 80 percent of the results.

But this is water, and water rights have shaped the history of the American west. That hasn’t changed.

Oddly enough, in Colorado, where we have been grappling with life in a virtual desert for some time, it is illegal to collect rainwater in a barrel, for example. The theory is that the water would otherwise enter the aquifers, and somebody else already has superior rights to the water in aquifers.

Someday, not even entrenched political interests will be able to ignore economic logic. But not yet, it appears. Though political rationality is not economic rationality, it is "rational."