Scarcity is an important aspect of our lives as it affects us everyday. Many people may overlook scarcity due to the high standards of living compared to other countries. In September it will be very noticeable as people will line up for hours to get their hands on the “scarce” good – the iPhone 6. Ludwig von Mises explained scarcity in Human Action:
The available supply of every commodity is limited. If it were not scarce with regard to the demand of the public, the thing in question would not be considered an economic good, and no price would be paid for it.
Scarcity is a reason most people work – financial resources of an individual are limited/finite and work provides individuals the income necessary to accumulate their resources to exchange for the goods/services of another. Consumers demand scarce goods (housing, clothes, a night out, travel, school supplies) and people have to economize their decisions based on scarcity.
Scarcity helps set prices whether the scarcity is on the supply or demand side. Some people may economize the price/terms of a brand new iPhone 6 with the anticipation of a reduced price in 2-3 months as the supply of iPhones 6 increases and scarcity decreases. Prices send signals to the consumers letting them know the scarcity of a commodity (good/service).
One of the most peculiar ways that we see scarcity on a daily basis is with water.
There are water crises here with the Indian River Lagoon, Lake Okeechobee and the Everglades where we have too much dirty water (or not enough clean water). The Lake Erie region suffers from a pollution/algae problem as well.
But it is just not South Florida or Ohio affected. There are water crises of California and Texas where there is not enough water.
Yet in all of these places there is one thing in abundance – clean and drinkable bottled water.
Why is this so? Why we can we have too much dirty water in one place and not enough water in another while being surrounded by an abundance of bottled water?
The first thing to be said about this is that on the free market, regardless of the stringency of supply, there is never any “shortage”, that is, there is never a condition where a purchaser cannot find supplies available at the market price. On the free market, there is always enough supply available to satisfy demand. The clearing mechanism is fluctuations in price. If, for example, there is an orange blight, and the supply of oranges declines, there is then an increasing scarcity of oranges, and the scarcity, is “rationed” voluntarily to the purchasers by the uncoerced rise in price, a rise sufficient to equalize supply and demand. If, on the other hand, there is an improvement in the orange crop, the supply increases, oranges are relatively less scarce, and the price of oranges falls consumers are induced to purchase the increased supply.
In the cases of droughts government monopolies set prices arbitrarily and this sends consumers distorted prices. Just as bad crops increase the price of oranges as should droughts increase the price of water. Individuals then internalize their decisions to make best use of the scare resources – their own finances and the water commodity. Government distorting prices prevents individuals from acting most efficiently to conserve scarce resources.
The Indian River Lagoon and other areas in South Florida are impacted by the lack of clear pricing signals to individuals. This past weekend at the Indian River Lagoon Clean Water Rally free clean, bottled water was being given away during an event to protect the lack of clean water in the environment.
Bottled water is the only water product that Americans have routinely priced and marketed. We now happily pay as much as four times the cost of gasoline for potable water that we could have for free from fountains and taps. Of course, economists will tell us factually that bottled water is not the same good. The square Fiji bottle is a sexy statement; and the ubiquitous bottle of water in hand is a fitness and convenience statement. Subjective valuation determines price. A real market in this water product does exist.
Markets for other water products are, meanwhile, mainly nonexistent. We routinely do not pay for most other forms of water. Until recently, water has been viewed and treated as a free good by all Earth’s peoples. As with all free goods, water experiences unlimited demand. But water cannot meet unlimited demand. Water needs prices in order to signal scarcity and inform demand. Different categories of water need different prices to reflect the different preferences of users. Free can no longer be water’s price. The profligate glory days of limitless water everywhere seem to be over.
The lack of market pricing affects the Indian River Lagoon as it encourages pollution. By allowing farms/industries to pump byproduct into the water the waterways are essentially being used as a free garbage dumping ground. The permitting of pollution by government recklessly encourages more pollution by firms rather than firms benevolently opting to pay to have it properly disposed. The business who pays extra to have waste properly treated/disposed may not be able to compete with the businesses who opt to take advantages of government allowing dumping of byproduct into waterways at virtually no cost.
The lack of market pricing occurs largely due to lack of ownership and governmental edict. With “public” ownership bureaucrats and politicians charged with maintaining resources lack capital value interest in the resources. They only preside over the current use as Hans Hoppe taught us, “it makes exploitation less calculating and carried out with little or no regard to the capital stock. Exploitation becomes shortsighted and capital consumption will be systematically promoted.” The long-term calculations of the bureaucrat is distorted by this.
Ownership being replaced with stewardship and the lack of the profit/loss mechanism prevents the water bureaucrats from making the most efficient decisions. It is not for the lack of caring but the inability to make economic calculation as Mises explained in Bureaucracy:
Bureaucratic management is management of affairs which cannot be checked by economic calculation.
…The bureaucrat is not free to aim at improvement. He is bound to obey rules and regulations established by a superior body. He has no right to embark upon innovations if his superiors do not approve of them. His duty and his virtue is to be obedient….Nobody can be at the same time a correct bureaucrat and an innovator.
Yet if the same waterways were owned the property owner could charge those dumping byproduct for the use of waterways as liquid dumping ground. Non-pollutive by products may be charged less than damaging pollutive byproducts which negatively affect water quality. The scarcity of the water/quality would set prices to discourage pollution and incentivize firms to find cleaner and more efficient production methods.
Furthermore with ownership provides the long-term capital value incentive which encourages conservation. We see this in forestry where forests are replanted to ensure the forest owner has income in the future. We see this at Adams Ranch where the stock of cattle is not wiped out all at once. Adams Ranch does a particularly good job of conserving grass to feed and support their cattle though the land they have to raise cattle on is limited. If grass goes so does the cattle.
In the case of the Lagoon waterway owners may allow no pollution. Likely it would be instead that the users of waterways (boaters, fisherman, divers, swimmers, etc) would so value the long-term pricing of being able to charge waterway users for its use for decades into the future.
Prices would help owners calculate that using the water for leisure and conservation is more efficient and useful than making it unusable dumping grounds. Prices would help consumers more so appreciate the use of clean waterways. Up the Kissimmee River Disney is able to charge huge entrance fees to maintain a safe/clean park and facilities. Meanwhile people dump litter in the river like they do the roadways. Notice hardly anyone dumps trash on out on their driveway (beyond for garbage pickup). That is because of the tragedy of the commons. Nobody has an incentive to keep it clean as nobody owns it.
Instead we get this.
— Sam Wolfe (@TCPalmSamWolfe) August 2, 2014
Thousands of people come out to rally, raise awareness and money to help clean a commodity appreciated by all. It should be clear that a clean lagoon is valuable to them. Some may say it is priceless. But we will never know as long as government precludes pricing from working in the lagoons favor. Look at the people who turned out to try to help the lagoon, you can’t tell me that they would pay to help fund and support an event like this but not pay to use the lagoon.
— Scott Wyland (@ScottWylandTCP) August 2, 2014
We need to unleash the Indian River Lagoon and other waterways from the systemic failures that occur under bureaucratic mismanagement.
It is clear that the public values the lagoon and we should put to use for the sake of the Indian River Lagoon. With clearly defined and protected property rights the capital value (which some environmentalists estimate to be in the billions) to use for the lagoon.
Let the people who care put money where there mouth is and let’s incentivize the people who are responsible to have a long-term stake and interest in conserving the capital value of the lagoon.
There is over a billion reasons to do so and the Indian River Lagoon can hardly afford to wait.
— Sam Wolfe (@TCPalmSamWolfe) August 2, 2014
Unfortunately, no matter how hard bureaucrats try they cannot imitate market forces as Lilley explains:
And, no, command economies cannot play at market. There is no third way. Only private property and the rule of law can create a viable market; bureaucratic mandates can deliver only shortages, higher costs, and poorer quality.