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Charles Wheelan, Ph.D. The Naked Economist

Charles Wheelan, Ph.D., The Naked Economist

The Other Liquid Gold

by Charles Wheelan, Ph.D.

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Posted on Wednesday, December 26, 2007, 12:00AM

I've spent the last two weeks in the Middle East, mostly in Jordan and Israel. Among other challenges, these are both countries that have "problems with liquids," as one of my hosts explained. Neither country has any oil to speak of. And neither has enough water.

Indeed, one Jordanian businessman argued that the country is foolish to be exporting tomatoes and watermelons -- because the water they suck up and take with them out of the country is worth more than the fruit.

Down the Drain

After two weeks of talking about (and experiencing) scarce water, I've begun to wonder if the United States is paying nearly enough attention to water issues. Skyrocketing oil prices seem to have caught most of us off guard. Wouldn't it have been nice if we'd caught that one before prices soared to $100 a barrel? We have that chance with water.

There's plenty of evidence that the country already has water issues. Much of the Southeast was in drought all fall. In the Southwest, communities have been springing up and growing at a rate likely to outstrip the region's long-term water resources, at least if swimming pools and landscaped lawns in the desert remain the norm.

Even in the Great Lakes states the water issue has come up. I recently attended an academic presentation entitled "Is Water the Next Oil?" The speaker made two main points. First, water drawn from the Great Lakes is often not returned there, causing water levels to fall. Much runoff and sewage drain into other waterways, such as the Mississippi River, and ultimately run out sea.

Wake Up and Smell the Water

More provocatively, she asked what will happen when some parts of the country have enough water and others don't. When Nevada residents realize that there isn't enough water to support the recent housing boom, will U.S. taxpayers be asked to pipe new water to them? (Midwest voters won't like the expense of it, or having "their" Great Lakes piped out of town.) Think about that one for a while.

Perhaps the United States will never face major long-term water shortages. If that turns out to be the case, then great. We won't have to agonize over how much water we're sending out of the country every time we export a watermelon.

Or maybe we will. If you believe that there's a realistic chance that water is the next oil, then now is the time for the affected parties to wake up to that possibility:

Government: The most important role for government is to define the relevant property rights. Who "owns" the relevant water resources? Who gets to draw on them, and at what price?

The only thing worse than a scarce resource is a scarce resource with ambiguous property rights. Suppose Las Vegas does run short of water. Can Nevada demand a share of Lake Michigan?

There are secondary government policies that make sense in any case. Water ought to be priced sensibly, meaning: 1) Those who use more ought to pay more; and 2) Nobody ought to get subsidized rates -- not farmers, not water park owners, not anybody. If we don't price water as a scarce resource, then we'll pretty much ensure that no one will treat it as such.

I can't tell you how many times I've had conversations that go something like this:

Me: "You ought to pay the same price for water as everybody else."

Subsidized Water User: "What? Are you crazy? If I had to pay that much for water, I wouldn't be able to make any money growing rice here."

Me: "Perhaps it doesn't make much sense for you to be growing rice in the desert."

Subsidized Water User: "Do you know where I'm going to stick this irrigation pipe?"

And so on.

Business: What if the price of water doubled or tripled? That sounds unlikely, but so did oil at $90 or $100 a barrel. The underlying reality is that we're using more of a resource that exists in fixed supply. At a minimum, you should be asking how your business would change if you couldn't get unlimited cheap water. What opportunities would that create?

Environmentalists: Take 20 minutes off from the global warming campaign to think about water. There are many simple and inexpensive measures that can be taken at the local level to conserve water. For example, Chicago is considering permeable alleys, rather than asphalt, so that rain water will seep back into the water table instead of running into sewers that ultimately drain away from the city and Lake Michigan.

Investors: Do you want to own your own A380? Invent a cheaper way to desalinate and distribute sea water. That's what Israel and Jordan are trying to figure out right now. The rest of us could be there eventually.

Water on the Brain

Given the economic costs and political turmoil caused by the scarcity of oil over the past century, it would behoove us to take some time to think about the other precious liquid -- the one we really can't live without. Water -- it's clear liquid gold.

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70 Comments

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  • RichE - Monday, December 31, 2007, 8:03PM ET  Report Abuse

    • Overall: 4/5

    Good article that makes you think. Altanta experienced the issue this year and it will continue to grow. I wish he had mentioned some companies that were developing solutions. May be a good investment opportunity???

  • Thomas - Monday, December 31, 2007, 1:26PM ET  Report Abuse

    • Overall: 1/5

    Super Dumb. This guys sounds like Eric Bolling. There's plenty of water in the USA. There's just too many illegals and too many new immigrants in general. Cut that spigot off and we'll be fine. This guy wont be happy until the USA population is 600 million and all natural resources are scarce.

  • Tom Brown - Monday, December 31, 2007, 11:38AM ET  Report Abuse

    • Overall: 3/5

    I think government is failing to perform a basic duty here as it is in other areas, such as energy. Rather than spend taxpayer dollars trying to get people to consume less of water and energy government should have a duty to provide the needs of its citizens. Instead of trying to persuade people to reduce their life-style in one way or another by using less water or energy, it should do its best to provide for the needs and wants of its citizens. This would include creating larger sources of resources such as oil ( by drilling more wells in Alaska or off the east coast) or water, by utilizing scientific methods to increase the supply and avaiability of water in locations where it is needed, such as, perhaps growing rice in the desert. This is not to say that taxpayers should pay the bill, the users should pay what it costs to provide them with supplies of a product to meet their needs and desires. The government is "paid" to meet the needs and desires of its taxpayers, not special interest groups such as the various forms of 'tree-huggers'!

  • Yahoo! Finance User - Monday, December 31, 2007, 10:51AM ET  Report Abuse

    • Overall: 3/5

    Very true, but we should concentrate on making sure the US does not get into that position in the first place. Stop washing with potable water when rainwater and grey-water can be used instead. I've installed a rainwater retention system in my house, since then the yard has never looked better, and I even have an old school toilet that actually flushes well vs. the green kind that doesn't. Profit from water if you want, but you'll never get my money, I save so much I barely need the drinking water from the tap.

  • Yahoo! Finance User - Monday, December 31, 2007, 9:24AM ET  Report Abuse

    • Overall: 5/5

    Thoughtful article. One major reason the Great Lakes (GL) levels have fallen is the lack of ice cover in the winter time, thus increasing evaporation. Coupling this with the warmer atmosphere able to hold more water vapor- results in lower lake levels. Use of GL water by adjacent communitites / agriculture / industries does not reduce GL water levels appreciably, as suggested in the article. Most of this water is returned through the water shed. In short, global climate change is affecting GL water levels.

  • Yahoo! Finance User - Monday, December 31, 2007, 5:25AM ET  Report Abuse

    • Overall: 4/5

    This is a very important article and very very well written. The future of water (peak water) will be soon something which all americans will be thinking about if they want to survive. If oil runs out you can still drink, but if water runs out you cannot drive very far. There is only a limited amount of water available. I have stocked up a lot and I'm also drinking as much as possible every day. Soon it won't be just rationing water for your lawns and washing your cars, but you'll only be allowed 1 liter per day which will be rationed for every person, regardless of race. And as there are so many chinese this means the US will get less and less. I can foresee inter-state wars over our dwindling water supply, and people moving around the country searching for the last few gallons of water, while defending themselves against renegades and bottle-thieves. I hope everyone becomes as careful as me, or you could regret it!

  • Yahoo! Finance User - Monday, December 31, 2007, 12:29AM ET  Report Abuse

    • Overall: 5/5

    Those who think this is only an issue in drought are naive, at best. Look up "Edwards Aquifer" and see the challenges facing this resource from the explosive growth in Austin and San Antonio, TX. There is a real battle in Texas between the urban areas and the rural areas over water, with the state attempting to build large reservoirs in northeast Texas to feed the water needs of Dallas. So much water is wasted due to the pricing of it - if it doesn't hurt to have leaks in the system, why fix them? This is a very good write up on an issue everyone should think about more.

  • Suzy - Sunday, December 30, 2007, 10:24PM ET  Report Abuse

    • Overall: 3/5

    This gentleman should also address the ways in which we pollute our own water supplies. Here in Peoria, Illinois we are battling to prevent the expansion of a toxic waste dump above an arm of the aquifer that supplies most of our drinking water. The USEPA has a service which will send to you by email, upon request, actions taken regarding spills, dumps, etc. in you area of the country. Check it out. Get involved while you might still be able to make a difference!

  • Yahoo! Finance User - Sunday, December 30, 2007, 12:09AM ET  Report Abuse

    • Overall: 3/5

    I hope Charles isn't suggesting the federal government help regions with water shortages. If Nevada can't supply water to its residents or it's costly, then the people who choose to live there should pay more or the state or local government should stop developing. It would be irresponsible to keep developing then run to the feds when water is scarce. State governments complain about federal government intrusion then when times are tough, the federal government becomes their safety net. I live in the Northeast. No one subsidizes my electric bill when it's 20 degrees outside.

  • David - Saturday, December 29, 2007, 10:25PM ET  Report Abuse

    • Overall: 2/5

    globial warming will melt the polar ice caps and we will have plenty of water so just keep driving your car and don't worry about water.

  • Yahoo! Finance User - Saturday, December 29, 2007, 10:59AM ET  Report Abuse

    • Overall: 5/5

    I've read T. Boone Pickens is buying up water rights all over Texas. Hmmm. Also, if Yahoo wants to keep the column written by the Rich Dad, Poor Dad guy they should put it in entertainment and thus separate from writers with credentials writing non-fiction.

  • The Cowboy - Friday, December 28, 2007, 6:06PM ET  Report Abuse

    • Overall: 5/5

    This guy is more on the money than he knows. In addition to a scarcity of water, the process of cleaning and treating that water is heavily dependent on fossil fuels. The higher those prices go up, the higher the price of clean water running through the pipes. . . and the pipes themselves are dependent on fossil fuels to melt down the metal and form it. So "up" goes the cost of all resources, water more so because it's already scarce.

  • Yahoo! Finance User - Friday, December 28, 2007, 4:07PM ET  Report Abuse

    • Overall: 3/5

    In regards to the below "insight," the author may want to go into most alleys in Chicago, and many other cities, and see they are already permeable - they are cobblestone. "Chicago is considering permeable alleys, rather than asphalt, so that rain water will seep back into the water table instead of running into sewers that ultimately drain away from the city and Lake Michigan"

  • Ryan - Friday, December 28, 2007, 2:59PM ET  Report Abuse

    • Overall: 5/5

    A very forward-thinking article. One thing I've never heard anyone discuss, however, with either global warming or water scarcity, is the amount of water stored in the human body. Assume, for example, that the global average body weight and water percentage are 100 pounds and 50%, respectively (pretty close). In 1900, just over 82 billion gallons would have been "stored" in humans. In 2000, however, over 303 billion gallons were in bodies, meaning about 221 billion gallons of water were removed from the environment! I know that's a small fraction of the world's freshwater (about .00367% of the Great Lakes, or .0008% of all surface freshwater), but it has to be making an impact somewhere. I would just like to see it addressed in relation to the other numbers the scientists are tracking.

  • am - Friday, December 28, 2007, 2:51PM ET  Report Abuse

    • Overall: 1/5

    It's amazing, a couple of parts of the U.S. experience a drought, and we're comparing water to oil. I'm from south Florida, where there are droughts every couple of years, and every time it's turned out okay. It's always a good idea to find better and cheaper ways of doing things, such as desalinating water, but lets not overreact like we're doing with global warming. Also, people who live in areas that have less water do pay more for it as part of their property tax assessments.

  • Frank J - Friday, December 28, 2007, 1:45PM ET  Report Abuse

    • Overall: 4/5

    Good article. There will be many a fight when other States start thinking about stealing water from different parts of the Country. California, Nevada, AZ, you can suffer as far as I'm concerned.

  • Yahoo! Finance User - Friday, December 28, 2007, 12:36PM ET  Report Abuse

    • Overall: 5/5

    Interesting article about water. Tho some of the ideas are arent feasible. One more thing -- Yahoo, please consider dropping Robert Kiyosaki in 2008. He is a madman with nothing to say that can actually help anyone (except for himself of course).

  • Yahoo! Finance User - Friday, December 28, 2007, 12:14PM ET  Report Abuse

    • Overall: 5/5

    Superb commentary! Most of the "leaders" of our great country are either brain dead or bought and paid for by big Corporations. I no longer pay any attention to these idiotic talking heads, but I do listen to the wisdom of other better managed countries who ARE paying close attention to water issues. Listen up, folks! They know more than our greedy, self absorbed, power hungry Congress & President, and so should you!

  • Yahoo! Finance User - Friday, December 28, 2007, 9:56AM ET  Report Abuse

    • Overall: 1/5

    Horrible article that displays a severe lack of understanding of western water laws. Great Lakes to Nevada? The Great Lakes water is also governed by treaty with Canada; they might want to have a say. Maybe Congress could work out something to give Nevada water for accepting the nuclear waste repository. For a good idea of western water problems read Cadillac Desert. As Mark Twain said years ago: "In the west, whiskey is for drinking, water is for fighting over.

  • European_pov - Friday, December 28, 2007, 9:12AM ET  Report Abuse

    • Overall: 5/5

    Very interesting and cleverly written article. I often wonder how people who advocate globalization of the economy fail to spot that they also could become a prey : "There is a big lake near my house so I don't have to worry". What if someone with plenty of money comes and "buys" the lake? After all that's what we made with other resources like oil, metals and so on. Other people in the world already understand the rules of capitalism beter than we do. In a near future, with the falling dollar, US may loose its place as the richest country in the world. Who will come and help a country that spoiled its own resources? BTW Water is already a topic of discussions in Europe. Remember you can't drink or eat money.

  • Roy - Friday, December 28, 2007, 8:47AM ET  Report Abuse

    • Overall: 5/5

    Coming from a Great Lakes state - our legislators do not take this seriously enough. This is also a bigger issue than this author makes. Atlanta is running dry. Each day that goes by is a day shorter on their remaining water supply. Yet they do not implement meaningful water conservation measures let alone change their culture. Our, my, tax dollars should not go to fixing problems they created with unrestrained growth that came about from underfunding the infrastructure costs of that growth. Prayer meetings on the capital steps are not a likely solution. Northern China is running out of water. Central and southern China do not have clean water. I don't know the situation in India but my guess is that they have under invested too in infrastructure. That's 2.6B people with water problems right there. My Econ courses of 30 years ago used 'free air/free water' as the metric for certain analyses. This was wrong then. Hopefully they still don't teach this way today.

  • Yahoo! Finance User - Friday, December 28, 2007, 8:17AM ET  Report Abuse

    • Overall: 4/5

    Interesting article. People who choose to live in areas that don't have enough water should have to pay extra for their water or prepare to limit their water use. However, people who have shortages due to temporary changes in weather should get some assistance at a lower cost than a region that will never have enough water. Places like Atlanta will have water again eventually...Kind of ironic this is an issue considering after the active hurricane season in 2005, which was supposed to signal the beginning of numerous bad hurricane seasons which would result in more water than we could ever need. So much for climate experts. In a few years, aside from areas that don't have access to water in their region, this could become a mute point.

  • Da Big Guy - Friday, December 28, 2007, 8:11AM ET  Report Abuse

    • Overall: 2/5

    This story is a tomatoe! Sell it to Jordan! As one who grew up in CA and is now living in GA, I have been exposed to the "D" (Drought) word my whole life! It tends to be a local phenomenon that receives major attention with debates for solution and then mother nature comes in and in a big way temporarily fixes the problem. The debate continues a short while then is forgotten until the next "D"! Throw some investment tax credits at it and move on! Chuck, please don't make price comparisons with oil unless you are ready to list a mountain of other consumables until you realize the argument doesn't hold water (Pardon the pun)!

  • Yahoo! Finance User - Thursday, December 27, 2007, 11:42PM ET  Report Abuse

    • Overall: 5/5

    "What can one bottled water company do?" Htoo, a bottled water company donates 100% of its after tax profits to charities around the world. Whenever we are buying bottled water, let us buy from them. Have a look at their website http://htoo.com/

  • Yahoo! Finance User - Thursday, December 27, 2007, 10:26PM ET  Report Abuse

    • Overall: 3/5

    Water issues will dominate the political discussion in the West and Southwest sooner than just about anywhere else. Government should define property rights? Those rights are not all that ambiguous, but they are complex. If you think the tax code is complex, try messing around with water law for a while. There is too much legal precedent there for the government to have the kind of role you have described. Water law affects the pricing that you've mentioned too- the farmers have owned the water resource at an historical cost (some as old as 100 years or more) that has long-since been "paid for" - they are not subsidized, they simply own the resource instead of rent it like most urban users do from their utility providers. The farmers paid for and developed those resources and they own those rights fee simple; what the farmers do with that water may not make sense (growing rice in the desert) sometimes, but the fact remains that those resources are private property rights. If the government would like to have a role in allocating water resources, a good suggestion would be to think hard about eliminating farm subsidies for "growing rice in the desert" and other unproductive uses of irrigation water. Removing those subsidies would change the economic decision making regarding agricultural use of water, allocating the resource to the most productive purposes and away from unproductive ones. With 90 percent of water rights in the West/Southwest owned by agricultural interests, we should all be interested in making sure the best economic decisions CAN be made on a level playing field.

  • deny - Thursday, December 27, 2007, 8:13PM ET  Report Abuse

    • Overall: 1/5

    Get some tugboats and tow a few icebergs home...They are all going to melt anyway.HAHAHA

  • Kens - Thursday, December 27, 2007, 8:02PM ET  Report Abuse

    • Overall: 1/5

    So now I'm supposed to feel bad for those who moved to Nevada and Arizona from the mid-west? Let them drink their beloved sunshine. In the mean time let the great lakes drain back to where they came from.

  • Yahoo! Finance User - Thursday, December 27, 2007, 7:41PM ET  Report Abuse

    • Overall: 5/5

    This is exactly the kind of article I'm looking for. Something that makes me think and makes me pay attention to something I've been ignoring. I'm not sure how much I agree/disagree with his points, but I will certainly be paying attention to opportunities it presents.

  • JohnF - Thursday, December 27, 2007, 7:29PM ET  Report Abuse

    • Overall: 4/5

    It's refreshing to see Dr. Whelan focus on a subject that concerns the whole of society as opposed to the narrow interests of business. Desalinization seems to be the best answer so far. Saudi Arabia are doing it too.

  • Yahoo! Finance User - Thursday, December 27, 2007, 6:47PM ET  Report Abuse

    • Overall: 3/5

    Napolean: Huh? The article was at least somewhat uncharted and thoughtful. What about your comments?

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