Governments And Prices

I've been blogging for five years about the relationship between taxes and the relative attractiveness of cities. Also, about how government officials don't get said relationship. I had the issues put clearly before me once again, but in a discussion about water policy, in a post title "BassAckWards":

Although I welcome this bit of news (higher prices!), both JN and I noticed the perverse order of things:

1. People use less water.

2. Prices rise.

As I have mentioned before, this order of events is terribly annoying to people. The reason it occurs so often in water is because most water utilities are run on a break-even basis, i.e.: if they sell less water, they have to raise prices to generate the same revenue.

Mainly, government officials never seem to understand the relationship between price and revenue. If the price goes up, consumption goes down. That's great for water consumption and for consumption of other natural resources, if conservation is your goal. It's disastrous in this example, because the city is trying to generate more revenue in response to lower usage. Their result is going to be even lower usage, hence, even lower revenues. (Still good for conservation, though.) If they wanted greater usage, they should lower the price. Well, government officials aren't to be confused with the sort of people who have a clue about economics.

Which brings me back to taxes. Cities that drive away businesses and people of means with their higher taxes tend to look at their falling tax revenues and conclude that to make up the shortfalls, they need to raise taxes. 

Well, duh! That's what drives people away! The revenues aren't going to rise. The population is going to fall. Just look at Cleveland, Detroit, and a host of other cities that have chased their tails, and their wealth away, by failing to understand the relationship between price and use.

As the man so named his post, most government officials are BassAckWards.

h/t Aguanomics

New Linkage

My friend Steve has been avidly reading on water policy, and has turned me on to some interesting reading- such as the book Cadillac Desert, which chronicles our disastrous western water policy.

Another great read is the Aguanomics blog, by economist David Zetland. He's a free-market economist, and lately, he's been showing example after example of how the government monopoly utility method of water allocation is ensuring environmental disaster. He believes markets would inject higher prices, which would be a good thing, for it would cause people to be less wasteful and more judicious in their water usage.

The link has been added, at the right.