Examining Water as an Economic Issue

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Water is one of the most important commodities because this natural resource sustains all life on planet earth. Water provides a number of economic and environmental services. It’s unique in the sense that nothing else can substitute for it. Unlike other natural resources water not only has distinctive physical properties, but it has complex economic characteristics and cultural features. Therefore it can be easily understood that water, and especially potable water, serves as an integral aspect of today’s demanding and ever-expanding society. Although it is typically overlooked throughout the United States, (despite areas that have experienced significant water shortages due to contamination, drought, or a myriad of other situations) examining the key forces at play in modern economic ideology (with regards to water) provides crucial insight into the desperate actuality of the world’s most precious resource. This discussion will focus specifically on such economic relations in Oklahoma including the scarcity of water as a resource, the importance of understanding an applicable market response model, and the representations of water as a good.

There are a number of forces that are exerting pressure on this commodity. As of now and in the future, there will be an imbalance between the supply and demand of water all across the nation. Oklahoma is just one example of the unequal distribution of water. There is a geographic divide in Oklahoma where there are parts that have plentiful amount of water, while others are quite lacking. According to the Oklahoma Comprehensive Plan, the current demand of water in the central region of Oklahoma is about 335,640 acre-feet/year. This accounts for about 18% of the total statewide water demand. In order to meet the current demand the water is retrieved from bedrock groundwater, alluvial groundwater and surface water. Pretty soon, alluvial and bedrock groundwater storage depletion is bound to happen. Practices to mitigate these depletions include expanding the “…conservation activities in the Municipal and Industrial, Self-Supplied Residential and Crop Irrigation demand sectors” (Oklahoma Comprehensive Water Plan). The increase in demand for water occurs due to population growth, agriculture, industry, and other related economic activities. In terms of water supply stress Oklahoma is between 0.1 to 0.2, which is pretty low. The panhandle of Oklahoma displays a slightly higher water supply stress between 0.3 to 0.6 (National Climate Assessment). We can apply the market response model to water scarcity in order to determine the “…economic responses to resource scarcity [which] will result in either a decrease in demand for that resource or an increase in supply” (Paul Robbins, John Hintz, Sarah A. Moore, Wiley-Blackwell). The market response model is a great way to to understand the interactions between a resource and the market.

As the model aids people in seeing the interactions between mixed variables, it becomes rather important to understand how this directly applies to water. According to an estimation from the World Wildlife Fund (WWF), it is predicted that at the world’s “current consumption rate, this situation will only get worse. By 2025, two-thirds of the world’s population may face water shortage” (Water Scarcity). Therefore it can be determined that water will indeed eventually face resource scarcity, and as the market response model suggests, prices will rise resulting in the decrease in demand or increase in supply. If you haven’t yet determined why this is so alarming and unavoidably results in an impending detrimental scenario, consider the application of the model: Prices will rise as water becomes more difficult to access and utilize, but there cannot be a decrease in demand, nor an increase in supply. Unless an adaptation in some form of technology to increase the supply, water will definitely crash the market response model, resulting in a significantly unfortunate situation for both humanity and all ecosystems alike.

As previously discussed, water is both an essential and scarce commodity. These two characteristics combined lead to a resource that many think as plentiful to be misallocated. This begs the question: is water a public good or a private good? First, we must define public and private goods. A private good is defined as “a product that must be purchased to be consumed, and its consumption by one individual prevents another individual from consuming it. A good is considered to be a private good if there is competition between individuals to obtain the good and if consuming the good prevents someone else from consuming it” (Investopedia). A public good, on the other hand, is “generally open for all to use and cannot be consumed by one party to the detriment of another party’s ability to also use it…preventing the use of the good by another is not possible” (Investopedia). Concerning water, there is tension between these two definitions as water is necessary for sustaining life, yet also a commodity. According to the Global Water Forum, “after basic water needs have been satisfied, additional water use is no longer a basic human right. Households, for example, may use water to fill a swimming pool, water their lawns, or take long showers. As such, when water use exceeds around 50-100 litres per person per day, it becomes a private good and so is best allocated, like other private goods, through markets” (White). Here, one can see the tension of water as a marketable commodity that also acts as an essential element of life. Water is unique in that it has elements of a public good – it is hard to completely exclude someone from the use of water. However, due to socioeconomic gaps, the use of water is not distributed to people evenly, as different socioeconomic groups use water in different ways and in different levels of consumption. Water also clearly has elements of a private good, as the use of water to wash your dishes excludes another from use of that water to brush their teeth. Since water can lie somewhere between a private and public good, “these characteristics mean that water is not a traditional marketable good and markets can lead to poor allocations of water resources if designed badly” (White). Thus, after analysis, it’s evident that water lies somewhere between a public and a private good. It therefore goes without saying that Norman and Central Oklahoma’s problem with lack of clean water further complicates issues that arise from markets improperly allocating water resources.

From a broader approach, it is apparently quite difficult to pinpoint solutions along with these mentioned issues. Water, although easily disregarded now, will eventually become a problem of immense severity. Analyzing this environmental scenario from an economic perspective truly exemplifies mankind’s remarkable ability to abuse resources of the earth, even those as vital as water. Fortunately, technological advances provide hope for future continuity, but lifestyles and typical ideals of many will have to change.

 

References

Global Change. “National Climate Assessment”. Web. Accessed 18 April 2017. http://nca2014.globalchange.gov/highlights/report-findings/water-supply/graphics/water-stress-u-s

Investopedia. “Private Good”. Web. Accessed 18 April 2017. http://www.investopedia.com/terms/p/private-good.asp#ixzz4ec3THoMk

Layden, Logan. “Oklahoma City Drought Problems A Microcosm of the State’s Water Crisis”, State Impact NPR. 16 February 2015. Web. Accessed 18 April 2017. https://stateimpact.npr.org/oklahoma/2015/02/16/oklahoma-city-drought-problems-a-microcosm-of-the-states-water-crisis/

Oklahoma Water Resource Board. “Central Watershed Planning Region Report”. Web. Accessed 18 April 2017. http://www.owrb.ok.gov/supply/ocwp/pdf_ocwp/WaterPlanUpdate/regionalreports/OCWP_Central_Region_Report.pdf

Robbins, Paul, John Hintz, and Sarah A. Moore. Environment and Society: A Critical Introduction. Hoboken, NJ: John Wiley Et sons, 2014. Print.

White, Chris. “Understanding water markets: Public vs. Private Goods”, Global Water Forum. 27 April 2015. Web. Accessed 18 April 2017. http://www.globalwaterforum.org/2015/04/27/understanding-water-markets-public-vs-private-goods/

Water Scarcity. (n.d.). Retrieved April 19, 2017, from https://www.worldwildlife.org/threats/water-scarcity
Image from: http://www.energydigital.com/sustainability/us-energy-policys-hidden-water-costs

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One thought on “Examining Water as an Economic Issue

  1. randypeppler April 22, 2017 / 10:07 pm

    Nice. I like your discussion about public and private goods. And also your discussion of the Market Response Model. One way innovation can produce more supply is through desalination, but this may be a solution only for coastal areas. Transporting that water inland would be very costly. Moving water from SE Oklahoma to OKC requires a lot of energy because it’s all uphill.

    Like

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