Three days, that’s not just how long it takes for a family to make a potato salad, it’s also how long a human body can go without drinking water before it begins to fail and die. Water is a necessity of life that we get primarily by drawing it from its sources: rivers, aquifers, lakes, and more.

In line with the high demand for the water provided by nature, there is an inherent scarcity that gives natural water sources their value. Much like other natural resources, especially the rights to the land which store them, water rights to use a particular source of it are non-reproducible. To collect a right to use a specific water source is to automatically exclude the rest of society from said source without any chance of them duplicating what has been lost.

Peel back the layers behind the water rights industry and it will be seen that vast robberies of society’s deserved keepsake are carried forward in the private profits of water rights and those who invest in them. 

To understand the solution to the water problem, we need to do a deep dive on its current ailments. They range from how we pay for its current use, to its discussion in investment circles as the next big thing.

The Liquid Frontier

Rights to use particular sources of water are becoming a rising frontier for rent-seeking off the exclusive ownership of nature.

But this is no surprise. Just like land, water is a natural resource whose ability to extract wealth from potential users has become a valuable and lucrative tool to take unearned increments that should belong to the common purse. The potential is so large that water rights have even been called the Next Big Investment. Water is expected to take the titanic title of being a trillion-dollar asset.

This exists due to several reasons, the necessity of water for life and its resulting demand is the strongest fuel for the fire by far, but its increasing scarcity due to climate change and overuse has added an extra fuel to its dire fire.

In our current system, we aren’t accounting for this correctly. Per the article, “Water Creates Rent”, by Georgist economist Fred Foldvary:

“Much of the water rights in the American West originate in “prior appropriation,” meaning first come, first served, forever. Some 80 percent of the West’s water goes to agriculture, because the farmers were here first. To keep their water rights, farmers need to use up the water, and that creates waste rather than wise use.”

Water sources should be seen as the property of the people. Yet, with our current choices in public policy, not only do we actively allow this bit of nature to be locked away in exclusive rights to extract, we actively incentivize its misuse with over-extraction.

This system leaves the cost of taking scarce water out of the world unaccounted for, tremendous misuse abounds and our Earth is mistreated. In turn, current owners of water rights benefit while the rest of society, and future generations, suffer.

While it is more than likely that the families of the future will feel the worst of our folly with water, we pay hefty dividends for water misuse currently, and quite literally. Not only do we have “use it or lose it” laws, we actively pay landowners to dry up their land, like in the Colorado River.

Subsidies to industries that extract water, like exclusive aid to mega farms, run in the billions. There is a monopolistic edge to these subsidies, as they are often non-reproducible by smaller competitors or newcomers to the industries that major recipients currently dominate.

But this point goes deeper, the very tax money taken out of the hands of those who work and those who invest in capital is currently siphoned away to monopolists of a common necessity we can’t create more of. And as is the trend, the beneficiaries of monopoly privileges mistreat the society that suffers under their reign; the Colorado River being just another unfortunate example.

Clearly, this entire system demands reform for the sake of society’s survival. Water use should be based on the prices it’ll be bid for on the market, similar to some other natural resources. But that’s only the first step; a market for water runs afoul of the problem mentioned before: owners of water rights can extract rents from those who need to hydrate, because water, just like all of nature, is finite and non-reproducible.

The case of water is quite analogous to the case of oil, with battles over exclusive rights to it amidst a boom in its value. The same problems of tremendous unearned profits and severe corruption and misuse that were seen when we covered subsoil oil and mineral deposits may potentially be seen in the ever-rolling water boom.

So, just like with oil, the water rights problem requires a Georgist solution that can combine efficiency with equality. Thankfully for us, that solution is quite a familiar one.

How to Compensate for Drying the Planet

To ensure that our scarce sources of water are used responsibly and with care and caution of waste, we must apply the answer to the oil problem to the water problem. Water resources can be kept as personal rights with a market attached to the parts of its production: extraction, preparation, and selling it off for consumption. But the catch is this: to take from the common stock of our unifying lifeline is to demand and require compensation to all excluded.

The answer then, is to tax the value of water rights themselves (not the work or investment that goes into using that right). This can be done either annually as an attached part of the right or at the time of extraction with a severance tax. Much like oil, requiring water rights owners to compensate for their exclusive privilege would spur efficiency by making them more aware of their water’s scarcity, while enhancing equality by denying them the power to leverage that right as a mere wealth-taking tool. Taking the extractive value of water rights out of their owners’ hands for the benefit of each individual in the community forms a fundamental part of Georgist thought, and socially necessary reform in general.

There is perhaps no better explanation of the benefits of taxing water resources and their respective rights than Mason Gaffney. From his aptly titled “The Taxable Surplus in Water Resources”:

“Five major problems of the water economy may be ameliorated by imposing a package of severance and other taxes on water withdrawals and power drops. This would: 1) Spur holders of surplus water to sell; 2) Foster conservation; 3) Convert water from a sink to a source of state funds; 4) Offset the concentrated possession of water; 5) Integrate the economies of ground and surface water. A severance of net proceeds tax can be viewed as a price charged by the owner of water (the state) for using its property.”

Many distortions exist owing to the severance and depletion of water resources not being accounted for monetarily by its controllers. Inefficiencies and inequalities prosper as our current system prefers to tax the rewards of creating and trading goods and services while failing to charge rent for controlling, or depleting, our non-reproducible Earth. 

The answer is clear, if anyone wants to take the lifeblood of the planet for their own personal use, they must only be able to profit off the production and trade of that water into something tangible and usable by the populace. The returns of being able to own and extract water sources under monopolistic extraction rights must be paid forward to society, not the reverse.