Source:  www.ecowatch.com

By Ronald Balley, Sept. 5, 2014, Reason.com

"Nature makes a drought, but Man makes a shortage." That's the trenchant slogan that the Leiden University College water resource economist David Zetland uses to sum up how bureaucratic mismanagement of supply and demand misallocates water pervasively. California's current water crisis—exacerbated by a three-year drought—is a perfect illustration of Zetland's observation.

"Scarcity and shortage are the same for water as they are for other goods—except that most other goods are traded in markets in which rising and falling prices balance supply and demand to prevent shortages," Zetland explains. The chief problem with water is that it mostly supplied by government agencies or government-sanctioned monopolies whose prices are deliberately held below the actual costs of supplying water. This predictable result of these price controls is a shortage. "Underpricing (or zero pricing in some cases) has sustained overuse: if markets delivered Porsche cars at give-away prices, they too would be in short supply," wryly observes the United Nations Development Program's 2006 report Beyond Scarcity: Power, Poverty and the Global Water Crisis.

The surface water rights situation in California is significantly complicated by the fact that existing water rights have been grossly overallocated. Surface freshwater flows average 70 million acre-feet. (An acre-foot is the amount that would cover an acre to the depth of one foot—about 326,000 gallons). But the state has allocated rights to 370 million acre-feet, over-allocating by more than 500 percent.