INTRODUCTION TO ECONOMICS                              Lesson of 14 November 2006



Drought conditions in much of southern and eastern Australia have precipitated therein a water crisis,  effecting much of the population of the mainland states.  An examination of the evidence suggests that basically the nature of the problem is not geographic or physical, or, for that matter, economic.  Rather it is political.



Australia is the driest of the inhabited continents, having, amongst them, the lowest average and the most variable annual rainfall.  It also suffers from high evaporation, and the discharge from its river systems is the lowest of the inhabited continents.  Nonetheless, the figures suggest that Australia possesses ample supplies of freshwater, both ground and surface, sufficient for its existing needs and for the needs of its growing population, for the foreseeable future. Experts suggest that this would be so even absent the making of any significant changes in current methods

Like coal, salt or bananas, water is a commodity.  There is no shortage of water; more than half the world is covered with it.  The technology for the large-scale distillation of salt water is widely known and readily available.  A similar position applies with respect to the recycling of wastewater.  Such techniques are widely used today even in some parts of Australia.

More innovative [and expensive] measures could, if thought necessary be adopted, as witness the suggestion that water could be piped from the Kimberleys to Perth in WA.  History lends credence to such a proposal, with the construction more than a century ago of the Mundaring to Kalgoorlie water pipeline.  Much of Australiaís water is found in the rivers of the northern coastline, which water today is largely wasted.  Damming one or more such rivers and piping the water south is technologically feasible.  Even the tethering, towing and melting of icebergs has been suggested as feasible.

The existence of the above readily-ascertainable facts tends to suggest that the daily horror stories appearing in much of the nationís press are largely myths, having the effect, whether wittingly or otherwise, of diverting attention from the real problem and the likely means of their resolution.



Traditionally the supply of water in Australia has largely been a government monopoly.  Predicably this has tended to result in water being used as a form of patronage, with cheap water being supplied to electors, particularly in rural electorates for agricultural purposes.  {Agriculture today uses about 70% of the water consumed in Australia]. 

As economics teaches, providing something at a price below its worth leads to waste and excessive use.  Typically, when supply began to be a problem, the government would build another dam, in itself a form of patronage.  This would be paid for by taxes.  On the other hand, most of the actual income, received by the various water boards from the sale of the water, was taken by the government for general revenue.  In effect this was a form of tax.

What has caused a gap to occur in this cycle of events has been not so much a shortage of water. but rather the rise of environmentalism and the conservation movementís opposition to the building of further dams.  This has necessitated a switch in emphasis towards saltwater distillation and wastewater recycling as a means of overcoming the perceived problem.  Both measures are energy intensive and have led to a divergence of political views with the PM suggesting the possible use of nuclear energy and Premier Beattie from the coal-rich state of Queensland preferring clean coal power.



The government solution to the problem has been to introduce a variety of constraints and rationing designed, by punitive means to reduce the demand for water.  An economic solution would be likely to advise a rise in price to achieve a similar result, with more efficient use.  It might also suggest the abolition of the governmentís monopoly, thereby permitting and encouraging a greater supply 


                      David Sharp

                            November 2006





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