“While the long-held motto of private enterprise is that ‘the customer is always right,’ the implicit maxim of government operation is that the customer is always to be blamed.” — Murray Rothbard
Plagued by extreme summer heat, the Gulf’s state-managed power grids increasingly struggle to meet the surging demand for cooling. Each year, governments urge the public to practice mindful consumption because rising temperatures have sharply increased electricity usage. Qur’an verses are recited (7:31): “God does not like prodigals.” They recommend setting unused rooms to 24°C, turning off lights in vacant rooms, and avoiding energy-intensive devices between 11-5 pm. Service, we are told, can be conserved for all only if consumers discipline themselves.
Such advice may be understandable, even if not perfectly justified, during an emergency. Adam Smith wrote that, “what is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” If these procedures are wisely implemented at home, why not make them state policy? But if households must use electricity and water prudently, then must not the state produce, price, and manage utilities efficiently, or privatize these industries altogether? Why accept this guilt before asking ourselves whether the underlying problem concerns material scarcity, inadequate pricing, or inefficient management?
The preconceived notion that there is an optimal amount of water consumption is utterly erroneous. In Water Capitalism, Walter Block objects to the very epithet “waster.” Suppose that Murray showers for five minutes, Ludwig for ten, and Carl for thirty; which one has wasted water? No answer follows from the quantities alone. Waste is not a physical property of any quantity of water, but an appraisal. It is a judgment about whether the satisfaction obtained from a gallon of water was worth its opportunity cost. It is a simple fact that individuals rank convenience (cleanliness, privacy, etc.) higher on their value scales than a given amount of resource, and purchase it accordingly. There is no single ordinal scale of value that persists indefinitely for any person, and certainly no “society’s preferences” from which an administrator can read the optimum number. If a user voluntarily pays a market price that reflects the relative scarcity of the water he consumes, then his use cannot be deemed wasteful from the outside merely because another person would have chosen differently. Thomas Sowell summarizes this sentiment beautifully:
Among the many preconceptions that cannot be subjected to any empirical test because they are so subjective is the notion that third-party observers know better what is good for people than those people know themselves.
Rothbard notes that a private firm welcomes increased demand because additional customers mean greater revenue and an incentive to expand operations. A government monopoly, by contrast, possesses the power to write the rules and change them mid-game, print money, and adopt fiscal policy that is unconstrained by the humbling discipline of profit and loss. It is therefore less responsive to supply and demand and often reacts in the opposite way: it urges customers to demand less, restricts their use, and blames them for putting pressure on the service. Furthermore, the monopoly supplier is insulated from the many consequences of failing to meet demand—consequences that, under comparable circumstances, drive a competitive enterprise into bankruptcy as customers turn to rival suppliers and, as losses accumulate, creditors and owners eventually force the firm into liquidation or change its management.
The first problem with the rhetoric of profligacy is its arithmetic. From an aggregate consumption standpoint, there is little difference between one person using 10 gallons of water and a father and son each using 5 gallons. A graduated tariff may charge the first user more for his tenth gallon than for his ninth, and more for that than for his earlier gallons. This, however, does not change the result: Ten gallons of water have been consumed in either case. If the objection is that ten gallons place too great a burden on a fixed stock, then dividing the same quantity among two consumers cannot remove the alleged problem. The rhetoric of sustainability, therefore, conceals an anti-population agenda. Once pricing can no longer reduce per-capita consumption, fewer consumers altogether are preferable because they place fewer demands on the stock.
The second problem concerns the nature of the alleged shortage. If usable water or electricity-generating capacity is approaching an existential limit, then it is simply not enough to demand shorter showers and raise the thermostat. These household uses pale in comparison to the amount used in power plants and agriculture. Rationing may postpone the crisis for a few months at best, without even addressing its cause, as the shortage indicates deficient replenishment rates. If these resources are becoming dangerously scarce, the public should be informed of the scale of the danger by having their prices reflect their imminent depletion and by allowing the market to direct capital toward increased and improved production. After all, the market is simply the decentralized process through which entrepreneurs offer competing solutions, allowing consumers to freely assess them.
Hayek’s brilliant insight was that prices communicate the seriousness of the problem without requiring the consumer to become an expert. When the marginal price of a resource rises, the user compares additional consumption with everything else he could purchase. A man may shorten his shower after the twentieth gallon becomes expensive, but he remains free to decide whether the comfort is worth the price. When additional units become more costly to supply (for example, during peak hours), the higher price also makes measures such as peak load pricing better regulators of consumption, as Block points out. Demand may be suppressed in one area while supply in another booms, both regulated by the price mechanism acting on the very same resource.
Suppose now that the shortage is totally due to the administration. If the utility cannot produce enough water to meet demand at prices consumers are willing to pay, its exclusive position should be questioned. Food is indispensable, yet no firm produces “food in general.” A salad bar supplies one particular kind of meal, while countless competitors supply others. The indispensability of nourishment is not an argument for granting one producer a monopoly over every kitchen. Likewise, the indispensability of water does not prove that water production should be centralized and reserved for a single governmental provider.
What is called profligacy simply indicates that the user places little weight on the resource at its current price. A goldsmith carefully gathers gold shavings because each bit is valuable. It isn’t feasible for him to be as careful with bronze, because the fragments recovered are less valuable to him than the time and effort spent in collecting them. And if the gold itself were subsidized, he would be less careful for the same reason. Conversely, if gold became massively abundant and bronze scarcer, or if new uses for bronze appear that place relatively higher demand on it, then the blacksmith’s behavior would shift accordingly.
Waste has long been condemned; indeed, the Qur’an (17:27) says that “wastrels are brothers to the devils.” When a necessary resource is consumed faster than it can be replenished, or when those using it are separated from the costs of its depletion, there is cause for concern. Although markets are ancient, the comparatively freer markets of recent centuries have made it possible to price convenience against scarcity, thereby excluding “excess” consumption from being wasteful. A rising price signals to consumers to economize and invites more efficient producers to expand supply. When governments suppress this mechanism, they should not blame consumers for the shortages they have helped create.
