How important is water?
Lake Mead before and after the drought. Source: Slate
Water is essential for life. When I go camping, one of the most critical factors that goes into selecting a campsite is how far it is from a reliable source of water. When regions experience a drought, their economies suffer. Agriculture, recreation, and power-generation are all affected.
A new study seeks to quantify the economic importance of the Colorado River. The river supports over $1.4 trillion in annual economic activity—and 16 million jobs—in eight states that are part of its basin. This is significant: the Southwest has had a drought for the past decade, and has made up for reductions in river flow by drawing from underwater reserves—sometimes to the point where the wells run dry. And over the past few years, the drought seems to have gotten worse.
Colorado River Mean Flow Deviation. Source: Geophysical Research Letters.
We don’t think about water shortages very much in the Northeast. We’re blessed with a lot of excess—especially during the winter. But arid regions are economically susceptible to shortages. So it’s important that this critical resource be priced properly.
But that’s the rub. Water prices are political, and water is a political football: it gets passed around from group to group. The politics of water projects have played a critical role in many policy debates over the years, from civil rights to privacy legislation. And the economic importance of water will only increase.
Only don’t expect a quick resolution. As Westerners like to say, “Whiskey’s for drinking; water’s for fighting.”
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!