What would really happen if we privatized California's water supply

California is well into the fourth year of the most punishing drought in the state's recorded history. Under orders from the administration of Gov. Jerry Brown, public officials and utilities are scrambling to cut water usage, retool old water rights deals, update inadequate and aging infrastructure, and even ship stranded aquatic life to water bodies that haven't gone bone dry.

So it was bracing, to say the least, when members of the uber-wealthy neighborhood of Rancho Santa Fe — which boasts lush hamlets, gated communities, and per capita water usage that's five times California's average — complained to The Washington Post about the coming crackdown.

"No, we're not all equal when it comes to water," snapped one resident. "It angers me because people aren't looking at the overall picture," said another. "What are we supposed to do, just have dirt around our house on four acres?"

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Rather than focus on how this is a magisterial example of the moral myopia that tends to come along with the possession of unusual wealth (Vox's Dave Roberts already did a great job of that), I'd like to build out a thought experiment. First, let's acknowledge that the answer to this disgruntled Rancho Santa Fe citizen's question is a resounding "yes" — living with dirt on your four acres is exactly what you should do if your highly populous state is hit by a massive drought. Second, and this is where it gets interesting, I'd like to note that, theoretically at least, a solution that's usually assumed to be very favorable to the uber-wealthy could force exactly that scenario.

I am speaking, of course, of free markets in water, or privatization of water supplies.

The purpose of markets, after all, is to bring supply in line with demand, using price signals. In a private water market, a drought would constrain supply, forcing the price up, so everyone would make do with less. People would install advanced metering systems, use better and more efficient irrigation methods, choose homes without lawns or water features, employ desert-friendly forms of landscaping (which are actually way prettier than fields of dirt), and a host of other adaptations.

The idea is that the decentralized crowd wisdom of free markets can try out, test, and adopt these sorts of "innovations" — not just in technology, but in lifestyles, social behaviors, and cultural norms — much faster and more effectively than the top-down control of government. And it's all pushed along by the deceptively simple desires to cut costs and increase profits — by supply and demand.

Private market transactions currently account for just 5 percent of California's water use. And it's hard to argue the state's mishmash of government-run water districts and utilities hasn't made a complete hash of things: California's current water rights promise five times what the state's natural resources can supply, and it's been over-taxing that supply by ever greater degrees for decades.

Which is why commentators like Ronald Bailey at the libertarian Reason, and public policy expert Richard G. Little in The Wall Street Journal, have recommended expanded privatization of water rights to address California's woes.

Unfortunately, as you may have guessed, that "theoretically" qualifier up top does an immense amount of work. There are two huge practical problems with this argument.

The first is that water provision is something of a natural monopoly, which makes it exceedingly difficult to get the kind of meaningful competition in water providers you'd need for a market to actually function. It's unlikely that you'd get multiple pipe systems from multiple companies serving the same localities. So you'd wind up with each neighborhood gouged by a monopoly supplier. That problem might not be completely insurmountable — you could imagine competitors trucking in water rather than piping it, for example — but it's a big hurdle.

The second problem is arguably even more fundamental. The logic for how markets result in the most rational and efficient distribution of resources only holds if you assume a remarkably egalitarian distribution of incomes. Consider: If Person A needs water twice as much as Person B, if prices are driven up by constrained supply, and if both have the same amount of income with which to buy it, then Person A is likely to get the supply they need by paying the premium. But if you re-run this scenario with the assumption that Person B has five times the income as Person A, then Person B may still be able to indulge in more water than they need, while Person A doesn't get what they need. If we privatized California's water market, but did nothing to address the country's rising inequality, those denizens of Rancho Santa Fe might still make out like bandits.

There is a weird symmetry between attempts to solve water crises through public or private routes. Because politicians are unwilling to sufficiently hike taxes and water rates, infrastructure decays and water supplies are over-stretched. Free market types then drop in and suggest privatization as the solution. But the need to update infrastructure and properly price water remains, so the private water companies hikes costs to get the necessary money. Assuming that works, it would do so by pushing poorer Americans to the fringes, giving them insufficient or lower quality (i.e. unsafe or polluted) supplies.

The obvious solution is for the government to simply give poorer Americans a check to supplement their incomes. But the government won't do this, for the same reason it won't hike taxes in the public scenario: It requires taking money from well-off people who don't want their money taken from them. The idealized version of both the public and private approach rest on a government that's willing to move sufficient resources from richer households to poorer households. The "public or private" question merely addresses what form that movement takes.

Which is probably why, in the real world, even the most ambitious countries have taken a hybrid approach, which hands only a modest portion of their water supply over to markets. (One-fifth in Bailey's case of Australia.) And it's why trying to implement better practices through the admittedly unwieldy instrument of government remains a worthwhile goal. Ultimately, the ability of either a public or private system to function depends on the deeper moral question of what sort of society we want, and what sort of power imbalances we're willing to tolerate.

Unless, of course, like the residents of Rancho Santa Fe, you already sit at the top of the power hierarchy. In that case, things will likely look fine to you so long as you're getting yours.