The Strange Economics of Water, and Why It Shouldn’t Be Free: A Guest Post

Photo: Comstock

 

Water is a topic that’s come up repeatedly on this blog. We’ve written about attempts to do away with bottled water; why it’s a bad idea to ban bottled water; whether festivals should hand out free water; and the need for safe supplies of water around the world.

Here now is a guest post from Charles Fishman, whose new book (reviewed today in the Journal, btw) is called “The Big Thirst: The Secret Life and Turbulent Future of Water.” (Fishman’s earlier book is “The Wal-Mart Effect.”) The Big Thirst covers some of the four billion-year history of water on Earth, and its little-known but abundant fourth state: “molecular water,” fused into rock 400 miles deep, which is where most of the planet’s water is located. Fishman tackles the debate around water as an increasingly precious resource while reminding us that water can’t actually be “used up.” But, he makes clear, the era of easy water is over, and that’s something to think about, hard.

What Do the Economics of Bottled Water Tell Us About the Economics of Water? A Guest Post
By Charles Fishman

Just before last year’s NBA season, the Cleveland Cavaliers quietly removed all 18 water fountains from their home stadium, the Quicken Loans Arena, “the Q,” which seats 20,500 people. Q managers taped up signs where each water fountain had been that read: “For your convenience, complimentary cups of water are available at all concession stands through the Q.”

There are many words to describe concession stands at U.S. professional sports arenas; “convenient” isn’t one of them.

For more than three months, through dozens of events attended by almost 1 million spectators, there were no water fountains in the Q. If you wanted a drink of water, you had to stand in line at the concession stand, and when it was your turn, you could receive a free nine-ounce cup of water, or you could buy a chilled bottle of Aquafina for $4.

When the Cleveland Plain Dealer published an article about the disappearing water fountains halfway through the NBA season, the Cavaliers first said they were following advice from the NBA, that water fountains spread swine flu (the NBA never gave such guidance). The Plain Dealer pointed out that the removal was illegal — public buildings are required by building codes to have water fountains, the number based on capacity. Fans were so angry — once the paper pointed out that the fountains were gone; strange they hadn’t noticed — that the Cavaliers set up temporary water stations around the arena, so those who wanted a drink didn’t have to stand in line.

The Q then scrambled to re-install the fountains. By then, the Cavaliers alone had hosted 29 sold-out home games at the Q — almost 600,000 thirsty fans. If just 10 percent of those fans bought a $4 bottle of water they otherwise wouldn’t have, that’s nearly $10,000 in additional concession revenue, just for water, at each game.

When it was suggested to the Cavaliers that selling bottled water had been the point of taking out the water fountains, the team spokesman was indignant. “That’s simply absurd. That never crossed our minds.”

Sometimes the economics of water are as clear as water itself. And sometimes, they’re not. The disappearing water fountains make perfect sense for the arena. But what about the thirsty fans? Those who bought a single bottle of Aquafina at the Q were paying more for a couple swallows of water than they paid for a gallon of gasoline. In the cold case at a convenience store, you can get a half-liter of bottled water for 99 cents — 17 ounces for a dollar. The designer water in the same case, FIJI Water, costs 50 percent more, $1.49 for a half-liter, with the square bottle at no extra charge.

How incredible is that? If you drank the 99-cent bottle today, then took the bottle home and continued to use it, you could refill it every day with tap water until July 3, 2017, before you’d spent 99 cents on the tap water. Even the cheap bottled water is 2,000 times more expensive than the water we’ve got on tap at home.

Bottled water is a brilliant business, in that it depends on our participating in this amazing price paradox. The real question is why we do it, and what it says about water economics.

Three things are clear.

First, when we buy bottled water, we’re not buying the water itself — we’re buying convenience, we’re buying coldness, and we’re buying branding (and some false measure of reassurance about safety). It’s easier to grab a bottle of water from our own fridge than to have a clean reuseable bottle, keep track of that elusive top, fill it, and keep it in the fridge. Bottled water in the cold case is often a good choice — compared to soda — when you just want something to drink. And although all water is essentially the same — a quarter of bottled water (Nestle Pure Life, Aquafina and Dasani) is re-filtered city tap water — we like the statement of carrying a bottle of Evian or SmartWater.

Second, we are not willing to pay much for water at home. Any time a water utility moves to raise water rates, the outcry is stupendous. Residents act as if increasing the water bill from $23 a month to $30 a month will force them to choose between their heart medicine and their water. In fact, the average household water bill in the U.S. is $34 a month, $1 a day. That’s less than half the cable TV or cell phone bill. Water at home is perhaps the best deal any of us get (now that The New York Times is no longer free online) — and a symbol of the very human instinct that basic water service should be cheap. But since a single half-liter of bottled water costs as much as a day’s worth of cooking, washing, showering, and toilet-flushing for a whole family, it’s clear we can learn both to appreciate water, and to pay for it.

Which leads to the final point about water economics. “Free” is the wrong price for water. In fact, the lack of a price for routine water service is the most important thing that’s wrong with water — resources that are free are wasted; there’s no incentive to learn to use them smartly; there’s no money to maintain and modernize the existing water system; there’s no incentive to reach back and protect the source of something that’s free.

If it’s free, the message is that it’s unlimited.

In the U.S., we spend $21 billion a year on bottled water. We spend $29 billion maintaining our entire water system: the pipes, treatment plants, and pumps. We spend almost as much on crushable plastic bottles as we do on our most fundamental infrastructure system.

That’s why, in Philadelphia, where I live, we have 3,300 miles of water mains — and the water department replaces 20 miles of main a year. A 160-year replacement cycle. It’s fine to indulge in a bottle of FIJI Water, just not at the expense of the water system itself.

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.

 

COMMENTS: 28

View All Comments »
  1. jonathan says:

    Hidden due to low comment rating. Click here to see.

    Disliked! Like or Dislike: Thumb up 0 Thumb down 5
    • tj66 says:

      The private sector can be just as wasteful, it’s the source of the revenues that differs. The private sector uses marketing to convince you that you need somethin. The public sector uses marketing to cinvinve you to support a politican that will force someone else to buy you something.

      I do find it intersting in the consideration of the above that for more than a third of Americans the Public sector provides free services.

      Thumb up 1 Thumb down 0
    • Erik says:

      It wouldn’t be wasteful spending if the water utilities were run like a private company — charge enough to cover your costs, instead of relying on income taxes and accruing public debt.

      Thumb up 2 Thumb down 0
  2. cletus stevens says:

    I don’t feel we should have to pay for water. And I would never buy it at such a ridiculous price as 4.00 dollars a bottle. They never set the price right for anything that’s good for you. Stuff that’s supposedly good for u cost way to much and stuff that ain’t good is cheap. I can’t see why them great don’t make things straight

    Thumb up 0 Thumb down 0
  3. Philly Steve says:

    I noticed a similar phenomenon while traveling through Europe while traveling two years ago. There were hardly any water fountains to be had, and making matters worse the euro-dollar exchange was at its worst – so the bottled alternatives were pricey to me. Curiously, the Europeans also tended to have toilets with two different flush cycles: one gentle flush, and one more powerful flush. The combination of these two observations led me to believe that Americans have a certain “entitlement” of water that the Europeans did not.

    I like you’re mention of Philly, we Philadelphians should also not take for granted our pitching staff of four aces :)

    Thumb up 0 Thumb down 0
  4. Lucas Iten says:

    Didn´t you se the Michael Kremer´s new paper of safe water?
    http://elsa.berkeley.edu/~emiguel/pdfs/miguel_sip.pdf
    it´s the same message! It´s better to avoid commons tragedy. Safe water improves health.

    Duflo also has a new paper about sanitation http://www.nber.org/papers/w16933

    It is a good subject. In my dissertation i am evaluating the effects of sanitation on diseases and mortality in brazilian municipalities last decade.

    Thumb up 0 Thumb down 0
  5. Wally says:

    The only problem with this entire argument is that a single bottle of fiji water costs 20 bottles of water to produce and transport it. Not to mention the waste produced in manufacture and disposal of the bottle.

    Using the water fountain argument is weak. Perhaps they should charge people to flush the toilet at the stadium?

    People pay for tickets to stadiums so including a free service like “drinking” water should be expected.

    Thumb up 0 Thumb down 0
  6. ZZB says:

    You neglect to mention the taste difference. I guarantee you that I taste the difference between NYC water and Poland Spring (let alone Fiji, which really does taste better). Poland Spring tastes crisper and cleaner, so why am I ridiculed for buying it?

    Thumb up 1 Thumb down 0
  7. Perry says:

    This illustrates one of the fundamental rules about human beings: The hardest thing to take away from someone is something that they are getting at the most unfair price. Roads, bridges, water – all things that ‘someone else’ pays for and so any new toll or increase in price causes a huge uproar.

    Thumb up 0 Thumb down 0
  8. Uthor says:

    I really don’t like the water in my town. Worse, the water in my apartment specifically is kinda nasty (it stains the shower/toilet/water filter). I use a Brita filter and it this nasty water tastes just as good as anything out of a bottle.

    I keep three plastic bottles in the fridge for convinience and just refill them when I use them. Since water is included in the rent, I’m just out the cost of a filter (which will last me four or more months easy). Cheap and convinient.

    My sister refuses to reuse plastic bottles. Something about them leaking chemicals into the water? Doesn’t make sense to me. Wouldn’t that new bottle she’s drinking out of have been leaking chemicals the entire time the bottle was sitting unopened on the shelf? Then again, the water at my hometown tastes good out of the tap, plus my dad has a filter attached to the sink, and she still runs that good plus filtered water through a seperate Brita filter. She’s got some kind of phobia, she does.

    Thumb up 0 Thumb down 0