I mentioned some time ago an excellent speech given by Dr. Ken Henry. I agree with Peter Martin who says that the head of Australia's Treasury writes the best speeches in public life.
Well, Ken Henry is at it again. Last night he gave the Ian Little Memorial Lecture. In a fascinating and even pugnacious speech he ranged over a number of topics, but the one picked up by most of the media today was his commentary about creating a market in water.
A small sample from his speech:
In times of drought, water prices would rise in order to equate demand and supply; just how high they would rise depends not only upon the severity of the drought, but also the price-sensitivity of both market demand and market supply.
In a well functioning water market, drought-induced increases in the price of water would reallocate water among users, with a higher proportion of it flowing to those who valued it more highly. In any place, or at any time, at which its marginal value fell short of its price, water would not be used. On the other hand, if a suburban gardener valued her roses sufficiently highly, she wouldn’t have to stand by and watch them die.
The supply response is even more important. The drought-induced increase in price would provide the signal for investment in additional supply, including things like desalination plants, new dams and water recycling plants. When brought on stream, these investments would reduce the price of water. That is the logic of markets: additional supply reduces price rather than, as under current water arrangements, increasing it.
As Seth Godin and I said, grass lawns are going to become a status symbol.