Are We Having a Water Shortage or a Water Crisis?
It is fair to say that California is having a water crisis, but this is very different from saying that San Diego faces a water shortage. As long as there are willing sellers of water from the agricultural sector and as long as as much water as is desired can be obtained from desalination, there can never be a water shortage in sense generally accepted by economists.
All we are looking at is a situation where households and businesses will have to pay more to obtain the water they want and the price of desalination which serves as an upper bound on this cost. Further, it should be noted that this upper bound on the cost is low enough that public health would never be endangered due to the inability to afford water for drinking, food preparation, bathing, and sanitation.
California has a water crisis because the historical allocation of water has been upset by: (a) population growth in urban areas, (b) loss of water from the Colorado River in court decisions to other states, primarily Arizona, and (c) loss of water from the Sacramento River-San Francisco Bay system by court order to protect environmental resources.
Something has to give and the political will to implement a new workable water policy for California has thus far been lacking. Water should move out of low value added (from a water perspective) agriculture. But there are still legal obstacles and legislators in Sacramento continue to make it much harder to buy and sell water than is the case in some other states. The water infrastructure to transport water and protect the environment is in terrible shape. All of this makes water in urban areas more expensive than it should be.
Ultimately, though households and firms in urban areas are likely to have to pay higher prices for less water. There are more of us now and there is less low cost water to “average” in.