RALEIGH – For someone often accused of being dogmatic, I find that I have an aversion to yes-or-no questions in public policy.

Obviously, it’s not because I lack a strong point of view. It’s because my point of view is informed by market economics. When individuals enter a market to transact business, their work does not consist of asking a series of yes-or-no questions to potential partners, investors, suppliers, employees, and customers. Rather, they seek to know what others are willing to do at a given price. The goal is to find a point at which their differing interests intersect – the point at which a business transaction makes all parties better off.

Governments, unlike the private sector, resolve disputes by compulsion. By definition, government regulations and taxes make some worse off and others better off (if affected groups could bargain to a mutually beneficial deal, government intrusion would be unnecessary). Governments tend to produce win-lose outcomes. Markets produce win-win outcomes.

Take water, for instance. In North Carolina, where a combination of drought and rapid population growth is putting stress on water supplies in many communities, there are few local issues that generate as much passion and legislation. As Carolina Journal writer Sam Hieb explains in the October issue, communities in Piedmont and Western North Carolina are engaged in a pitched battle over interbasin transfers, in which public authorities allow water to leave one river basin for another.

Unfortunately, local governments are typically using the wrong tools to respond to issues of water conservation and transfer. They find themselves merely answering a series of yes-or-no questions:

• May I mow my lawn?

• May I wash my car?

• May I have a glass of tap water at the restaurant?

• May we tap into a neighboring river to refill our reservoir?

What policymakers should be doing instead is allow the price of water rise and fall to communicate its relative scarcity and demand. In communities experiencing the most severe drought conditions, the price of water ought to be rising significantly – adjusted for time of day and perhaps offset by taxpayer subsidy for truly poor households. At the higher price, other communities with less of an immediate problem might well consider selling water rights within their basin, because their taxpayers could benefit from lower rates or taxes while not imperiling their access to necessary resources. Furthermore, as water prices rise, users have strong financial incentives to conserve, which work better than that fairly low risk of being caught violating water restrictions. And the increased water revenues that some governments will receive can be invested in constructing new reservoirs or other needed infrastructure.

In communities where inadequate capacity results in persistently high water prices, that could well serve as a deterrent to further growth and development. This is a benefit, not a drawback. Prices are signals. They tell us things we need to know. You can’t change the facts on the ground, or in this case under the ground, simply by keeping prices fixed. It’s no different from keeping gas prices artificially low, as many countries do (and the U.S. did in the 1970s). The result, inevitably, is to worsen a shortage and lengthen the waiting line.

North Carolina governments ought to be addressing water issues creatively, not just by making greater use of market pricing but also by considering public-private partnerships, competitive contracting, and other means of adding and managing new water and wastewater capacity. Other governments have lots of experience with these innovations, experience from which we can learn.

The first lesson is to stop thinking of solutions as merely yeses and nos. Real solutions involve asking, “Yes, at what price?”

Hood is president of the John Locke Foundation.