Las Vegas and the Shrinking Invisible Economy

dsc1511lJust over a year ago I postulated that environmental investing may not be dead. The issue that keeps arising is the invisible economy. Traditionally in economics things that are provided “free” by the natural world don’t get counted in “The Economy”, while things that people do want from the natural world do get counted. For instance, everyone agrees that there is a market for commodities like gold, oil and lumber. Extracting any of those commodities is considered part of the economic growth of the country, from the people who build the roads and equipment for accessibility to the physical harvesting of the raw materials, back to its refinement all the way down to the finished product. All of that is part of the economic system. But by-products from all this economic activity that pollute water ways, or urban expansion that paves over marsh grounds, or excessive water waste that diminishes aquifers isn’t considered an economic activity, it’s called an externality.

In other words there are a number of benefits that are provided to us through natural processes that we get “for free” and rarely get assigned a price tag for their contribution. This has been allowed to happen since much of the ecosystems have been able to absorb considerable abuse without stopping the benefits that we have been provided. Except in Las Vegas.

Las Vegas already doesn’t make sense. It’s a desert oasis without an oasis. A bustling city that’s situated in the middle of nowhere, with few natural resources to support it. In fact Las Vegas is so heavily dependent on water that it is literally drying up the desert that will likely lead to the ending of the Hoover Dam as a source of power. Lake Mead, the lake created by the dam is the primary source of water for the city, and the city’s needs have become so great, and the water level so low that there are now two emergency tunnelling construction projects underway to ensure that there is still water for Sin City.

How low is the water? Currently the elevation of the lake shows 1104 ft. The lake is expected to be down to 1080ft by April of 2015. Five more feet and officially there is a level 1 emergency shortage declared. If the lake drops further, to 1050 ft. the Hoover dam stops producing electricity. Under current estimates (assuming that the desert doesn’t get torrential rains for the next few years) this isn’t a question about if, but about when.

Screen shot 2010-10-21 at 11.02.31 AM-2

Las Vegas is unique for other reasons, it wastes an unbelievable amount of water, and its growth rate has been much higher than its gains in conservation. But its situation isn’t unique. It’s happening all over the world, and the result is both rising prices for water and growing infrastructure investments. These will be good opportunities for investors, but bad for local economies as disposable income will be shifted to covering increasing water costs. Las Vegas is useful because the scope of these problems is obvious. Hundreds of millions of dollars are being spent to extend the usefulness of Lake Mead to Vegas. Water rights are being purchased by the city as fast as possible, and if the Hoover Dam stops producing electricity there will be not simply lost revenue from the dam, but increasing electricity and infrastructure costs. The invisible economy of the environment may soon not be so invisible.

Lake Mead

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