SMUD is proposing a major rate hike for electricity, blaming the recession:

http://www.msnbc.msn.com/id/29978318

There are those who are quick to blame capitalism, thinking that this is what happens in the free market. The trouble is, this has nothing to do with a free market. Notice that if you live in Sacramento you have only one choice: SMUD. That is because SMUD is a monopoly.

One misconception that people these days seem to labor under is that capitalism promotes monopolies–that they are inevitable and we need the government to step in and stop them. Afterall, we cannot trust a freedom in the marketplace–people are likely to abuse it! The truth is that only the government can create a monopoly. A monopoly is where one company or organization has 100% of the market-share. They only way you can achieve 100% is to outlaw your competition.

I’ve heard arguments to the contrary, and they usually involve Standard Oil and Microsoft. The truth about Standard Oil is that they never had 100% market share. According to Mary Ruwart in her book “Healing our World,” Standard Oil had 90% of the market share for crude oil in 1879. By 1884, their competitors began to eek into their market share. By 1911, Standard “refined only 64% of the domestic petroleum. The competition included Gulf, Texaco, Union, Pure Oil and Shell.” The federal government’s anti-trust suit was too little too late, and, well, pointless as the free market had already cut Standard down to size.

Microsoft is also sited as a monopoly. The truth is, you can run a PC without Microsoft’s OS. Yes it may be difficult, but for example, I can go to Frys and build a computer from scratch (motherboard, CPU, memory, hard drive, a case, monitor, keyboard and a mouse) and install the GNU/Linux or FreeBSD operating systems. I could do this even during the MS heyday when Apple was bust. The point is, you still had a choice, even if it was inconvenient. Now we see the reemergence of Apple, and GNU/Linux’s market-share on the rise. The free market was responsible for Linux–that was the one product Microsoft could not “embrace, extend and extinguish” since it was…free (not “free” as in beer). And this time, the DOJ was completely unsuccessful at doing anything to stop Microsoft. I’m not a bit fan of MS, but the truth be told–people vote with their dollars and buy Microsoft. By choice.

SMUD is a different animal. Like AT&T of old, the government has outlawed their competition.  Where can you go if you don’t like SMUD and their prices? We have the same problem on the other side of the Sacramento River where we’re forced to use PG&E. In a true free market, you would have a choice of power providers. SMUD (and PG&E for that matter) could never price gouge like this because people could switch. This is a built-in regulation in the free market, one that keeps prices down and benefits consumers. But again, we don’t have the benefit of the free market here. So we are stuck with the prices the monopolist decides to set.

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