Government Is the Only Real Monopoly

Originally published on Substack. 

Texas families paid an average of $173.94 per month for electricity last year, among the highest monthly bills in the region, while ERCOT issued repeated conservation requests and came dangerously close to emergency conditions.

At the same time, more than 98 groundwater conservation districts across the state manage water through political boards, regulatory allocations, and bureaucratic permitting rather than clear market exchange.

That is not a coincidence.

Texas does not mainly have a water problem or a power problem. Texas has a control problem.

Scarcity is real. It always will be. The question is whether it is managed through prices, property rights, and competition, or through bureaucrats, government entities, and political favoritism.

One system creates incentives to conserve, invest, and innovate. The other creates shortages, fragility, and permanent fights over who gets what.

Lawmakers should stop confusing government management with a functioning market.

ERCOT Is Not a Free Market Success Story

Texas likes to talk about being different. On electricity, it is different, but not nearly as free-market as many claim.

ERCOT is the centralized operator that manages the flow of electric power for about 90 percent of Texas load. It is not “the market” in any meaningful sense. It is the central gatekeeper of a system built around rules, mandates, political interventions, and constrained price signals.

When one entity manages the grid under heavy political oversight, that is not decentralized competition. That is centralized administration dressed up in market language.

As ERCOT CEO Pablo Vegas recently warned, the system came “incredibly close” to emergency operations that could have ended in rolling blackouts. And the pricing data tells the story.

Texas residential electricity rates reached 16.18 cents per kilowatt-hour in March 2026, nearly 30 percent above neighboring Louisiana’s 12.44 cents, and far above Oklahoma’s 9.09 cents.

Meanwhile, legislation in recent years could undermine the grid’s ability to meet forecasted demand because lawmakers keep steering investment rather than letting competition and price signals do the work. This is when conservation notices have become routine, which is not a weather quirk. It is a structural symptom.

Lawmakers keep trying to subsidize reliability, steer financing, and politically backstop the system instead of letting competition and price signals coordinate supply and demand. That is why Texans keep getting “reforms” without genuine resilience.

If lawmakers truly want a stronger power system, they should move toward more real competition in generation, storage, retail options, transmission incentives, and private investment, not more political planning.

The answer is not to make the centralized framework even more central. It is to reduce the barriers that prevent genuine market discovery and competitive discipline.

Water Systems Are Political Systems First

The same problem exists with water, and in many ways it is worse.

Texas has more than 98 groundwater conservation districts covering all or part of 144 counties, each operating under its own rules with its own political boards.

Decisions about allocation, pricing, infrastructure, and conservation are political long before they are economic. That setup almost guarantees misallocation.

Texas water law also contains the Rule of Capture, a principle that gives landowners broad groundwater claims in theory, but those rights are limited in practice by layers of local regulation and institutional conflict.

As the Texas Commission on Environmental Quality acknowledges, no single state agency regulates groundwater use statewide. Instead, more than 98 politically created districts each set their own rules, creating a patchwork of legal conflict and political rationing rather than a coherent system of exchange.

When the government owns or heavily controls the system, the incentives for long-term stewardship and innovation weaken. Pricing is distorted. Investment decisions become political. And the people making the decisions usually do not bear the full cost of getting them wrong.

That is not resource freedom. That is confusion.

The Price System Is Not Optional

This is where lawmakers need to remember basic economics.

Hayek’s knowledge problem is not an ivory-tower concept. It is a practical warning.

No central authority knows the correct future price of electricity in every hour across Texas. No board knows the right amount of water to conserve, move, or ration across every county and basin. No agency can process the changing information that millions of people and businesses reveal through market choices.

Prices do that.

Prices signal scarcity. Prices tell producers when to invest. Prices tell consumers when to conserve. Prices help entrepreneurs discover better technologies and business models.

When lawmakers suppress those signals through subsidies, political allocation, and government ownership, they should expect misallocation.

As Milton Friedman taught, do not judge policy by its intentions. Judge it by its results. Texas keeps getting the wrong results.

Property Rights and Privatization Fix Incentives

If lawmakers want lasting improvement, they need to think less like players and more like referees.

The answer is stronger property rights and more privatization of these resources.

When something is privately owned, someone has a direct incentive to protect it, improve it, and use it efficiently. When something is managed by government, responsibility is diluted and politics fills the vacuum.

That is true for water infrastructure. It is true for electricity generation, transmission, and storage.

Private owners respond to profit and loss. Government entities respond to politics and pressure.

Private firms that fail lose money and market share. Public entities that fail usually ask for more funding and more control.
As the Mises Institute explains, the state is the one institution that can compel payment, block competition, and preserve failure indefinitely.

In a real market, even a dominant firm faces pressure from innovation and rivals. In politics, failure can survive for decades.
Privatizing these systems, or moving much closer to genuine market competition, would not make scarcity disappear. It would do something better. It would make scarcity manageable through real incentives.

The Unseen Costs Are the Biggest Ones

This is where Bastiat still matters.

The seen is the state-backed loan program, the public utility expansion, the district board meeting, or the ribbon-cutting for a politically favored project.

The unseen is everything Texas never gets because government crowds it out.

You do not see the private water trading platform that was never created because the legal framework discouraged exchange. You do not see the private grid innovations that were never financed because lawmakers decided to steer capital somewhere else. You do not see the smaller competitors who never entered the market because they could not break through the political structure of the system.

Those unseen costs are often far larger than the public costs everyone debates, and no budget line ever captures them.

The Bottom Line

Texas does not need more state management of water and power. It needs less.

A centralized grid gatekeeper and government-dominated water systems do not solve scarcity. They politicize it. They weaken price signals. They discourage competition. They protect bad decisions from market correction.

If lawmakers want abundance, resilience, and affordability, they should trust the institutions that actually coordinate scarce resources well: private property, market prices, competition, and voluntary exchange.

Texas should be leading the country in resource freedom. Too often, it is still acting like scarcity must be managed from the top down. That is backward, and it is costing Texans.

Five Takeaways for Policymakers

1. Move ERCOT toward real competition. Reduce barriers to private generation, storage, and retail entry. Let price signals coordinate supply and demand rather than political steering. Every layer of intervention added since Winter Storm Uri has made the system more rigid, not more resilient.
2. Consolidate or eliminate redundant water districts. More than 98 groundwater conservation districts with conflicting rules and political boards is not a system. It is a patchwork of misaligned incentives. Simplify the framework and move toward tradable water rights with clear ownership and market exchange.
3. Clarify and strengthen the Rule of Capture into a workable property-rights system. Water trading works where ownership is clear and exchange is legal. Reform groundwater law to enable genuine market exchange rather than political rationing.
4. Apply Bastiat’s test to every energy and water bill. Ask not just what the bill claims to do, ask what private innovation it displaces, what competition it forecloses, and who bears the unseen cost. If the answer is taxpayers and future consumers, vote no.
5. Privatize what government does not need to own. Water infrastructure, grid assets, and distribution systems managed by private owners under competitive discipline perform better than politically managed ones.

Closing

I’ve spent decades working across more than 20 states and the federal government on property rights reform, energy market policy, and the economic case for limited government.

What the data consistently show is that markets, when free to operate, coordinate scarce resources better than any government board ever has. The evidence is not close.

Texas has every advantage: energy abundance, economic dynamism, and a constitution that respects property rights. What it lacks is the political will to trust markets to do what politicians cannot. That is the will the 2027 session needs to find.

Stay engaged, stay principled, and keep letting people prosper.