It’s a Wonderful Market: What George Bailey, Ma Bell, and the oilmen of Pottersville can teach us about the freedom to compete

When things get awful busy, I think of It’s a Wonderful Life and imagine what life might be like if the breakup of Ma Bell, privatization of the internet and the 1996 telecom act never happened. I’d be printing out copies of The Digest and mailing them to you. And before the postage costs sank me, you’d be sunk by the disappointment of getting the news a week late.

Lately, I’ve been imagining a Bedford Falls where the entire world always ran on renewable energy and fuels. And one day in 2026, an enterprising fellow in Titusville, PA strikes oil.

Gobs of it.

The wonderful new substance

As 2026 unfolded, the oilmen couldn’t believe their luck. They had discovered a remarkable substance—you could burn it for heat or fuel, turn it into light, make chemicals and plastics. The possibilities seemed endless.There were vast deposits underground, and it was energy-dense, transportable, and storable. A whole new American industry was waiting to be born.

Investors rush into Titusville, newspapers proclaim the discovery of the century, and Congress announces that petroleum would be a cornerstone of American energy independence. The government even enacted an Oil Fuel Standard, the OFS, calling for 36 billion gallons of gasoline and diesel by 2046. The oilmen were ecstatic. And then they went looking for customers.

That’s when the trouble began.

Sorry, we don’t allow that here

The oilmen’s first idea was to sell kerosene lamps—a splendid invention offering portable illumination, available almost anywhere, without access to the electrical grid. Unfortunately, Bedford Falls’ residential building codes prohibited combustible liquid lamps in homes; electric lighting had been the standard for generations, and fire safety was important. So the oilmen proposed heating homes with their new fuels.

Sorry.

Bedford Falls’ heating codes had been developed around renewable fuels, wood, and electricity, leaving petroleum heating equipment with no established certification pathway. How about propane barbecues? The outdoor cooking equipment standards recognized charcoal, renewable gas, and electric grills, meaning propane appliances would need new approvals.

Well, plastics! Petroleum could produce an extraordinary range of polymers with properties that renewable feedstocks couldn’t always match. Unfortunately, Bedford Falls had long ago enacted packaging standards requiring biodegradability.

Then the oilmen discovered the automobile. Here, surely, was their salvation. Petroleum could power internal combustion engines, refiners could manufacture fuels with extraordinary energy density, and engineers had designs for gasoline engines that might transform transportation. There was only one problem: Bedford Falls’ vehicle certification rules had been written for renewable fuels.

What about putting petroleum-derived fuels into existing distribution systems? The pipelines carried renewable feedstocks, corn sugars, and other products, and petroleum might contaminate them. Bedford Falls had decades of experience approving renewable-fuel facilities, but petroleum refining introduced new emissions, process hazards, and waste streams. The regulators needed studies. More studies. And then studies of the studies.

The oilmen go to Washington

By now, the oilmen were furious. They had discovered an astonishing new resource, yet nearly every promising market was difficult or impossible to enter.

The oilmen demand action. They want expedited permitting, pipeline rights-of-way, standardized vehicle testing, access to filling stations, changes to materials regulations, and permission to sell products that consumers might actually want.

The renewable industry was appalled. Why should regulators weaken perfectly sensible safety and environmental requirements? Why should retailers install new equipment for unfamiliar products. And why, above all, should anyone be forced to buy petroleum?

The answer was obvious, said the Bedford Falls Chamber of Commerce: let petroleum compete in the free market. We’re free! All of the above, and below, can compete! Splendid advice—if there had been a free market for petroleum to compete in.

A telephone call

Now, this is where I return to Ma Bell. Once upon a time, America had a magnificent telephone system that connected practically everyone who needed connecting. Its technology was sophisticated, its standards rigorous, its reliability impressive. I remember the old system. It worked.

Then MCI came along with an interesting proposal: it could build a competing long-distance network, invest in microwave towers, switching equipment, and new services, and offer customers attractive prices. But the Bell System controlled the local exchanges through which MCI needed to reach those customers.

Eventually, the courts, regulators, and Congress began opening the system. The Carterfone decision of 1968 helped establish the right to connect privately supplied equipment to the telephone network, subject to technical protections.The 1982 antitrust settlement led to the divestiture of the Bell operating companies in 1984, and the Telecommunications Act of 1996 pursued further competition in local telephone service.

Long-distance competition expanded, equipment markets opened, and new carriers and services emerged—eventually an extraordinary ecosystem of mobile communications became part of everyday life. And here’s the fascinating thing: nobody needed to invent the iPhone in 1982 to justify opening the telephone market. Some of the greatest benefits came from things nobody had yet imagined.

The invisible protection of the familiar

Now consider America’s actual energy markets, built around more than a century of petroleum development. Some of this infrastructure is extraordinarily efficient, some regulations address genuine safety and environmental hazards, and some incumbent advantages are the legitimate rewards of investment and engineering achievement.

But some rules also reflect an assumption that the familiar fuel is the normal fuel. Higher ethanol blends face different vehicle-compatibility requirements and regulatory pathways; E15 has encountered summertime sales restrictions, and while higher-octane blends present opportunities for engines designed to exploit them, the established vehicle fleet and retail infrastructure provide limited incentives to develop that market.

Congress itself recognized that petroleum franchise arrangements could obstruct renewable-fuel competition when, in 2007, it enacted protections for retailers selling certain renewable fuels—yet the ethanol-specific franchise protections were written around E85, not intermediate blends such as E15 or E30.

And then there are the less visible advantages of incumbency: established pipeline corridors, familiar permitting categories, existing retail equipment, recognized financing structures, experienced lenders, and long-standing tax provisions, including preferences for certain petroleum exploration and production expenses. None of these alone proves an unfair market.

A regulatory delay has an economic cost, a requirement to duplicate infrastructure has an economic cost, and an externality that makes it more difficult to introduce a competing product comes with a bill to pay. The cheapest product at the cash register is not necessarily the product with the lowest total cost to society.

A bargain

So here is an idea worth imagining: what would happen if we opened the fuels marketplace to genuine competition? I can see people right now gagging over the potential loss of their most-favored credit, depreciation category, mandate, closed pathway, barrier, technical standard, or permitting process. Yikes. It’s an imaginary exercise for now, for that reason.

Yet, if we believe in markets, we ought to be willing to examine not only the government interventions we can see, but those we have inherited—and cede advantage in return for access, trusting that “the gracious hand which preserved us in peace and multiplied and enriched and strengthened us,” to use Lincoln’s remarkable phrase, will not defeat us in our shift toward a fair and open market. No market is truly free until it is freed from unfairness.

The wonderful market we haven’t met

Perhaps the petroleum system will continue to outperform competing fuels in most applications, or perhaps renewable fuels will win new markets through high octane, improved engines, lower emissions, or better economics. Perhaps the next great transportation fuel isn’t yet on anybody’s list, and new molecules, production methods, infrastructure systems, and business models will emerge that we cannot presently imagine. We don’t know—and that, of course, is the point.

In Bedford Falls, the oilmen were told to compete in a free market that had never been designed to accommodate them. Here on Earth, we remember that opening a network to competition did more than lower the cost of telephone calls: it made room for an entirely different future. The challenge for free-market advocates isn’t merely to defend the markets we inherited, but to recognize when those markets have become closed to possibilities we haven’t yet discovered.

The telephone worked. But the future was trying to get through.

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