Economic debates too often proceed from the presumption that there is a "free market" into which the government can intervene only with great trepidation. But government writes and enforces the rules that are essential to what we think of as a "free" market. Without these rules, and the coercive power of government that stands behind them, a "free market" would involve nothing better than getting clubbed over the head for a handful of acorns.
The less-versus-more framing of regulation supports the premise that there is in principle an unregulated market out there and that some of us wish to rein in this unregulated market while others would leave it alone. This is consistent with the idea that large inequalities in income distribution just happen as a result of market forces. But as the above examples illustrate, no one is really talking about an unregulated market—rather we are all just talking about whom the regulation is designed to benefit. Distribution of income has never preceded the intervention of government.
The government is always present, steering the benefits in different directions depending on who is in charge. Accepting this view provides a political vantage point much better suited to the case for progressive regulation. After all, conservatives want the big hand of government in the market as well. They just want the handouts all to go to those at the top.
. . . Even so, the catastrophe produced by the one-sided deregulation of the financial industry, coupled with a long list of regulatory failures in other areas, will almost certainly lead to a serious rethinking of regulatory policy in the years ahead. It remains to be seen whether this rethinking will go beyond the familiar debate. We know that when we emerge from the current crisis the economy will be extensively regulated. The questions is, to whose benefit?
I hope the smart folks in the Obama administration are pondering just that question.