Without a clear definition of market manipulation, or a detailed description for prohibited conduct, market participants are often left with more questions than answers.
Bottling the Genie
Why deregulation is easy and reregulation is hard.
The now-familiar paradigm shift from traditional regulation of public utilities—and for that matter of financial institutions—to relaxed regulation was fairly easy to come by. But reverting to more stringent social oversight of these sectors when need has arisen—from failed policies, promises unfulfilled, or outright scandal—is very difficult.
The twin notions of “technical feasibility” and “value acceptability” together allow or hinder these opposite courses of policy action. In this context technical feasibility has to do with the capacity in place to handle a particular policy step, e.g., available technology or an existing market or institution. Value acceptability has to do with the readiness of the public or decision elites to welcome—or at least acquiesce to—the step. Both elements combined in the mid-1980s onward to allow the aggressive deregulatory movements in transportation and public utilities—and more recently in the banking and investment sectors. The resulting retrenchment of social regulation was wide and deep.
By contrast, in instances where relaxed regulation has either failed or fallen well short of the claims of its proponents, reregulation toward more traditional comprehensive and sustained oversight has been extremely hard to attain. While technical feasibility could be reconstructed, value acceptability is absent and unlikely to appear in any near term.
The deregulatory movement from the mid-1970s onward has been amply chronicled. 1 In the course of little more than a couple decades the federal government had fully or substantially deregulated trucking, intercity busing, the airlines and railroads, natural gas, telecommunications, and cable TV, as well as various financial markets. Concurrently, states followed suit by enacting so-called “restructuring” initiatives for their jurisdictional utilities, first in telecommunications and then in the energy sectors. These changes largely mirrored the federal efforts and were either nationally mandated, encouraged, or proscribed. 2 While not a smooth unbroken line of regulatory retrenchment in each industry, the overall thrust was one of dramatically diminished social oversight of these sectors. In the policy arena, the neoclassical economists had triumphed over the institutionalists in a near rout.
A number of forces came together to make this grand reform both feasible and acceptable. 3 Of course the term “regulatory reform” itself should be a neutral one, denoting change in either direction, i.e., more stringent regulation or less. But from the beginning it became a euphemism for aggressive dismantling of traditional regulation at every opportunity, real or imagined. Successive presidents made it part of their domestic agendas; members of Congress from left to right embraced it as political symbol, liberals seeing it as a way of breaking monopolies, and conservatives imagining the paradise of free market competition. Proponents glibly argued that antitrust would protect us if any unexpected bad happenings ensued—a dubious proposition since antitrust action is a very poor substitute in this case; Labor unions and other constituencies that might have been expected