With the Western world’s press fascination with the ongoing financial crisis in the United States, talk of government regulation (or in this case, the lack of it) in financial markets has once again been a topic for spirited conversation. People typically equate lack of government regulation with lack of regulation altogether.
Things don’t work like that.
The great American sociologist C Wright Mills observed in his book The Power Elite "That both state and federal governments were decisively limited in their power to regulate, in fact meant that they were themselves regulatable by the larger moneyed interests."
That is what has happened. Financial traders followed rules. It’s just that they made them up themselves. The rules were not developed by mechanisms in which the public had any kind of hope of meaningful participating in, which is was democracy is all about. Instead the larger money interests used their considerable financial and political clout to set things up in their interest, telling government they knew best. And the American power elite let them get away with it.
It’s very often not a question of regulation vs. no regulation. Rather, it’s a question of who makes the rules, and for whose benefit. As Chomsky notes, "These doctrines do not derive from economic theory; they merely reflect the distribution of decision-making power."