Too Much Faith in Free Market

Sarah Rosen Wartell discusses in Roll Call the need for a well-functioning regulatory structure with regulators who actively promote transparent and fair markets.

The deregulation culture is a central and not fully understood element in the story of how we got into the worst financial and economic crisis of the past 75 years. Understanding how culture affects policy provides important guidance for policymakers and regulators as they put in place new organizational structures charged with promoting and protecting efficient markets.

For the better part of the past two decades Wall Street and Washington, D.C., placed much faith in the free market’s unparalleled ability to foster innovation that would create wealth. Our society exalted the ingenuity that designed ever more complex instruments to perfectly match the investors’ individualized tolerance for risk. This faith drove a parallel fear that any limitation or regulatory measure would invariably impede the financial markets’ ability to create value through financial engineering. Confidence in the private sector went hand in hand with distrust of public actors and a lack of confidence in their basic intelligence or ability to serve the larger public good. The core conservative tenet of limited government loosened our attitudes toward financial markets across too much of the political spectrum.

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Sarah Rosen Wartell