From one of the members of the intellectual vanguard of Neo-classical economics, “law & economics”, and, in a sense, the whole late 20th century conservative movement, Judge Richard Posner:
I no longer believe that deregulation has been a complete, an unqualified, success. As I indicated in my posting of last week, deregulation of the airline industry appears to be a factor in the serious deterioration of service, which I believe has imposed substantial costs on travelers, particularly but not only business travelers; and the partial deregulation of electricity supply may have been a factor in the western energy crisis of 2000 to 2001 and the ensuing Enron debacle. The deregulation of trucking, natural gas, and pipelines has, in contrast, probably been an unqualified success, and likewise the deregulation of the long-distance telecommunications and telecommunications terminal equipment markets, achieved by a combination of deregulatory moves by the Federal Communications Commission beginning in 1968 and the government antitrust suit that culminated in the breakup of AT&T in 1983.
First, considering the source this is shocking. Second, there is a very simple distinguishing feature between successful deregulation industries and others: the services can easily be “unbundled.” By limiting regulation to the natural monopolies, they are freer to let competition work in the other parts.
For example, natural gas can come from quite a few places. Not infinite, but many. And it can be stored. There’s a fine line, but I think gas falls on the side of the line that lets it be free, as long as the natural monopoly pipelines are not.
The same applies to the tons of trucks out there. There’s not really a natural monopoly the way there is with, say, trains. Telecommunications is the same thing. The “pipe” can be regulated as long as the contents can go from point A to point B mostly freely. This is especially possible in the era of packet-switched inter-networks.
Electricity, on the other hand, is always going to be an oligopoly. It’s also too essential to everything else to just leave the regulation to the power lines. Sure, like in Texas, you could unbundle, but at the end of the day there’s only going to be a handful of providers and a handful of power plants, and electricity is virtually impossible to store efficiently.
Same with airlines. Unless you just had a regulated fleet of cargo planes that carried service modules from different companies in them, it’s more or less impossible to unbundle the medium and the cargo. There is also a finite number of routes that can be flown, resulting in natural oligopolies.
Any true champion of the free market doesn’t want monopolies or ologipolies, whether natural or not, whether government or not, interfering in their markets unregulated. This is why we don’t have private ownership of roads or bridges.
This all goes back to the way these issues were understood in the 1800s, arguably in a free market era, but without the same degree of fundamentalism or concentration of political power, which has become a natural monopoly (duopoly?) of its own.
With relation to banking, there is simply no compelling argument for the level of deregulation that we have. It’s too fundamental to everything else, it’s too disaster prone, and that’s been shown again and again, but we keep forgetting.
P.S. How many times have I lamented the repeal of Glass-Steagall as the single worst act of the Clinton administration? That act was responsible for Enron and the current subprime crisis (an expert cited in this Bloomberg.com article agrees). It’s Bush’s fault for not doing anything, but this was made possible by 90s “New Economy” triumphalism and forgetting not just the Great Depression but the recent history of Long Term Capital Management’s meltdown in the mid 90s, and the S&L crisis in the 80s.