In the 1980s, Ronald Reagan and Margaret Thatcher made deregulation a guiding theme of economic policy in America and Britain, and much of the world followed along. Businesses were given new freedoms. In many cases, if rules were deemed necessary, firms were invited to regulate themselves. This empowerment of the market was usually advantageous, sometimes bungled, and nearly always controversial—but for years the trend was mostly one-way.

Now a major rethink is under way. Regulatory failure in banking and “shadow banking” is widely seen—even by onetime proponents of the light touch—as a main cause of the subprime-mortgage meltdown. A Republican administration hitherto committed to deregulation is calling a halt, and in mortgage-lending is proposing new rules.

A Democratic administration, if the country gets one, will surely do more, and not just in finance. Advocates of stricter regulation worldwide will sound more credible, and champions of market forces less so. For years, what drove deregulation were good results (in most cases) and a sufficiently widespread presumption that the idea made sense. The subprime crisis has overturned both. Regulation is back.

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