DENNIS MYERS Against the Grain Advertisement

In the mid-1970s, U.S. Sen. Howard Cannon of Nevada was using his post as chair of the Senate Commerce Committee to keep airline deregulation bottled up. Sen. Edward Kennedy of Massachusetts and economists, meanwhile, were beating the drum for what they called "regulatory reform."

"Cannon is almost alone in his skepticism," wrote one reporter. Everywhere in the nation's capital in those days, Democrats were promoting deregulation, whether it was natural gas or usury or airlines. Just as Democrats in the 1950s fended off McCarthyite accusations by demanding greater defense spending, they now found it useful to show they were pro-business by supporting deregulation.

Cannon was unable to stop it, and in 1978 the Airline Deregulation Act was enacted by Congress and signed by President Carter.

Within a short time, predatory pricing was common. Airlines started losing gargantuan sums -- in one two-year period, two scholars wrote, the incredible losses "would wipe out the airlines' entire profits of the previous sixty years." Airline after airline went bankrupt, leaving only a few giant airlines. Without regulation, there was very little competition left. Kennedy doesn't like to talk about his role in deregulating the airlines anymore and many of those, like Ralph Nader, who supported deregulation want the industry re-regulated.

Regulation has a terrible reputation, mainly because of those anecdotes about when it goes wrong. The inflexible regulator devoid of common sense is always publicized widely. When regulation works -- which is most of the time -- no reporter covers it. This isn't surprising. Journalism is about conflict and the unusual. We don't report all the banks that have not been robbed, and we don't report it when industries are well regulated.

In recent years, with politicians using regulation as a political punching bag and presidents of both parties trying to reduce it, their message has been communicated to regulators themselves, who often have become less than vigorous. Nevada has seen a notable example with the health clinics scandal. State health regulators have allowed long periods of time to pass without inspecting clinics -- this in a state where even legally mandated inspections are already ridiculously infrequent. The consequence of sloppy practices and unhealthy clinic conditions were inevitable.

If Nevada's experience isn't bad enough, there are the calamitous events surrounding the bank run on Bear Stearns. Except for the intervention of federal regulations, the fragile United States economy would now be in a catastrophic tailspin. It might be asked, if this industry is so well regulated, why did this cataclysm happen? Princeton economist Paul Krugman last week wrote in the New York Times that after the great stock market crash of 1929, regulatory protections for the public were enacted:

"And we all lived happily for a while -- but not for ever after. Wall Street chafed at regulations that limited risk, but also limited potential profits. And little by little it wriggled free - partly by persuading politicians to relax the rules, but mainly by creating a "shadow banking system" that relied on complex financial arrangements to bypass regulations designed to ensure that banking was safe.

"For example, in the old system, savers had federally insured deposits in tightly regulated savings banks, and banks used that money to make home loans. Over time, however, this was partly replaced by a system in which savers put their money in funds that bought asset-backed commercial paper from special investment vehicles that bought collateralized debt obligations created from securitized mortgages -- with nary a regulator in sight."

As financial institutions slink under regulatory protections and regulators, we are seeing things happen that haven't been seen in years. The revival of the term "bank run," seldom heard for decades outside of history class, is a good example. Countrywide Financial last year and Bear Stearns this year are reminders of how long we have gone without bank runs, thanks to regulation.

The spread both of those bank runs nationally and of disease in Nevada are warnings of how unregulated industries can perform, or fail to perform.