Charles Leadbetter, a freelance analyst who works with Demos of the UK and others (sort of like me but with better management), offered some great insights into the need for regulation recently that have been making the rounds of the blogosphere. (That's one of his books over there.)

How to Profit from Ignorance posits that regulation is needed to regulate ignorance. As life gets more complicated, we become more dependent on experts. Regulation becomes the experts' stamp of approval.

But there's another way of putting the same point -- transparency.

Transparent markets are the best home for capital, but they're tightly regulated. The history of the New York Stock Exchange and the growth of the American economy is eloquent testimony to that. (Isn't that a great picture? It's from architect Jorgen Thelin.)

Before the 1929 crash U.S. markets were readily manipulated by generations of vipers, from Cornelius Vanderbilt to Joe Kennedy. The creation of the SEC in the 1930s, and the host of both private and public regulations following in its wake, assure investors that they're not being taken for a ride if they, say, plunk on 100 shares of Merck or GE. The financial risk is real, but the risk that thieves will make off with your capital is reduced, because all the information you need to make a rational decision is before you.

That's why capital doesn't fly off to Mumbai or Shanghai. That's why companies based in other countries do everything necessary to get their stock traded here, as ADRs. They attract capital by making themselves more transparent. They don't do this out of the goodness of their hearts. They do it because they know it works.

The same is increasingly true in other areas. The FDA puts experts to work protecting us from phony drugs. The CPSC puts experts to work protecting us from dangerous consumer products. And so on.

In all these cases the goal is the same -- transparency. Buyers and sellers should have all the expert knowledge they need before them to make an economic decision. That's more than just notification, that's a high and rising standard of expert-based assurance.

Regulation can be public or private. Many of the regulations governing members of the New York Stock Exchange are private. But as the scandals of the 1920s proved (and today's scandals continue to prove) private regulation must be buttressed with public regulation to assure a truly transparent market.

And public regulation must be made in the public interest, not the private interest of the players, in order to be credible.

Is all this an argument for more government?

I think it is.