Is this an age of deregulation or reregulation? Oddly enough, it is both. Consider the following events:

* Last week Congress and the White House agreed on a formula to repeal the 1933 Glass Steagall Act, which prohibits the same financial company from operating as both a commercial bank and a brokerage. Yet at the same time, Congress modernized the whole government apparatus for regulating banks, their holding companies and investment banks.

* President Clinton has proposed adding a prescription drug benefit to Medicare, relying on the forces of competition to keep prices down. But he's also proposed reforms of Medicare that use government's power to control prices more directly.

* Managed care is said to be the free-market solution to the problem of medical cost inflation. But shareholder-owned managed care companies tend to maximize their earnings by avoiding selling insurance to sick people and by withholding care. So even free-market Republicans have voted to support regulatory measures known as patients' rights legislation.

* In Seattle next month, the world's trade and finance ministers will gather to launch a new round of trade negotiations, intended to remove barriers to free global commerce. But even as it promotes "free trade," the White House plans to unveil an initiative to subject world trade, for the first time, to labor and environmental standards.

* The Internet is said to offer purest form of commerce, by allowing any buyer to connect with any seller. Yet the biggest information-industry player of them all, Microsoft, is in court over government allegations that it uses its own market power to stifle competition. The most devout free-marketeers in Silicon Valley are thanking their stars for antitrust regulation.

What all of these developments have in common is the realization that more free competition often requires the counterweight of more regulation. Despite globalism, despite the Internet, three enduring characteristics about the capitalist system persist:

First, the temptation of a large company to amass monopoly power is irresistible. And despite the new competition, phone companies, cable companies, software makers, banks, airlines, to name just a few, are becoming more monopolistic, not less. The more the consumer threatens to become sovereign, the more companies seek shelter in mega-mergers.

Second, in a market economy the strong are able to take advantage of the weak. In the United States and Northern Europe, a century of political struggle has tempered raw capitalism with everything from social insurance to child labor laws to environmental standards. But put these economies into competition with countries that have no such rules and the more civilized standards of the advanced countries are at risk. Hence the need for global standards.

The third problem is systemic risk. The aforementioned Glass-Steagall Act was passed in 1933, in response to the speculative excesses of the 1920s and the Great Crash of October 1929.

In the past two decades, we've had a few serious financial near misses. In the early 1980s, big commercial banks bet wrong on loans to Third World countries. For a time, all the net worth of the big money center banks vanished, had they been subjected to strict accounting standards. It took the concerted effort of the U.S. Treasury and the Federal Reserve to orchestrate a workout.

In the late 1980s, the savings and loan industry was victim of its own speculative excesses. Were it not for government deposit insurance and regulation, millions of innocent citizens would have lost their savings, as in the early 1930s.

More recently, the collapse of the hedge fund known as Long Term Capital Management required another government-organized rescue, as did the containment of the recent Asian financial flu.

Without government as backstop, our financial system would fall victim to its own speculative impulses. And given that government has to play rescue squad, government also has to set limits on speculation in the first place, lest the taxpayers go broke underwriting bailouts.

Other countries have experienced the same dynamic. In Britain, the Thatcher government privatized one government enterprise after another. But the government found that it if it didn't regulate the newly privatized monopolies, the British consumer would simply be gouged.

So--long live the creative free market. And long live its faithful servant: creative government regulation.

The writer is co-editor of the American Prospect.