The Road to Recovery
The road to America’s financial and economic recovery is littered with ideal and practical “fixes” by both parties (and outliers) all of which presume to cure the patient. However, this cacophony of disparate ideas hides a much more serious philosophical issue. For the first time in our history America seems to have lost its way. We have put aside, to paraphrase Niall Fergurson , those core beliefs that allowed our country to expand from its Lockian roots in the 1750′s to what it is today.
The root cause in the current economic instability, I believe, is that we are facing the lack of the “rule of law.” Generally speaking laws and the regulations created thereby need to be notorious (well-known and not secret), predictable, and subject to a court’s adjudication with which both sides agree to live. It is readily apparent that we are not operating this way anymore. Congress and the administration have passed a series of mishmash fixes, ill defined laws often at odds with each other, not to say the body of regulations that must accompany those laws and must conform to previous regulations and court decisions.
In the middle years of the last century, Frederick A. Hayek, the conservative economic philosopher wrote, “….nothing distinguishes more clearly conditions in a free country from those in a country under arbitrary government than the observance in the former of the great principles known as the Rule of Law.” Hayek went onto to write ” …stripped of all technicalities, this means that the government in all its actions is bound by rules fixed and announced beforehand – rules which make it possible to foresee with fair certainty how the authority will use its coersive powers in given circumstances and to plan one’s individual affairs on the basis of this knowledge (emphasis is mine).
So let’s enumerate the “unpredictables” that have caused thousands of businesses to stay on the sidelines of the so-call recovery. The US tax code is particularly unpredictable, over 30,000 rules appear to contradict each other and require constant adjudication. Obamacare is law with a hodgepodge of regulations written, not implemented, and already under lawsuit. (Remember Nancy Pelosi’s comment that the law needed to be passed in order to be read). The Dodd-Frank Wall Street and Consumer Protection Act is a law now and is particularly pernicious since Congress itself can’t pass the required instructions for the regulators. Fannie Mae and Freddie Mac are in suspension and no one wants to do anything. Or rather, everybody wants to do their version of reform and thus are in complete lock up. The stimulus money devolved to the states that are now suing the federal government over implied rules, again, articulated but not codified. And lastly, the extra-legal (to put it diplomatically) of the executive entering into ownership with corporations “too big to fail.”
Elected officials are always under great pressure to “do something.” This has led to a veritable mountain slide of legislation no one understands and freezes all economic decisions until “somebody figures it out.”
Let me go back to “The Road to Serfdom” by Hayek. He does not say that there shouldn’t be laws, “The end [meaning the purpose] of law is not to abolish or restrain, but to preserve and enlarge freedom…where there is no law there is no freedom.”
But if people don’t know what’s going to happen next, how their decisions will be interpreted by regulators (or prosecutors), whether they will make money or lose money, and you multiply that by millions of daily economic decisions, you have the gist of the problem.
To quote Dr. John B. Taylor at the Hoover Institute, Stanford University, “People who have the ambition to get to the top [of government] have a bias towards discretionary interventionism , whether motivated by the desire to capture regulatory agencies on behalf of their clients, advance the interests of cronies, or simply to position themselves for further career advancement later on.” To carry this further, business firms that want rules for their own designs will locate and influence those governmental regulators who are predisposed to meddle with a rules-based policy.
There is a strong body of political thought that embraces policy makers must deviate from established laws “when the need requires.” And how curious that the need always seems to be there for meddling. To paraphrase John Taylor, it is as if an arsonist should be exonerated from setting fire to your house because he stayed around and helped the fire department.
The economy will continue to stagger along until business people come to believe that they won’t be blinded-sided by inchoate regulations.