The Rule of Law

I've been reading several books recently trying to figure out why America is, ahem, "slowing down". Two that shed some light on the mystery include Niall Ferguson's The Great Degeneration and Philip K. Howard's The Rule of Nobody. I haven't finished Ferguson's book, but his examination of "The (English) Rule of Law" seemed a perfect tie-in to Howard's entire book. Howard's thesis is that America used to function according to the Rule of Law, but that, starting in the 1980's, the flexibility and efficiency with government and courts had operated were taken away by the over-specification of laws. Ferguson contrasts the economic development of countries under common law, like England, and civil law, like France. Common law countries:

1. have stronger investor protections and provide companies with better access to equity financing than civil law countries, as manifested in larger stock markets, more numerous firms, and more initial public offering;
2. have better protections of outside investors relative to 'insiders', whereas French civil law countries have poorer protections;
3. make it easier for new firms to enter the market, as manifested in the number of procedures, number of days and costs of setting up a new business;
4. have more efficient (because less formalistic) courts, as measured by the time it takes to evict non-paying tenants and to collect a debt after a cheque has bounced;
5. regulate their labor markets less and therefore have a higher labor participation and lower unemployment rates than civil law countries;
6. have more extensive mandatory disclosure requirements, which again encourages investors; and
7. have more efficient procedures in cases of insolvency, such as a hypothetical hotel bankruptcy.

You can purchase his book to get the footnotes; each point is footnoted with a study.

He goes on to quote:Legal investor protection is a strong predictor of financial development...[as well as] government ownership of banks, the burden of entry regulations, regulation of labor markets, incidence of military conscription, and government ownership of the media...In all these spheres, civil law is associated with a heavier hand of government ownership and regulation than common law...Civil law is 'policy implementing', while common law is 'dispute resolving'.And this is the tie to Howard. America, inheriting a common law tradition from England, used to implement the Rule of Law much more in a fashion of resolving disputes. However, can anyone look at America's modern mode of law and government and claim that we have not strayed into the policy implementing arena? And why? According to Howard, it was a reaction to the 1960's, where America was forced to look at it's shortcomings. Looking at Jim Crow and a corrupt ('I am not a crook') president and no longer trusting the ability of government and judges to have any flexibility or interpretation of the law, the individuals that wrote the laws started writing law in such detail and minutiae to prevent any interpretation or flexibility. And we, Americans, wanted that, because we no longer trusted our judges to interpret the laws or trusted government workers to implement or interpret a law. But by taking away the flexibility we deviated from the common law heritage, and would up with something far worse: an ungovernable system.

Our tax code is so complicated that no one can possibly understand it, except those who specialize in it. Dodd-Frank, the 2010 law that is supposed to prevent another financial melt down is so complicated it is still not implemented. Section 342 requires the regulatory bodies that are to "promote the financial stability of the US" to establish "An Office of Women and Minority Inclusion". My point is not that we don't have problems with too few women and minorities in our workplaces and in the regulatory bodies. My point is that we are developing a morass of laws and regulations and guidelines and findings and "stuff" that is impossible to perform under. Certainly impossible to achieve within.

The 1946 Academy Award Best Film was "The Best Years of Our Lives". The movie is about three WWII vets who ride home in the same B-17 to Boon City. Fredrick March is the banker who is thrust into the spot of evaluating Vets requesting GI-Bill loans. His board is giving him pressure to "be responsible", "look at collateral", be a banker. At a dinner celebrating his promotion, he get's drunk and tells the other bankers a story, about when he was ordered to take a hill. He says: "So I told them, but sir, I don't have any collateral. So we didn't take that hill, and we lost the war." He then tells them that the bank is going to trust the Vets, give them the loans, because their war accomplishments and their character is their collateral. And, of course, those Vets did prove their collateral. That movie was in 1946, and America did very well over the next several decades. Of course, the rest of the world was in ruins. And not everything America did over the next few decades was right or just or noble. But Americans trusted each other, its government and its courts. It lived by the Rule of Law.

America lost that trust, and tried to replace it with a rule for every situation. Don't trust a judge; codify the sentences. Don't listen to a bureaucrat, spell everything out in the rules. Until there are now just too many rules, too many laws. Any more, and America will sink under all the laws.