Of the Rule of Law and the Separation of Powers

In the 1990s I was part of a congressional delegation to Argentina. At that time the Argentine economy was growing strongly and steadily, inflation was low, the currency was pegged to the dollar, convertible 1-for-1. Trade barriers were being lowered, commerce was booming. I recall asking Argentines what could possibly darken what seemed to be a very bright future. They were quick to reply: “Here in Argentina we have no rule of law. You can have no confidence in getting justice from the courts.”

That reminded me of Washington Irving’s observation on a European judge, from his famous work, The Alhambra:

It could not be denied, however, that he set a high value upon justice, for he sold it at its weight in gold.

Not long after that visit, the politics of income redistribution and confiscation threw the Argentine economy into turmoil, where it has remained.

I recently spoke with an economist friend of mine, who was waxing eloquent about the attractive monetary and tax policies in Bulgaria. I remarked that this would probably invite foreign investment. He replied, “No, there is no rule of law there.”

The point is that good economic policy cannot long survive inadequate legal safeguards. Many businesses that made major investments in China, attracted by a market of a billion people, have learned that the lack of a reliable legal and justice system in China has undermined much of the business value they thought to find. A similar story has been holding back investment and economic development in Russia.

Bringing that home, I would venture that concern for changing rules (or even lack of rules)—the substitution of arbitrary bureaucratic powers in Washington over objective rule of law—has been inhibiting more robust investment in the United States, a major cause for our current anemic economic recovery.

An ancient king in the Western Hemisphere, named Mosiah, warned, “because all men are not just it is not expedient that ye should have a king or kings to rule over you.” (Mosiah 29:16) Because men are not consistently just, freedom has historically rested upon rule by law rather than rule by men.

Fundamentally, that was the very reason for the American Revolution. Our revolution was based on the rule of law, an assertion of the rule of law, a response to violations of the rule of law by the English king and parliament. Most of the Declaration of Independence is a lengthy litany of violations of law by the English rulers. The Revolution was designed to take power away from man and men and rest it upon laws and rights, soon to be secured by a written supreme law embodied in the Constitution. Any erosion in the force and effect of the Constitution is an erosion of the rule of law and of the freedoms that rely upon law for their defense.

The Progressive Movement that thrived about a century ago, and found a major advocate in the federal government in President Woodrow Wilson, aggressively proposed an alternative to the rule of law. This program was the Rule of Experts. Their new view—and it really was a very old view though they dressed it up in modern-sounding rhetoric—was that there are Benign People, Experts, who know the process of modern government better than most people do, to whom we can safely yield governing authorities.

It sounds akin to the ancient theory of Divine Right of Kings, that the monarchs of the world are chosen by God and endowed with greater wisdom and perspective than the average man and woman. To their benign expertise and fatherly care was to be entrusted the governance of the rest of us.

The modern Rule of Experts people have much the same view, that these experts were endowed by their universities and other sources of expertise with ability far above that of most, and it would be wise to trust ourselves to their benign care. Not very democratic, and in fact these Benign Experts make no secret of their impatience with the Congress and other constitutional brakes on arbitrary authority.

As King Mosiah wisely pointed out that men are not always just, it is also appropriate to recognize that putting men in government does not make them any more reliably wise than the rest of us. The American Founders thought to address this problem by dividing political power among not only three branches in the Federal Government but also by embracing the federal system of dividing government with the States.

The current regulatory structure and program of the United States rest heavily on the idea that Benign Experts should be entrusted with authority for many of the big questions facing Americans and for many of the much smaller questions, too. That is certainly the structure of the Dodd-Frank Act, to offer one recent, prominent example among many.

Charles Calomiris, of the Columbia University business school, described the theory of the Dodd-Frank Act and related regulations this way:

The implicit theory behind these sorts of initiatives, to the extent that there is a theory, is that the recent crisis happened because regulatory standards were not quite complex enough, because the extensive discretionary authority of bank supervisors was not great enough, and because rules and regulations prohibiting or discouraging specific practices were not sufficiently extensive.
(Charles W. Calomiris, “Meaningful Banking Reform and Why it Is so Unlikely,” VoxEU, January 8, 2013)

This program of federal regulation has been imposed increasingly in contravention of the basic constitutional principle of separation of powers, by merging legislative, executive, and judicial authority in “independent” regulatory agencies. The unelected federal regulator today decides the details and specifics of binding mandates, identifies violators of those regulations, assesses guilt, and applies penalties.

Taken together our current regulatory system, by merging rather than maintaining the separation of powers of the Constitution, is eroding the rule of law. It is returning us to the age old practice of rule by men, with all of the potential for abuse of rights and freedoms, abuses that fill up most of the sadder pages of human history.

During the debate over the creation of the new financial consumer Bureau, Senate Banking Committee Chairman Dodd boasted that with this new agency people would no longer have to come to Congress for the enactment of new consumer laws. The Bureau would take care of all that.

There are serious operational flaws—too often overlooked—in the program of governance by Benign Experts. First, the regulators are not dispassionate umpires, limited to calling the balls and strikes. These umpires are also players in the game, the federal agencies each having their own set of particular interests and incentives that they take care of first.

Second, reliance on Benign Experts assumes an unproven, undemonstrated level of knowledge, insight, and forecasting skills. AEI President Arthur Brooks, in his book, The Battle, provides one of many examples of this flaw:

Federal Reserve economists were still forecasting significant positive growth and moderate unemployment in May and June 2008. They believed that economic growth in 2009 would be 2.4 percent, and unemployment would be 5.5 percent. What we experienced instead was negative growth, double-digit unemployment, and the destruction of at least $50 trillion in worldwide wealth. No one can get the numbers exactly right, to be sure. But getting them this much wrong certainly lends a whole new meaning to the expression ‘margin of error.’
(Arthur C. Brooks, The Battle, p.46)

It is not that regulators are dumber than the rest of the population, but they are no smarter either. The regulatory problems are increasingly too great for any designated group of humans to solve.

Third flaw, mission creep: power attracts power. Even if the tasks are too great, require too much knowledge, insight, foresight, and other skills in unachievable degree, the regulators still take them on, especially if the task increases the reach and influence of the agency.

I offer two examples from an example-rich environment.

Basel III capital rules started from a simple idea, that banks all around the world should be subject to the same capital standards. Capital (the financial cushion a bank carries against losses) is one of the three key elements of sound banking, the other two being liquidity and earnings. These international rules did not remain simple. Developed by an international team of experts from around the world, who labored on them for years, the rules number hundreds of pages, affecting the entire financial structure and business model of a bank, any bank. Congress was not involved and has no particular role in approving the rules. When exposed to public review they attracted thousands of comment letters expressing dismay that they are a bad fit for the U.S. economy. In the end, though, the regulators can go ahead with what they alone think is best.

A second example would be the Federal Reserve. One hundred years ago this year the Fed was created with a specific, identifiable, and rather narrow purpose, to provide liquidity for the banking system in times of financial stress. Before long, the Federal Reserve gained control of monetary policy and built up the practice of controlling interest rates. Later, it was given the task of promoting maximum employment. Under Dodd-Frank the Federal Reserve’s role in supervising banks and bank holding companies was expanded to supervising any financial business considered to be significant for financial stability. Each of these powers has drawn the Federal Reserve away from its narrow, objective task, to broad fields of subjective authority.

Perversely, this expansion of authority into more judgmental areas is eroding the independence of the Federal Reserve, making it yet one more political player in Washington, with responsibilities that far exceed human ability to fulfill, but which reach to every business and every home. The Fed’s prolonged policy of keeping short-term interest rates at or about zero has penalized all who save and live off of their savings, transferring trillions of dollars from savers to borrowers, the biggest borrower being the Federal Government, a policy decided by a small group of Washington experts.

I offer a partial but simple solution to point us back toward strengthening the rule of law and reducing our exposure to the rule of man and men, however expert they might be. Return the lawmaking and the policy decisions to the elected representatives. It is a messy process, but exactly the messy process that the Founders intended to preserve freedom from the encroachment of arbitrary and oppressive government. The regulators, which are theoretically part of the executive branch, should be left with the duty of implementing the laws and policy decisions that the elected and accountable representatives make.

If Congress were required to write the rules and mandates and delegate to the executive agencies only the execution, the mandates of government would be circumscribed by the limitations of a legislative body forced to be directly accountable for what it has wrought. It is easy for legislators to complain about bad regulatory decisions, when all too often these are decisions that Congress never should have delegated to regulators in the first place.

We would still have laws and regulations, but the laws might be more direct and specific, and perhaps fewer and surely smaller. We would probably not have Dodd-Frank Acts that number thousands of pages read by no congressman or Senator, containing a cacophony of half-baked ideas and multiple solutions to the same problem, all left for the regulators to sort out.

And legislators might recall this caution, from Thomas Paine:

Laws difficult to be executed cannot be generally good.
(Thomas Paine, The Rights of Man)

(First published February 17, 2013)

Of Demagogues and Big Problems

One of the common tricks of demagogues, as cheap as it is common, is to denounce in high dander something for being “Big,”—“bad” because it is “Big.” Some of the recent targets have been Big Banks, Big Pharma (the drug companies), Big Oil, Big Insurance, and Big Business in general. The target is apparently chosen for its relation to the prescription that the demagogue already has in mind. Invariably the prescription involves granting more power to the demagogue, sometimes ceded from the freedoms of the targeted Big, but not infrequently taken from the liberty of the people who are somehow harmed by the Big, who are to be somehow made better by being less free.

Obamacare is one example, Big Insurance, Big Pharma, and Big Medicine all denounced to some degree in the effort to generate popular support to pass the legislation. In the end, as more and more people are recognizing, it is individual choice that has been lost, personal freedoms to choose doctors, medical plans, and available treatments (along with substantial sums of money) that have been taken, passed on to big bureaucracies identified by the demagogues.

Demagogues on left and right and even in the middle resort to this device of denouncing Big Bad, because it resonates with many people who do not consider themselves “Big” anything. We all can feel intimidated by something in our lives and experiences bigger than ourselves, making us all potentially susceptible to the demagogue’s pandering. It is also a favorite device of demagogues, because it does not require much thought or creativity to make the anti-Big speech. It seems almost required that the demagogue at some point refer to the Big Target as “Goliath” and modestly identify himself or herself with “David.” That tired jape is now getting to be about 3,000 years old, but demagogues think that their audiences just cannot get enough of it.

To be sure, there are some cases where being big is a good thing and some things that can be too big to be good. It all has to do with why they are big and perhaps how they got that way. Big savings are usually good. The Grand Canyon is big and magnificent, and I would say that the Empire StateBuilding is, too, at least as I behold it. On the other hand, big debts are to be avoided, big pits can be dangerous, and the L Tower in Toronto is an eyesore in my estimation (though I will acknowledge that others could be fond of it).

Government can be too big or too small, depending on what it does with our rights and freedoms. There are governments too small to promote and protect freedom, while there are many—most—that are too big, and ever increasing at the expense of individual rights, freedoms, and opportunities. That includes governments that are big enough to help their cronies become bigger by robbing the competition and the public. Businesses that are big because of government favor would be better for everyone if they lost the government favor and let competition, efficiency, and customer choices determine how big they should be.

Some are just big because they grew that way. Is Microsoft or Apple too big? I do not know, and neither do you. Exposed to the full discipline of the free market they will be the right size, and so will their competitors. What is the right size for banks in the United States? I do not know, and again neither do you nor does anyone else. The more that they are exposed to market forces, the sooner we will get the best answer, which I expect will be along the lines of “many sizes and shapes” in order to match the many sizes and shapes and needs of businesses, families, and individuals who rely on banks for financial services. Free competition in open markets has the power to right size commercial enterprises.

A word of caution. Part of the success of the war on Big consists in making the listeners feel small and helpless—unless rescued and led by the fearless demagogue. Besides belittling most people, the demagogue’s device diverts attention from the fact that just about everyone is part of something Big, a Big that may eventually be the demagogue’s next target. Maybe your church will one day be considered too “Big.” Or maybe the industry in which you happen to work will become a “Big” target, the town or region where you live, your race or your ethnic group, your savings and investments, the cars or trucks that you drive, your appetite, your use of water, the size of the lot of your house, the wealth of your nation. All of these, and many others, have already been used by demagogues in their Big harangues. The demagogue’s insatiable appetite for power never has enough targets. He or she is always looking for more.

Sometimes there is a kernel of something genuinely amiss in the demagogue’s Big complaint. Often, when you boil down the genuine substance of any of the complaints to the hard facts, it is hard to discover what is the Big Deal—at least in the problem. The Big Deal is to be found in the solution, which is what the demagogue is really after. Were the Popes in Rome really controlling the lives and governments of England in the time of Henry VIII? No, but the solution of confiscating Catholic Church properties and awarding them to the King’s cronies was a very Big Deal. The Nazi demagogues in Germany played the same game with their own people, the German Jews, and with their property and possessions.

The demagogue’s solutions, resting upon emotion and panic, seldom solve anything and often lead to more problems. The Climate Wars—one year the coming ice age, the next year global warming, today just climate “change”—is an example we have all seen unfold, inflicting untold billions of dollars of costs while enriching favored cronies, but which in even the most enthusiastic promises of the demagogues will do little to affect the climate in reality in our lifetimes.

The next time you hear a public figure fume about something being Big, carefully inquire into and focus upon what he or she is after. You may be a target just Big enough.

Of Minorities and Society

The saddest chapters of history chronicle the breakdown of human society. Rights are abused, the innocent—if innocence is allowed to exist—are trampled. Poverty, hatred, violence, and uncontrolled human passion prevail. Destruction and degradation, physical and moral, replace human progress.

All society, except that of master to slave, relies upon an element of free association. Societies may have more or less elements of coercion as well, but it is the element of free association that allows the society to continue, that motivates its members to acquiesce in or even encourage the society’s continuation. Free, voluntary association is what gives a society its legitimacy. Without it, there is no society, just a group of people ruled by one coterie of thugs or another.

Cooperation in society cannot be taken for granted. When it is, when free cooperation, instead of being nurtured and encouraged, is replaced by coercive rules and compulsion, particularly rules and compulsion designed to benefit some at the expense of others, society declines, people interact more by will of others than by their own volition. With time either the situation is redressed or the society disintegrates, often to be conquered from the outside when its internal strength has turned to weakness.

In its latter years imperial China was prey to numerous foreign incursions because its society was a mighty empty shell, old traditions surrounding an empire of competing warlords. Ancient Greece, which twice when united proved too much for the Persian empire, became relatively easy prey to the Romans after the ties of Greek society had become tired and weak. Rome, in its turn, after a thousand years, was enormously wealthy but mightily weak in the internal strength to repel the roaming barbarians, vibrant societies powerful in their own internal cohesion. Much of Africa, Asia, and Latin America today remains mired in poverty from the inability of relatively young countries to develop cooperative societies that encourage the generation of wealth and its application to promote prosperity for the present and for the future.

With cooperation at the core of successful society, one would think that democracies must be the most successful. History records otherwise. There are no historical examples of a successful democracy, at least not one that lasted for long enough to matter. Like a match set to paper, democracies flare up brightly into power and glory but all too soon die away to ashes.

The problem with democracies has been that all too quickly the majority in the democracy learns that it can become wealthy by robbing the minority, under camouflage of statutes and government. That only lasts until either the minority successfully rebels, becomes a majority in its turn, or the wealth of the minority is exhausted. In reaction, the majority may seek to preserve its advantages by yielding to a dictator—a “mouth” for the majority—to govern in the name of the majority to discern and express its will. Few of these dictators have resisted the temptation to wear the mask of the majority to govern for the benefit of themselves and their cronies. That has been the case for every communist government, without exception.

But, is it not right and just for the majority to prevail? Perhaps, but to prevail over what? Everything? Consider: if majority rule is applied to deprive the minority of life, liberty, and the pursuit of happiness, why should the minority cooperate? All that such society offers them is slavery, unrequited labor and service to fill another’s belly and pockets. In a pure democracy, there is no check on majority avarice, no refuge for the minority. The majority must always have its way.

Republics, however, are built upon a foundation of minority rights. Republican governments are granted only limited powers, exercised by representatives of the people, within boundaries beyond which the government may not go. A written constitution serves to enshrine and strengthen those rights against violation by the majority. The system gives a stake to all—not just the current rulers—in the continuation and strengthening of the society. No democracy, hereditary monarchy, or dictatorship can provide that.

In a nation as great and diverse as the United States everyone is part of a minority. Whether we consider age, ethnic background, religion, geography, culture, profession, or a multitude of other distinctions, we are a host of minorities. We can only come together and remain as a nation, strong and vibrant, if we are confident of protection in our minority rights, for protecting minority rights in America means protecting everyone’s rights. That is why the Founders proposed and the nation embraced a Republic formed on a federal structure of divided and limited government.

In that context, what are we to make of the current direction of American society? Are we preserving the Republic? Does our society feel like it is coming together? Recent public opinion polls find that more than 60% of Americans believe the nation to be going in the wrong direction. In another poll, a mere 22% believe that the current government rules with the consent of the governed.

What is the national political leadership doing about this? We have a President who aggressively pursues a variety of programs that have in common the taking of wealth from one minority segment of the nation to reward others. These wealth transfers are lionized for the undenied purpose of political and electoral advantage for the President and his supporters.

You will recognize the pattern. A crisis is discovered by the President, and an industry or group is demonized in public speeches and echoed in the establishment media as causing the problem and/or standing in the way of its solution. A plan is announced that involves confiscations from the demonized industry or group to fund benefices bestowed on Administration favorites.

Consider a few examples of many. Global warming is hailed as an imminent crisis with disastrous consequences; the coal, oil, and gas industries are identified as the foes of progress; and a variety of taxes and other restrictive policies are proposed, together with planned subsidies for businesses and companies favored by the White House. Banks are declared to be the nefarious forces behind the recent recession, new laws and regulations are applied that confiscate billions of dollars from the industry, much of which is then channeled to hedge funds and other political allies of the administration. Some millions of people are discovered to be without health insurance, doctors and the health insurance industry—among others—are fingered as being at the root of the problem, so a major overhaul of the entire structure of the health system is enacted that favors some at the expense of others. Administration cronies receive lucrative contracts to develop and administer the new system. There are many other examples, large and small, in education, welfare, housing, transportation, law enforcement, and many other government programs.

Is there any wonder that there is gridlock in the national government, when policy after policy is aimed at transferring wealth from some to reward others? Where is the room for cooperation and compromise, when the issue is how much of your family’s wealth is to be taken and given to someone else? The Roman Republic fell into gridlock after decades of appeals to mass acclaim for schemes of popular distribution of public plunder. It ended in the triumph of the Caesars, and later their eventual fall to the barbarians. It is perilous to abuse social comity.

President Obama has announced the transfer of wealth to be the chief focus for the remaining three years of his administration. Can our society weather that?

Of Democracies and Demagogues

The demagogue has ever been the bane of democracies. By definition, democracies rest upon the choices of the people. When wisdom guides, democracies prosper. As history shows, wisdom does not always prevail, and it never does when demagogues do. Since the demagogue seeks his own power by taking power from others, once the people give him their voice they will be hard-pressed to get their power back; the democracy deteriorates into dictatorship, invoked in the name but never the reality of the rights of the people.

Why would a free people yield their power to the tyranny of the demagogue? It is not reasonable to place your own hands and feet in fetters. In every successful democracy there is a balance between reason and emotion. Rather than advise wisdom, demagogues appeal to the basest popular emotions to overcome reason. American Founder, James Madison, drawing lessons from the best known democracy of history, the democracy of Athens, warned Americans of the danger:

In all very numerous assemblies, of whatever characters composed, passion never fails to wrest the scepter from reason. Had every Athenian citizen been a Socrates, every Athenian assembly would still have been a mob.
(James Madison, Federalist no. 55, as quoted in John Samples, “James Madison’s Vision of Liberty,” Cato Policy Report, Vol.XXIII No.2, March/April 2001, p.12)

Madison recognized that in groups fiery emotion can make for a more persuasive pitch than cooler reason can. He recommended the Constitution as a defense against demagogues, a structure of fundamental limitations on government and against those who would seek to govern by preying upon the passions of the people. The formula has worked and the Constitution has held—against many trials, including a Civil War—for more than 200 years.

The typical demagogue is a forceful speaker who seeks power by stirring up the people, whom he sees as masses to be manipulated and managed rather than as a body politic of reasonable individuals. It does not particularly matter which emotions are invoked against reason; the most successful demagogues draw upon a variety. Perhaps the emotion most powerful to the ends of the demagogue is fear, but he will also use hatred, avarice, envy, sorrow, vanity, vengeance, vainglory, among others. He will even try to invoke love, though love is hard to make compatible with the demagogue’s message of contention, but it can be used to garner sympathy and to get people to let down their guard against an appeal to baser emotions.

Are Americans and the American constitutional democracy perpetually proof against the demagoguery that has destroyed democracies before? The Founders did not think so. A popular watch phrase among them was, “eternal vigilance is the price we pay for liberty”. They were referring more to internal dangers than dangers from foreign enemies.

How do we keep watch on the threshold of the 21st Century? Here are ten tests to help unmask the demagogue:

• He gives powerful, emotional speeches, as public speaking is one of his most powerful tools. “Facts” will usually play a minor role in the speech, and when used will often either be half-truths or outright lies, sometimes very big lies with passionate appeal.

• As discussed, emotion rather than reason predominates in his arguments, with fear the most prevalent emotion.

• He conjures up apocalyptic dangers and manipulates crises (and creates them when none are readily available). The sky seems to be always about to fall.

• Riding on the wave of crisis, he will offer sweeping “action plans” that would cede to him major powers and authorities and push aside sources of opposition. “Forward” is the frequent cry shouted to drown out objections, “the debate is over.” (In a real democracy, can the debate ever be “over”?)

• He dishonors the Constitution and violates it without regret; the Constitution and demagoguery are incompatible. Neither can survive while the other prospers, to paraphrase J.K. Rowling’s Harry Potter formula for her fictional demagogue.

• He accuses others of employing his own despicable tactics. In order to create fog and camouflage, and blunt criticism of his own actions, the demagogue will often claim opponents are lying, fomenting contention, engaging in petty partisanship, and so on, all the while employing those tactics himself. Note that the accusations will usually employ an appeal to sentiment.

• He points to enemies of the people, enemies that his plans will vanquish. These enemies are usually chosen to evoke emotion, such as “big business” to foster fear, “the rich” to stir envy, race or ethnic divisions to feed hate.

• He calls for unity while proposing plans that divide the nation, opponents of his plans being cast as those who would seek to divide a nation that would be unified by agreeing with him. Issues are chosen that find and feed emotional fissures in public opinion. Most effective, the demagogue will propose to take something of value from a group in a minority and “share” it with the group whose favor he seeks, such as targeted taxes or confiscations to provide some popular benefit.

• Following on that point, he develops classes of supporters dependent upon what he promises to give them from the government, benefits that will need his continued care to be sustained. That is what lies at the core of the difficulty in fixing problems with welfare, Medicare, and Social Security, and why the demagogues have a field day when anyone offers reasonable proposals to deal with these very real issues.

• He hates a free and independent press that raises objections of fact and evidence to challenge the emotional appeal, but he loves an obliging press that magnifies his message and drowns out dissident appeals to reason.

It is not hard to recognize demagogues among us today appealing for ascendancy. Democracy in our day demands that we retain our freedom and that we do not yield. More than our freedom is in the balance, but our freedom is in the balance.

(First published August 12, 2012)

Of Duty and Law

The concept of duty is worthy of careful consideration, particularly in its relationship to law. You genuinely subject yourself to law only after you consider it a duty to observe the law. This would also seem to involve an element of humility. When you humble yourself enough to recognize a duty to the law, the law then has force and operates within you (as contrasted with operating upon you).

Through the operation of duty the law becomes internalized. No police force or compulsion of any kind is then required. This is how true law, law in harmony with eternal justice, has a transforming effect, changing you for the better. Through continued growth in this process, of employing duty to internalize good law, you can actually “become” the law, even as Christ meant when He said, “I am the way, the truth, and the life” (John 14:6, emphasis added).

One who feels no duty to a law, but observes it only because of the coercion attached to it—from the fear of the consequences of breaking the law—has not yet submitted himself to the law. He observes the law only because it is enforced; when the enforcement is removed and no longer binds him to the law, he will do as he pleases regardless of the law’s mandates. Without a sense of duty to obey the law, he remains a law unto himself, subjecting himself when necessary to a greater force but not to the law.

Without this sense of duty, a system of laws becomes a competition of wills, of competing forces. It is not a system of rights and duties. Thus, the erosion of the sense of duty also erodes the moral and transforming force of law, and it erodes rights, that find their protection in law. Civilization is replaced with gangs and brutality.

(First published August 21, 2008)

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