Rule of Law

RuleOfLaw2014Remember that bit where Jon Stewart makes fun of Uruguay? Shown here is the latest Rule of Law ranking from the World Justice Project. Once again, Uruguay comes in just below America. They should be ashamed, although – their government is not quite as corrupt as ours.

Rule of Law does not mean a Congress full of lawyers churning out bespoke laws – or, worse, federal agencies writing arbitrary regulations. What it means is that everyone is treated equally by the law, everyone understands the law, and laws are reasonably stable over time.

Law experts say that average citizens routinely break federal law without any knowledge they are committing a crime.

Apart from the obvious impact on personal freedom, Rule of Law – or lack of it – has profound implications for our economy. Companies, especially foreign ones, will not hire if they face a shifting and arbitrary environment.

If the actions of the state are to be predictable, they must be determined by rules fixed independently of the circumstances – F.A. Hayek

Corruption figures prominently in the WJP report. When a big company can rent a government agency, as Comcast did here, that distorts the whole idea of capitalism.

This particular distortion of capitalism leads to secular stagnation. Big, obsolete companies use the government to protect their positions in the market, at the expense of new companies and new jobs. Below is the BLS chart of jobs created by startups.

bdm_chart2

The Rule of Law survey ranks America twentieth out of thirty in our income class – and lower on corruption. This means that a new employer entering from abroad, or a new startup company, will think twice about “country risk” before hiring here.

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