This constitutional cornerstone of our free society is also a critical precondition for a free and dynamic economy. Without the rule of law to safeguard the ownership of property and the enforcement of contracts, it makes little sense for an investor to put his capital at risk helping an entrepreneur to pursue a dream, advance an idea, and ultimately grow a business that creates good-paying jobs for Americans.
For decades, the U.S. economy has been a magnet for investors, entrepreneurs, and workers, because we enjoy some of the strongest and most transparent legal protections in the world. These protections provide a stable environment for business investment — stability that is undermined when the discretionary power of bureaucrats is enhanced.
Many countries around the world remain mired in grinding poverty for lack of the institutions necessary to guard property and contracts from the appetites of local despots and their cronies. Their economies are highly unstable, and the fate of business investment is often subject to the whims of a single person, or a small group of bureaucrats.
The good news is that the United States still enjoys an enormous edge over most of the world when it comes to the strength of our institutions and our reputation for respecting the rule of law. But we are moving in the wrong direction, and we would be fools to believe that job creators haven’t noticed.
Let me give you just a few examples of how the rule of law in this country has been degraded over the past few years, and replaced by the rule of man.
The first is in the area of monetary policy. I’m not suggesting the Federal Reserve has done anything illegal, treacherous, or even treasonous. But I do believe that Congress has delegated too much arbitrary authority to the Fed — and that, in recent years, the Fed has trended too far toward discretionary and away from rules-based monetary actions.
Small changes in monetary policy can have big economic consequences, and the central bank can serve as a major source of economic instability. In 1993, Stanford economist John Taylor developed a rule to improve the stability and predictability of U.S. monetary policy. An untold economic success story in the 1990s is the Fed’s adherence to price stability, thanks in large part to Taylor’s key insights.
Unfortunately, the Federal Reserve abandoned the so-called Taylor Rule near the end of the century after the tech bubble collapsed, and a growing body of evidence supports the idea that the Fed kept interest rates too low for too long throughout the past decade, helping to fuel the enormous housing bubble that caused the financial crisis of 2008.
The central bank continues to pursue a misguided policy of arbitrary decision-making that is contributing to economic uncertainty and, in my opinion, causing more harm than good.
Next, energy and environmental policy: I think the Obama administration’s actions here offer a perfect example of what happens when you concentrate too much discretionary power into the hands of unaccountable bureaucrats.
In 2007, a wrongheaded Supreme Court decision cleared the way for the Environmental Protection Agency, the EPA, to unilaterally regulate greenhouse gases if the agency found that such gases “may reasonably be anticipated to endanger public health or welfare.” As soon as Obama’s EPA chief took office, “reasonably” was unreasonably defined, and the agency issued finding after finding that would produce real economic harm in exchange for distant — and dubious — environmental ends.
With Nancy Pelosi and Harry Reid running Congress, the administration first pushed for legislation resembling the European Union’s cap-and-trade system. Because of the EPA’s power grab, affected industries faced the “good cop, bad cop” routine: It was either play ball with Pelosi, or else the EPA could be counted on to come up with something worse. Given the options, it’s no surprise that a “Who’s Who” of big corporations lined up to support the bill once their priorities were met, even though most Americans remained strongly opposed.
This bill passed the House, but it was unable to overcome bipartisan concerns in the U.S. Senate. Cap-and-trade legislation was deemed costly, economically harmful, and ineffective in its means and goals. But instead of accepting this verdict on its preferred policy, the administration decided to let the EPA carry on with its harmful plan to impose unilateral emissions restrictions on American businesses, raising the question: Why does the Constitution establish a lawmaking body at all?