Tuesday, September 23, 2014

The Rule of Law is Vastly Under-Priced

When people prattle-on about tax, it is mostly made from ground-level, with a focus on tax rates. When my most rabid libertarian friends weigh in on the subject, discussion extends to the moral realm.  Some of these debates are constructive, a few downright stimulating, though most such arguments descend into demagoguery that take kernels of truthy-sounding platitudes about freedom, and the morality of taxation's coercive nature, profoundly at odds with the sensibility and logic of the entente that secures from the hordes the very property from which they derive their benefits.  

Those benefitting most from the secure property rights might be forgiven for conceptual ignorance - introspection being a scarce commodity amongst the wealthy - but the vociferous and cynical denial of the asymmetric benefits of securing property rights, both intra- or inter-generationally, whether due to some combination of attribution bias, feigned religious belief, or simple greed is less excusable. In a new gilded age,  the idea that the rule of law is vastly underpriced by those who benefit most should be anything but contentious.

Few doubt we humans are animals. Few outside the most fundamentally-religious wing-nuts would doubt that our social, political, and economic structures as well as our mores, values, responsibilities to others are, for the most part, man (and woman) made.  We have done so NOT out of altruism, but out of BOTH necessity and expediency, whether collectively agreed or imposed by force.  They have evolved hand-in-hand with the ascent of civilization. And they have contributed handsomely to the progress and advancement of the species. 
Some more than others, indeed, but it's difficult to argue against their importance, and resulting increase in overall economic welfare derived from the general rule of law, and attendant property rights conferred. 

So why is it so seemingly difficult for the uber-beneficiaries of the rule of law to reconcile their (mostly fiscal) responsibilities to the entente with The People which is the very fount that allows them, and increasingly one might argue, their less-deserving progeny, to maintain a position in the stratosphere of power and control, with a recognition that the very legitimacy of their reign is conferred by The People through the rule of law? Indeed, the more remote this concept becomes, the greater the probability that the entente and rule of law itself corrodes to the point where mob rule, or some equally nasty alternative somewhere along the continuum of possibilities, will emerge.   

In the absence of the entente, with its benign rule of rule, entropy typically yields either unpleasant and economically sub-optimal forms of authoritarianism or the so-called law of the jungle. We have seen many faces of authoritarianism, and rarely is anyone content outside the authoritarian himself and immediate cadre.  And while the classical expression may have been militaristic. modernity increasingly enables dystopic Atwoodian visions of The State, captured by narrowly-powerful economic interests, employing all manner of surveillance technology and distortion of law, to maintain and consolidate their power and control.  At the other pole, Libertarian and conservative morality, questioning the very nature of the entente, and undermining the edifice upon which is rests, philosophically descends into a chaotic, Darwinian jungle. By calling into doubt the existence of the entente, they are, in effect either relying upon something magical (think of Dawkin's Dennett's "skyhooks" - tnx Bob S.) to maintain their place at the pinnacle of power and control, or, they are, in their neglect, saying: "Bring it on…!!".    

To make my point, one should consider an example from the animal kingdom, where competition, rule and survival of the fittest reigns in its purest, and most unadulterated form. The sea-lions of Galapagos would, for this purpose, be archetypical.  Picture a kilometer-long idyllic beach. Waves rolling in from a cool, deeply-sapphire ocean, under a shining sun and a stiff breeze. The sea-lions share the beach and nearby shallows with others (birds, lizards, dolphins etc.) but the sea lions dominate. When not feeding, they mostly lay about in the sun. They have no rule of law, per se.  But they certainly have structure and custom. A dominant male sits atop the herd, and occupies the choice real-estate on the beach, surrounded by a scattered harem of females each with their pups. He is known as the beach-master and is typically the biggest and baddest sack of blubber around, which is how he became beach-master. He protects his harem, and his reward (apart from the privilege of residing on the choicest beachfront real-estate) is the right to mate with the cows and sire progeny. He is truly master of the universe….for the moment.

As the male pups grow they go from being tolerated to marginalized. They play in the waves in sight, but staying out of the way of the BeachMaster. They practice their intimidation and battle skills with the other pups and larger, older males, also marginalized. Occasionally, they sneak on the beach. Try their luck with the randier females when the Beachmaster is sleeping or otherwise engaged. But a scowl from the Big Bull and movement in their direction is often sufficient to shoo them away. Sometimes the growing pups coordinate and move to opposite ends of the beach presenting a dilemma to the Beachmaster to their advances. But they, too are eventually stared down. The largest ascendant bulls periodically challenge the Beachmaster, not infrequently, outright, or by trying to seduce one of his harem. This is a classic duel, and only one will win.  Usually it is the fittest which is often the largest and strongest. Initially, this is likely the Beachmaster. But, it is very tiring work without the rule of law. While the cows and pups lounge idyllically, the BeachMaster is defending his turf. There are NO property rights. In this realm, the rule of law is the rule of the Beachmaster for as long as the Beachmaster can maintain it. So stressful is it to remain Master of His Universe, being continually on guard, and warding off challengers, his reign is terribly short. There is no entente to secure his property rights. Nothing is assured to HIS prodigal pup. It is literally, the law of the jungle (beach).     

This provides some perspective to the natural state of the world without the Rule of Law. The mob, as they have done in the past, will take what they wish, when they wish it. Because, at certain junctures,  they can. There is nothing, other than the rule of law, to prevent those that are powerful, or can organize the power of others, from taking it.  The [benign] rule of law preserves, consolidates, and institutionalizes power so all things that benefit therefrom can blossom, including its own persistence. For it to work, the rule of law must nearly be universally accepted, which is not a hard sell - since its benefits are, even in its weak form, profound and widespread. One need only look at extreme failed states such as Somalia at one end, or North Korea at the other, should one have any doubts. Reality, of course, is a continuum of possibility in-between: from fascism, fragmented rule by war-lords; including a corporate police state.  But make no mistake: as a social construct there is an implicit contract - a ceding of some things in exchange for some other things. THIS contract, unlike many others facilitating the rule of law, while man-made, is unwritten. We may under-appreciate its nature during good times, but it will be evident should it dissolve. 

Particularly virulent deniers and those self-interested proponents of regressive fiscal regimes may contest that the law of the jungle, or authoritarian imposition of power is the entropic outcome. However, it seems to me that such arguments will deterministically assume away the asymmetries and rigidities that prevent the law-of-the-jungle competition, whilst protecting the benefits of the rule of law. It is at this nexus where the value of the rule of law should rightfully enter the equation.  The boundaries are necessarily wide. There is no single formula. But it seems that detached economic observers can identify whether prevailing policies and their outcomes are moving the nexus towards, or away from, some approximation of the point at which the entente is becoming more stable or less stable.  This is intricately tied to the debate on inequality and the opportunities for mobility, and whether the rule of law itself errs on the side of greater fairness, or greater parochial interest to, and institutionalization of, the super-beneficiaries of the rule of law.  

It is worth noting that the beneficiaries of the modern gilded age are not as mean-spirited as say, for example, the Russian landowning aristocracy was to their peasants. Few knowing observers shed a tear for what befell them. Nor is the plight of today's disadvantaged as dire as it was historically. Admittedly, this is not setting the bar very high, and it ignores the profound change in the direction of outcomes over the past three decades.  Most alarmingly, in the big picture, it appears as if  modern-day super-beneficiaries  have privatized the benefits of the rule of law, while more or less continuously diminishing their [mostly fiscal] responsibilities to finance it. THAT, in itself, says volumes about how much they collectively value the entente, or how ignorant they are in respect to its very existence.   

That is a great shame. Not because I worry for the future welfare of those deriving the greatest benefit, but because of the coarseness, and alienation it creates amongst the great majority of people, and the corrosion of that singularly-most-valued man-made creation, The Rule of Law.    


Mercury said...

The Rule of Law loses much of its “most-valued man-made creation” status when the chief executive and his army of (not always domestic) unelected, unaccountable functionaries whimsically create, follow and enforce laws as it suits them. See: bankruptcy, immigration, tax code, environment…and perhaps soon, the internet.

Also, if everything becomes illegal in some form or another (we’re getting closer!) selective enforcement will make The Rule of Law indistinguishable from Rule of the BeachMaster.

doc w said...

It appears that you have been visited by the Mad Hatter.

Anonymous said...

You're a pompous windbag. Come down off your stilts and write like a real person.

Anonymous said...

It appears the OP might be (re)discovering Jean-Jacques Rousseau?

Nicholas Shaxson said...

Indeed. The same argument is put, slightly differently, by philosopher Martin O'Neill here http://www.taxjustice.net/wp-content/uploads/2013/04/TJF_5-2_Justice.pdf

Morgan Warstler said...

Sorry, but the rule of law can be delivered for even less $.

Whats worse is you misunderstand the game theory involved. This isn't a two player game A 99% vs B 1%

Like the cold war, It is a three player game

A power - the hegemony - the top 40%+ who spend a decent amount of time in the top 20% of earnings. As likely voters they make up 50% of elections and they own the vast majority of wealth in US.

B power - the .1% - they have no votes, and own the 2nd largest slice of wealth.

C Power - everybody else. They have no $, and are about 50% of voter turnout.

OK, now that you better understand the game, we can see what the OPTIMAL strategy for C player is...

1. it must play for it's own interest.
2. it cannot win any round if 1 and 2 are aligned against 3 as common enemy.
3. so 3 must always split 1 and 2.
4. but 3 cannot allow 1 or 2 to always expect its allegiance.

Put this way, the reason that C has lost so much to B, while A has generally kept hold of its slice...

Is because C the Dems, never partners with A the Tea Party, to allow the Tea Party to destroy the elites AND KEEP THE MAJORITY OF THE TAKE.

Instead, Dems align themselves exclusively with elites and public sector dues for political funding.

And they lose, over and over and over.

The question is WHAT POLICIES would the Tea PArty support that take money from the elites and give it to the Tea Party?

Ultimately, this is an argument for #distributism.

The best economy going forward for the bottom half is one with STRONG demand for services from the top half.

We want more people in he top 40% getting yoga lessons, and salons trips, more lessons, more home additions, and generally feeling more secure.

And that is EASY to accomplish, just get C power to endorse policies that rob B power and pay off well for A power.

As a personal aside, I do congratulate you on being able to understand this isn't a moral thing, but an animal thing...

That's the first step, now you have to actually think like smart animal.

Mercury said...

doc w:
Perhaps I should have first stated that Cassandra's thesis is strong and her emphasis on the importance of the Rule of Law is spot-on.

However the ROL is not immune to integrity issues similar to those affecting areas highlighted in C's July 1 post. Also, this problem is harldy limited to what can be attributed to chief executive behavior.

Anonymous said...

Great piece. It is obvious that the rich do not pay anything close to the value we give them as a society under the rule of law. The right has a tendency to "naturalize" everything that benefits them such that any changes are unnatural and dangerous. Matt Bruenig has some good articles on the coercion inherent to private property.

Morgan Wrastler is crazy.

Mike Huben said...

"the rule of law is vastly underpriced by those who benefit most "

I've long used this argument on libertarians, asking how much we could sell citizenship for and how much we could sell rights to be in the upper classes for. If you phrase it in terms of price discrimination, they have no economics arguments against it.

This is an excellent argument for progressive taxes on income and especially wealth.

Libertarians in general conflate corporations with individuals, and do not really have any ideological story that justifies corporations, despite their prominent role in our society.

R H Caldwell said...

Brilliant, thank you, and let's hope it goes viral...

"Cassandra" said...

Thanks for the comments, and (mostly) kind words.
For the avoidance of doubt, this is not a manifesto for big government or high taxes. This is attempt to reconcile the the likely entropic outcome, the tendency for "our game" under conditions of strong property rights in a capitalist system, to result in total concentration (see Fernholz & Fernholz), with the many benefits derived from competitive markets & strong property rights. Clearly, high inequality is a major drag on the macreconomy, even before considering that few will continue playing under outcomes of the former. And there appears to be boundaries to the extent with which we can modulate the knobs on the latter whilst retaining its systemic benefits. In between, there is great latitude for policies that diminish inequality, increase opportunity, ameliorate the losses to insure most continue to actively and purposefully participate in the game. Progressivity IS the route - NOT from the moral point of view of a so-called bleeding-heart liberal, or from any belief in the superiority of The State vs. private sector, but purely in pursuit of more optimal macro functioning and necessary to keep people in a Game that deterministically winnows players over time.

The closest thing yet proposed is Robert Shiller's concept to formulaically link marginal rates to inequality, creating an elastic progressivity. This inherently recognizes an entente, and the negative effects of high inequality on the entente, while addressing the risks and drag bureaucratic and State institutional inertia can have.

Though this is contentious with those in denial, I am waiting to hear convincing arguments that attempt to rationalize the systemic benefits of increasingly privatizing gains from property rights whilst socializing their costs.

Eric said...

Good post. No the hard part: what is the "right" price, what does "too expensive" look like? My feeling is that your argument falls on the Goldielocks sword. The "right" porridge has more to do with the nature of Goldielocks than the temperature of the porridge. Eliminating the tails ( say > 100c and 0c = 100c) still leaves a lot of real estate too arrive at the "right" Goldielocks to represent the "right" porridge. My guess is the real problem in arriving at a solution is that each of us lives in our own segregated sub population that is a biased sample of the whole population. Unless and until we could actually see and understand everyone else's human condition, we would not be in a position to empathize and hence price the rule of law. on

Mercury said...

Perhaps it would be polite for us all to pause for at least a minute and thank the brute who brought us to this dance before we go chasing after some sweet-talking romantic full of promises. Make no mistake (as such charmers like to say), the 1% have not been –by a long shot- the only beneficiaries of the period leading up to this current “gilded age” of capitalism.

Most people in the bottom…quintile say (you can draw the line anywhere around there) of American society (capitalism exhibit A) now enjoy a standard of living that would make their grandparents, let alone their 6x great-grandparents, blush: a half-decent car, comfortable shelter, AC, an embarrassment of electronic entertainment options, cheap, long-distance communication, all the knowledge known to man at their fingertips (the internet), the caloric intake of a Roman emperor etc. etc. Remember, people actually starved to death in the USA within living memory. Great time/place to be alive right? (millions of Central-American immigrants think so!). The problem is, the day after (metaphorically speaking) we achieved this previously unimaginable abundance of milk and honey….the metric changed. It’s no longer all about absolute wealth and standard of living we’re told, it’s now all about relative wealth and standard of living. Be careful what you wish for next; there are many different ways for us all to become more equal.

And the rule of law can be plenty biased and selectively oppressive (with or without the lever of capitalism). It’s ridiculous how legally powerful non-government, non-person entities have become. This goes for big, bad corporations of course but also for non-profits and “The Environment” which now has more legal rights than you do.

"Cassandra" said...

Your point, in short is: "They have beer, a clunker, school, doritos, video games, and a phone: why are they complaining?"

I did highlight this (agreeing that they are NOT as worse off as serfs in Russia, nor are the 0.1% as diabolical as the Russian landowning aristocracy).

I am seeing this from a utilitarian point of view, and your observations while eloquent, do not address my fundamental point: there is an unwritten contract implying mutual responsibilities which relate to sharing the risk, and the spoils, that underpins the rule of law, who enshrined existence increasingly and asymmetrically benefits and preserves control of the upper strata, and we are drifting away from optimal integrity.

Mercury said...

They're complaining (in many cases) because humans are envious and all about relative status. I get it. I just find it amusing that the goal posts have been moved so quickly.

I haven’t really quibbled with your fundamental point because I agree with it (in spirit anyway).

You’re referring to The Social Contract which traditionally (post-Magna Carta) concerns the liberty/security trade-off between the individual and the state, secured by specific negative rights of the individual against the state.

The framework built on top of this deal (property rights, capitalism etc. in “our” version) has generated our current state of abundance. As abundance has grown certain segments of society have pushed for –quite successfully in many cases- certain positive rights (the right TO as opposed to AGAINST certain things).

Perhaps the real point of friction between various camps is whether or not these new positive rights (which ones? to what extent?) constitute fundamental amendments to the Social Contract or are just a bunch of laws. This may seem like mere semantics but I think it’s a bigger deal than that. If it’s the former it implies an alteration of a fundamental, first principals level agreement that all interested parties need to be cool with before the ship leaves the dock – something akin to marriage vows or the decision to live inside or outside civilized society. If it’s the later (explicit law) then the obligations contained therein are subject to all kinds of ad-hoc modification, lawyering and loopholing. Everyone is equally subjected to the Social Contract and even though everyone is supposed to be equal under the law, if voluminous and pervasive enough, it tends to favor those at the top with resources to burn. Maybe the situation you describe is what constitutional conventions are supposed to be for (a more fundamental reset) but I’m not that wild about an even-more-laws type solution. The mechanics and structure of the rule of law are already overwhelmed and overwhelming.

Related to your point, oddly enough, is the conservative concept of “hidden law” (see Jonathan Rauch): “the norms, conventions, implicit bargains, and folk wisdoms that organize social expectations, regulate everyday behavior, and manage interpersonal conflicts”.