Monday, January 18, 2010

We Are Becoming Lawless Because of Too Many Laws

 Over 2300 years ago, Plato pointed out that not only are societies that have no laws lawless, but societies in which there are no limits on the laws that a government can establish are also lawless. In other words, a constitution that limits the government from passing arbitrary laws is necessary to prevent a country from degenerating into chaos or tyranny. The purpose of law is to punish behavior that a society considers bad and sometimes to reward good behavior. For law to be effective, citizens need to be able to understand what the law is. That is only possible if the law is relatively simple, slow to change, and any changes that occur are based on principles that are widely known and reasonably predictable. To the extent that laws are many, complex, subject to rapid change, and changes are arbitrary and unpredictable, it becomes more and more difficult to obey the law. What real difference is there between a society that is lawless because there are no laws to obey and a society that is lawless because the laws have become too arbitrary, unpredictable, complicated, and subject to rapid change to obey?

The economy suffers under either kind of lawlessness. Businesses will not invest and will not hire new workers when the future is impossible to predict. I think the fact that laws have become unpredictable is a major reason why the economy of the United States is as bad as it is today. Businesses both large and small are in shock and don't know what the future holds because many things that could not have predicted have happened in a very short period of time. Who could have predicted a couple of years ago that the government would own a controlling interest in two of the three American automobile companies? Who could have predicted that the government would ignore the bankruptcy laws that give bondholders preference when companies go bankrupt, as it did in the bankruptcies of General Motors and Chrysler? Who would want to buy corporate bonds or extend credit to companies when the government treats creditors as if they have no rights? The health care reform bill that may or may not soon be passed by Congress and signed by the President may have a substantial effect on how much it costs to hire a worker and provide health benefits. The cap and trade bill, which also may or not pass, could dramatically affect energy costs. Businesses need to know what their costs are. I predict that if it becomes clear that either the the health care reform bill or the cap and trade bill will not pass, the stock market indices will go up and the unemployment rate will go down, at least temporarily. That much is obvious, but I also predict that the stock market indices will go up and the unemployment rate will go down if either the health care reform bill or the cap and trade bill pass. Businesses may not like bad news, but they can handle it. What they can't handle is uncertainty. They are used to taking calculated risks, but when they can't calculate the risks, then they don't want to take them.

We and the people who represent us in the Congress and in state legislatures make the mistake of thinking of legislators as law makers. That means that they focus only on making new laws, which adds to the complexity of the laws and makes understanding the law almost impossible. They give very little attention to the laws that have already been passed. They need to be thought of not only as makers of new laws but as maintainers of a code of laws. In addition to making new laws, they should be repealing or modifying laws that have outlived their usefulness or never worked to begin with. They need to follow up on laws after they have been passed to see if the actual consequences of the laws match their intent. We need to understand what there role should be and try to encourage them to simplify things instead of making them more complicated. Since this Congress seriously considers passing laws that are over a thousand or two thousand pages long, it is obvious that they have not gotten that message. They need to avoid passing laws that can't be enforced because that promotes disrespect for the law, and they need to realize that the only law that enforces itself is the law of unintended consequences.

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