Breaking Laws Breaks Economy

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I’ve just read a fascinating piece on lawlessness and the falling GDP of our economy in Zero Hedge that directly connects the decline in the economy to the moral and ethical decline in the nation.

This isn’t a cluster of clerical zealots per se who are condemning the cheating money changers, corrupt politicians and violent money whores…

It’s a cluster of economists pointing their fingers…which is a whole ‘nother kettle of worms', so to speak.

You see, the problem isn’t the message, but the messengers.  It would be much easier to ignore the message if it had in fact come from someone’s pulpit...

But to be morally accused, judged, and condemned from the arid realm of academia by the lords of the dismal science is quite a different class of condemnation altogether.

Decline in US due to corruption

The Zero Hedge article quotes economic historian Niall Ferguson, and so shall I.

“The World Economic Forum’s annual Global Competitiveness Index and, in particular, the Executive Opinion Survey on which it’s partly based ... includes 15 measures of the rule of law, ranging from the protection of private property rights to the policing of corruption and the control of organised crime.

It’s an astonishing yet scarcely acknowledged fact that on no fewer than 15 out of 15, the United States now fares markedly worse than Hong Kong. In the Heritage Foundation’s Freedom Index, too, the U.S. ranks 21st in the world in terms of freedom from corruption, a considerable distance behind Hong Kong and Singapore. [Transparency International puts the U.S. at 24th.]

Perhaps the most compelling evidence of all comes from the World Bank’s Indicators on World Governance, which suggest that, since 1996, the United States has suffered a decline in the quality of its governance in three different dimensions: government effectiveness, regulatory quality and the control of corruption.”

And the worst part of it all is that it makes perfect, flawless, and unbelievably scary sense.

The lawlessness that we see on Wall Street, according to economists, from the massive securities fraudsters from Enron to Madoff to Corzine, and everyone in between and since, allows the dishonest to prosper not only at the expense of the small investors, but also at the expense of the system.

The logic is simple, ageless, and compelling:  A system that is based upon laws lasts only as long as the system is seen and acknowledged to be operating by and upholding those laws by which it functions and upholds public trust.

Lawfulness promotes growth

It’s not fatal to the system that people break the law; that is part of human nature.  Humans—some of them, anyway—will always try to cheat, to break the law, because they don’t want to earn money the old fashioned way, that is, by earning it. The fact is, good and just laws promote decency in a society and healthy growth in an economy.

When those who cheat are caught, they not only must be punished, but the public must see and understand that the wrong doers are paying a heavy price for their illegal actions. That’s what the public hangings were all about in the 19^th century and before; or even chain gangs working in the hot sun paving roads.  Society at large could see the wrong doers paying the price for breaking the law.  This keeps the integrity of the system intact.

What is fatal to the system is that people who break the law are not only not prosecuted, but rather, are seen by the public as being rewarded for breaking the law.  Once that becomes the norm, the system as it was set up, based upon rules, is over.  Once lawlessness sets in, graft and corruption become the way to acquire wealth, rather than hard work, self-discipline, innovation, and risk-taking.  Our nation of laws becomes a nation of men; our economy changes from a meritocracy to a kleptocracy.  The nation becomes a lower form of a society, and economic excellence goes away.

But the lawlessness isn’t just a problem on Wall Street.  When corruption displaces the law in the corridors of government, the effect on the economy is similar.  When folks elected to the House or the Senate enter office with humble means and leave multi-millionaires, there is something wrong there.  And we all see it.

When administrations reward political contributors with fat government contracts and no legal consequences are paid, the people see it and know that the system is rigged. When the president for political gain illegally voids legal contracts of corporations, the office of the presidency comes to resemble a Chicago mobster’s haven more than the highest and most honored office in the land. As our republican democracy descends into the murky swamps of a thugocracy, is there any reason to think that there won’t be consequences?

But the trend goes well beyond Washington and Wall Street.  Thug behavior is now the norm in the entertainment world, and especially in the film and music business.  Of course, rape, murder, robbery, cop-killing, drug dealing, and sexual licentiousness have all always existed in every society; but the celebration of it has turned laws, and our own sense of what ought to be, on its head.

The point of the article is that a strong rule of law actually drives growth in an economy.  The corollary to that is that in a law-abiding society, cheaters rarely prosper. But today, well, actually, they prosper all the time. And we are all paying the price, as trust in the system evaporates and our economy continues to falter.

And those are…The Gorrie Details.

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