I talk a lot about the rule of law–mostly in the context of ensuring fair play and civil peace. But as a recent essay by Catherine Rampell reminds us, the rule of law is also essential to the operation of a market economy.
A country that protects property rights; that has free capital markets; that has a stable and predictable regulatory regime; where all citizens are equal before the law; where individuals don’t fear being expropriated by the state without cause; and where private contracts can be enforced regardless of political connections is generally a better place to do business. All these features are among the reasons the United States has long been the richest country on earth. It’s also why we have attracted so much foreign capital.
When property rights aren’t protected and the justice system operates to reward friends and punish enemies, doing business is harder. People don’t have the certainty they need to invest here, or study here, or start businesses here.
Rampell is absolutely correct. Economic experts have long emphasized the importance of the rule of law to market performance. Predictability is particularly significant–it allows businesses to plan, invest and price goods with reasonable certainty that everything won’t go south without warning.
Even more important is the enforcement function. A reliable and impartial legal structure allows confidence that contracts will be enforced in accordance with their terms. When a business owner cannot rely on the courts to enforce agreements and laws mandating fair economic play, like anti-trust, companies end up depending on personal relationships– family networks, political influence, or bribery-based “arrangements”– which are both far less predictable and far less fair. (Can we spell Russia?)
Then there’s the protection that rule of law regimes provide for property rights. Critics of capitalism tend to dismiss the importance of that protection, but it is critical to the operation of the economy. Investment only occurs when ownership is secure–when clear legal title allows business-people to buy, sell, collateralize and insure property. When any property can be arbitrarily seized (either by the state or by powerful actors), capital investment gives way to defensive hoarding.
Numerous economists will also point out that the ability to rely on a fair and impartial legal system lowers transaction costs and makes markets more efficient. Rule of law systems with standardized rules reduce the need for expensive private enforcement, constant renegotiation, or the excessive premiums necessitated by increased risk. As an economist friend once told me, the rule of law obviates the need for private militias, political patrons, or corrupt intermediaries.
Bottom line: the rule of law makes markets cheaper to operate, and it should go without saying that lower transaction costs benefit consumers–a lesson we’re re-learning as Trump’s tariffs increase those transaction costs.
One of the most worrisome aspects of the kakistocracy we increasingly inhabit is the steady erosion of genuine market capitalism and its replacement by what is sometimes called corporatism, or crony capitalism. When power replaces the rule of law, markets devolve into corruption, uncertainty, capital flight, and monopoly power.
What defenders of capitalism often misunderstand is that markets can’t operate properly in the absence of regulation. Antitrust law, bankruptcy law, and anti-corruption laws prevent powerful folks and insiders from rigging the marketplace. Sound laws and regulations ensure that investments will flow to firms that are seen as productive, rather than to firms that are politically connected. Crony capitalism suppresses productivity and innovation.
A market economy is not self-sustaining without an adequate rule of law.
I consider myself a capitalist. I’m a fan of market economics, and accordingly, I recognize the importance of the rule of law to the proper operation of those markets. But I also understand that there are functions that markets cannot perform. Economists talk about “market failures” that require government intervention, but the simpler explanation is that, in any society, there are functions that require collective rather than competitive action.
Government is our mechanism for those collective activities, for providing the physical and social infrastructure within which markets can operate and people can pursue their individual life goals. The rule of law is an essential part of that infrastructure.
The thorny issue that underlies our most important policy debates is identifying which goods should be provided collectively by government and which should be left to the market. (If we’ve learned anything from the failures of “privatization ideology,” it is that things like education and health care are not consumer goods.)
Tomorrow, I’ll consider that fundamental question…
The Financial Times reports that U.S. oil companies won’t invest in Venezuela unless they receive firm guarantees. One investor told the paper, “No one wants to go in there when a random fucking tweet can change the entire foreign policy of the country.”
Is our now $1.5 trillion military a consumer good? Of course not! So, why is the industry controlled by private businesses that contract with the government?
The same goes for our surveillance industry, which contracts with the government. Think Palantir and Thiel, and Musk in space.
When we look closely at our economy, as we do with our politics, it’s really an oligarchy where those with wealth control both the markets and the politics. The $20 billion offered to Argentina went to bail out a billionaire hedge fund manager holding too much of the country’s bonds. Look at Singer and Citgo as they relate to the Venezuela operation. Those are just two recent examples of our government and media ignoring the actual cause and instead going with bullshit propaganda.
Look at all the SEC and trust cases that were dropped after Trump won the election when the oligarchs donated to his campaign. Look at the protection racket he has on AI companies.
In real markets, you need two rational parties, but we don’t have that fundamental concept in the US. When apartment owners use the same algorithms to set rent for their units, there is no competition.
Etc., etc., etc.
Boy, those Heritage nutters are pearl clutching over birthrates, wait till people stop moving here. Because we have nothing to offer. No rule of law and no stability.
“Bribery?” I recently read a piece by a woman whose family came here from Pakistan some time ago, to get away from the bribery run system there. Her point was that Trump is recreating Pakistan here. That fit into my perception that he is changing us into one of the third world “Shit-hole” countries he has taken so much apparent pleasure to so name.
If anyone here believes that Trump understands any of the basics of economics, I have a bridge to sell him\/her.
There’s a fascinating, compelling and provocative essay, the best I’ve read on the topic of the future, at Noem, “From Statecraft to Soulcraft,”
In an easy to read but, with deep content, Alex LeFebvre, captures and distills where the US is headed in a way that I haven’t been able to, after years of reading.
From the essay I understand why Harvard law Prof. Vermuele has been described as liberalism’s most dangerous critic. I posit that the promotion of Vermuele’s ideas and the plans for implementation threaten the American nation as I and most of those at this blog want it to be.
More than 1/5 of Trump’s voters in 2024 were Catholic. Vermuele is a convert to Catholic as is JD Vance.
A question that concerns me is whether Democrats can find a winning strategy while tip toeing around a primary driver of the national and world vision which is held by Vermuele, Kevin Roberts, Leonard Leo, Robert George, JD Vance, Nick Fuentes, Ed Martin, Bishop Timothy Dolan, the 6 conservative Catholic SCOTUS jurists, etc. (and, the Republican segment of the 19 out of 50 governors who are Catholic).
As example, reportedly, SCOTUS has decided with religious sects 82% of the time.
We’ve deliberately ignored antitrust for most of the last one hundred years. When Biden appointed Lena Kahn, we finally turned our attention back to it. It was a glimmer of hope. That’s just one more thing we can thank those who stayed home in 2024 for giving us.
In case you missed it, yesterday Indiana Senator Todd Young joined four other Republican senators to vote to curtail Trump’s power to send troops to Venezuela. And last month the Republican state legislature refused to allow the redistricting of the state even at the orders of Donald Trump. It looks like all those phone calls and protest marches are paying off. Let’s keep it up, and redouble our efforts.
Theresa Bowers,
50501, an organization that disseminates info about “No Kings’ rallies, has a list of events for Jan. 20. More events are being added daily.
The orange blob in the WH is, among other things, setting up his dictatorship disguised as an oligarchy piece by piece, easy pickings when there is no substantial opposition. He intends to continue to grow his own wealth so he feels more and more comfortable with his billionaire buddies, to hell with all those – most of us – who more and more cannot afford more and more of what used to be reasonable goals (remember the Middle Class?). He could care less about food and water insecurity, or rule of law, or voting rights, or healthcare, or anything for people of color, or the poor, or for that matter, The Constitution. He concentrates on warlike activities while planning an even greater expansion of the WH “ballroom.” There is no limit to his disregard for history, taste, compassion, empathy, or decency. And…he will go to any lengths – obviously and openly – to distract from the ugly truth about himself that will at some point be exposed in the release of ALL the Epstein files. Ugly, ugly, ugly. EPSTEIN EPSTEIN EPSTEIN…..
Homo Sapiens live in an abstract universe defined by memories from our previous experiences, which are absolutely unique to each of us. Every exchange between us and others creates as much misunderstanding as connection.
Our society has nevertheless progressed from simple to so complex that it’s impossible to reach agreement on anything, because no two of us share a language that allows the same thought to occur in two minds, much less eight billion minds.
We hope that AI will help in the form of agents that transcend our human limitations and will come up with solutions that consider all human knowledge rather than the truly tiny portion any single mind is allocated.
Unfortunately, based on what’s apparent to those deep into creating AI, such intelligence invokes eye-wateringly expensive in both monetary and energy terms resource demands that may be more than our economies can afford.
If it existed, it could offer solutions to the complexity we’ve created, but that complexity probably won’t allow us to afford to make it.
The collapse of society that kept us safe and comfortable will be painful to everyone who benefited from the illusion of sustainable stability. However, for the survivors, life will return to the solid ground on which our individual intellectual capacity can navigate.
There is an increasingly anti-Catholic rhetoric among some commenters on this blog. The ultra-conservative wing of the Catholic Church, the one that called Pope Francis a heretic, the one that has completely vilified Leo for standing against dump and his dictator friends around the world, is the sect that reflects what we see in almost every religious group, whether Catholic, Protestant, Orthodox, Muslim, Hindu, Sihk or Jew. Those religious sects are reflective of the power structures in which they thrive. Unfortunately, the entitlement and perceived superiority that drives the force and oppression by those groups remains pathological.
Since reading “The Scarlet Letter” in high school, the irony of those who fled oppression and then oppressed others themselves was obvious. The Pilgrims, Puritans, Calvinists, etc., all took great risk to exercise their desire for freedom to worship, yet failed to see how their own oppressive demands put the lie to everything they supposedly believed.
To the Professor’s repeated assertions that the policies being enforced by ICE and CBP are racist at their foundation bears repeating and repeating, as Minnesotan Rev. Kenny Callaghan’s experience yesterday demonstrates.
His witness can be viewed on Youtube.
RESIST.
Can we go back to pre-Reagan economics?
There isn’t a rule of law right now when it comes to the Federal Government. I am hoping some of these Governor’s call up their state Guard units to protect the citizenry from Noem’s ICE agents
JD–you are absolutely right. The problem is fundamentalism of any variety–Catholic fundamentalists are no different from Baptist or Muslim or Jewish fundamentalists–or for that matter, political zealots. They are all dangerous, because they all want to impose their beliefs on everyone else. Live and let live is incomprehensible to them.
Respectfully, there is a difference among the religious sects. On a continuum of political power, one sect has had huge wins in imposing its beliefs, one has spent huge sums to legislate against the will of the majority, one is cited by its own organizations, as the nation’s 3rd largest employer, the charities of one are funded
at the level that 2/3rds of their revenue is from the government, one has 6 of its conservative members on SCOTUS, the schools of one sect, receive from taxpayers in a minimum of two states and likely, at least, 4 others, the overwhelming amount of money redirected from public schools.
Nationally, there are more than twice as many students in Catholic schools as in Christian schools. Nationally, it’s reported that 80% of private school parents choose religious schools.
Before Democrats adopt the “what aboutism,” tactic, a preferred MAGA argumentation style where they compare disparate things aiming for deflection, IMO, they should ask themselves why they are doing it and whose purpose it serves.
Before defense strategy #2 is used, “there was a time when there was discrimination against Catholics,” consider that 19 of the current 50 governors are Catholic and review statistics about White Catholic income levels. Personally, I would be embarrassed to gaslight on the point when, Black people and women have actual claim to discrimination in 2026.
And, before I trotted out defense #3, “not all White Catholics vote Trump/Republican,” I’d focus on the majority identified in the 2024 election data and I’d look at how it trended from 2020.
Finally, I would ask why the public has the perception that American Catholicism is
liberal. In my estimation it is the continuation of superb PR.
All Americans should read the history in David Kertzer’s book about the Popes and Hitler and Mussolini.
To understand the levers of power used by Republican Catholic politicians to advance their sect, read, “On a mission from God: inside the movement to redirect billions in taxpayer dollars to religious schools,” 1-13-2025.
I’d weigh what podcaster Greg Olear opined, Catholics are the strategists for the GOP and evangelical Protestants are their foot soldiers. And, I would weigh Villanova Prof. Faggioli’s opinion, “ Donald Trump captured American Catholicism…” 2-17-2025, abc.net.au.
But, what about those Buddhists in the US, ….?
In 2023, Mary Jo McConahay wrote, “Playing God: American Catholic Bishops and the far right.” She concluded that there are Catholics who will never separate their religion from the Church’s politics. She offered no solution to the situation.
Recent articles have chronicled the trend of newer priests being more conservative than those in the generation(s) before them.