Thursday, June 24, 2010

Rule of Law, Rule of Man

Friedrich Hayek made the important point that, in order to have a free society, people must be governed by the rule of law, not the rule of man. Rule of law means that the rules are fixed and applied equally in all cases, to all people. Rule of man means discretion - rules are not fixed, but are applied differently based on the individual(s) applying the rules.

The U.S. is ostensibly a "rule of law" country. In many instances, this has not been the case. I want to highlight a few recent cases where the rule of man has prevailed over the rule of law. Most recently is the BP case, where the company was bludgeoned out of $20 billion. No matter what you think of the BP case, there is no law that says a company whose equipment breaks has to set a relief fund. In fact, it seems to be that liability in the oil industry is capped at $75 million. Naturally, there is now a push to raise that liability cap. Imagine that!

The finance industry is an ongoing field of government involvement. An example of rule of man here is the fact that there was a "pay czar." There is no pre-existing rule that says "people in the finance industry should be paid X, or according to formula Y." This pay business only came up because of the bank panic and subsequent recession. This is purely rule of man since the rules are based entirely on an emotional response to recent events.

Finally, there is the GM takeover. You know - Government Motors. If any more evidence is required that the 'rule of man' rules this country, I don't know what it is beyond nationalization of a huge company.

What is the danger of the rule of man? Not to be too alarmist about it, but I think Prof. Thomas Sowell is onto something: