I’m reading Road to Serfdom by Hayek and was struck by the chapter on Rule of Law. While nearly every chapter could be applied to today, I found this chapter particularly applicable.
In a capitalist society, accurately predicting the future is necessary for firms and individuals to plan and deploy their capital and labor. Uncertainty can easily become an impediment to growth (I think we’re seeing a lot of this happening now). Of course, no one can predict the future with absolute precision, but in a free society, we have the Rule of Law as a guide. The Rule of Law serves as a limit to the coercive actions of the state, denying it the authority to act arbitrarily against individuals or firms. Without this limit, no firm or individual would risk resources fearing the state might act to defeat or confiscate their property.
I’m afraid, though, that over the past two years, the state (federal government) has marginalized this all important referee and encroached into dangerous territory. The state has done this through a variety of avenues, including direct legislation and by federal rule making.
The several federal agencies, such as the EPA, DHS, and FCC, issue on a regular basis new rules affecting firms and individuals across major sections of the economy. Think what you will of these new rules (which carry the effect of law), but they inject uncertainty into a once stable business model. Just this week the FCC granted itself authority to enforce so-called “net neutrality”, despite calls from over 300 congressional representatives and a recent federal appeals court decision. The action by the FCC will undoubtedly be challenged in court and most likely taken up in the next Congress, but it underscores the danger in allowing unaccountable and unelected bureaucrats to impose arbitrary regulation.
Additionally, this administration has expressed frustration in Congress for failing to adopt national “cap-and-trade” legislation (passed by the House, failed in Senate). As a result, it has pledged to by-pass Congress and use the EPA to accomplish its climate-change agenda. As firms sit idly by waiting for the EPA to act, consumers will face less choice, more unemployment, and higher prices. This shouldn’t be.
As Congress and the administration continue to legislate and rule-make, they can expect firms and individuals to remain on the sideline, reluctant to make economic decisions for fear of state action.