Rule of Law: Good Thing
In my last post, I mentioned good things about America that shouldn't be destroyed. I'll add the Rule of Law to that list (meaning that we are governed by laws -- not trends, opinions, dictates, etc.).
Here is a very well-written article that fleshes out my point number 3 (capitalism) from that previous post. The article highlights the beating that the rule of law is taking in the auto bailouts.
Bill Frezza asks, "Has it dawned on you what the consequences will be if the President gets his way and consideration is given to creditors not according to contracts, rules, and established legal precedents but according to which group is most politically favored?" According to Frezza, the consequences are:
troubled companies will be unable to raise capital;
everyone will pay higher interest rates;
heavily-unionized companies might not attract outside capital;
TARP-backed companies might not attract outside capital;
Foreign capital could dry up; and
Private credit markets will go sideways.
The federal government, of course, can do many things to promote its automakers and hobble competitors -- in America. But, those protectionist measures likely would make the government automakers less competitive abroad.
America always is a running experiment. I think the thing being experimented now is capitalism v. governmentalism. The future of the automakers will be a good test to see how governmentalism works.
Every American has benefited tremendously from the rest of the world investing ("speculating") in our companies. If we upset the legal certainty that has accompanied those investments, and the world invests elsewhere, we will be hurt. It's good political sport to beat up on faceless investors, but it's not very wise to send the signal that once-stable rules now will be replaced by . . . whatever sounds bold, populist and decisive in the moment.
Fortunately, a few secured creditors had the mettle to force the Chrysler issue into a court of law -- where it should have gone in the first place. (I'm reading a fine biography of John Marshall (by Jean Edward Smith), who cemented the independence of the judiciary. Go, Third Branch! Preserve the rule of law.).
UPDATE: Megan McArdle weighs in: "The administration is beating up the creditors because a) it wants to give the UAW a much better deal than they'd get in liquidation and b) they'd like someone else to pay for it. I recognize that the law is always kind of messy, but as far as I know, this kind of blatant political intervention between debt claims is unprecedented, and worse, it's a dress rehearsal for doing the same thing at GM. I don't think this is good for the rule of law, I'm pretty sure it will be bad for capital markets, and I'm nearly positive it's going to make it hard for any heavily unionized company to get substantial capital for the next decade."
Here is a very well-written article that fleshes out my point number 3 (capitalism) from that previous post. The article highlights the beating that the rule of law is taking in the auto bailouts.
Bill Frezza asks, "Has it dawned on you what the consequences will be if the President gets his way and consideration is given to creditors not according to contracts, rules, and established legal precedents but according to which group is most politically favored?" According to Frezza, the consequences are:
troubled companies will be unable to raise capital;
everyone will pay higher interest rates;
heavily-unionized companies might not attract outside capital;
TARP-backed companies might not attract outside capital;
Foreign capital could dry up; and
Private credit markets will go sideways.
The federal government, of course, can do many things to promote its automakers and hobble competitors -- in America. But, those protectionist measures likely would make the government automakers less competitive abroad.
America always is a running experiment. I think the thing being experimented now is capitalism v. governmentalism. The future of the automakers will be a good test to see how governmentalism works.
Every American has benefited tremendously from the rest of the world investing ("speculating") in our companies. If we upset the legal certainty that has accompanied those investments, and the world invests elsewhere, we will be hurt. It's good political sport to beat up on faceless investors, but it's not very wise to send the signal that once-stable rules now will be replaced by . . . whatever sounds bold, populist and decisive in the moment.
Fortunately, a few secured creditors had the mettle to force the Chrysler issue into a court of law -- where it should have gone in the first place. (I'm reading a fine biography of John Marshall (by Jean Edward Smith), who cemented the independence of the judiciary. Go, Third Branch! Preserve the rule of law.).
UPDATE: Megan McArdle weighs in: "The administration is beating up the creditors because a) it wants to give the UAW a much better deal than they'd get in liquidation and b) they'd like someone else to pay for it. I recognize that the law is always kind of messy, but as far as I know, this kind of blatant political intervention between debt claims is unprecedented, and worse, it's a dress rehearsal for doing the same thing at GM. I don't think this is good for the rule of law, I'm pretty sure it will be bad for capital markets, and I'm nearly positive it's going to make it hard for any heavily unionized company to get substantial capital for the next decade."
posted by steve u. at 5/04/2009
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3 Comments:
While I'm not sold on the entire argument, it's nice to hear there is still at least one conservative supporter of an independent judiciary.
Could you cite an example of an unjust law?
Or do you believe that the enactment of a law makes it just?
What should the person who views a law as unjust do?
If you advocate changing the law through the political process, what if the political process is designed to resist (is rigged against) such change?
Anon.,
Since none of us has perfect wisdom, the issue whether a law is just or unjust is subjective. Properly enacted laws simply have legitimacy. Should anyone disagree with a law, he should work to change it. If people picked one local or state issue they didn't like, and worked diligently to change it, I think they'd be shocked how well the process works. (Federally, it's a different story). You're right that the status quo is easier to protect than it is to change things. (I've grudgingly come to conclude that this is virtue; few of us are as smart as we think, and those who came before aren't as dumb as we might think). But, it's really not that tough for good ideas to advance. However, it is important that everyone in the process -- including legislators -- understand that the idea will be worked as it moves through the process. Inflexibility often is death. A step forward often is better than standing still.
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