The Rise of Adversarial Corporatism

corporatism

Timothy F. Geithner, former U.S. Secretary of the Treasury and savior of the free world,[1] has lamented the intractable paradox of financial crises: government must lend freely to actors who by all rights should bear the price of their own reckless conduct and be wiped out. The post-crisis years have been marked by a related but somewhat different paradox: On the one hand, the government has recapitalized financial institutions, subsidized them, and drawn them closer to its ample bosom. On the other, it has hit those same institutions with an avalanche of prosecutions. Settling these cases is very costly; one estimate puts the largest six banks’ litigation costs since 2009 at over $160 billion.

A strategy of re- and de-capitalizing firms at the very same time does not make much intuitive sense. And, conservative pundits seem torn. They have harshly criticized the government’s bullying banks into multi-billion-dollar settlements. Poor J.P. Morgan, poor Jamie Dimon. But they also inveigh against “crony capitalism,” which happens to be what Mr. Dimon practices for a living.

What gives?

I suggest that the conflicting policies and laments converge on a single phenomenon. Prosecutorial aggression and “crony capitalism” are two sides of the same coin. Let’s call it “adversarial corporatism.”

In a 2001 book, Berkeley professor Robert A. Kagan described America’s regulatory style as “adversarial legalism”[2]. The term was, deliberately, slightly oxymoronic. “Legalism” suggests a Weberian, hierarchical bureaucracy. But that is not “the American way of law” (the subtitle of Kagan’s book), for we combine an emphasis on lawfulness and a fear of agency “capture” with a highly decentralized, rights-based, litigation-driven mode of regulation. The mismatch, wrote Professor Kagan, comes from combining grand social ambitions that require a high degree of social control with fragmented governmental institutions and public distrust of government.

Kagan hoped that those rival forces might yet be domesticated with a bit of good will and restraint on all sides. What has actually happened is the opposite. Grand ambitions have become grander yet. The environmental laws of the 1970s—Kagan’s paradigm—look quaintly modest compared to contemporary efforts to govern the entire health-care market, the financial markets, and indeed the planet. Meanwhile, agency “capture” has become an even more fully symbiotic relation between government and private interests. At the same time, the Naderite public interest lawyers of the 20th century cannot hold a candle to today’s adversarial forces: government prosecutors of all stripes, and trial lawyers. What was once hard-fought civil litigation has become (criminal) prosecution, largely conducted outside the judicial process. Over a wide range of economic activity, adversarial legalism has evolved into an actual oxymoron: “adversarial corporatism.”

Regulatory Regimes

“Corporatism” is often associated with Benito Mussolini’s forms of industrial organization. But there is also a more benign, democratic form of corporatism, practiced by postwar Germany, Austria, and other (mostly Western European) countries. Corporatism in this sense seeks to lock representative and democratic interest groups—“peak associations”—into binding agreements over, for example, labor conditions or workplace standards. The agreements may be embodied in legislation, or they may be produced through routinized negotiations (as with labor “tariffs” or prevailing wages). In that fashion, democratic corporatism seeks to dampen social conflict and bring economic stability.

The United States came uncomfortably close to importing Mussolini’s corporatism; the New Deal’s National Industrial Recovery Act was explicitly modeled on it. The Supreme Court unanimously struck down the act in Schechter Poultry v. United States (1935). And yet, in the postwar era, we still ended up with something akin to democratic corporatism. Regulatory agencies such as the Federal Communications Commission, the Securities and Exchange Commission, and the Food and Drug Administration superintended sectoral industry cartels, shielding them against “ruinous competition” and against attack by state regulators or private parties. Transportation, agriculture, and utilities were regulated in the same fashion. The National Labor Relations Board maintained a rough balance between labor and capital. Banking and finance, too, were organized along corporatist lines.

New Deal corporatism pursued the same objectives as its European counterpart: social and economic stability. Here as in Europe, it rested on a rough social consensus—in our case, the New Deal consensus. The law that organized this universe was not the Constitution but the Administrative Procedure Act of 1946 (APA). The APA governed an array of (typically) bipartisan, “independent” agencies. For traditional rule-of-law protections, administered by independent courts, the APA substituted administrative process and deferential judicial review.

That system crashed and splintered in the 1960s, for well-rehearsed reasons: misgivings about the capture of regulatory agencies; the system’s inability to accommodate broad but diffuse demands for environmental and consumer protection; a lack of transparency and accountability. The system became more pluralistic. A much wider range of interests gained access to agencies, as the courts and the Congress pried the doors open for consumer advocates, environmental groups, and competing economic actors. The APA underwent a radical transformation, and the administrative process became much more contentious and judicialized. This, roughly, is the world described by Robert Kagan in 2001.

That world is no longer ours. We have acquired a new style of regulation—adversarial corporatism. Its most pristine embodiment is the Wall Street Reform and Consumer Protection Act of 2010, otherwise known as Dodd-Frank for its main congressional sponsors.

In an instructive overview of Dodd-Frank, law professor David A. Skeel has argued that the statute is a throwback to New Deal-style corporatism. It establishes “(1) government partnership with the largest financial institutions and (2) ad hoc intervention by regulators rather than a more predictable, rules-based response to crises.” Adds Skeel: “The partnership works in both directions: special treatment for the Wall Street giants, new political policy levers for the government.”[3]

Evidence is not hard to come by. The ultimate government “partners,” Fannie Mae and Freddie Mac, played a key role in the 2008 meltdown that the reform law was supposed to address. Still, after a brief period in federal receivership, Fannie and Freddie emerged largely unscathed and are making money again (which the U.S. Treasury siphons off). Moreover, to these old-time Government Sponsored Entities (GSEs), Dodd-Frank has added a stable of new ones. They are called “Systemically Important Financial Institutions” or “SIFIs” for short. They, too, operate with a huge embedded subsidy. (By some estimates, their advantage vis-à-vis smaller institutions works out to close to 100 basis points.) A lot of money can be made by being systemically important. But you must stay close to the regulators and be nice to them. Former Morgan Stanley CEO John Mack famously articulated the new first law of finance: “Your Number One client is the government.” Goldman Sachs CEO Lloyd Blankfein has chimed in: “We’re not against regulation. We partner with regulators.”

Of course they do: they always have. There’s a serious argument that the relation between government and banks must be corporatist. On one side, the government needs to borrow money. On the other side, fractional reserve banking requires a lender of last resort—the government. Hence the mutual embrace.[4] The use of regulatory and lender-of-last-resort leverage is called “fiscal repression.” It is a pristinely corporatist mode of operation; but it is old hat. So what is new?

It is that the partnership is a pact among devils, or at any rate an arrangement that is calculated to make the parties look that way. The government is every bank’s number one client because it is the true source of profits. Those come in the form of embedded subsidies and of regulatory goodwill, which a bank may cultivate by, for example, serving as a holding pen for former and future government officials. (This is Citigroup’s business strategy.) But there is a second reason to cultivate the government: it, unlike most clients, can destroy you. It will threaten to do so on a regular basis, and it will shout from the rooftops that you (banker) ought to be in jail. Instead of charging or prosecuting individuals, however, the government prosecutes firms and exacts large sums of money. Billion-dollar settlements have become almost routine.

These shake-downs are a perplexing feature of what is, after all, supposed to be a “partnership.” Several features are worth noting:

First, while settlements are haggled out behind closed doors, the results are the stuff of press releases and newspaper headlines. The opposite is true of conventional corporatism, which operates on the principle that publicity is what happens when the system breaks down.

Second, the settlements and fines in these proceedings bear little, if any, relation to the supposed abuses. While there was a lot of bad behavior in the run-up to the financial crisis, the practices that did the real harm had much more to do with horridly misaligned incentives than with the sudden emergence of a criminal class. And no one seriously pretends that the prosecutions or the settlement amounts correspond to culpability, mens rea, or demonstrable harm to consumers. The settlements usually take place far away from any courtroom, and long before any trial. They are political bargains.

Third, and most strikingly, “settlements” settle virtually nothing. In New Deal corporatism, as noted, administrative agencies and congressional subcommittees shielded regulated industries from legal and political attack. Adversarial corporatism, in contrast, resembles a protection racket that exacts payment and then invites rival gangs to open fire on the local saloon. A settlement with one federal regulator will rarely stop investigation and prosecution by another federal regulator; or prosecutions by state attorneys general and treasurers; or consumer class actions or derivative shareholder actions; or actions by those allegedly hapless victims of mortgage shenanigans, Fannie and Freddie and the Federal Housing Administration. State and federal agencies compete for the spoils. None of them has the means or the motives to bring closure.

It seems highly unlikely that Dodd-Frank’s architects deliberately designed a grand profits-for-pariah-status bargain. Congress does not work that way, least of all under tumultuous conditions like those that obtained in 2008. Moreover, it is misleading to think of “the government” as a unitary actor. The U.S. Department of Justice could not get a U.S. attorney in New York or Sacramento to stand down even if it wanted to, and the federal government’s ability to block enforcement proceedings by officials in the 50 states is nil.

For all that, adversarial corporatism does have a functional logic. At the time of Dodd-Frank’s enactment, the political system could see no way to bury GSE’s, to break up SIFIs, or to wring the subsidies out of the system. Corporatism, however, requires a private quid for every government quo, especially in the wake of a financial crisis that was widely viewed as Wall Street’s fault. The quasi-criminalization of an entire area of the private sector was the only quid that the political system could exact, and so it did.

Banditry

Is government-by-prosecution really a new regulatory style, or just a temporary banking thing? As noted, the banking sector is and has always been a particularly likely candidate for corporatism. And perhaps the adversarial climate will give way to corporatist comity once the post-crisis mop-up is over and the bankers have been cured of their mistaken belief, acquired in “de-regulatory” times, that they are independent actors. However, that prospect seems unlikely.

Adversarial corporatism extends far beyond the financial sector; it has taken hold across a wide range of industries. The tobacco industry, for example, operates under a state-sanctioned cartel and an explicit profit-sharing agreement with state governments (called the 1998 “Master Settlement Agreement”), in exchange for de facto immunity from private lawsuits.[5] The pharmaceutical industry is another example. It operates under a regulatory regime with strong oligopoly tendencies. The firms pay for regulatory approval at the front end; at the back end, state and federal regulators, along with trial lawyers, capture a big portion of the rents by means of “law enforcement.” (Many of the largest settlements on record have been between pharmaceutical firms and federal agencies, especially the Departments of Justice and Health and Human Services.)

The Affordable Care Act works on a similar principle with respect to health insurers. The act turns health insurance into a product that cannot survive in an open market and then promises to keep that product viable by means of subsidies and compulsion. That, too, is a “partnership” between business and government. It, too, will become a permanent perp walk.

All these arrangements reflect the reality that every corporatist system must have some way of recapturing an acceptable portion of the government-produced rents. For de jure GSE’s, the arrangement is made explicit: Fannie and Freddie must kick back their profits to the Treasury. De facto GSE’s aren’t subject to that requirement. Thus the need for some other way to siphon off the profits. That is where law enforcement, so-called, comes in. Legal action is, it appears, more convenient than conventional methods such as taxes or rate regulation. Financial settlements and payments are in lieu of penalties in name only. They are better viewed as dividends, payable to the banks’ number one client. And like any investor-client, the government will insist that dividends be paid promptly and reliably.

Is this a stable institutional arrangement? There are reasons to think not. The key arguments for corporatism, as mentioned, are economic stability and social consensus. (New Deal agencies were supposed to protect and stabilize their industries, not destroy them.) A corporatism that is adversarial is incompatible with either goal. It aims, after all, to keep financial institutions and their investors in a state of permanent uncertainty, and to stir up resentments.

The difference between conventional corporatism and its adversarial cousin is reminiscent of Mancur Olson’s famous distinction between “stationary” and “roving” government bandits: Stationary bandits seek to enforce exclusive dominion and will exploit their base only to the point of maximizing long-term gains. Roving bandits have a much shorter time horizon. They come, loot, and leave the scraps to the next occupier. That, roughly, is our system: once multiple federal agencies are through with J.P. Morgan or Glaxo, state AGs and trial lawyers pick over the remains. Such a regime simply isn’t built for the long haul.

Even so, there are potent reasons to suspect that adversarial corporatism may be here to stay:

  • Regulatory agencies at all levels of government have become profit centers for cash-strapped legislatures, and returns on agencies’ law-enforcement investments have become an important margin of regulatory competition. Agencies will be loathe to surrender their legal powers; legislators will be reluctant to demand they do so.
  • Adversarial corporatism rests on broad political coalitions. The architects of the tobacco cartel were careful to cut trial lawyers and public health groups in on the bargain. State AG settlements routinely divert funds to a coterie of advocacy groups. Health insurers and providers “partner” with Medicaid and Medicare lobbyists. And in a truly breathtaking account (cited in note 4), Charles W. Calomiris and Stephen H. Haber have documented the unholy coalition of big banks and an entirely bank-financed non-profit “fair housing” sector. Like all such coalitions, that between Wall Street and urban interests is firmly entrenched in Congress. (In the 1970s, my friend Alex Pollock has noted, the Senate Committee on Banking and Currency became the Committee on Banking, Housing and Urban Affairs.) And the coalitions are well connected to both major political parties. President Clinton promoted the banking-fair housing coalition as did President Bush. President Obama does, and the same will be true of the next President.
  • As an economic matter, multi-billion dollar legal liabilities have become part of firms’ overall profit picture. At one level, this seems odd since government-imposed liabilities are almost random events. But then, stock markets find no great difficulty in pricing legal risks, and an entire cottage industry has grown up to arbitrage them.
  • As a matter of elite social mores, profits-for-prosecution has become accepted. At Baltusrol Country Club, moving your ball in the rough remains a grave offense. Running a quasi-criminal enterprise may be more like a condition of admission. (If the government isn’t after you, you’re probably not very rich or important.)
  • Adversarial corporatism is self-reinforcing in public opinion terms. The Wall Street Journal’s editorialists have summed up Dodd-Frank and its implementation with the headline, “Government Has Won.” Meanwhile soi disant progressives are just as convinced that the capitalists have won. Not one culprit in the 2008 meltdown has gone to jail, they cry, and the banks are raking in unprecedented profits. Both camps are in a way correct, and both can marshal mountains of evidence. Both choose to see only one side of a fiendish bargain that is not easily explained.

The Corporatist Conundrum

For any number of reasons—economic, political, social—adversarial corporatism is a very bad way to run a country. Can anything be done about it?

Law and courts?

Excessive hope on this front is probably misplaced. True, many government prosecutions of alleged corporate misconduct would not pass muster with a jury or judge. However, few if any targeted companies can afford to play hardball. Thus, the parties bargain in the shadow of the law, and over time, the deal-making becomes routinized. To paraphrase the divine Tina Turner, “What’s law got to do with it?”

External shocks?

That might not work, either. The 2008-2009 financial crisis should have been a wake-up call. Yet the forces that knowingly walked us into the disaster—banks, housing advocates, Fannie and Freddie and the FHA—walked away from it with more money, power, and privileges than before. Dodd-Frank did not retard adversarial corporatism; it enshrined it.

A call to reason, social responsibility, and the greater collective good?

That was Robert Kagan’s proposed cure for adversarial legalism and its ills. It went unheeded. Adversarial corporatism will likewise prove immune to appeals to the greater good, and for the same reason: for the professional players, it’s a positive-sum game. As has been said, they have a friendly dealer (the government) and a few hundred million suckers at the table, who can’t get up: taxpayers. For the pros, the rational strategy is to pretend that it’s a real fight and a competitive game; to raise the stakes; and to squabble over the proceeds among themselves, somewhere down the road.

Will the game end when all the suckers sit naked?

No. The house will print money and lend it, as it does whenever there is a crisis and, nowadays, even when there isn’t one. The game will end only when the card sharks start shooting each other—in other words, when the coalitions that sustain adversarial corporatism break.

I’ll entertain any reasonable proposal conducive to that end. But I’m not holding my breath.

[1] Timothy F. Geithner, Stress Test: Reflections on Financial Crises (Crown, 2014).

[2] Robert A. Kagan, Adversarial Legalism: The American Way of Law (Harvard University Press, 2001).

[3] David A. Skeel, The New Financial Deal: Understanding the Dodd Frank Act and Its (Unintended) Consequences (John Wiley and Sons, 2011).

[4] Charles W. Calomiris and Stephen H. Haber, Fragile by Design: The Political Origins of Banking Crises and Scarce Credit (Princeton University Press, 2013).

[5] If you must know the gory details, see Michael S. Greve, “Compacts, Cartels, and Congressional Consent,” 68 Missouri Law Review 285 (2003).

Michael S. Greve

Michael S. Greve is a professor at George Mason University School of Law. From 2000 to August, 2012, Professor Greve was the John G. Searle Scholar at the American Enterprise Institute, where he remains a visiting scholar. His most recent book is The Upside-Down Constitution (Harvard University Press, 2012).

About the Author

Responses

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Comments

  1. Doug Fullerton says

    JP Morgan and Jamie Dimon are not a good example as they were the only large bank that did not need a bailout in the recent crisis. Perhaps Citi and Charles Prince/Robert Rubin would be a better example?

    • Jimmy says

      True, JP Morgan did not require a bailout. But it did partner with the treasury to provide one to Bearn Stears, in the process offloading Bearn Stears toxic assets into a special purpose entity (Maiden Lane 1) on the Feds balance sheet. Who needs a bailout when you can offload risk to the treasury? So there is an irony that in the fact that JP MORGAN is at the same time a favored partner in the securities markets and an enemy in the courts.

    • Jimmy C says

      JP Morgan did not need a direct bailout, but it did partner with the NY fed as the buyer of last resort following the failure of Bear Sterns. On that day, the treasury was nice enough to create a special purpose entity to absorb Bear Sterns’s worst assets and dump them onto the Feds Balance sheet. That entity is one of several Maiden Lane LLCs, standing for the backdoor entrance street to the New York Fed, the irony being that the fed was creating de facto bailout to Bear Stearns’s counter parties, amongst which, no surprise, was JP Morgan. DOJ the sues and settles for billions. I would say JP Morgan is the perfect example of adversarial corporatism. Government Partnerships and Bailouts followed by lawsuits.

  2. says

    There are two possible roads to reform.
    One is based on the fact that the game is not positive sum for most people. In the age of the Internet, the losers have a better chance of recognizing this and organizing than would have been the case heretofore. See, for example, the Tea Parties. However, the rational ignorance of most voters and the control of resources by the cronies make reform by rational argument into a dicey project.

    The second is related, but relies less on rationality — the great tides of history and politics are moral and religious. This is certainly true of the US. I see signs that the current outrage at the system is indeed turning into the kind of moral fervor that then develops a momentum of its own,

    See W. L. Garrison:

    “I am aware that many object to the severity of my language; but is there not cause for severity? I will be as harsh as truth, and as uncompromising as justice. On this subject, I do not wish to think, or speak, or write, with moderation. No! No! Tell a man whose house is on fire to give a moderate alarm; tell him to moderately rescue his wife from the hands of the ravisher; tell the mother to gradually extricate her babe from the fire into which it has fallen;—but urge me not to use moderation in a cause like the present. I am in earnest—I will not equivocate—I will not excuse—I will not retreat a single inch—AND I WILL BE HEARD. The apathy of the people is enough to make every statue leap from its pedestal, and to hasten the resurrection of the dead.”

    Is it fair to equate the present situation with the circumstances that called forth the Abolitionist movement? I think it is; our form of government simply cannot survive many more years of adversarial capitalism and government by crony generally. (Michael does not discuss all the non-capitalist cronies — unions; public employees; Big Green — which are also in partnership with government.)

  3. R Richard Schweitzer says

    The Managed State:

    “Corporatism” is now a widely accepted designation for certain characteristics of what have become “governmental activities.” But, what is the nature of the “government” that is the subject of these discussions which employ the term “corporatism?”

    On closer inquiry we are likely to conclude that the nature of that “government” is the Federal Administrative State; its establishment and access to the coercive powers provided by the Constitution having been confirmed by the Administrative Procedures Act of 1946. It has become the 4th branch of “government,” and is the one referenced by “corporatism.”

    That Administrative State, is comprised of enterprises established politically for social, economic and political objectives; each enterprise requiring management and managers. In this aspect they are comparable to those modern corporate structures (see, Berle & Means) which not only require, but are dominated by, managers; particularly those of large-scale business and financial enterprises in which ultimate (public) beneficial ownership has become detached from control of objectives and operations.

    In the Federal Administrative State we have “government by managers” which has evolved in large measure by devolution of the powers of the (purportedly “representative”) legislative branch through professional legislative staffs to the managers of the administrative bodies (agencies, commissions, and bureaus) replacing and displacing legislative responsibilities in favor of the “representatives” electoral concerns.

    We now have a managerial class. What we are probably witnessing is not a conflict of “corporatisms” or “legalisms” but a series of contests within the managerial class (those of the Administrative State and those of the financial and business enterprises) for various levels of dominance, status, privileges and immunities.

    Neither the ultimate (purported) beneficiaries of the Administrative State, nor the ultimate beneficial owners of the large-scale business enterprises have adequate remedies to protect their true interests from the motivations of either set of managers which may be, and demonstratively have been, disparate. (See, Public Choice)

    While the “home-court” advantage currently falls to the Administrative State managers, that advantage will dissipate. Management requires planning, planning requires information. The scope of information required for planning in an Administrative State will prove (as it has elsewhere) to be beyond the reach and intellects of the managers of the Administrative State. The scope of information necessary for planning of even large-scale business enterprises is far more specific and capable of useful approximation.

    While these conditions have probably contributed to the development of private equity enterprises and complex management organizations similar to Berkshire Hathaway and others, the development and proliferation of those kinds of enterprises and organizations are likely to be impeded, politically and financially, to the extent they present a threat to the growing dominance of the managerial class.

    None of this outlook is particularly new. It has been written about as far back as the middle of the last century and somewhat earlier in some of its details. The effects on individual liberty, absent some revisions to, or deconstruction of, the Federal Administrative State are matters of serious conjectural concern.

  4. Scott Amorian says

    I am glad that this essay goes beyond the usual whining about how bad the government and “those people” over there are a bunch of screw-ups. The question was asked: How do we fix this? The author of this essay is examining the symptoms of the disease to try to find its cure.

    The problem, I think, is not found in the symptoms. Rather it is in one of the original intents of the Constitution which is the problem of preventing the democracy from ruining the country while at the same time keeping it as sovereign of the nation. Democracy, being, well, democracy, ignores critical issues, goes to war in weak ways, sometimes for strange reasons. It mismanages its treasury, and ignores the needs of the non-majority of the people. It does not do a lot of things well. It is easily misled by corrupt ministers, and ignores the best advise of the wise ministers. In the case of corporatism, an injection of some healthy values from the democracy is called for, but democracy has weak values. That is what the Framers were trying to keep under control.

    Because the designs of the Constitution were not perfect the democracy rules without needed guidance and reasonable controls. Democracy is running amok as democracy normally does. The democratic nation is in decline, as democratic nations normally are.

    That is the heart of the problem. Issues like corporatism are the symptoms.

    “What’s law got to do with it?” Indeed! With corporatism we see one of the issues with constitutionalism in general. The Constitution, despite claims to the contrary, is not law. Rather, it is more a general set of conventions enforced only by the ire of the public when the government exceeds its authority more than usual, or as it is written in the Declaration of Independence: “… and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed.”

    For the Constitution to be law it would need these five qualities of law:
    1) A rule of required or prohibited behavior.
    2) Consequences for not complying with the rule.
    3) A neutral party to police the rule.
    4) A neutral party to adjudicate accusations of breaking the rule.
    5) And, a neutral party to execute the consequences of the rule if it is found to have been broken.

    The Constitution has only one of these qualities, that being the rules of required and prohibited behavior. The Constitution is no more law than gold and silver are legal tender. When viewed in a strictly technical sense the Constitution has more in common with an organization chart than it has with law.

    Not being limited in fact by law, the government does as much to abuse power as the public will permit it to get away with. The issue is not one of how the writings of the Constitution are law and what the writings say or why they were written. The issue is the values of the public. What raises the public’s ire? What drives good people to march on Washington, or reach out and support one candidate in some other state or district because the other candidate is profoundly insufferable? What makes people join politically active groups like the NRA or get involved with Tea Party type activities? What motivates people to put their lives on the line by going to war?

    The problem with insisting that the Constitution is law when it when it obviously is not law is that the insistence gives the abusers of power the political upper hand. If I know that the Constitution is not law, and you believe that it is law, I can get away with anything that you will not get too worked up about. You, on the other hand, are stuck with the limitations of your imagined law. In the long run, I rule, you lose.

    A second problem is that our Constitution is a set of rules. Trying to keep a government under control using a set of rules is pointless. Rules are limited and human ability to get around rules is virtually unlimited. There are always ways for the clever and ambitious to get around rules. So trying to fight government abuses using rules will not keep government under control. Only when government is overseen by someone with healthy values, good judgement, a willingness to express them, and a means to impose them on government can government be kept under control.

    The problem of corporatism is in part the problem of trying to solve problems using rules. As the article illustrates clearly, the people who benefit primarily from extensive rule making are the rule makers and their cronies. More rules will not fix the problem of supersized government. That is like trying to lose weight my eating more. More rules are the problem.

    Rules make poor rulers. They do not have context. They are limited by the written language itself. They are useful tools at times, just as guns are, but they are also destructive in the wrong hands, just like guns are. Rules do not understand the human experience within the context of a given situation.

    Rules don’t fix government problems. People fix government problems. But people must be driven by values. American is a nation of values. America is not at all a nation of laws as is commonly claimed. Every dictator wannabe would have you believe that America is a nation of laws. We get our liberty from our values, not our laws. We see this in the essay which illustrates how the laws are ruining us.

    The question in simplest terms is this. How do we give values to the democracy so that it behaves responsibly, or if it is hopelessly recalcitrant and refuses to act responsibly, how do we contain or even replace it? That was the problem the Framers attempted to solve. Their experimental solution was flawed, as the essay illustrates.

    The problems of government such as corporatism arise naturally, in part because of the values of the public, and in part because the design of the system of government causes it to work the way it does. One or both of those must change. If neither changes, the problems will continue. Since the values approach advocated by Kagan does not seem realistic, that leaves the design of the system. What must be changed and what process can be used to make that change?

    Changing the Constitution will not solve the problem. Changing rules only creates a different set of rules to ignore or work around.

    Making the Constitution into real law would create a problem with authority. A justice system to enforce the Constitution on the government will require a constitution of some kind to order and empower the new constitutional justice system. Such a super-constitution would subjugate the existing Constitution. Instead of changing the Constitution in part, a super-constitution would change the whole character of the existing Constitution. Such a super-Constitution would in a way supplant the current Constitution. Instituting a super-constitution would be a means of overthrowing the Constitution, the government, and America in general. I would hope that such a thing would never happen.

    The Constitution is a definition of the structures, powers and limitations of our government. Constitutional government is empowered and limited by the values of the democracy, not by legal powers.

    The public will not accept deep changes to the Constitution. That would be destablizing and scary. So deep changes in the form of government cannot be made anyway.

    What would work though would be to introduce a referee of some sort, elected by the public without the influence of parties or government, to call fouls on government corruption and to act as advocate for the rights of the people. Such a referee would not be so empowered as to establish a super-constitution. Such a referee would be empowered to impeach office holders, bringing them to the Senate for trial. Such a referee would be empowered to challenge court rulings as well as challenge legislation and administrative actions past and present. As long as the referee were not permitted to exercise positive powers of government which are to make law, to administer law, and to adjudicate, such a referee would be an enormous benefit to liberty.

    There are any number of designs that would work for organizing such an office. There would be issues to work around of course, but with a bit of elbow grease they can be worked around. The main thing about setting up this kind of office is that it would require almost no change in the existing form of government. It would only add oversight of government in its current form, so no deep and scary changes would be required to our form of government. It would only gives our democracy the power to negate bad and unconstitutional behavior of public officers.

    While establishing such a referee, it would also be useful to establish a second “bill of rights,” not that the first “bill of rights” was actually a bill of rights. The first “bill of rights” was actually a bill of supplemental reminders not to do certain bad things. They are in effect “No Trespassing” signs put up on property where it is already illegal to trespass. The preamble to the first ten amendments states:

    “The Conventions of a number of the States, having at the time of their adopting the Constitution, expressed a desire, in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government, will best ensure the beneficent ends of its institution.”

    Just as the ten items in the original bill addressed well known methods of abusing power as exercised by the constitutional parliamentary monarchy the Founders had just fought a bloody war to kick out, so would another set of declaratory and restrictive clauses to address the well known methods of abuse of today’s constitutional representative democracy would be extremely useful. Just as it was neither necessary nor practical for the first ten amendments to modify the body of the Constitution, it is not necessary today to create amendments that would modify the rules found in the body of the Constitution. Just as it was useful to ensure the beneficent ends of the Constitution by including the original first ten amendments, so would it be useful to have another set addressing our system of government for the same reason as the first ten. We have over 250 years of our own history, plus the history of the numerous foreign governments that copied our example, to use as a reference for well known trespasses that are harmful.

    What we need is a set of declaratory and restrictive clauses to remind misguided public office holders that certain areas are out of bounds:

    – Every office holder has a obligation to serve the people they represent, and only those people. When an office holder knowingly allows intentional interference with the proper singular agency between themselves and the people they represent, that is grounds for removal from office. An impeachable offense has occurred. Accepting money from people who’s identities are known by the receiving public office holder is bribery and cause for impeachment. To be directed in any way by a political party is cause for impeachment.

    – The peoples rights, even though they are abstract, are of primary value in America, so the Court is obligated to accept loss of rights as grounds for standing in a suit.

    – Taxation without representation is a fundamental wrong. Financing government today by borrowing from taxpayers tomorrow who are today too young to vote against that borrowing is taxation without representation. It is inappropriate behavior from government.

    – Only Congress, not the President can declare war. All military actions of violence against other nations are a de facto declaration of war, since they are attacks on those nations and invoke a desire for retribution from those nations and their allies.

    – Supreme Court justices must be as free of political bias as is reasonably possible, so methods of appointment which create bias are improper in all societies that desire justice. Justices must not be appointed using a method that introduces bias in the selection.

    – [Fill in your own favorite trespasses here.]

    The answer to the original question as I see it is two-fold. First, correction must enjoy a widespread support of the public. But before the public will support the correction, the correction must be well known and it must be credible. All of the proposed correction I have come across do not enjoy public support because they are not credible. The advocates of those corrections do not understand that, so there is some confusion about whether the cause of the tepid support is public motivation or the lack of good solutions. Those advocates, instead of seeing the flaws in their solutions blame the public, saying the public is apathetic in general. But the apathy towards the proposed solution is always caused more by awareness of flaws in their proposed solution than by political disconnectedness. A quick glance at the front page of any newspaper will prove that most Americans are passionate about politics and are not politically apathetic.

    In response to the original question from the essay, I believe that I just gave you two solid, rational, and practical things that would most certainly help solve the problem of government trespasses. But are those solutions sensible and practical?

  5. gabe says

    In response to the question: How do we fix it”
    Can anyone say “RICO”? – in particular the Master Settlement Agreement and it’s sleight of hand that permitted the States to enact a tax w/o appearing to do so.
    What a nice gig???

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