Implications for Economic Growth & Job Creation

Over the past several months opinion pieces appearing in such places as The Washington Post, National Review, and The Wall Street Journal have talked about the emergence of an "Imperial Presidency." While some may wish to simply chalk this up to partisan criticism of the incumbent President, even The New York Times in a recent A1 article examined "an increasingly deliberate pattern by the administration to circumvent lawmakers..."

Less noticed, but perhaps even more important – especially to the over 20 million Americans currently out of work or underemployed – is the link between a breakdown in the rule of law and reduced economic growth and individual prosperity.

Property rights and rule of law are essential for the proper and efficient functioning of society and the economy. Unambiguous laws and procedures provide a framework by which free people agree on the scope and reach of their government's actions, whereas unclear laws or arbitrary enforcement undermine individual liberty and the notion of popular sovereignty. Clear, transparent, predictable rules that are applied without preference or prejudice allow individuals to invest, build businesses, and create jobs. When there is a breakdown in the rule of law, increased uncertainty leads to reduced investment and less growth.

Numerous economic studies have documented the relationship between a strong rule of law and economic growth. In 2008, The Economist published the following chart alongside a story entitled "Order in the Jungle." The chart aptly illustrates the strong relationship between adherence to the rule of law and economic growth. As economist Hernando de Soto – a leader in the field of the impact of property rights and rule of law on economic growth succinctly stated: "So the origin of the rule of law— which will allow a modern nation to grow and so bring peace, stability, and prosperity to the world—is property rights. And the rule of law will actually generate prosperity."

In the United States, the ultimate law is the Constitution, which specifically provides how laws are to be enacted and requires the President to take care that the laws that are enacted are faithfully executed. The laws of the United States establish the process whereby individuals can enforce their property rights and private contracts and provide the framework by which executive agencies are to conduct rulemakings and the other regulatory activities.

When "laws" are created without going through Congress; when laws are selectively executed; when an administration intervenes into the normal judicial process and diminishes an individual's property rights; and when the normal regulatory process is circumvented, the rule of law is eroded.

"When there is a breakdown in the rule of law, increased uncertainty leads to reduced investment and less growth."

All of this increases uncertainty. Individuals, families, and businesses now not only face uncertainty with respect to the policy decisions made by government, but they face uncertainty as to how those decisions will even be made, Numerous economic studies and surveys indicate that uncertainty itself (which is certainly increased with the breakdown in the rule of law) also hinders economic growth.

While Administrations of both political parties have been known to test the bounds of the limits of their power, the breadth of the breakdown in the rule of law in recent years has reached new levels. In the Heritage Foundation and Wall Street Journal's annual Index of Economic Freedom, the United States scores lower today on the rule of law than it did in 2008. As the 2012 report notes, "Corruption is a growing concern as the cronyism and economic rent-seeking associated with the growth of government have undermined institutional integrity." Individuals and businesses are increasingly forced to rely on the courts to enforce their most basic substantive and procedural rights.

Over the past year-and-half, the Committees of the House of Representatives have investigated and documented numerous break-downs in the rule of law. This report compiles over 40 separate examples that span the breadth of government, including instances where the Administration has attempted to:

  • Tell a private business in what state it can locate;
  • Tell a religious institution which employees are "religious" under certain federal laws;
  • Regulate the internet;
  • Rewrite Federal education law;
  • Created new "Super" regulatory agencies; and
  • Significantly restrict America's energy resources.