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The Main Driver of GDP Growth: A Strong Rule of Law
Economist Woody Brock says that a nation's GDP growth is based mainly on whether or not it follows the rule of law.
Economist and investment adviser John Mauldin notes:
I had dinner with Dr. Woody Brock this evening in Rockport. We were discussing this issue and he mentioned that he had done a study based on analysis by an institution that looks at all sorts of “fuzzy” data, like how easy it is to start a business in a country, corporate taxes and business structures, levels of free trade and free markets, and the legal system. It turned out that the trait that was most positively correlated with GDP growth was strength of the rule of law. It is also one of the major factors that Niall Ferguson cites in his book Civilization as a reason for the ascendency of the West in the last 500 years, and a factor that helps explain why China is rising again as it emerges from chaos.
One of the very real problems we face is the growing feeling that the system is rigged against regular people in favor of “the bankers” or the 1%. And if we are honest with ourselves, we have to admit there is reason for that feeling. Things like LIBOR are structured with a very real potential for manipulation. When the facts come out, there is just one more reason not to trust the system. And if there is no trust, there is no system.
Dr. Brock is not alone. Economists have thoroughly documented that failure to enforce the rule of law leads to a loss of trust ... which destroys economies. This is true whether it is in the West, in Nigeria or any other country.
We're Number ... What?
Economic historian Niall Ferguson notes:
The World Economic Forum’s annual Global Competitiveness Index and, in particular, the Executive Opinion Survey on which it’s partly based ... includes 15 measures of the rule of law, ranging from the protection of private property rights to the policing of corruption and the control of organised crime.
It’s an astonishing yet scarcely acknowledged fact that on no fewer than 15 out of 15, the United States now fares markedly worse than Hong Kong. In the Heritage Foundation’s Freedom Index, too, the U.S. ranks 21st in the world in terms of freedom from corruption, a considerable distance behind Hong Kong and Singapore. [Transparency International puts the U.S. at 24th.]
Perhaps the most compelling evidence of all comes from the World Bank’s Indicators on World Governance, which suggest that, since 1996, the United States has suffered a decline in the quality of its governance in three different dimensions: government effectiveness, regulatory quality and the control of corruption.
Compared with Germany or Hong Kong, the U.S. is manifestly slipping behind.
Indeed - as we've extensively documented - the rule of law is now as weak in the U.S. and UK as many countries which we would consider "rogue nations". See this, this, this, this, this, this, this, this, this, this and this.
This is a sudden change. As famed Peruvian economist Hernando de Soto notes:
In a few short decades the West undercut 150 years of legal reforms that made the global economy possible.
How Did We Slip So Fast?
Of course, the repeal of the basic laws which enforced the rule of law among financial players is a part of the problem. Virtually everyone - other than those currently working for the big banks or on their payroll - is calling for reinstatement of the separation between banks and speculative gambling.
Free market libertarians - like everyone else - are demanding prosecution of criminal fraud using basic fraud laws. Yet the government has made it official policy not to prosecute fraud.
People have lost trust in the system, because government corruption is as widespread as Wall Street corruption ... and those in power in D.C. have the same sociopathic traits as those they supposedly regulate on Wall Street.
And as Professor Ferguson notes, draconian national security laws are one of the main things undermining the rule of law:
We must pose the familiar question about how far our civil liberties have been eroded by the national security state – a process that in fact dates back almost a hundred years to the outbreak of the First World War and the passage of the 1914 Defence of the Realm Act. Recent debates about the protracted detention of terrorist suspects are in no way new. Somehow it’s always a choice between habeas corpus and hundreds of corpses.
Of course, many of this decades' national security measures have not been taken to keep us safe in the "post-9/11 world": many of them started before 9/11.
And America has been in a continuous declared state of national emergency since 9/11, and we are in a literally never-ending state of perpetual war. See this, this, this and this.
In fact, government has blown terrorism fears way out of proportion for political purposes, and "national security" powers have been used in many ways to exempt big Wall Street players from the rule of law rather than to do anything to protect us.
Is it any wonder that we're still in an economic crisis?
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OFF TOPIC: Just exited the MSN homepage which is prominently featuring a picture of a member of the men's, USA Gymnastics team, on the bench, crying over disappointment of "failure." The "weenification" of America continues. The North Korean Army must be gettin' a "woodie."
maybe he dropped is bronze medal in the shower and the copper-plated pig-iron medal broke.
With Rush Limbaugh and Sean Hannity as prominent members of the Heritage foundation makes this think tank somewhat suspect
Forget the messengers...Is the message right or wrong? and WHY?
You're right --- they need "intellectuals" like that Tucker Carlson over at Cato Institute (/end sarcasm).
Soon we will welcome our new Malfeasance Czar.
His office will insure that every other agency is demonstrating pure, righteous obeisance to the ruling oligarchy.
And not a minute too soon.
Well we're screwed then obama's the absolute worse at least during the Savings Loans days there were prosecutions
CORZINE CRONYISM BOMBSHELL - High Ranking DOJ Lawyers And AG Eric Holder Were Partners In Firm That Represented MF Global
http://dailybail.com/home/corzine-cronyism-bombshell-high-ranking-doj-lawyers-and-ag-e.html
to quote (paraphrase) William Black, "at this point in the S&L crisis, we had 7000 indictments and close to 1000 procecutions, for a scandal 1/70th the size".
Yes, but how could they have known it was all going to collapse? Even the Wall Street Journal didn't see it coming.
How could we have known there were no WMDs in iraq? Even Colin Powell and he CIA thought Saddam was sitting on a pile of nukes.
And how can anyone know that our whole economy is just one big Ponzi scheme waiting to implode when the can are kicking hits a brick wall? Krugman thinks we just need to borrow more and more, and exponentially increase our debt to solve our debt insolvency crisis. The man has a Ph'd - who among you has the credentials to second guess this brilliant man?
Since you asked, here's a Ph.D. who saw it coming in March of 2006 and said it had been engineered:
http://michael-hudson.com/wp-content/uploads/2010/03/RoadToSerfdom.pdf
(I realize you're being facetious, but let's break it down anyway.)
Dial M for Murdoch: Murdoch's WSJ, completely fictitious at this point (exception: Ellen Schultz's Retirement Heist -- a must read!).
Colin "Americal" Powell --- part of the My Lai Massacre coverup from Vietnam War days --- always should be on everyone's "usual suspects" list.
Paul Krugman, long-time member of the Group of Thirty (group30.org) -- which explains why he is forever coming down on the side of the speculators and central banksters --- but excels at fooling those rightwingers who incorrectly refer to themselves as democrats!
Predictability, that's what you get with the Rule of Law.
Bingo.
Then Jesus spoke to the crowds and to His disciples, 2 saying: “ The scribes, (lawyers), and the Pharisees, (lawmakers), have seated themselves in the chair of Moses, (judge); 3 therefore all that they tell you, do and observe, but do not do according to their deeds; for they say things and do not do them. 4 They tie up heavy burdens and lay them on men’s shoulders, but they themselves are unwilling to move them with so much as a finger. 5 But they do all their deeds to be noticed by men; -- Matthew 23:1-5
These people have always been a feature on the earth.
If laws were equally applied to lawmakers, judges and enforcers, natural law would determine the minimal amount necessary to assure freedom for all. imo.
And the only valid form of law that provides predictability? Natural law, of course.
All other forms are merely enslavement under the madman (or woman) holding the gun.
As long as humanity insists upon this unnatural facade where the mafia destroys/steals with impunity all that the people have created, then there are no real rules, as the fish rots from the head down.
Of course, in spite of knowing ALL of this, George will do nothing other than to continue to support the organized crime syndicate that is responsible for the entirety of the mess we find ourselves in today.
ALL actions have consequences. Especially the apathetic ones known as voting.
Best way to rob a Bank is to be a Banker. That way you can steal from everyone inside the Bank and everyone outside the Bank too. There are absolutly NO laws or LAW ENFORCEMENT for the criminals at the TOP
You mean the Czars have to go?