In Episode 10 of Power and Consequences, we (Gary Gensler and Simon Johnson) discuss the fundamental importance of the rule of law for economic prosperity and meaningful democracy. Twenty-five years ago this idea would not have been considered controversial in the U.S. – in fact, it was a point consistently emphasized by many leading conservative scholars. Currently, though, the rule of law is being challenged on a nearly daily basis. How has this happened and why does it matter so much?
This pressure on the rule of law is evident not just in the United States – it is part of a much broader process of “backsliding” across a wide range of democracies. In recent decades, we’ve seen presidents, prime ministers, and other elected leaders move to centralize political decision-making at the expense of legislatures, the judiciary, political opponents, the media, and civil societies. Along with this, we’ve seen legal systems used to pursue opponents and reduce access to due process for some or all people. Where backsliding happens, there is typically an increase in corruption.
In the U.S., we’ve also witnessed the Trump administration’s unprecedented assertion of executive power - through what’s known as the ‘unitary executive theory’ - which has fundamentally shifted the relationship between the president and White House staff, on the one hand, and administrative agencies and their personnel on the other.
Democratic backsliding, centralization of authority, and related executive supremacy is likely to damage economic growth and undermine shared prosperity. In turn, this can lead to more frustration – and political extremes that can further undermine legal systems, civil liberties, and productive investments. Can the rule of law - as opposed to the “rule of men” - again become predominant? How exactly?
In terms of further reading, we recommend the following:
Susan C. Stokes’ book, The Backsliders: Why Leaders Undermine Their Own Democracies, is excellent on the broader process seen over the past 1-2 decades across many countries.
On where institutions (including and supporting the rule of law) came from, and why it proved so advantageous when the rule of law held for most people, you can watch Simon’s Nobel Prize lecture (this link includes the slides), or read it.
For the Massachusetts Constitution of 1780 and a really interesting discussion of its context and the influential thought of John Adams, see this page.
Both Gary and Simon recommend during the podcast: John Coates on The Rule of Law, which was Chapter 2 in our edited CEPR volume on The Economic Consequences of the Second Trump Administration. This is a wonderfully concise exposition of all the main points, applied to the modern United States.
For the current balance of power within the executive branch, see Presidential Supremacy Over Administrative Agencies, by Gary and Lev Menand, which was also a chapter in our recent CEPR volume. Not without reason, in the podcast Gary refers to himself as the “last chair of an independent Securities and Exchange Commission.”
For the Louis Brandeis story, mentioned by Gary towards the end of our discussion, see this fascinating account.
For more on the Magna Carta and its role in the development of limits on arbitrary rule, see this explanation from the UK Parliament. Keep in mind, though, that between 1215 and the emergence of modern democracies in the nineteenth century, there were many kings (and their acolytes) who claimed there was some sort of “divine right” that permitted or encouraged the chief executive to do whatever he (or she) wanted.
For more on what happened to shared prosperity in the United States (and elsewhere), see the discussion in Power and Progress: Our 1000-Year Struggle Over Technology and Prosperity by Simon and Daron Acemoglu, particularly chapters 8 through 10. Also available (for free!) is the mini-comic version, which highlights the role of technology in history and again during the age of Artificial Intelligence. There is a real risk that the current path of development and deployment for AI will further widen income inequality — and increase disaffection in a way that feeds political extremism.
