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How the Suspension of the Rule of Law Makes for a Worse Economy

As I noted previously, the Justice Department ended its investigation into the final two cases of suspected CIA torture, both of which resulted in deaths of the detainees (two of the over 100 detainees who have died in US custody). Glenn Greenwald writes eloquently and comprehensively on that as the final immunity given to the crimes committed during the Bush Administration.

And of course, this isn’t the only area. In addition to veritable immunity for those who committed torture in America’s name, we’ve seen veritable immunity for those in the financial sector who committed crimes that led to the crash of our economy. And here, the systematic nature of the immunity is very much in line. First, the President determined that he wanted to look forward and put policies in place that would limit the damage from future financial crises. That led to Dodd-Frank (just as the executive order to “end” torture came out), but pretty much put all of the focus on looking forward rather than backward, just like in the torture cases. The settlements that granted immunity in exchange for some limited relief that allowed banks to pay it off mainly for actions they were already taking are also in this mix. When some of the fraud and abuse was undeniable, a “task force” was set up to investigate them, one which is just as quietly closing up its investigations, much like the John Durham investigations closed. Maybe those task forces will surprise us all someday, but considering that the main protagonist, the so-called “Scariest Man in America” to the banks, spent this week issuing subpoenas on the energy drink industry, I’m thinking not.

This does not only have an impact on the framework on our system of justice; it has an impact on our economy. This interview with Professor David Skeel of the University of Pennsylvania makes clear that drifting away from the rule of law – and he makes explicit reference to property rights in this context – leads to a series of inevitable problems. I don’t agree with everything that Skeel says – letting Bear Stearns go bankrupt probably would have just accelerated the financial crisis timeline, and the attitude seems more inclined toward laissez-faire – but when you break down the rule of law, you sap at the vitality of the American economy. If the government just plans to bail out big businesses and eliminate accountability for fraud, you just perpetuate that fraud. You turn the economy into more of a kleptocracy. And traditionally kleptocracies are slower economies from the standpoint of growth, which is not hard to figure.

Some take an ends-justify-the-means attitude here, saying that the banks needed to be preserved, and that the rule of law cannot be an obstacle to crisis. But I think the record indicates that we get the economy we deserve when we defer accountability forever.

Sadly, in both cases, with respect to torture and the banking industry, you won’t see them become part of our national conversation in the midst of an election. On torture, it’s because the parties basically agree; on banking, that’s true to an extent, but it’s also because marginalized constituencies don’t get their concerns heard in the national debate. I think the way to get at this is to show how we have a substantially and dramatically worse economy when it’s run by people who can commit fraud and get away with it.

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David Dayen

David Dayen