Lawless Capitalism: The Subprime Crisis and the Case for an Economic Rule of Law

7. The Potential for an Economic Rule of Law

184 > 185 All of this legal indulgence, at variance with tradition and policy, occurred as historically high economic inequality took hold in the U.S. Corporate elites leveraged their new-found economic power to seize more power over the commanding heights of our capitalist system—the public corporation. Shortly thereafter, they seized the commanding heights of the commanding heights—the largest financial firms in the U.S. Now, a few dozen CEOs hold the reigns of economic power in the U.S., including those of economic regulation and law.4 The Dodd-Frank Act leaves those in control of the financial sector undisturbed. The recent Supreme Court decision in Citizens United v. Federal Election Commission promises to further concentrate power in these very few hands.5 The “triple whammy” of concentrated economic power—income inequality , the concentration of CEO power over the public firm, and the concentration of power within the financial sector—created an unprecedented concentration of economic power in very few hands. As predicted by economists and political scientists, the breakdown of law and regulation followed shortly thereafter. Then, capitalism nearly collapsed in the U.S. and globally.6 Simply put, the closest flirtation with total financial collapse followed the highest degree of economic concentration in our history.7 Today, that concentration of economic power continues unabated and threatens further economic pain. The Dodd-Frank Act suggests that notwithstanding further financial crises and economic disruptions, governing elites will steadfastly resume their flirtation with and indulgence of concentrated economic power. This all stands at great variance with American economic and legal history, as well as traditional American suspicion of concentrated power as manifest in our Constitution, which effectively diffuses political power among three co-equal branches and among dual state and federal sovereigns.8 In fact, American history stands as a monument to John Stuart Mill’s insight that all human progress finds its roots in power constrained by law. Consider the New Deal. It imposed unprecedented accountability upon power. It broke up J. P. Morgan’s megabank.9 It imposed for the first time broad disclosure obligations and liability upon corporate and financial elites. It empowered workers and more than doubled the number of college graduates between 1940 and 1950.10 Never before did the American legal system so dramatically transform economic and political power in America, and seventy years of prosperity followed.11 Only when elites exploited fading memories and the power of race in America (most notably in 1980 with the election of Ronald Reagan and the perfection of the so-called Southern Strategy) did the New Deal fail and did economic power reach pre-Depression levels 186 > 187 legislators, or that it is dangerous to them because a competing class has gained in power, or that it transcends the limits of self-preference, which are imposed by sympathy.” All that law can do is to “modify itself in accordance with the will of the de facto supreme power in the land.” Holmes essentially viewed law as a zero sum game between competing economic classes, and therefore he maintained that law simply acted as an instrument of class domination.17 Holmes’s endorsement of class warfare through law presents a myriad of problems. First, the Holmes approach to law drips with cynical dishonesty. It directly contradicts the rhetoric and ideals of the law. Indeed, the ultimate monument to the American legal system, the U.S. Supreme Court building, promises every citizen “Equal Justice under Law.”18 This basic principle of American law itself can find its roots in the teachings of the Greek orator Pericles that Greek law knows no “class considerations” or any “bar” based upon poverty.19 Ours is “a government of laws, and not of men.”20 Holmes’s vision promotes law as a power play, with lawmakers constantly taking measure of each participant’s economic firepower so that they can know which class to favor in the contest. Law schools do not teach this mode of legal reasoning, judges do not clothe their decisions on these grounds, and politicians do not run for office on the promise of identifying the most powerful and fostering their entrenchment. Thus, this vision of law devolves quickly into survival of the most treacherous, not the “fittest.” This view of the law is nothing short of rule by fraud instead of law. If law operates to promote only the interests of the most politically or...