The madness of slavery is over, the time of liberty has been granted, English necks are free from the yoke.
—Gerald of Wales, 1215
On June 15, 2015, it had been 800 years since my swashbuckling ancestor Saire de Quincey, the Earl of Winchester, dressed in full battle armor, along with his cousin Baron Robert Fitzwalter and fellow conspirators, confronted King John at Runnymede Meadow and obliged him to sign the Magna Carta or, in Latin, the “Great Charter.” As the saying goes, this was “the start of something big”—namely, the rule of law as exemplified by the Magna Carta’s clause 39, which reads, “No free man shall be taken or imprisoned, or dispossessed or outlawed or exiled or in any way ruined, nor will we go or send against him except by the lawful judgement of his peers or by the law of the land.”1
Clause 39 was inspired by the Magna Carta barons’ outrage over King John’s treatment of the beautiful and celebrated Matilda (Maud) de Braose, wife of the fourth Lord of Bramber. When King John sent officers to take Maud’s son William into custody as hostage for payment of 5,000 marks, she told them she refused to deliver him to a king who had murdered his own nephew. (It was widely believed that John murdered Arthur, Duke of Brittany—son of his older brother, Geoffrey Plantagenet—to rid himself of a rival for the throne.) When King John heard that Maud had openly voiced the widely whispered view that he was a murderer, he dispatched an army to apprehend her. After a two-year pursuit through England, Wales, and Ireland, Maude and her son were captured by John’s troops on the Antrim Coast of what is now Northern Ireland. They were brought back to England where John ordered them imprisoned, first at Windsor Castle, then at Corfe Castle in Dorset, where they were thrown into the dungeon without food. They starved to death.
King John was widely hated for the type of treatment that he imposed on Maud and William de Braose, and the Magna Carta was the barons’ revenge on him. (It was not entirely expressed in clause 39.) Another “yippee moment” for Gerald of Wales was probably occasioned by clause 40, one of many that forbade the king from “selling” justice to the highest bidder or delaying it indefinitely: “To no one will we sell, to no one will we refuse or delay right or justice.”
To follow the sequence a bit further, clause 41 also appeals to me as perhaps the pioneering encoded defense of free trade: “All merchants shall have safe and secure exit from England, and entry to England, with the right to tarry there and to move about as well by land as by water, for buying and selling by the ancient and right customs, quit from all evil tolls.”
It has been a point of false pride that my remote ancestor played a leading role in establishing some principles that served the world well over the ensuing centuries:
As the distinguished English jurist Lord Denning put it, the Magna Carta was “the greatest constitutional document of all times—the foundation of the freedom of the individual against the arbitrary authority of the despot.”2
A number of thoughtful observers argue that the rule of law was crucial to the economic ascendancy of the West. Economic historian Douglas North has attributed the relative success of the United States and Canada to British institutions as being more conducive to growth. To the extent that he is right, much of the success of Australia and New Zealand could also be explained the same way, due to the observance of the rule of law in the former British settlement colonies. That being so, much credit goes to Saire de Quincey, his cousin Robert FitzWalter, and the other Magna Carta barons who forced a bankrupt king to observe the rights of subjects.
They were not unjustly bullying the king—they were otherwise conventional feudal lords motivated by resentment of excessive taxation and despotic governance.
The nature of predatory rule has evolved considerably in the 800 years since the Magna Carta. Bad actors no longer dispatch armed bailiffs to seize your children and hold them hostage for the payment of a steep ransom. Today, they deploy lobbyists in thousand-dollar suits who procure antimarket regulations backed by the coercive power of the state. As suggested in chapter 1, these departures from the free market cost you a vast amount (recall the credible estimate that puts the annual cost to you and every member of your family at $125,000 each). As pop philosopher Tavis Smiley, the holder of sixteen honorary doctorates, opined, “If you can’t win the game, change the rules.”3 Unlike in the Middle Ages, the gigantic shakedowns of our time are mostly the consequence of efforts by powerful people to win big by changing the rules.
In the early thirteenth century when the Magna Carta was drafted, original thought, per se, was not as highly esteemed as it became in the modern world. In Saire de Quincey’s time, copied ideas were more credible than creative thought—laws were not invented; they were remembered. It is interesting, therefore, that Saire de Quincey and his fellow conspirators had the ingenuity to reinforce custom by introducing a creative new element to the enumeration of customary rights and obligations.
King John seems to have been particularly incensed by the most original and longest clause in the Magna Carta, clause 61, in which the barons asserted the right to “choose any 25 barons of the realm they will, who with all their might are to observe, maintain and cause to be observed that peace and liberties which we have granted and confirmed to them by this our present charter.”
In the event that the liberties were offended by the king’s actions, clause 61 reserved the barons’ right to seize the king’s “castles, lands, and possessions, and in such other ways as they can . . . until in their judgment amends have been made.” Can you imagine a charter for the enforcement of liberty today that gave taxpayers the right to seize Obama’s bank accounts and other property?
The real essence of the Magna Carta, as German historian Max Friedrich Ludwig Hermann (a.k.a. “Fritz” Kern) noted, was not its reliance on the pen but the “sledgehammer.”4 It was this sledgehammer of resistance to the abuse of authority, not just pious words of protest, that informed the institutional developments that culminated in a tradition of the rule of law. Clause 61 was not a provision that was very popular with King John. He did his best to wiggle out of it.
As soon as the Magna Carta barons disbursed from London back to their homes, King John renounced the Magna Carta and persuaded his sometimes ally Pope Innocent III to release the king from his oath on grounds that it was imposed under duress. Saire de Quincey was subsequently excommunicated. He was later captured following a bloody battle with royal forces at Lincoln, after which he was imprisoned and his estates seized.
His property was only restored and his liberty granted when he agreed to leave England to join the Fifth Crusade, which he duly did. He died on November 3, 1219, aged sixty-four, on the road to Jerusalem, after surviving the Siege of Damietta in Egypt. He was buried in Acre, capital of the Kingdom of Jerusalem, but his heart was returned to England and interred at Garendon Abbey near Loughborough.
Alas, he went to a lot of trouble for nothing where we are concerned. Much of the legacy of the Magna Carta in establishing the rule of law in Anglo-Saxon countries, particularly the United States, has been frittered away and lost during my lifetime. Today, we live in an age of neofeudal debt serfdom, which puts us as much in need of a Magna Carta as Saire de Quincey and the other Magna Carta barons were.
The breakdown of the rule of law has many manifestations, both indirect and overt. Civil libertarians have documented a reversion to pre–Magna Carta authoritarian practices in the United States.
Among other things, Obama has asserted the right to use warrantless surveillance on his own say-so. But that is weak tea compared to Obama’s assertion of the right to kill any US citizen without a charge, let alone a conviction, based on his sole authority. A leaked memo argues that the president has a right to kill a citizen even when he lacks “clear evidence of a specific attack” being planned. Not even the evil King John ever claimed the right to execute people without charge.5
The headlines have been full of details about the Obama administration secretly targeting the phone records of Associated Press reporters. There is evidence that those who dare to criticize the authorities have been smeared and targeted for arrest.
When Pulitzer Prize–winning journalist Chris Hedges sued the government in a challenge to the “indefinite detention of Americans,” the government refused to promise that journalists like Hedges wouldn’t be “thrown in a dungeon for the rest of their lives without any right to talk to a judge.”
As Dana Milbank wrote in his May 2013 piece “Criminalizing Journalism” in the Washington Post, “To treat a reporter as a criminal for doing his job—seeking out information the government doesn’t want made public—deprives Americans of the First Amendment freedom on which all other constitutional rights are based.”6 Note that the notion that freedom of the press is imperiled in the United States is not just Dana Millbank’s eccentric opinion. The “World Press Freedom Index 2014,” published annually by Reporters Without Borders, lists the United States as the country with the forty-sixth greatest amount of press freedom, just below Romania and above Haiti.7
Meanwhile, we have learned that conservative groups were targeted by Obama’s IRS, but when Obama’s brother applied for tax exempt status for the Barack Obama Foundation, he received a retroactive approval within a month—in pluperfect crony capitalist style. The Bush administration also used the IRS to target enemies.
Obama has taken this intrusion into our rights various steps forward. Press reports in April 2013 detailed IRS documents suggesting that the tax agency believes it can read your emails without a warrant. Files released pursuant to a Freedom of Information Act request quoted an internal IRS document claiming that the government did not need a warrant to obtain the contents of electronic communication that has been in storage for more than 180 days. Another file arbitrarily stated that the Fourth Amendment did not protect communications held in electronic storage, such as email messages stored on a server, because Internet users did not have a reasonable expectation of privacy. The IRS claims the right to read your emails without a warrant—a claim that was later modified in the face of a public outcry.8
Former judge and constitutional law professor Andrew Napolitano says that Obama’s claim that he can indefinitely detain prisoners, even after they are acquitted of crimes, is a power that not even Hitler and Stalin ever claimed. So yes, we have strayed far from the rule of law: Americans no longer enjoy many of the rights that Gerald of Wales applauded when he said, “The time of liberty has been granted,” when King John accepted the Magna Carta on June 15, 1215.9
Obama and his all-powerful centralized state have set the cause of civil liberties back 800 years. One expert who has been pointing the way toward understanding the deeper economic consequences of abandoning the rule of law is Niall Ferguson, the Laurence A. Tisch Professor of History at Harvard, senior fellow of the Hoover Institution at Stanford, and senior research fellow at Jesus College, Oxford.
Ferguson laments what he calls “The Great Degeneration.” In a 2013 book of that title, Ferguson argues that a great part of the problem facing the United States and other advanced economies is that we have abandoned the rule of law.10
He argues that one of the principal factors that makes nations strong is the guarantee that justice will be done. This is no longer the case. Ferguson sees four symptoms of the “Great Degeneration” of US institutions:
Ferguson has made a good start in pinpointing the eclipse of the rule of law as a major culprit contributing to the falling returns that unambiguously characterize so many aspects of American society and the US economy.
There are other more subtle consequences of the eclipse of the rule of law. A key to understanding some of these was provided by Jane Jacobs in her brilliant 1993 book, Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics.11 Jacobs makes the shrewd point that “two radically different,” even contradictory systems of morals and values—what she terms “moral syndromes”—underpin our two different approaches to making a living. The first of these constellations of moral habits or ethical precepts—Moral Syndrome A, or the “commercial moral syndrome”—involves the following fifteen precepts:
Jacobs then lists fifteen additional closely observed but contradictory precepts that compose Moral Syndrome B, or the “guardian moral syndrome,” which prevails in politics and jobs relating to government:
Jacobs emphasizes that her lists were not conjured arbitrarily, but discovered after extensive research. She pored through biographies; business histories; and summaries of scandals, sociology, history, and cultural anthropology.
If you consider the inventory of the guardian precepts, they fairly comprehensively embrace those of Saire de Quincey, Robert FitzWalter, and the Magna Carta rebels. Apart from William Hardel, a wine merchant and urban property owner who was mayor of London, the authors and sureties of the Magna Carta were all feudal magnates. They exerted prowess, or obedience and discipline; adhered to tradition; respected hierarchy; and were loyal to one another and their cause, if not to King John. John’s authoritarian rule, following similarly odious practices by his father King Henry II and his brother King Richard I, inspired the Magna Carta barons to seek vengeance, as exemplified by clause 39, for the many wrongs they had suffered.
Equally, clause 41, touching “the ancient and right custom” of all merchants to enjoy “safe and secure” entry and exit from the country without being burdened by “evil tolls,” reiterated a range of precepts of the commercial moral syndrome. Among them were easy collaboration with strangers and aliens, competition, encouragement of initiative and enterprise, openness to inventiveness and novelty, investing for productive purposes, industriousness, thriftiness, and optimism.
The authors of the Magna Carta may have been mainly feudal aristocrats with prowess in warfare whose attitudes were largely informed by the guardian syndrome, but clause 40 shows their insistence on preserving the integrity of the commercial syndrome.
Although no one in 1215 was thinking in terms of the moral syndromes that serve as the ethical foundations of the two ways of making a living, Saire de Quincey, Robert Fitz Walter, and their comrades-in-arms apparently understood the fraught consequences when “guardians,” such as King John, offered to peddle justice to the highest bidder (“To no one will we sell, to no one will be refuse or delay, right or justice”). Seen in the context of the thirteenth century, many of the other clauses of the Magna Carta were injunctions aimed at banning the trade of right or justice. For example, clause 36 stated, “Nothing in future shall be given or taken for a writ of inquisition of life or limbs, but freely it shall be granted.”
The Magna Carta barons’ labors to establish the rule of law were fruitful because they were reacting against a despotic sovereign who had challenged them with a comprehensive array of wrongs to be righted. King John and the other Angevin rulers had thoroughly compromised the ethical foundations of governance, turning the kingship into an example of what Jane Jacobs calls “a monstrous hybrid.”
Her signal modern example of a monstrous hybrid is the late, unlamented Soviet Union. When commerce is organized according to guardian values, you get disaster. She writes that guardian economic planning leads to emphasis on guardian priorities. Because production and trade are not part of the syndrome, the commerce involved becomes corrupted, while its moral foundations are ruined. The consequences can be disastrous whether the economy is placed at the disposal of central planners at Gosplan (the USSR State Planning Commission), central planners at the Federal Reserve Board, or legions of private extortionists and crony capitalists.
Not the least difficulty arising from growing political domination of the economy is the fact that it is associated with increasingly pervasive dishonesty, as per the political precept “deceive for the sake of the task.”
You can follow the statistical trail etched by increasing political domination of the US economy. It is manifested in the escalating corruption and data fiddling that understate inflation, overstate economic growth, and seriously undercount unemployment. There could hardly be a better, more succinct summary of the misreporting of US economic data today than that provided by Mikhail Gorbachev in a speech in the last days of the Soviet Union, in which he complained that “the world of day-to-day realities and that of make-believe well-being were increasingly parting ways.”12
Lies, rather than truth, are precisely what you should expect when the political portion of a mixed economy becomes predominant. Honesty is a precept of the commercial syndrome. It is not solely a Western convention, as Jacobs reminds us, but a requirement for the success of commerce in every human culture.
Why do government statisticians lie and fabricate good news in an economy when growth has stalled? Because they are influenced by the governing guardian moral syndrome, where loyalty to the system and the willingness to “deceive for the sake of the task” are prized precepts. They lie to deceive you, to “simulate”—even if not necessarily to stimulate recovery—because political viability depends upon it. And the lies themselves have an effect on economic activity.
When you can be convinced that economic growth is accelerating, your job and business are secure, and prosperity will soon accelerate, you are more likely to spend and invest. The same can be said of others. Property developers will launch new projects. Retailers will accumulate inventories they expect to be purchased by newly solvent consumers. If politicians and their loyal lackeys in the Bureau of Labor Statistics can convince you that political management of the economy is more effective than it really is, the result is likely to be at least a temporary uptick in economic activity. People will spend more, borrow more, accumulate more inventories, and invest in more marginal undertakings than they would do if the president held a news conference and patiently explained that, no, there has been no real recovery from the Great Recession—it was all a statistical illusion fabricated by fiddling inflation measures.
The evolution of a heavily indebted centralized state with pure fiat money has led almost inevitably to a departure from the rule of law. Fiat money gives central bankers, like former chair of the Federal Reserve Ben Bernanke and current chair of the Federal Reserve Janet Yellen, almost unlimited power over your finances, including the power to dilute your future by counterfeiting trillions of dollars out of thin air, much of which is lavished on politically connected big banks that are “too big to fail.”
That is OK where the authorities are concerned, because in their eyes you are just another neofeudal debt serf.
The breakdown of the rule of law could itself be a trigger of collapse. This is the metamessage inherent in “too-big-to-fail” crony capitalism. The authorities do not tell you overtly that we are close to collapse. But their policy of diluting your future, by spending trillions from an empty pocket to bail out leveraged “too-big-to-fail” institutions, speaks loudly. It tells you that the authorities believe the economy is so fragile that unless they indenture you to keep the gag going, at almost any price, it would collapse.
That is why they resort to financial repression, robbing you with near-zero interest rates, to subsidize banks and debt-driven consumption. As reported by Henny Sender in the Financial Times, a calculation by Swiss Re in 2015 suggested that US savers were robbed of $470 billion in interest income after the collapse of Lehman Brothers due to the Fed’s ZIRP and financial repression.13 They conjured tens of billions a month out of thin air to purchase Treasury issues to finance deficit spending that does not pay its way—the Keynesian pretense notwithstanding.
The more meager the results from ever-greater amounts of debt “stimulus,” the more desperate they become. Since 2000, the explicit national debt has almost tripled to $17 trillion. But this is fine with the authorities. They want to “invest” more. They plan to double the debt again to keep the bogus measures of GDP inching higher. For what? The metastasizing debt has stimulated a meager $2.4 trillion growth in GDP from 2000 through 2013. And of course, even this meager growth rate of 1.5 percent is exaggerated.
We explore elsewhere how intentionally understated inflation exaggerates real GDP growth. Now the US Bureau of Economic Analysis (BEA) has outdone itself in proclaiming statistical fantasies. As part of its 2013 revision to the way it calculates GDP, the government will no longer tally pension funding as it is allocated to retirement accounts, which are included as “wages” in the GDP calculations. Instead of actual cash outlays, the BEA will now count corporate promises to someday, maybe, fund pensions.
What can you learn from the lies that the government tells you?
Don’t throw up your hands and walk away. There is a metamessage hidden in the statistical fabrications. The authorities’ anxieties to exaggerate GDP growth should not be overlooked. They tell you that the whole debt-financed system is predicated upon growth. Without GDP growth, the rapidly compounding debts and unfunded liabilities become unpayable. The whole system threatens to topple over like a bicycle reduced to crawl speed.
For a hint of how unstable the system is, you need only glance at the FY2012 US government budget deficit as calculated according to GAAP.14 It hit $6.9 trillion that year against a GDP of $13.67 trillion. In other words, the federal government’s GAAP deficit was just a bit above 50 percent of GDP. To truly balance the budget for the year would have required a tax hike of an impossible 50 percent of GDP. To grow out of the debt would require an equivalently impossible acceleration in the rate of growth. No major economy has ever grown as fast as the threshold growth rate required to approach solvency for the US government given its obligations.
Without growth, it becomes ever more obvious that people in the bottom 95 percent of the income distribution face a bleak future of neofeudal debt servitude. In a system where fiat money is borrowed into existence, slow growth is the other side of the coin to debt serfdom. The economy grows on expanding debt and cannot survive without it. Its prospects, and yours, certainly don’t seem bright in a circumstance like now, in which powerful groups position themselves to grab the biggest possible slice of a shrinking economic pie.
All the quantitative easing and other desperate measures to goose ever-diminishing returns to growth have amplified the gap between the owners of financial assets and the long-lost American middle class.
As Izabella Kaminska of the Financial Times wrote in the May 16, 2013, issue of FT Alphaville, even though housing and equities may have recovered, a large portion of the United States, specifically younger adults, has been disenfranchised from the economy.15 QE propped up the financial sector, but for the economy to truly recover, much of the liquidity that’s been created needs to be redirected to those people who have been frozen out of the economy.
What you see at work here is the shuffle and divide of people responding to a dying economy that is approaching peak consumption. The top 5 percent, the owners of the economy’s financial and productive assets, continues to pursue the American Dream of the good life. Meanwhile, increasing numbers among the bottom 95 percent have failed to keep pace by substituting debt for income in the attempt to maintain consumption. Now many are giving up. Suicide rates are higher than in the Great Depression. People are responding by the million to the demoralizing prospect of debt serfdom by dropping out.
Paradoxically, the first effect of mass dropouts from the labor force has been to reinforce the illusion of recovery. When the labor force shrivels, the authorities can pretend that the unemployment rate fell because fewer people were looking for work. But note that the long-term stability of the parasitic state, which depends upon taxes paid from the proceeds of debt-based growth, is called into question when the dropout rate rises too quickly. That is exactly what has been happening.
Since January 2009, ten people have dropped out for each person who was added to the labor force. In March 2013 alone, 663,000 persons left the labor force, bringing the total of working age adult Americans outside the workforce to an all-time high of 89,967,000.16 That number has continued to soar.
This is why the average American adult spent just 3.57 hours out of every 24 on work and work-related activities, according to the Bureau of Labor Statistics American Time Survey. Americans as a group spend more than twice as much time sleeping as we do working. No wonder the US economy is crawling along at stall speed.
Part and parcel of an unprecedented decline in the labor force is a huge surge in the number of Americans claiming disability. Every month, 14 million people now get disability checks from the government. Since 2008, far more people have been placed on disability entitlements than in jobs. I see the surging labor force dropout rate, with millions claiming disability, mostly for back pain and mental illness—health problems that are the most subjective and easily fiddled—as rational responses by low-income people facing dead-end life prospects.
When the Roman Empire was in the throes of collapse, a question frequently asked of soothsayers by the newly impoverished was, “Should I flee?” They literally ran for the hills rather than stay put and go broke paying oppressive taxes. Today, there seems to be no place to flee, but millions have contrived to drop out by faking backaches and hallucinations. I see this as symptomatic of the breakdown of the rule of law and another trigger of the Breaking Point.
As Joseph A. Tainter reports in The Collapse of Complex Societies, a review of the historic record shows that complex social systems are prone to collapse when the marginal return on investments in complexity deteriorate. Tainter reviewed the collapse of seventeen past civilizations, with special focus on the Western Roman Empire. According to Tainter, after a complex society reaches a stage of declining marginal returns, the mathematical likelihood of collapse in due time increases. He pointed out that if Rome had not been taken over by Germanic tribes, another group would have eventually overthrown the city later on. While marginal returns on investment are growing, however, societies might be able to survive. His point is that societal collapse occurs under stress, when organizational change becomes a necessity. Therefore, collapse can be an economical alternative and is not intrinsically catastrophic—it is a rational process that may benefit a large portion of the population.
Rightly understood, the current crony capitalist system, embodying the dilution of your future through financial repression and QE, represents at least a perversion, if not the total abandonment, of the rule of law. Within the foreseeable future, the pronounced dropout trend will precipitate a crisis. Even if the authorities try to continue “kicking the can down the road,” the road the United States has followed over the last half century is a dead end. That’s why you need to be alert, stay safe, and prepare for the Breaking Point before the sweep of events makes that impossible.
2 Heward, Edmund, Lord Denning: A Biography (London: George Weidenfeld & Nicolson, 1990), 10.
3 Comment by radio host Tavis Smiley, perhaps quoting the title of the book by Christine Mace and Mark Temkin.
4 Kern, Fritz, Kingship and Law in the Middle Ages, trans. S. B. Chrimes (Oxford, 1956), 127–29.
5 Turley, Jonathan, “Nixon Has Won Watergate: Barack Obama’s Imperial Presidency Is Just What His Controversial Predecessor Wanted,” USA Today, March 26, 2013.
6 Milbank, Dana, “In AP, Rosen Investigations, Government Makes Criminals of Reporters,” Washington Post, May 21, 2013.
8 See http://www.aclu.org/blog/technology-and-liberty-national-security/irs-says-it-will-respect-4th-amendment-regard-email.
10 See Ferguson, Niall, The Great Degeneration: How Institutions Decay and Economies Die (New York: Penguin, 2013).
11 Jacobs, Jane, Systems of Survival: A Dialogue on the Moral Foundations of Commerce and Politics (New York: Vintage Books, 1994).
12 Quoted in Jacobs, Systems of Survival, 99–100.
13 Sender, Henny, “Weak Growth Suggests QE Might Not Have Been Worth the Costs,” Financial Times, April 12, 2015.
14 Williams, John, “ALERT GAAP-Based U.S. Budget Deficit,” Shadow Government Statistics 496 (January 17, 2013).