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AIG and the people's rule

By Daniel M. Ryan
web posted March 23, 2009

For Wall Streeters, it seemed to come out of nowhere. As most everyone now knows, the AIG bonuses ignited a hurricane of protest and anger. Congress snapped right into action, passing a punitive surtax measure to claw back more-or-less all of those bonuses. The Senate is working on another surtax. Commerce Secretary Geithner is demanding AIG return TARP money equal to those bonuses. And, of course, the critics have weighed in.

What's fascinating about this issue, to an out-of-country'er like myself, is what it illuminates in America. More specifically, the bonus flap is a classic real-time example of the People's Rule.

Rulership and Republics

Rulership and governance are often confused, as the distinction between the two is subtle. Governing encompasses the day-to-day business of the State. Lawmaking, law implementation, keeping various departments ticking along, etc. And yes, governance also includes the main responsibilities of the U.S. President. That's why, in a parliamentary system, a Prime Minister's responsibilities have ended up resembling the U.S. President's. Formally, in the British and Canadian systems, the Prime Minister is the Head of Government.

Although the President is formally the Head of State, this designation is little more than titular. Someone has to be designated as such, and the President is the most plausible choice. The real, de facto, Head of State made its wishes known last week. Most everyone in government, very much including President Obama, has been eager to comply.

What I'm describing, in deliberately sketchy form, is rulership. Ruling is not governing; it trumps governing. It's the high hand that snaps-to everyone in government. The AIG mess has certainly done that.

In a monarchial system, this privilege is in the hands of the Sovereign. Making a country a republic, though, does not make the function go away. All governments go astray; all of them tend to become insular; all of them are capable of major error. Rulership fills the gap left by democracy; good rulership ensures that a democracy doesn't turn into an elective tyranny. Thus, good rulership is needed to some degree. A republic cannot exterminate rulership, nor does it claim to. In a republic, the privilege of rulership is in the hands of the people. Even the U.S. Constitution can be amended, bent or sometimes ignored in a crunch; the people's rule, though, never is.

"Here, sir, the people rule." 

Of course, good rulership is normative; perfect rulership is an impractical ideal. This point applies to all forms of it. In a real republic, the rule of the people is often criticized and sometimes feared. Just as a monarchy can be described as a tyranny, and an aristocracy can be described as a system of insularity or cruelty, so it is that the people's rule can be described as "demagogy." Complaints about "the mob," in a republic, are not unlike "Cripes, 'Is Nibs" in a monarchy. Like all rulership, it is disruptive to government; it's designed to be, as it's a safety valve for the times governance goes awry. And, like all rulership in the real world, it leaves behind some bad consequences.  

Those consequences are what the critics of the bonus-slamdown measures are calling attention to. Trigger of class warfare; contrary to custom; ruinous to wealth; contrary to the Constitution; disruptive of government; violative of rights, including procedural ones; governmental hypocrisy in the issue; etc. The last one clues us in on the workings of "The People's Smack." Observers absorbed by the mechanism of democracy may think it takes the form of new protests candidates emerging, running and winning. That's part of it, usually coming after the fact, but only part. The people's representatives are the people agents; they are not the people. Any group of representative who collectively think so, do risk the smack.

When crunch time comes, the rule of the people is usually a repudiation of politicians' insularity. It could be seen as nipping a nascent political aristocracy in the bud.

If there's any telling criticism of the rule of the people, it would be the uncertainty factor. In a monarchy, where rulership is confined to one person, everyone knows where any ruling is going to come from. The same thing applies to a specific caste in an aristocracy. In a republic, anyone could set it off. In a nutshell, this is the monarchist's batback to the republican's criticisms of monarchy.

It's not as bad as disgruntled or naïve anti-republicans portray it as. In a republic, a lot of the uncertainty is dissipated by recourse to morals. John Adams said, "Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other." He was also referring to the Republic itself. Decay of customs and morals induce a lot more uncertainty in the people's rulership. The lines that must not be crossed become blurred. This fuzzification makes the people's rule more arbitrary than it otherwise would have been. When customs and morals are clear, though, a lot of the "people's arbitrariness" is drained. The lines not to be crossed are more clear-cut.

Thankfully in this case, regardless of productivity or counter-productivity, the crossed line was fairly clear: AIG had no business paying out those bonuses when on government life support. Since the outrage is normative at heart, it may mean that the people as taxpayers may very well be paying for their rule. That's how it often goes when the smack comes, regardless of hopes and dreams of perfect costless rule. As AIG executives and Wall Street itself are discovering, everything has a cost…and many things have hidden costs. 

Interestingly, Washington largely has not discovered it. The "march of the people" doesn't seem to have entered D.C.'s door all that much. Except for election time, there's a real rulership vacuum with respect to the federal government. To adapt a monarchical term, D.C seems very much to be the people's favorite. Like the king's favorite, D.C. is widely hated but virtually untouchable outside of campaign season. That explains why, although the relevant feds are partially culpable for the AIG mess, they'll likely get off with little more than cranks' threats. Life ain't easy for the people's favourites, of course, but there is a certain security therein that the private sector lacks. For now, anyway.ESR

Daniel M. Ryan is an irregular columnist for LewRockwell.com, and has an undamaged mail address here.


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