From The Archive
Thomas Geoghegan
No. 17  June 2006

The Rule of Law in Shambles

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Being a labor lawyer, and blinkered anyway by one or two big ideas, I tend to look at things the way a labor economist does. So when I wonder about the countless aspects of American public life that are falling apart, I always come back to the same explanation: It’s because of the low-and-falling hourly wage. For example: Why do we have growing mass poverty in the U.S.? Because we have more people working at a low-and-falling hourly wage. Why crime and drugs? More people working at a low-and-falling hourly wage. Why do kids drop out of school? Because their families work for a low-and-falling hourly wage. Why do people stop voting and give up on public life? They see no hope, they’re overwhelmed, and so on—but the ultimate reason for it is that more and more of them are working at a low-and-falling hourly wage.

It’s falling in absolute terms, due to loss of health insurance and pensions. It’s falling in real terms, adjusted for inflation. It’s falling in relative terms, by which I mean relative to what the millions of us who are rich and super-rich can buy.

So while each book I have written has its own privileged big fact, there is really but one Big Fact that loops in and out of everything I write: the unfairness of it all, over the last thirty years or more. How most of us get less and less per hour. Even as the country as a whole gets more and more.

As this inequality has worsened, I have seen, in my own life, big changes in the legal system. We may still be equal before the law—for now. Maybe. It’s arguable. But even if it’s true for now, how much longer can it last? As inequality gets worse, our super-rich, even if undertaxed, will eventually pay the bulk of the taxes. And they will ask, Why pay for a rule of law that applies to all of us equally?

A plutocracy like this teaches people in many subtle ways to be servile.

I can’t even use a word like “us” to describe the country now. In an essay I read a few months ago, Yale economist Robert Shiller estimated that the bottom 40 percent of American families, by income, used to account for 18 percent of all national income. It’s now under 14 percent and going south—soon it will be under 10 percent. These numbers may not shock you so much, but think about it: Close to half the country will end up with about one-tenth of the income, and virtually none of the wealth. In all the history of all time I know of no case in which a country with so much inequality was able to sustain for long any real kind of democratic self-government.

Instead, we get a kind of plutocracy. The top 1 percent already have 16 percent of the income—which is more than the bottom 40 percent put together. Before long the top 1 percent will have more income than half the population—i.e., more than a whole majority, the majority that arguably should but can’t elect a Democrat.

A plutocracy like this teaches people in many subtle ways to be servile. There are few unions, of course. No one dares to ask for more. People learn to bow and scrape. And they also learn to withdraw, to drop out, to disengage.

Plutocracy also destroys the moral character we need for any stable rule of law. The rich naturally feel less and less responsibility for the rest of us. But it’s the middle class that worries me most. There is good reason to think the middle class is becoming corrupt as well.

“Corrupt?” Yes. Consider this single fact: It took ten years, almost all of the nineties, for the median family income to get back to the same level that it was, in real terms, in 1989. But in 1999, when we got to the same income level we had in 1989, this same “median” family had to work . . . six more weeks a year.

To keep from falling, our middle class had to work, for free, six more weeks a year. Not a few more hours: six more weeks! (By the way, maybe it’s worth pausing to say: No wonder our GDP keeps shooting up, what with so many people working for free.) And all this unpaid extra labor tends to undermine the rule of law.

Like in the USSR, we too are slowly breaking the connection between effort and reward

Why? The economist John Maynard Keynes put it best: “Nothing corrupts a society more,” he wrote, “than to disconnect effort and reward.” That’s what did in the old Soviet Union: No matter how hard people worked, they could not get ahead of those who did not work at all. And that is what is happening in America too. In a certain way, of course, our country is the very opposite of the old Soviet Union. Here, if people don’t work, they’re going to end up being homeless. Though if they do work, they may still end up being homeless. And all the while, they hear about dot-com riches and stock-market winnings being showered on people who haven’t really done much of anything.

That’s the point. Like in the USSR, we too are slowly breaking the connection between effort and reward. And so people in the middle start to see the world as arbitrary and unfair; it is unpredictable, a matter of luck, with a chance of catastrophe around the corner. It does not matter if they work the extra hours: More than 40 percent of American families have less than $5,000 in savings. One bill, out of the blue, can blow everything away.

So, quietly and to themselves, people start to wonder, as the country becomes fabulously wealthy: Why play by the rules?

I may even understate the case. The disconnect between effort and reward is actually much greater than it seems from the figures that I gave above. Many people really did not get back to the “same 1989 level of income” in 1999. Think of pensions. Fewer people had them. Think of health insurance. Fewer people had it. Perhaps our moral character can survive one decade of that kind of thing. But it keeps going on.

Why is this so dangerous for the rule of law? It’s simple, I think. If we do not expect the world to be reasonable and fair, then sooner or later we do not demand or expect it from the law. We get used to the arbitrary and the unfair. Sometimes we take a certain glee in it, at least when it happens to others.

But in our own lives we experience it as alien. We did not consent to it. We did not vote for it. And so, in a plutocracy, we don’t trust the government. Why should we? It does nothing for us, it is underfunded, and it’s unreliable.

This attitude, in turn, makes the problem worse. The more arbitrary and unfair we think things are, the more we drop out. We don’t simply stop voting. We stop reading the paper. Stop following it at all.

And the more we drop out, the more arbitrary and unfair the rule of law does indeed become. It is not just that people now perceive the law as less rational and predictable. It really is.

Here is how it is becoming less rational and predictable. The longer I practice law, the more it seems the law is turning into “tort.” What I liked in law school was “contract” law, where we studied written agreements in rational, objective ways. Tort is different: It is an “injury to my person.” It is a punch in the eye, it is a libel to my good name, it is something for which I go to court for damages, in maybe a tiny or maybe a big amount.

As a labor lawyer, I see little or no contract law anymore because the unions have collapsed. All we have now are suits for violations of civil rights, for an “injury to my person.” It’s not the union that goes to an arbitration on my behalf—it’s me, the injured party, who gets a lawyer and goes screaming into court for damages.

And as with contract, so with administrative law, the defense of the public by a neutral civil service. Where the government used to take care of us, now we are on our own. As the state collapses and becomes more arbitrary in its enforcement of the law, all of us are more in need of tort (i.e., “trial”) lawyers.

Remember the teaching of the great law professor Clyde Summers: “It costs a lot of money for people to have ‘rights.’”

I slipped into law school as the New Deal consensus was falling apart. Deregulation had begun. And soon, instead of the administrative law or the contract law of the old regulatory state, we had tort law or private law. Today it is the trial lawyers who do what civil servants used to do. Why? Because after 1972 we began wave after wave of deregulation, dismantling not just economic regulation but even public safety: worker safety, food safety, transportation safety.

Some may object: “Wait, I don’t think we deregulated everything! Maybe we deregulated energy. Maybe we deregulated telecoms. What do you mean, we deregulated safety?

I know: more liberal hysteria. Okay, I am hysterical about it.

It did not always happen formally. Sometimes it just happened when regulatory agencies were defunded. Remember the teaching of the great law professor Clyde Summers: “It costs a lot of money for people to have ‘rights.’”

Because we regard the rule of law as if it were a free lunch—as if it costs nothing to execute the laws—we fail to grasp what the numbers have to tell us. In a single year it’s hard to see. But every year, Congress cuts a little more out of the “discretionary” budget. Fewer people. Less money. And now to make sure the civil servants don’t even ask for money, Congress has started to prohibit unions in agencies such as Homeland Security. The effect is the same: Government does less. And talented people are scared off from public service. Of course, with today’s whopping student loans, those who used to go into public service would have to stay out now anyway. We have lost a whole generation of talented people in this way, and now the government itself seems more inept than ever.

Yes, it’s hard to see it. But let me give a small example. During the last Bush-Kerry debate, the CBS man asked, “What about the shortage of vaccine for the flu?” Bush could only mumble. Kerry ducked it, too. He talked instead about his plan for health insurance. But I wish Kerry had said: “Yeah, the government screwed it up. What do you expect? We don’t get good people in the government anymore. And the ones we do have are overworked. Look, if we don’t want to pay to have a decent civil service—and, by the way, decent law enforcement—this is what we’re going to get.”

And as we keep gutting the public sector, we’ll see panics like this more and more.

In my practice, I see over and over again the evils of the deregulation of safety. If someone like me can see these evils—and I do barely any administrative law—they must be epidemic. Let me pick a few:

Work. The Labor Department, which I know best, seems to me the saddest case. I could pick any office, OSHA, or ERISA. But let’s take the poor, overwhelmed Wage and Hour Division of the Labor Department. All across the country, people at Wal-Mart have been working off the clock—for free. And God knows what is happening in the back rooms at the smaller places. No one knows.

There’s no one in the field to investigate.

In the Labor Department, as in agency after agency, there is a vast, complex body of regulatory law that no one now enforces.

It’s private lawyers who bring minimum-wage lawsuits today, not government. Yet we lawyers can’t even find the worst cases. I mean the people who are in slavery. Some of it white slavery. Oh, sure, someone occasionally escapes from a cellar, and it ends up in the New York Times. I know a reporter who’s got enough to write a book. Indeed, he’s writing it now. But why can’t the government find them? Same answer: There’s no one in the field.

Once I filed a suit to get the Labor Department to enforce the child labor laws for sixteen- and seventeen-year-olds, kids whom they do not even pretend to protect. I got nowhere. I met with a Labor Department lawyer who told me: “Look, suppose I say I agree with you. How would I ever get the money to enforce it?”

He was right. If I had won and they had issued regulations, it would only have been worse. In the Labor Department, as in agency after agency, there is a vast, complex body of regulatory law that no one now enforces. Yes, the law is “there.” On paper. Indeed, it is on a lot of paper. Fifty paperback volumes, in total: I know because I counted. But for big chunks of these volumes, there’s no one to enforce it.

So that leaves it to the private sector, to ordinary citizens, to figure out some way to enforce the law by themselves. We can’t look to civil servants. Instead we look to vigilantes. In particular, we look to trial lawyers, who cherry-pick the good cases—i.e., those where they stand to make a pile. Or in the case of many Labor Department regulations, we look to the working poor, to our maids and parking valets who, we hope, will one day decide to blow the whistle. Scream. Do something. Even if they’re fired. What’s replaced the civil servant? The whistleblower. Instead of the rule of law, we now have these tiny acts of martyrdom and rage.

Here’s another area of law where I see it more and more.

Health. Or let’s say patient safety. Since I represent nurses, I can see, in this one area, how the rule of law is in shambles.

The hospitals everywhere are cutting back on nurses. That’s how they drive up profit margins. The ratio of nurses to patients is ballooning. Patients sit for hours in emergency rooms. It takes longer to start the orders. Oh, sure, there are a lot of regulations telling the hospitals what to do. But there aren’t enough nurses to carry them out.

Or civil servants to enforce them.

Who knows? Maybe there aren’t enough trial lawyers to bring the medical malpractice cases!

At any rate, it galls me to hear the president complain about trial lawyers suing hospitals. Why is it, he should ask his advisers, that the trial lawyers happen to bring all these suits? It’s because the hospitals depart from a standard of care, often set out in federal regulations, which the president of the United States himself has the duty to enforce. And why do the hospitals depart from those standards of care?

Not enough inspectors.

Not enough nurses on the floor.

If the president really wanted to cripple the hated trial lawyers, he might consider, as a starter, setting nurse-to-patient ratios. Of course he won’t. Yet as hospitals cut back on nurses, they end up violating more standards and regulations.

Result? More and more patients die. Bring on the trial lawyers! When the rule of law really is in shambles, that’s what people get. When we have no contract, we get more suits in tort. And when we deregulate, we get more torts as well. One can measure the rise of tort law from the drop in the numbers of those who simply watch over us. I mean not only the civil servants but the nurses on the hospital floor.

With the decline in administrative law, I have become a kind of trial lawyer, too. Or at least I file suits for whistleblowers—that is, suits for the “tort” of wrongful discharge. I think of P, a nurse who works at Hospital Q. Or she did until the hospital fired her. She was a red-hot pepper of a whistleblower. She fired up the nurses. She urged them to file “assignment-despite-objection forms” by the dozens. I am working under protest because there aren’t enough nurses to cover patients. All over the state of Illinois, she set up hearings for a Patient Safety Act. And she sent off petitions to get state officials to come look at conditions at the hospital.

Which at last they did.

In other words, she is working for us, the public, like a private attorney general. She is doing it without pay—and soon without her job.

When the hospital fired her, I filed suit. Oh, the hospital hates her, calls her a liar, and threatens to sue her for libel. And, sure, a battle like this is fun sometimes, at least for a few moments. Example: her deposition. It went on all day. I had a little fun, seeing the way the hospital lawyer dished it out to her, and then seeing the way she dished it right back. Both were very good. Yes, at moments, I enjoy an eight-hour deposition.

Otherwise, it was just another day in hell. In any event, this is what passes for the rule of law in America today. It’s as if a nurse has to pour gasoline over herself and strike a match in order to get the attention of a public health official. But there is another area that is even worse.

Safety. Like meat inspection. How could regulation possibly be collapsing here, with all the worries about hormones and mad cow disease? Well, it is.

I am now in a legal battle where we have to prove that the Department of Agriculture ever bothers to enforce the law at all.

With the gutting of the regulatory state, we have replaced the civil servant with the whistleblower and the trial lawyer.

Sound surreal? It is. The suit is with the owner of a chicken-processing plant. We are suing for his workers under the so-called WARN Act, which requires that a plant issue a notice before closing. In this case, the plant owner did not give the required sixty days of notice before he closed. “But the Department of Agriculture shut me down,” the owner argued. “How could I foresee that?” He argued that yes, he may have done bad things, and let rats run wild, and also let those rats shit on the chicken meat. And, yes, it is even true that the Agriculture Department inspectors gave him “write ups.”

But here is the issue: Was it reasonable for the owner to foresee that the USDA would enforce its own regulations?

His argument was this: “I am in the business, and they never enforce the law.” Never. That was his claim: The Department of Agriculture is more or less a joke. Under Bush I, then Clinton, and then Bush II, it’s gotten worse. “Everyone knows!” Now comes the ruling of the district judge, who is a liberal, a Clinton appointee: Yes, he says, it was unforeseeable. It was as if he took judicial notice that, as a matter of common knowledge, the government does not enforce the laws.

Case dismissed!

I’m still in shock that the employer got away with such an argument. Yet he had a point.

We really did cut back on inspectors. We really don’t impose fines. So he had no way of knowing the USDA would actually shut him down.

In other words, the application of the rule of law is the equivalent of an “act of God.” Like a hurricane.

Yes, we appealed. I helped edit the brief (It was my colleague’s case.) All I did was to strike out the word “rodent” and put in the word “rat.” And the word “rat” came up a lot: The plant was filthy, full of rats and rat droppings, all over the meat. The scary part was that the plant had gone on like this for years. The more we deregulate, and the more the inspectors are told not to threaten but to “cooperate” and to show a “cooperative spirit,” the more the rodents, or the rats, are free to go on dropping on our take-out fried chicken.

So what happened on appeal? Well, of course we argued that a judge cannot assume that it is “unforeseeable” for the laws ever to be enforced. In America, has the rule of law really come to that? Even though we got the district court reversed, we did not really win the point.

No. We have to go to trial.

We have to have a trial as to whether or not the owner of the chicken plant should believe the government when it says to him, We’re going to enforce the law.

Again, it’s not just patient safety or food safety—it’s any kind of safety. Lately I have been representing locomotive engineers, and it’s even true of rail safety. Rail safety! People are dying. There are terrible accidents. But what do we do? We cut the number of inspectors. Last November, the New York Times ran two front-page stories on how the Federal Railroad Administration is going easy on Union Pacific. Let’s be nicer even as the accidents get worse.

And, of course, we have whistleblowers here too. I mean literally—the engineers. But they can only blow the whistle if they have a strong union and can keep their federal licenses. But as I write this, Union Pacific is trying to take away the licenses of some of them without the due process federal regulations require.

As long as the FRA goes easy on Union Pacific, this will be a tough battle for those engineers. And if the union does not win, then be careful when you cross the tracks.

Rail safety, for God’s sakes! How nice if this were just a case of the New Deal in shambles. But now it’s a case of the Square Deal in shambles. I mean, the regulatory state as it existed under Theodore—not Franklin—Roosevelt. Sure, I’d like to curb the trial lawyers, as would our president. I, too, hate to see the law turn into tort. But without the trial lawyers, I might be dead. A train wreck. A spill of deadly gas.

Where I live, in Chicago, I’m in a ring of nuclear power plants. I’d be in terrible danger if we ever successfully muzzled the trial lawyers. It’s only the tort system that saves us from another Three Mile Island. Yes, I agree, it might be nice if we had more nuclear plants. We could cut down on Mideast oil. We could slow down global warming. And if I lived in France, with all its nuclear energy, I might think it was a good thing. So why do I oppose it here?

Because France has a real administrative state, a real civil service, and the best and brightest do the regulating. In America, we can’t even keep the trains on the tracks. And so, sure, as a citizen, I’d like to curb the trial lawyers.

But I also want to live.

You may well scoff at the specter of another Three Mile Island, or a Bhopal, or even, God forbid, a Chernobyl here in the U.S. And if we suppressed the trial lawyers maybe we’d get lucky and none of that stuff would ever happen. But consider what happened in one case where we did put the lid on trial lawyers.

Corporate finance. Enron. WorldCom. How did it happen? We got rid of administrative law and then we got rid of tort law. Then the whole thing blew up. Here is how I tried to explain it one day at lunch to a lawyer friend, Mary M.

“First, in Stage One: we had the SEC, the Securities and Exchange Commission. The New Deal. Joe Kennedy. We got the best, the brightest. We regulated like hell.

“Then in Stage Two, we got deregulation. We cut back enforcement. Instead of the New Deal, we got New Deal Lite.

“Then there’s Stage Three. In come the trial lawyers. With Reagan they move in. They start to file a lot of class actions, for non-disclosure and fraud. The corporate people say: Stop it!

“So fine, Stage Four, we stopped it. We got the Contract with America, Newt Gingrich, the Republican Congress. They passed a lot of laws. We zapped a lot of suits. Corporate people were happy.

“So then, Stage Five: ka-boom. Enron. WorldCom. It’s Chernobyl. Everything blows up.

“So now, in Stage Six, we have Sarbanes-Oxley. We make the CEOs sign balance sheets with statements reading, ‘I do not engage in fraud.’ But is that Mickey Mouse? Yeah. So what is it we really do?

“We turn it over to Eliot Spitzer, the attorney general of New York. A state attorney general, even if the state is New York. He sues the banks, the big companies. The leading regulator of not just the American but the world economy is now the state attorney general of New York. I like Eliot Spitzer. I do. Thank God for him.

“But the attorney general of one state? Every three or four years we have a new legal paradigm. We get the SEC, then tort, then laissez-faire, then self-regulation, and then a state attorney general. It’s all in shambles.”

Mary M listened quietly, and then she said: “It’s like a boiler, isn’t it? You try to get rid of the pressure in one place, and it blows up somewhere else.”

America is suing us, and we are suing America back. It’s all against all.

We got rid of the New Deal, the old administrative law, and now we’re about to get rid of torts. Guess what’s going to happen? The boiler’s going to blow.

Mary’s right. What happened at Enron or WorldCom is just as likely to happen in the emergency room or at a Kentucky Fried Chicken or on a rotting railroad track. I hate the way the law is melting into tort, but I’d rather have a trial lawyer than nothing at all.

If the breakdowns in patient safety, or food safety, or rail safety do not convince you that the regulatory state is now in shambles, and if the legal anarchy in corporate finance is not enough to do it either, then I ask you to consider one final case.

Payday loans. With the payday loan stores, we have gone from administrative law to no law. We have hit the bottom. No rule of law at all.

I got involved in a suit against payday loans; otherwise, I would no more have noticed them than I notice Taco Bells. Except for the late Monsignor John J. Egan, old civil rights hero, friend of Saul Alinsky. Before he died, he dragged me onto a committee to investigate payday loans. I even ended up filing a suit, which turned out to be mainly a cri de coeur. (I mean, we lost.) But let me tell you what a payday loan is, and why it is such an apt symbol of the collapse of regulation.

Let’s say I’m making $30,000 a year, I have a family, and I’m short two hundred bucks this month. I go to you, Mr. Payday Loan, at one of your convenient offices found on just about any street corner in Chicago. Now, of course, I don’t literally turn over my next paycheck. But in return for $200, I write you a postdated check for $240.

I know, you know, and the state of Illinois knows that at the moment I write that check, it is almost certainly a bad check. It may be “postdated,” but under the law these days, that means nothing. My bank is allowed to cash it now, right away, as soon as I write it. And we both know that I don’t have enough in my account to cover it. That’s why I’ve come to you.

So right away, I have set myself up. Because if you cash it, and it bounces, I’m in big legal trouble. Maybe I’ll be prosecuted. And the risk of it grows if I can’t come up with the money next month. So to avoid the prosecution, or some other legal trouble, I now roll it over for an even bigger loan.

And another.

And another.

I keep writing bad checks, and I keep giving you more and more power to put me into jail. Soon I can owe a thousand dollars for a loan of just two hundred. Even the Mob hesitates, I believe, to overreach like that.

Yet I have to admit that, at the beginning, I was annoyed with Father Egan for dragging me into these meetings and paying so much attention to this one little issue of payday loans. Come on! This was a priest who had marched for civil rights. He was a kind of sixties hero. Aren’t there bigger things to take on than these stupid payday loans? But it slowly dawned on me what was so awful about the damned things.

What sets payday loan stores apart from the Mafia is that the state of Illinois is working as a kind of “silent partner.” I mean, the state sets up and licenses every lender: “We the state know exactly what you’re doing. We the state know that you are inducing people to write you a bunch of bad checks. And when you give us the word, we the state will throw these suckers into jail.” In other words, the state is part of the scam; it helps induce the poor to commit a crime, and it acts as enforcer should they step out of line. In effect, it is setting up America’s penniless for prosecution.

What’s more, the state’s involvement is essential to the operation because otherwise the payday loan store is subject to a cap. Yes, in the old days, before deregulation, there was a cap on interest. Technically, it still exists in Illinois. In theory, the cap on interest here is 9 percent. But this 9 percent cap applies to nothing. No state in our union could enforce that kind of cap. The global banks laugh at single digits. They charge you and me—on our VISAs—double digits. And the hapless poor, they want to charge them triple digits.

True, in some places there is a limit on the exploitation of the poor. But not in Illinois. And Illinois is one of the better states. It’s a blue state. It’s liberal. It has a liberal Democratic governor. It has a Democratic state house and state senate. And yet the state is essential to the scam.

As I write this, Father Egan’s group has gotten at least some limit on the ability of the lenders to keep rolling over the loans. But the payday loan industry is still going to thrive at interest rates that our ancestors would have been shocked to pay.

So in Illinois, after much effort we have modestly regulated usury. And will that help matters in the end? It may be that “reform” ends up sanctioning the overcharge. So while on the surface we seem to gain a bit more public trust, we will end up ultimately with much more private rage.

Father Egan, you were right. Payday loans may not be the worst thing. But they’re a perfect metaphor for the collapse of the New Deal. Why shouldn’t people experience government as arbitrary and unfair, when many of our states are still too weak to cap interest at even 200 percent?

And so they forget about the state doing anything to stop the fall of the hourly wage. It is certain to go on falling for at least another thirty years.

Meanwhile, as we live in fear of being sued by debt collectors whom the government cannot control, more of us feel justified in filing any suit we can. Student loans, payday loans, medical bills: America is suing us, and we are suing America back. It’s all against all. Life is unfair. But then so is the law.

And as more of us withdraw from civic life, it only gets worse.

What to do? Well, you can go out and be a whistleblower and file your own suit. Are we blowing whistles or just blowing off steam? They say that in India the authorities like to see more people sue. Better they blow off steam by going into court than by going out in the street and organizing the poor.

Yes, I know the objection. I raise it myself: We have to work through the political system, and build a majority. Believe me, I am appalled that even in presidential elections barely half the electorate votes. Yes, of course, we must use the political system. But it’s not one or the other. We have to blow the whistles, too. Indeed, we have to beat the drums. And sound the tocsins.

Thomas Geoghegan is a Chicago lawyer whose latest book is Only One Thing Can Save Us: Why America Needs a New Kind of Labor Movement.

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