Should judges protect private property rights and constitutional rights as vigilantly in times of crisis as in ordinary times? Conventional wisdom holds that crises justify suspending the rule of law and allow government discretion to address the crises. (1) The lesson of past economic crises as well as the most recent crisis, however, is that we should uphold the rule of law with special rigor in times of economic crisis because the temptations for politicians to misuse their powers during times of crisis are especially great. During crises, judges must be particularly vigilant in protecting private property and constitutional structure. (2)
Crisis often is invoked to rationalize both governmental discretion and waiver of the rule of law. (3) But as the financial crisis and its aftermath reveal, it is precisely during times of crisis that it is most important to tie the hands of government with the bonds of the rule of law. First, in times of economic crisis there is a special need for government behavior to be predictable and rule-bound to encourage investment and economic recovery in a period of uncertainty. Second, adherence to the rule of law in the face of crisis is important to restrain politicians from using the crisis to pursue their own self-interest or unleashing rent seeking by special interest groups--both of which dampen economic recovery and long-term economic growth. Third, the government's seizure of discretion creates a ratchet effect whereby the discretion and exceptions to the rule of law made during the crisis ossify and never return to pre-crisis levels. Fourth, the dynamics of short-term interventions tend to invite moral hazard that can be exploited by powerful special interest groups.
I. THE RULE OF LAW IN TIMES OF ECONOMIC UNCERTAINTY
Should the rule of law be respected during times of economic crisis or should adherence to the rule of law be attenuated to allow greater executive discretion? First, what is meant by the term "the rule of law" and why does it matter? For current purposes it is not necessary to specifically define the rule of law; it is adequate to adopt a functional shorthand definition. At its heart, the value of the rule of law is Hayekian. (4) Simply, the world is in a state of constant flux. (5) Billions of economic transactions are conducted every minute throughout the world and it truly is a miracle that any productive economic activity happens, much less economic activity on such a great scale.
Consider the milk in your refrigerator or cafeteria. Think of the chain of coordination required to get it there: Farmers must decide to use their land to graze dairy cows; determine how many cows to graze; and employ people and use machinery to milk the cows, pasteurize the milk, and deliver it into the stream of commerce. All the coordination in that relatively simple chain of production must then align with millions of consumers deciding whether to buy milk or Coke and ensuring that they can buy both milk and Cheerio's. (6) The extent to which these systems are coordinated is remarkable.
Complex economic processes like the manufacture of cars or the introduction of initial public offerings pose even greater coordination difficulties. Add in the dynamic feature that all of these decisions are subject to a constant feedback loop as millions of individual purchasing decisions send signals about the relative demand for different products, and it is remarkable that this coordination occurs at all. Moreover, once achieved, economic coordination would seem to be in constant peril of disruption. Hayek's profound observation is that the price system is the mechanism by which this profound coordination occurs, leading to a functioning economy. (7)
Hayek's corollary observation is that, in light of this uncertainty, the goal of social and political institutions is to minimize the number of variables that threaten coordination. …