Law vs. The Rule of Law

The term "Rule of Law" has been thrown around a lot these days. I have heard President Bush use it. I heard UN Secretary General Annan use it many times last year. Given the context of their speeches I doubt either of them actually understand the difference between law and rule of law.
The rule of law requires the absolute supremacy of regular laws as opposed to the influence of arbitrary power, and excludes the existence of arbitrariness of perogative, or even the wide discretionary authority on the part of the government according to the classical definition of Mr. Dicey in The Law of the Constitution. What does this mean in practice?
Take, for example, a government of unlimited power (or a powerful regulatory agency). The government or agency can pass whatever law it desires. In other words, the government can make anything legal or illegal on any whim. First off, this makes planning for the future very difficult for its citizens and businesses. Private institutions have no idea what practices they engage in will still be sanctioned legally tomorrow. Private institutions would have to spend billions of dollars to lobby regulatory agencies and governments to keep certain practices legal and to influence the law in a way that is favorable to them and against their competitors. Does this sound at all familiar?
Let me give you a very clear example of the difference between law and the rule of law. Each day your local authorities could convene and pass a law regarding the definition of the colors on the traffic light. Today green means go. Tomorrow it could be yellow, red, or even green again depending on the whim of the authorities. Each day they pass the law and it becomes official legislation. Each day there is a new LAW comes into existence. What happens on the roads? Do people find out about today's new color schemes? What if they do not? The result would be horrible car wrecks at every intersection as people either were uninformed about the law or were just unable to remember the day's particular configurations. In other words, laws would exist but there would be no rule of law.
Another example would be if the government passed a law against murder but then never attempted to find any suspects and bring them to trial and provide justice. The law against murder would be on the books but nobody would be deterred from committing the crime because they would always get off and remain free. The law would exist, but there would be no rule of law. The same situation exists whenever there is a law that is enforced arbitrarily. When there is no way to tell who will be prosecuted nor when, the law loses its overall effectiveness.
Is the USA (and the rest of the world) becoming more ruled by laws and less ruled by rule of law? That should be one question an active mind asks as it views the nightly news and reads the papers.

J. Thyme Matz