You're describing reality. When was the last time you jay walked?

How does a society function when only a few make the rules for the many?

http://gawker.com/study-the-u-s-is-an-oligarchy-1563363760

As long as interactions between people are governed by the consent of all parties rather than unilaterally by the rules of one: pretty darn well. If what you're doing only affects you, only you ought to have jurisdiction.

Considering that police and normal people do this every single day, I'd say pretty well.