So Much For Property Rights
I don’t know if James or somebody else has covered this, but I think it is important enough that if they have it should be covered again. Today was a black day for capitalism and our economy, IMO. Today is the day that the Supreme Court has seriously undermined the institution of property rights in this country.
WASHINGTON (AP) — — The Supreme Court on Thursday ruled that local governments may seize people’s homes and businesses — even against their will — for private economic development.
It was a decision fraught with huge implications for a country with many areas, particularly the rapidly growing urban and suburban areas, facing countervailing pressures of development and property ownership rights.
The 5-4 ruling represented a defeat for some Connecticut residents whose homes are slated for destruction to make room for an office complex. They argued that cities have no right to take their land except for projects with a clear public use, such as roads or schools, or to revitalize blighted areas.
I don’t think it is going to far to say that property rights is one of the major factors in the economic success of the U.S. The fact that the owner of property has rights to sell it, keep it, etc. makes economic transactions both easier and more certain. Think of it this way, you are thinking of buying a house, but now you have to not only consider things like the quality of house, the neighborhood, the schools, and financing, but whether or not some developer might come along, grease a few palms and get your house for only a fraction of what it is worth so they can build a strip center, a hotel or something else.
Now this certainty has been seriously undermined by the dimwits we have sitting on the Supreme Court. Here is another way of looking at the problem simply from the standpoint of the property owner’s welfare,
… the requirement to pay fair market value is a grossly inadequate safeguard on government power for two reasons in Kelo. First, it fails to take into account the subjective valuations placed on the property by people whose families have lived on the land, in at least one case, for a 100 years. In other words, if the Supreme Court rules for the city, the government will be able to seize land at a price considerably below the reservation price of the owners. Second, unlike the prototypical eminent domain case, in which the land is seized to build, say, a school or road, in this case the city is using eminent domain to seize property that will then be turned over to a private developer. If this new development increases the value of the property, all of that value will be captured by the new owner, rather than the forced sellers. As a result, the city will have made itself richer (through higher taxes), and the developer richer, while leaving the forced sellers poorer in both subjective and objective senses.
This is quite right. It is simply another form of rent-seeking. The current owners of the property have something that another entity wants so they use the political process to capture the increased value of the land. Here is a portion of Justice O’Connor’s dissent,
“Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random,” O’Connor wrote. “The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms.”
O’Connor is basically pointing out the public choice/rent seeking problem inherent in this decision.
Strangely enough Prof. Volokh just doesn’t seem to get it in this case. Prof. Volokh seems to think that since the idea of having the government sieze private property and turn it over to a private company to run a store, hotel, etc. is better than having the government run the store, hotel, etc. that this decision is a good thing (note to self: If Prof. Volokh is ever nominated to the Supreme Court do whatever I can to fight his nomination tooth and nail). Prof. Volokh’s view that the dissenters in the case actually provide an incentive for cities to take property and start up businesses strikes me as rather…well…stupid. Exactly how many cities have actually done this, and done it successfully?
Will Collier also has a good observation on this,
The localities are still required to pay “a just price” when one of these takings occurs, but the price even a willing seller would be able to get from his property just took a huge hit. All a developer has to do now is make a lowball offer and threaten to involve a bought-and-paid-for politician to take the property away if the owner doesn’t acquiesce.
You can find the Kelo opinions here.