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Eminent Domain

by James Kroeger

 

June 27th, 2005

In the days that have followed the Supreme Court’s infamous Kelo decision, I’ve found myself wondering why, in America, we do not rely solely on the marketplace to determine when and if any land sale ever takes place? Where are the economists who would argue, with some validity I think, that eminent domain powers are only exercised when certain interested parties simply do not like the price they would otherwise have to pay in a free market environment?

The key assumption that underlies this perspective is that there is some price at which any person will sell. I have come to believe that this is mostly true. Let’s say you own some land in a beautiful setting that has been in your family for generations and that it has a lot of memories connected to it. Then you find out that the local government is talking about buying up your land for some “public use.” Assume that if the government was not interested in buying your land, it would “normally” fetch only around $100,000 in the current market.

Maybe you would find that price to be perfectly acceptable if you were actually interested in moving away, but since you are quite content to stay where you are, it would take a lot more money to persuade you to sell. So what if the government offered you $500,000 for your home? With that kind of money, you’d be able to buy twice the house in an equally nice setting while also pocketing a great deal of spending and saving cash. You’d be able to move most of your memories along with you as you look forward to creating many new memories. Wouldn’t most people see such an offer as essentially a once-in-a-lifetime opportunity? One that probably wouldn’t exist at all if not for the government’s interest in your particular location?

But let’s say that you are really, really emotionally invested in that particular piece of land. What kind of price would overcome your resistance to selling? Perhaps $1,000,000? How about $350,000,000? Can’t we agree that at some point the vast majority of us would consider a decision not-to-sell to be inexplicable, unreasonable madness? Isn’t it actually quite reasonable for us to say that this whole controversy ultimately boils down to the fundamental issue of price?

The more I’ve thought about this, the more I’ve come to think that society might actually be better off if it allowed the marketplace to determine if and when a property is sold to the government, and at what price. On the plus side of this argument, the government would be able to further reduce its “coercive role” in the lives of citizens, something that really begins to rile people when they believe the government is about to force them to give up their property at a net loss. Why besmirch the name of Government for no good reason? Of course, on the other side of the coin, there would be concern that individual owners of property might exploit a government commitment to pursue only non-coercive means of obtaining property by demanding an extraordinary and unreasonably high price.

This is not really the problem it would seem to be. Yes, if there is only one seller in the market, and the government’s demand is quite inelastic, then the seller will enjoy a great deal of market power that he/she would feel encouraged to exploit. This should not be a problem, however, if the government always makes sure that it has at least two “equally” desirable locations that it is considering for the new highway, building, park, viaduct, etc., that it wants to build. If potential sellers are aware that the Government has alternatives, they will be persuaded by “market forces” to be reasonable in their price demands. Competition is always the magic that makes market prices “fair” prices.

So if (1) the government is generous enough to make potential land sellers want to sell their land, and (2) sellers perceive that they are in competition for the opportunity to benefit from the government’s compensation generosity, then it should always be able to obtain the property it needs to promote the general welfare at a reasonable price, without resorting to coercion. What other approach is there that could possibly provide a superior outcome?

Finally, we need to ask if perhaps there is a political opportunity here for the Democrats? The Republicans like to wrap their identity around issues like flag burning; what if Democrats were to wrap their identity around a Constitutional Amendment that would forbid federal, state, or local “takings” except in the most extraordinary of circumstances? (The most obvious reasons for making an exception would be (1) a pressing national security emergency or (2) when the actions of speculators have diminished the competitiveness of a market that the government wants to participate in.)

It sounds like a sure political winner to me…

 

More trenchant political analysis by James Kroeger:

Hillary, Bill, & the DLC

Reclaim the Moral High Ground

Democrat Image Makeover

When the Republicans steal an election

Our Soldiers Are Victims

Are You Proud To Be An American?

 

Economic Analysis...

Unemployment: Our Greatest Enemy

 

Trade Policy and Jobs

 

Universal Health Care

 

Government Bureaucratic Waste vs. Private Sector Efficiency

 

The Relationship Between Savings & Investment

 

Do Tax Cuts Stimulate The Economy?