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?
