The Danger of Kelo

In the Weekly Standard, John Hinderaker (via Powerline) gives some interesting backstory on the development that lay behind the now infamous Kelo v. New London decision. For one thing, it appears that Pfizer actually had nothing to do with the matter other than triggering the idea for the development by buying some landfill property from the city to build an expansion.

Hinderaker asks one question that I think goes to the heart of the danger posed by Kelo:

If the project were publicly owned, no one could question that the associated condemnation proceedings would be in support of a “public use.” But are the rights of Americans any less imperiled by condemnation in support of publicly-owned projects? And, as a matter of policy, if a city wants, for example, to create more housing, does it make any sense to force it to pursue the long-discredited practice of building public housing projects, rather than facilitating the use of private capital and private management to achieve the same end?

I submit that it is precisely the use of private capital and private management that makes Kelo-enabled developments so politically dangerous.

Traditional uses of eminent domain consume state money, especially in the short run, which creates a built-in brake on the use of eminent domain. First, seized property must be paid for at a fair level. Second, since, traditionally, seized property became public property (roads, parks, military bases, etc.), the State loses any tax revenues the property previously generated. Economic benefits that produced increased tax revenues are long term and relatively diffuse. The political class must sacrifice some other governmental spending to pay for the seizure and to pay the subsequent political price. There is not enough positive economic feedback to create a feedback loop where the seizure of land drives the seizure of even more land.

The use of private capital to fund seizures does create such a feedback loop. Now the political class doesn’t have to sacrifice other spending to fund the seizures, and since the new development will be private and taxable, neither do they have to forgo tax revenues. Seizures may actually produce increased revenues in the short term, and those increased revenues will come from a concentrated and easily identifiable source. The political class will rapidly come to view seizures as a cost-free way of driving up revenues without any political tradeoff. The potential for abuse, even from the well meaning, is obvious.

Kelo is extremely dangerous because it destroys all financial limitations on the seizure of private property. It dangles a powerful temptation before every jurisdiction in the country. Inevitably, many will succumb. If not stopped, seizures for “economic development” paid for with private capital will become the norm. At that point, private property will cease to exist in any meaningful form.

8 thoughts on “The Danger of <i>Kelo</i>”

  1. The trouble actually started when the Supremes signed on to the theory that “blighted” housing caused crime, that the criminals plaguing such areas would vanish into thin air rather than attack someone else if the “blight” were removed.

    I can think of a few things that would legitimately cause otherwise law-abiding folk to be driven to crime, but ugly housing isn’t one of them. And yet this theory drove the biggest expansion of eminent domain, a uniquely dangerous power for any government to have, up until a few weeks ago.

    (It is interesting to note that the crime rate went relentlessly upward for decades after this ruling. Maybe the ruling wasn’t the cause, but the theory that criminals were produced or driven to it by poverty (a thesis thoroughly disproved by the precipitous drop in the homicide rate when Prohibition was dropped in the middle of the Depression) or ugly housing or something else in their environment that didn’t involve being driven insane by extreme brutality or trauma or brain damage, rather than their own choice to engage in evil acts and harm their fellow citizens certainly played a part)

    According to this theory, the proper way to keep order is not with police or courts or any of that old-fashioned nonsense, but by kicking law-abiding people out of their homes and replacing those homes with “better” housing that would presumably keep the criminal element on the straight and narrow somehow. (Actually, it may sometimes appear to work because the criminal element simply moves elsewhere… which is good for the city doing it, but kind of a bummer for the people who live wherever the criminals decide to live and strike instead. If a city government does it with criminals, it’s perfectly fine, but if a factory does it with smoke, it’s a harmful externality that must be strictly regulated.)

    But yes, setting up a system where the city government profits by taking property is just asking for trouble, just as much as setting up a system where city governments profit by seizing assets without trial. Be afraid. Be very, very afraid. Then be very, very angry.

  2. I think it would be best to eliminate use of eminent domain entirely. If the government wants something, let it pay for it. If the asking price is too high, maybe the government shouldn’t spend taxpayers’ money on it. The statist response to high asking prices for property that government officials want — and this is the response supported by many “environmentalists” and other self-described do-gooders — is to force transactions via eminent-domain condemnation, and thereby unjustly force landowners personally to bear costs that should be spread among all taxpayers. That’s just wrong.

  3. Jonathan,

    I think the traditional interpretation of eminent domain represented a good, real world compromise between property rights of the individual and the needs of the broader community.

    I have wondered if you couldn’t purchase land for roads and the like by making all lands sales contingent on all other parcels of needed land also selling. That would reduce the incentive on one owner to try to charge a million dollars a square foot or some other price that would be valid only if all the other owners had already sold.

  4. Most people don’t want to be holdouts, because 1) the buyout offer (assuming no coercion) raises your property value, so why not capture that increase by selling, 2) once the road or whatever goes around your property, your property may be worth less, so why take that risk, and 3) your holding out increases the value of alternative plots of land, whose owners will thereby become more willing to sell (i.e., if you don’t capture your increased property value now, by selling, you may lose the opportunity to capture that value in the future). If “the broader community” needs a piece of property, let it buy it. Otherwise, the holdout property owner whose property is taken via eminent domain is being forced to subsidize everyone else. There is no easy way to avoid that forced — and inequitable — subsidy other than to avoid use of eminent domain.

  5. Of course the value of a road, especially a railroad, drops drastically if it has to route around individual holdouts. By threatening to cause such a drop in value, a holdout gains bargaining power.

    A contract where all parcels are bought for the same price might alleviate that.

    Of course, if we had abandoned eminent domain in 1903, we might have wound up with a sparse road network and mass production of small aircraft rather than cars.

    For better or worse, eminent domain for public use is explicitly authorized in the Constitution. We can’t close off the possibility of eminent domain entirely, short of an amendment. But we can insist that “public use” and “public benefit” are not the same thing, and that letting governments seize property as a profit-making enterprise for those same governments is just asking for trouble.

  6. I agree that eminent domain should be limited as a matter of law, and I would accept partial limitation over none. However, the fact that a practice is specifically permitted by the Constitution does not make that practice right. I think that the use of eminent domain to compel property transfers is morally wrong and that we would be better off without it.

  7. One of the scariest things about eminent domain with a private angle is that it will encourage the politicization of business, and even outright corruption. If you are a property developer, relationships with the local government will increase from maybe 30% of your key success factor to more like 60%.

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