The fallout over Kelo vs. New London has become a topic of conversation throughout many discussion boards, including my350z.com. In the latest tussle, one member asked, Do you think the free market is always the perfect solution? Can you think of any circumstances in which the free market produces unsatisfactory results?, in response to a flurry of attacks on government seizures of property. One particular response (free registration required) is worth noting, from member plezercruz:
The free market always produces the most efficient solution, with some rare exceptions. These exceptions are the standard Coasian transaction costs: search costs, lack of information, spite, etc. Where there is a transaction cost that surpasses the profit gain of a transaction, the most efficient transaction will not happen. If for example, your Saudi landlord won’t sell out of sheer spite, inefficiencies arise. If it is simply too difficult for a buyer to negotiate with all of the owners of a parcel of land, making it too expensive to buy it, inefficiencies arise.
The fact that these ineffiencies occur is the reason why we have governments, and the reason why we have eminent domain. The idea is that by cutting through all the haggling, spite, and sentimental attachments, we can more efficiently produce the results that we want as a society. However, these results are almost always INEFFICIENT because they occur contrary to market forces by government fiat.
The real problem with eminent domain is that it attempts to apply an objective standard to valuation, and value is a subjective determination. We can measure with some accuracy how much land OUGHT to be worth, but we cannot measure how much it is worth to the owner. The solution government has come up with is to outright ignore subjective value, and allow the buyer (government) to determine the fair market price, which (surprise surprise) almost always turns out to be far less than the owner thinks its worth and significantly less than the market would actually bear. I forget the case, but I remember reading in Con Law that government doesn’t even have to pay prevailing market price, it only needs to pay a price high enough that it isn’t completely unreasonable.
Another thing that eminent domain takings overlook is that forced sales necessarily should come at a premium price, not at fair market price. There is a difference between buying land that has come on the market volunatarily and trying to buy land when the owner is not eager to move. The price to buy a parcel of land RIGHT NOW should be significantly higher than fair market price. Eminent domain practice ignores this fact.
All this results in takings which are unjust, unfair, and extremely unpopular. It did not have to be so. If, for example, the Supreme Court had used it’s common sense and realized that taking price should exceed fair market value, then the governments of this country would have to pay a premium to seize land (which is only proper). If that were the case, MOST people would be EAGER to have government take their land. Government would show up and say “We’ll offer you twice what your land is worth” and people would throw parties because the government took their land. That’s the way it ought to be done…if the government “needs” your land badly enough, let THEM pay the premium. You shouldn’t have to be screwed.
I personally hope they take Souter’s home and I hope they give him half what it’s worth. That’s how the rest of us live…why should he be special?
Well said!