Strengthening Constitutional Self-Government

No Left Turns

Likely Effects of Kelo

Over at Division of Labour, economist Larry White makes some predictions about the likely economic effects of the disastrous Kelo v. New London decision:

The result to be expected, contrary to well-meaning officials’ intentions, is misuse and waste of land (not to mention the hardships of involuntarily uprooted families). When private developers buy up land through voluntary transactions, they face a market test. If a shopping center or office complex flops, the developer loses his own money and will have trouble getting bank loans the next time. Wishful thinking is thereby constrained. The market ruthlessly weeds out incompetence. When town officials grab land through eminent domain, to assemble a parcel to sell to a developer (more cheaply than he could have managed without eminent domain, otherwise he wouldn’t have waited) whose shopping center flops, where is the personal penalty for the town officials? At most, if voters are informed enough to hold them accountable, they face a slightly higher chance of being voted out (if still in office), or a slightly reduced budget to play with (unless tax revenues can be enhanced somewhere else). Wishful thinking has almost free rein.

So my prediction: expect to see a few more half-empty shopping centers ten years from now.

Discussions - 1 Comment

I’ve been thinking about this decision, and the longer I chew on it the more uncomfortable I become. This really gives government carte blanche over real estate ownership. My own cross-national research shows the importance of security property rights, and we fought a long Cold War over this issue (among others), and now the Supreme Court with the stroke of a pen authorizes command economics! Doesn’t anyone in the government read Hernando deSoto? This could easily be a disaster for the State’s and localities the opt for very aggressive property confiscation.

Below is a link to one of the better articles I’ve seen on this issue.

They Can’t Take that Away from Me...Unless The Can

Here’s one of the central paragraphs (cited from the Economist):

Put simply, cities cannot take someone’s house just because they think they can make better use of it. Otherwise, argues Scott Bullock, Mrs Kelo’s lawyer, you end up destroying private property rights altogether. For if the sole yardstick is economic benefit, any house can be replaced at any time by a business or shop (because they usually produce more tax revenues). Moreover, if city governments can seize private property by claiming a public benefit which they themselves determine, where do they stop? If they decide it is in the public interest to encourage locally-owned shops, what would prevent them compulsorily closing megastores, or vice versa? This is central planning."

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