June 24, 2005
A supreme mistake
Count me among those disgusted with the Supreme Court's ruling against Susette Kelo, which asserted the right of the government to seize her home in order to divert the property to what it judged to be a use of higher economic value.
The economic value to the current owner can be directly measured by the price that owner would need to be compensated in order to part with the property. The economic value in the alternative use can be directly measured by how much the developer is willing and able to pay for the property. If the developer can't offer a high enough price to make the owner want to sell, and can only get it by threatening to throw the property owner in jail, it rather undermines the claim that the developer's plans for the property should legitimately be assigned a higher economic value.
But others have said this better than I can.
All a developer has to do now is make a lowball offer and threaten to involve a bought-and-paid-for politician to take the property away if the owner doesn't acquiesce.
Justice Sandra Day O'Connor's dissenting opinion (hat tip: Qando):
Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process.
If there is one idea that will help developing countries escape poverty, it is the recognition of a distinction between mine and thine - not to mention thine and the government's. But in a country that became wealthy through the recognition and protection of those property rights, the US's highest court has just upheld a decision that allows local municipalities to seize an individual's property.
While Bush, sometimes rightly, gets bashed by the Left for trying to create a corporate state, it is in fact the left side of the Supreme Court that has struck the strongest blow now in that direction.
Michelle Malkin has much more.
Posted by econbrowser at June 24, 2005 10:13 PMdigg this | reddit
All true enough in a perfectly functioning neo-classical economy. Utter rubbish in a situation of bilateral monopoly, which is precisely the situation under discussion.
Posted by: decon at June 30, 2005 01:33 PM
Existence of a "bilateral monopoly" is no explanation for two parties failing to arrive at a mutually advantageous exchange, decon. It might influence how the surplus is split between the two parties, but not whether they reach an agreement. The fact that we don't see them make the exchange in the absence of government coercion can be treated as prima facie evidence that an exchange is in fact not a Pareto improving outcome. That statement does not depend on a "perfectly functioning neo-classical economy."
A more subtle version of your position has been articulated by Posner. I think his strongest arguments come from the multilateral rather than bilateral nature of certain negotiations. Notwithstanding such possibilities, my position is basically the same as Gary Becker's: "To me, the only reasonable interpretation of 'fair compensation' is the worth of property to the present owners." See http://www.becker-posner-blog.com/archives/2005/06/on_eminent_doma.html
Posted by: JDH at June 30, 2005 02:26 PM
The reason bilateral monopoly matters, in my mind, is because it means the rationality assumption matters. We are not talking about an impersonal "market" where some selection mechanism reduces the importance of individual rationality.
And the situation of bilateral monopoly calls into play the whole set of ideas about motivations and preferences and why people do the things they do. Plenty of people do things that make themselves (and often everyone else) worse off. Drug addicts, alcoholics, bitter grad. school dropouts, etc....
Many motivations can be consistent with the same action, many actions can be consistent with the same motivation, etc.... and a revealed preference argument is pretty weak in such a situation.
Posted by: decon at July 1, 2005 06:48 AM
At least it's more efficient :D
Posted by: Phil at July 1, 2005 07:54 AM