Monday, June 27, 2005

What is the Public Good? The Limits of Eminent Domain

The end-of-session ruling by the Supreme Court in Kelo et al. v. City of New London has generated a firestorm at three corners of America’s unusual political map. In ruling that urban redevelopment, in substantial part for the ultimate purpose (de facto if not de jure) of increasing tax revenues, is a legitimate exercise of the eminent domain power, the Court has angered both libertarian conservatives and anti-big business activists on both the left and the right. Many in the former group, believers in limited government, were surprised at the loss and that it was in some sense Justice Anthony Kennedy’s fault as the Reagan-appointed swing vote.

The anger derives from different conceptions of what qualifies as a legitimate exercise of public power in annulling property rights for particular individuals. The Court engaged in a rather substantial rhetorical sleight of hand in speaking ultimately of “public purpose.” The Constitution, alas, requires something else altogether, which is that the property be put to “public use.”

This is not just idle quarreling over words. It derives from fundamentally different visions of what the state is for. In one, that which leads to Justice Stevens’ invocation of “public purpose,” government is an essential entity for affirmatively promoting the greater good. When compared to its alternative, property rights and consensual trading, the latter allegedly comes up short on all too many occasions. To tear down old, small houses and replace them with gleaming office towers, or with superstores or factories that employ huge numbers of people and therefore fatten the tax rolls and enable the expansion of government doing good, is a self-evident improvement. (Whether that is true is certainly debatable: see here and here for examples in which "carefully considered" state plans generally work worse than expected, while decentralized trading in lieu of a master plan works better.)

In his ruling, Justice Stevens is quite clear about several things. First, while simple redistribution of property from one party to another, perhaps more powerful one is verboten, the fact that the government jumped through the proper procedural hoops rules that possibility out:

As for the first proposition, the City would no doubt be forbidden from taking petitioners’ land for the purpose of conferring a private benefit on a particular private party. See Midkiff, 467 U.S., at 245 (“A purely private taking could not withstand the scrutiny of the public use requirement; it would serve no legitimate purpose of government and would thus be void”); Missouri Pacific R. Co. v. Nebraska, 164 U.S. 403 (1896). Nor would the City be allowed to take property under the mere pretext of a public purpose, when its actual purpose was to bestow a private benefit. The takings before us, however, would be executed pursuant to a “carefully considered” development plan. 268 Conn., at 54, 843 A. 2d, at 536. The trial judge and all the members of the Supreme Court of Connecticut agreed that there was no evidence of an illegitimate purpose in this case. Therefore, as was true of the statute challenged in Midkiff, 467 U.S., at 245, the City’s development plan was not adopted “to benefit a particular class of identifiable individuals.”

The “therefore” is puzzling. It is not clear that just because the normal process unfolds, therefore the motivation and effect is not a raw transfer of wealth. But that is the price of embracing the belief that that which the public authorities do is of necessity the public interest.

Second, meanings of words can change. Once upon a time “public use” meant, well, “use by the public.” But no more:

But although such a projected use would be sufficient to satisfy the public use requirement, this “Court long ago rejected any literal requirement that condemned property be put into use for the general public.” Id., at 244. Indeed, while many state courts in the mid-19th century endorsed “use by the public” as the proper definition of public use, that narrow view steadily eroded over time. Not only was the “use by the public” test difficult to administer (e.g., what proportion of the public need have access to the property? at what price?), but it proved to be impractical given the diverse and always evolving needs of society.

The last clause is of course always the historical recipe for trouble. If the functioning of Constitutional rights is to rope off certain spheres of individual freedom of action – the freedom, say not to sell your house to someone who wants to convert it to a beachfront pedestrian walkway – is to mean anything, it is presumably to define rights permanently. The right to be free from self-incrimination must certainly take account of technological change, e.g. new surveillance equipment, but does not itself become diluted simply because of the “evolving needs of society.” This is as likely as not another exercise in the diminution of security in property relative to other rights, which is longstanding but has been in decline for some time. One is hard-pressed to imagine a Court endorsement of a "carefully considered" plan to lessen social conflict by planning what kinds of political speech are permissible. But the right to property is nonetheless seen in that light, as a diminished second-order privilege.

Finally, and most disturbingly, individuals are not possessed of rights themselves, but of privileges to be evaluated in the context of the master government plan:

As with other exercises in urban planning and development, the City is endeavoring to coordinate a variety of commercial, residential, and recreational uses of land, with the hope that they will form a whole greater than the sum of its parts. To effectuate this plan, the City has invoked a state statute that specifically authorizes the use of eminent domain to promote economic development. Given the comprehensive character of the plan, the thorough deliberation that preceded its adoption, and the limited scope of our review, it is appropriate for us, as it was in Berman, to resolve the challenges of the individual owners, not on a piecemeal basis, but rather in light of the entire plan.

The syllogism seems to be that because the state had a rational basis, because the government asserted that it had the authority after following the usual rules, therefore the plan must operate and the individuals and their rights must be subservient.

It is possible to start from another premise about why governments act the way they do. In this alternative conception of the state there are a very small number of things that free individuals do poorly, and they can be objectively identified through economic theory. With respect to eminent domain, the relevant market failure is the “public good.” That economists have settled on this term is unfortunate, because it is all too easily conflated with “the good of the public,” which in the eyes of Justice Stevens is whatever the legislature and executive say it is.

But a public good is a very specific thing. It is a good that has two non-euphonious features – it is “nonrivalrous” and “nonexcludable.” The nonrivalrous good – an over-the-air television signal is an example – occurs when my consumption of it doesn’t lessen your consumption possibilities at all. Most goods – think of a gallon of milk or the computer on which you are reading this – do not really have this feature. Nonexcludability means that people who don’t pay can’t be prevented from consuming the good. Broadcast television solves this problem by relying on an excludable and rivalrous good – commercial time – as its financing system. There is thus no need for the government to be the television broadcaster. Rather, the classic textbook example of a nonexcludable good is national defense. Because of the way military services are provided the military must defend me whether I pay or not.

Voluntary negotiation – the free exercise of property rights fully enforced – does a poor job of providing true public goods - goods with both of these features. Thankfully, they are relatively few in number. But when they exist, people don’t pay the way they must when they obtain private goods and hence the public good is never provided in sufficient amounts.

The limits of eminent domain, and the longstanding refusal to equate "public use" with "public good," are revealing of a split among academic believers in limited government. On the one hand are the dismal theorists of the state, who see it as prone to growing without limit and to abusing whatever power it has for the private ends of the people who make up the state. This is one of the primary strains of thought that motivated the American Revolutionary generation. In this way of looking at the world, the language is moral. Big government is immoral on its face, and its primary sin is the violation of rights accruing naturally to free men. It is also vulnerable to takeover by pressure groups –- the factions that so preoccupied James Madison’s Federalist 10 -– and therefore it must be harshly constrained. The dismal advocates of limited government are skeptical about the nature of man, especially when he takes to power, and they conclude that a limited state is therefore a moral imperative. Man reduces to self-interest and faction, and is not to be trusted with power. In the eminent domain example, the seizure of the New London land is presumptively an exercise in pure rent-seeking until otherwise proven.

On the other hand are many economists, such as Donald Wittman at UC-Santa Cruz and Gary Becker and Richard Posner of Chicago itself, who believe that politics is a competitive process where factions do seek special privileges but where they face competitive pressures from politicians who appeal to a broader public by offering ways to mitigate the costs of this type of activity. This school of thought seem to implicitly adopt a philosophy of raw utilitarianism in all things – where the state outperforms the market in achieving the greatest good for the greatest number it should act. The problem is to figure out when that is true in a particular case, and it just so happens that the answer is not very often. In his highly and justifiably influential textbook Economic Analysis of Law Judge Posner has written that an expansive view of eminent domain may be justified because of the aforementioned holdup problems. In his earliest comments on Kelo he views it, as he generally does, as a question of value creation – does the redistribution of property, by overcoming holdout problems, increase wealth? IWhether Justice Stevens is right is just a problem of measurement rather than philosophy. In general, Chicago-style political competition means that the government tends to find its own efficient level, i.e. the level which makes society as wealthy as it can be given the unavoidable constraints created by the existence of rent-seeking behavior.

The two views – the one operating in the language of harsh morality and the other hinging on pragmatism – are irreconcilable when it comes to thinking about eminent domain. For the dismal theorists, it is an invitation to rewarding the supporters of the government, and must be sharply constrained, like all other exercises of government power. Insisting on the rigorous definition of "public good" as a requirement for eminent domain is a way of limitng the otherwise ever-expanding state that takes land for a military base one day, for a railroad the next, because owners' houses don't make for a productive neighborhood the next and for some other "carefully considered" purpose the next. For the latter, the state is one tool among many (albeit one with unique coercive powers) in maximizing something or other, and so while an expansive vision is not obviously right neither is it obviously a bad idea. Ironically, there is some common ground between the evocation of the public will that is Rousseau’s heritage and that motivates Justice Stevens’ opinion, and the efficiency that motivates Chicago libertarians.


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