Wednesday, October 25, 2006

Two Election-Season Propositions

As the election nears, two state ballot propositions have caught my attention. Not the one that is helping itself to most of the attention of the press – the referendum to appeal the law recently enacted by the South Dakota Legislature that would ban essentially all abortions, an attempt to avoid the law being used as bait to get the Supreme Court to overturn Roe v. Wade. I am interested rather in a minimum-wage proposition in Ohio and an eminent-domain proposition in California. Five other states have minimum-wage propositions, designed to increase turnout in the same way that the gay-marriage amendments of 2004 did for social conservatives. But it is the passage below from the Ohio proposal that most concerns me:

An employer shall maintain a record of the name, address, occupation, pay rate, hours worked for each day worked and each amount paid an employee for a period of not less than three years following the last date the employee was employed. Such information shall be provided without charge to an employee or person acting on behalf of an employee upon request. An employee, person acting on behalf of one or more employees and/or any other interested party may file a complaint with the state for a violation of any provision of this section or any law or regulation implementing its provisions. (My emphasis.)

This will naturally lead to such "persons acting on behalf" engaging in fishing expeditions, in which they rifle through private business records on the basis of one complaint, in search of as many candidates for litigation as they can find. This is an extraordinary expansion of the power of private citizens to harass business owners; of the power, for example, to blackmail through agreement not to engage in such information shakedowns in exchange for donations to the favorite pressure groups or slush funds of the "persons acting on behalf.” (This is already a common tactic used against the backdrop of threats to sue banks over "redlining" or discriminatory lending.) One can imagine the outcry if a state that prohibited abortions conducted in ways likely to damage women's mental health authorized "any person acting on behalf of a damaged abortion patient” to run riot through the clinic's records, or the symmetrical example (critical for equality before the law) of business owners being given the power to rummage through labor union records in search of violations of federal or state labor law. I suspect this initiative will lose, because in general more people than not understand the inefficiencies of the minimum wage, a feature it shares with all price controls. But its setting (as far as I know) of a precedent authorizing anti-business pressure groups to intimidate businesses on the flimsiest of grounds is potentially its most damaging effect, not just to economic efficiency but to basic liberties. (Read the whole Issue 2 proposal here.

Proposition 90 in California was lodged opportunistically in reaction to the outrage over the Supreme Court's Kelo decision, which allowed states and cities (unless their laws prohibited it) to seize private property and transfer it to another private party, nominally for economic development purposes, but almost surely primarily to increase the tax revenue flowing to, and hence the power possessed by, elected officials. It not only prohibits such private-to-private transfers, but requires that when land-use regulation lowers property value taxpayers (the most underused noun in the English-language, which people transform into the magical money machine known as “the government”) compensate the landowner accordingly. The San Francisco Chronicle has a criticism of this provision. It is long on ad hominem and non sequitur, devoting an extensive and obsessive amount of time to the people supporting the law, which is of course irrelevant to its merits. But this is the primary criticism:
This may sound like a good idea, on the face of it. But here's how regulatory takings work: If you could fit 20 houses on your land, plus a junkyard and a gravel mine, and government regulations limit you to six houses, then the government would have to pay you whatever profit you would have made on the unbuilt houses, junkyard and mine. Of course, the government can't afford to pay you, so it would have to drop its regulations, allowing the maximum development, no matter what your neighbors think.

But that is no criticism; that is the law's primary benefit. Land has value, which differs depending on how it is used. When preserved in its undeveloped state it has value to a certain number of people who want to see it used that way, when used for housing it has other value for different people who happen to live in a state that desperately needs more of it. Which value is greater? Environmentalists constantly suppose that only real-estate developers and private businesses have "private interests"; their interests are public ones. But some people care about trees, and some people care about having a roof over their heads. The best, most value-creating, least conflict-ridden way to resolve these conflicting interests is to let the landowner do as he wishes. Homeowners will pay some amount for houses (perhaps mediated by real-estate developers) in proportion to what the houses are worth to them. Environmental groups will pay for land preservation in proportion to how much preserved land is worth to them. The Audubon Society allows oil to be drilled and natural gas to be pumped on land it owns in Louisiana. The primary reason is because what the oil companies offer is good enough for them. Landowners deserve the same rights, not just for reasons of equality before the law (which are important ones), but because this makes it more likely that property will go to the uses that create the most value for all the members of society whose interests are not synonymous.

California has some of the most extensive land-use planning in the nation, and also some of the most expensive housing. This is no coincidence. Most of this planning is done at the local level, and those who already own houses can increase their value by persuading local zoning authorities to prevent competition from new houses through land-use restrictions. The proper test for whether development should be allowed is not whether homeowners are politically powerful enough, but whether the value destroyed is less than the value created. Since less housing is intact loss of value, if the value to taxpayers of land preservation justifies that loss, then they should pay.


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