Tuesday, June 23, 2015

Kelo v. New London: A Decade of Eminent Domain Abuse

Imagine that you purchased a nice, little house on the waterside because you always wanted a nice view of the river. Now imagine that after purchasing this house, the government comes in and tells you that you have to sell your house to a developer in order to make way for a large pharmaceutical company because "government knows best." That's what happened to Susan Kelo in the 1990s, and that was the very case, Kelo v. New London, that was brought before the Supreme Court. Ten years ago today, they ruled in favor of the defendant. This case subsequently caused an uproar, but why?

Eminent domain is when the government has the power to come in and take private property from a citizen. While compensating the owner for the troubles of uprooting from their home would be a nice thing to do, the government still can exercise this power when the owner is unwilling to sell. Traditionally, eminent domain has been exercised for reasons of "public use," such as a public road or public building. In an American context, this power exists under the Fifth Amendment's Takings Clause:

...nor shall private property be taken for public use, without just compensation.

Not only did the land have to be used for public use, but the owner also needed to be justly compensated. This was the Founders' way of limiting the government from power grabs. However, the Supreme Court managed to undermine the Fifth Amendment, along with using the Fourteenth Amendment, by ruling that the government's "public use" merely means "public purpose." I remember this case infuriating me a decade ago because the government now has the power to forcibly take someone's land for the purpose of private development, as long as the government believes that it can create more tax revenue. Although this had been taking place prior to Kelo v. New London, private companies now have a legal, albeit immoral, justification for taking someone's property.

While we think of free speech, freedom of religion, and freedom of press as important freedoms (which they are), people tend to forget that the right to private property is also a freedom that makes for a cornerstone in a free society. Property rights are human rights, provided that those rights are not being used to harm another individual. Property rights helped pave the way for further economic development since their inception. To separate economic rights from civil liberties, as if one is more important than the other, is foolhardy. Property rights help create social cohesion and peace in a world that has scarce resources. Both economic rights and civil liberties are important for us to live freely. Property rights help ensure a workable system of human cooperation and division of labor because individuals are free to pursue different occupations, lifestyles, or consumption with as little infringement on others as humanly possible. There is also the built-in incentive of stewardship of property under a society with property rights. If you don't take care of your property, it loses value, and vice versa. This is why private property, at least under economic theory, tends to be better maintained than government property.

But getting back to eminent domain, it's not simply a matter of it eroding a vital institution of a free society. Even if one were to completely throw the idea of property rights to the wayside (which would be foolish in the first place), I have to wonder just how well eminent domain helps the "common good." Shortly after the Court ruling, the St. Louis Federal Reserve ran an economic model simulating eminent domain. The conclusions? Under eminent domain, the price for which the seller is willing to sell is irrelevant because the seller is only going to be compensated at market value. Since market value is below the reservation price (i.e., a price that would have been satisfactory for the property owner), there is going to be an excess of land assembly under eminent domain. As such, the St. Louis Fed concluded that "economic theory certainly suggests that eminent domain used for private economic development will likely result in a zero-sum gain and may actually hinder economic development in the local areas, as well as the region, rather than help."

I love good economic theory because especially when there's an absence of empirical data, it's a good predictor for how economic theory will take place. However, I enjoy it when you can procure at least some data to back up good economic theory, which is the thing that makes good economic theory good. The main justification under Kelo v. New London is that it will help spur more economic growth via increased tax revenues. The Mercatus Center released a working paper last year showing that there is no positive relation between using eminent domain and tax revenue (Kerekes and Stansel, 2014).

It wouldn't be too difficult to find examples of which eminent domain has been abused since Kelo v. New London.  Combine overreaching powers with Big Business getting into bed with Big Government, and it's hardly a stretch to think that eminent domain is going to be abused. Fortunately, that overreach has been mitigated since 44 states reacted to Kelo v. New London by enacting eminent domain reform to limit the ruling's ill effects. However, the Court has not revisited the issue since 2005. Until the Supreme Court revisits the issue or Congress decides to do something about it, nobody's property is safe. America cannot call itself a free society if its government has the ability to use the law to uproot property owners on a whim in the vacuous claim of the "common good" while it simply lines the pockets of those with money and/or power. In any case in which the government is going to exercise eminent domain, the case for what constitutes as public use and the burden of proof should be on the government, and even then it should be under some strict scrutiny. I would have expected that the ten-year anniversary would have sparked some debate or legislation on the issue, but it looks like the American people would rather remain oblivious to this law of the land.


  1. I remember learning about this in my planning class and finding it to be a bit disturbing. It is precisely the worst way to do capitalism, to declare that any action against an individual is justified so long as it is profitable, under the guise of the greater good. What the Court should have done is declare that Castle Doctrines can be applied to any company or individual that tries to use eminent domain for private gain.

    As a general thing, what I find most disturbing is that this isn't "central planning", but is instead a license for anyone, anywhere, to try to trick local officials in committing theft on their behalf. There's no policy to guide it, no best practices, no central authority to blame (except the court), so it's not something that can be readily dealt with through a movement. It's a million wrongs distributed so widely that you'd never find them all, not even notice them all. It's not central planning; it's chaotic looting.

    On the other hand, I wonder to what extent this is just the next step on the path of privatization. If the government can seize for public purpose, and the services is privately delivered, then why could the government not seize on behalf of the private? For example, property is bought so a road can be built, and then the road is sold (to pay off the bonding used to pay for the road), so anyone can see that what effectively happened is that the land was taken for private use. Yet what is the solution there, to argue that privatization be halted? Or do we remove government from the process and have the private company try to build the road where it can, and if a house is in the way, too bad?

    "This is why private property tends to be better maintained than government property."
    I'm assuming you have a source for this.

    1. Thank you for your comments, Andrew. Although we tend to disagree, I appreciate you keeping me honest with some of my wording, which I have since modified.

      As for the "next step on the path of privatization" comment, the issue, as I brought up, is that the asking price is below the reservation price. If homeowners were offered the reservation price for their property, they would be more inclined to sell, at which point, it would be a voluntary action between consenting individuals. If the land were seized like that, regardless of whether it was the government or whether the services were privatized, would be theft.

    2. I don't see how the reservation price can be known, since it's by definition going to be different than the market price (if it was the same/slightly less they'd already sell). We could guess at it, of course, but I suspect you're not a fan of government trying to establish fair prices.

    3. Reservation price has its basis in the owner's willingness to sell, so you won't be able to determine that figure until you start negotiating with the property owner. In all honesty, I'm not a fan of when people argue something in the name of fairness, but in fact, it's just as easy (if not easier) to argue that it's unfair. I might be opening a can of worms here, but let me ask you to clarify what you mean by fair prices. Is fairness in the case of eminent domain an issue of price, method of engendering the transaction, or both?

  2. I really should not have used the word "fair". What I meant is that determining the reserve price is going to be a government-based decision. Then there's the issue that the negotiations are not likely to be in good faith (based on how one personally values something or how much they've invested). Government wants the property, presumably for something good, likely something popular, so the seller has far more power than if the government were buying a house just to have a house. To make it worse, if there are multiple properties involved, the initial people will sell for something somewhat near market prices, and then the price rises as each person sees the proportional importance of their property rise. I saw this firsthand when my high school attempted to expand and some empty business with a run-down building refused to sell, jacking up the price for land they weren't using, except to hold for when the school attempted to buy it. That's pure speculation (people should own to preserve, use, or improve, not own to resell with no investment); it's just robbing the public because they happened to be in a strong negotiating position.