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Affluent Christian Investor | September 21, 2017

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It’s Bad Policy To Use Eminent Domain For Economic Development, Even If It Sometimes ‘Works’

(Photo by Garrett O'Dwyer) (CC3.0) (GFDL) (Resized Cropped)

(Photo by Garrett O’Dwyer)
(CC3.0) (GFDL) (Resized Cropped)

I recently discussed George Mason University law professor Ilya Somin’s excellent book on the infamous Kelo case and the abuse of eminent domain generally, The Grasping Hand.

The Wall Street Journal also ran a favorable review of Somin’s book by Harvard professor Edward Glaeser, which promptly drew a negative response from a professor who defended the use of eminent domain for “economic development.”

I’m an ardent opponent of governmental seizures of private property and maintain that the professor’s case is a complete failure – but see what you think.

In his August 5 letter to the editor, Wayne State University professor John Mogk took issue with Somin’s book and Glaeser’s review. He claims that they did not adequately weigh what he regards as a successful use of eminent domain to promote economic growth – that of Detroit’s Poletown.

The New London redevelopment project that cost Suzette Kelo her little pink house was, Mogk admits, a fiasco. But he says we shouldn’t paint all eminent domain cases with that brush. He wants to buttress the case that the public welfare can be enhanced by using eminent domain to obtain land needed for projects that are supposed to stimulate the economy and create jobs.

Mogk seems to think that the apparent success of Poletown saves the day for eminent domain enthusiasts.

Here are three reasons for believing that he is mistaken.

First, as a policy matter, we either give the green light to property seizures for any “public purpose” conceived by politicians, or we prohibit them and limit eminent domain just to seizures for a clear public use. (That’s the language in the Constitution.) We cannot have a rule that says, “Eminent domain may be used for economic development plans, but only where it actually produces net benefits.”

No one can know ahead of time whether a plan will “work” (which is to say, produce at least some of the promised gains) or utterly fail. In Kelo, the City of New London’s grand redevelopment plan fell through completely. Where neat, modest houses once stood, you now see only rubble and weeds. Nobody knew that would be the outcome when the plan was conceived.

To make my point more clear, consider this analogy. The law forbids warrantless searches by the police, but suppose that in some cases where illegal searches are nevertheless conducted, important evidence of criminal activity is found. Should we conclude that the Fourth Amendment’s warrant requirements can be discarded because there are some instances where we get good results from warrantless searches?

I don’t think that conclusion follows. And neither should we allow property seizures whenever authorities want to, just because those seizures sometimes have “good results.”

That brings me to my second reason. Professor Mogk’s Poletown example isn’t as telling as he thinks. Perhaps it is true, as he writes, that most of the inhabitants were content with their buyouts. What I don’t think anyone can deny, however, is that for some of the residents, especially elderly people, the forced relocation was extremely disruptive and painful.

Outsiders like Mogk and the bigwigs at General Motors (who wanted the land for a new Cadillac plant) may have thought that Poletown was “declining,” but to the people who called it home, living there was their best option. The right to quietly enjoy their property was taken away from them so that others might be more prosperous – GM stockholders and UAW workers in particular.

I believe we must oppose the collectivist philosophy that says it is permissible to use coercion against some individuals so long as those in power think they might thereby create a net utilitarian gain.

Third, all that these economic development eminent domain takings can ever do is to redistribute where economic activity takes place. It cannot create any overall gain.

Let us suppose that the GM management was correct in forecasting an increase in demand for luxury cars. (It appears that they overestimated that demand, at least for their own vehicles, since the plant never employed nearly as many workers as they had said it would.) Free market competition to satisfy that demand would have led to increased output without Detroit confiscating land for a new GM plant.

If it hadn’t been able to resort to coercion to get the land, GM would probably have found other ways of increasing Cadillac production, but even if it couldn’t have done so, other auto-makers would have built more luxury cars. Auto jobs would have been created somewhere.

Instead of proving that eminent domain can be a good economic development tool, the Poletown example is just another illustration of Frederic Bastiat’s broken window fallacy. Demolishing Poletown to build a new auto factory brought about visible benefits for some people, but at the expense of preventing benefits for others that would have otherwise occurred.

Politicians glory in doing things that appear to be good for their districts. Public choice theory informs us that a great defect in democracy is that political success often depends on creating visible, concentrated benefits even though the diffused, hidden costs outweigh them. That’s the case with using eminent domain to promote economic growth.

No, not every eminent domain seizure for economic development purposes is as completely worthless as New London’s turned out to be, but we ought to stick with this rule: Government should just perform those few order-keeping functions appropriate to it and leave the allocation of resources and planning of production to people who risk their own money — and cannot take what isn’t theirs.

 

Originally posted on Forbes.com.

 

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