Eric Rasmusen’s Weblog

The Kelo case confirms what has been the courts’ interpretation of the Takings Clause of the Fifth Amendment. The clause says, “nor shall private property be taken for public use, without just compensation.” A plain reading would be that the government can seize private property, but only for a public use, and only if the owner is compensated. The courts say, in effect, that any motivation is public use unless it can be shown that the true motivation is actually just to help some private party. That’s pretty much impossible to show, of course, since they also make clear that it’s okay if a private party gets rich off the property seizure, so long as there is *also* and *primarily* a public purpose.

I won’t go into details of the case here. Instead, I’ll give my take on it, and some comments on the judicial opinions. I will be looking at the public policy of this, not what the Constitution actually says (which is best seen in Thomas’s separate dissent; both the opinion, the Kennedy concurrence, and the main dissent are mostly about public policy).

(1) The issue is whether a city can require John Doe to sell his property to Richard Roe at a price that a court, but not Doe, says is fair. This is monstrously unjust in terms of everyday morality. Yet the Supreme Court has said it’s okay so long as the city says the main purpose is to make the city a better place and not just to help Roe, even if “better” only means that Roe would higher taxes than Doe had been paying.

The Supreme Court didn’t put any limits on this except to say that the purported public purpose isn’t supposed to be just a pretext for helping Roe. Since it’s fine if Roe gets immensely rich out of the process, and it’s fine if Roe is a big contributor to the mayor’s political campaigns, and the supposed public purpose doesn’t have to be backed up by any evidence, there really isn’t much limitation. As Stevens says in the majority opinion,

Just as we decline to second-guess the City’s considered judgments about the efficacy of its development plan, we also decline to second-guess the City’s determinations as to what lands it needs to acquire in order to effectuate the project. “It is not for the courts to oversee the choice of the boundary line nor to sit in review on the size of a particular project area. Once the question of the public purpose has been decided, the amount and character of land to be taken for the project and the need for a particular tract to complete the integrated plan rests in the discretion of the legislative branch.” Berman, 348 U. S., at 35-36.

The Stevens opinion is weird in that it does literally say that the courts can never second-guess how much property is needed. This is in complete opposition to normal legal doctrine, which says that even if the government’s, jury’s, or trial judge’s fact-finding gets a lot of deference, there are *some* limits. Probably Stevens didn’t really mean it– it must have been sloppy writing. But it sure looks like a formal legal test: 1. See if the city has a legitimate purpose for taking even one acre of the land, 2. If it does, don’t worry about the other 999 acres it is taking.

(2) There are two more reasonable, if still wrong, approaches the majority might have taken.

A. Takings for private use are okay if they increase the market value of the property.

B. Takings for private use are okay if they overcome a hold-out problem.

Limitation (A) would still allow the city to take land from Doe to give to Roe if it would increase the market value of the property, but not otherwise. The rationale would be that we want the market value of property in the city to be as big as possible. Why that is the goal is hard to answer. Economists certainly would not think it valid, since in economic theory it is not *market value* but *value to the owner* which matters. The market value of Doe’s house might be just $100,000, but it might be worth $150,000 to him for sentimental reasons. To force him to sell to Roe for $100,000 so Roe can put in a gas station and raise the property value to $120,000 would reduce value, not increase it.

Limitation (B) is more restrictive and presents a genuinely good economic rationale for using the power of the state to take away people’s property. Suppose Roe is building a factory, and has bought all the houses on the block except Doe’s, but if he can’t get Doe’s house, the whole project will fall through. Doe actually only values his house at the market value of $100,000, but he holds out for $800,000, knowing that Roe would pay that much if he had to rather than let the whole project fall apart. It could aid efficiency if the government forces Doe to sell at $100,000.

Note that limitation (B) requires the government to show that Roe really does face a hold-out problem. That will rule out lots of potential takings.

The big problem even with (B) is that it is open to political abuse.

(3) A secondary issue is whether the executive branch can seize property without any action by the legislative branch. What makes this worse than an act of attainder, I think, is that the mayor can seize property without getting permission from anyone else. One elected official, with only deferential courts to check him, can ruin the lives of anyone in the city. He doesn’t even need the city council to authorize the funding– he can get that from the private developers who get the land after it is seized.

(4) Here are my comments on what the judges said.

(a) Writing for the liberal majority, Stevens said

It is further argued that without a bright-line rule nothing would stop a city from transferring citizen A’s property to citizen B for the sole reason that citizen B will put the property to a more productive use and thus pay more taxes. Such a one-to-one transfer of property, executed outside the confines of an integrated development plan, is not presented in this case.

That’s what Stevens says, but his holding doesn’t depend on there being an integrated development plan. If it did, he would specify something like my Limitation (B) above, which he does not. If Stevens wants to make this a case narrowly about “integrated development plans”, I’d like that better. But nothing in the logic of his opinion is related to that.

Writing for the conservative dissenters, O’Connor says:

… New London does not claim that Susette Kelo?s and Wilhelmina Dery’s well-maintained homes are the source of any social harm. Indeed, it could not so claim without adopting the absurd argument that any single family home that might be razed to make way for an apartment building, or any church that might be replaced with a retail store, or any small business that might be more lucrative if it were instead part of a national franchise, is inherently harmful to society and thus within the government’s power to condemn.

… the Court today significantly expands the meaning of public use. It holds that the sovereign may take private property currently put to ordinary private use, and give it over for new, ordinary private use, so long as the new use is predicted to generate some secondary benefit for the public such as increased tax revenue, more jobs, maybe even aesthetic pleasure . But nearly any lawful use of real private property can be said to generate some incidental benefit to the public….

Whatever the details of JUSTICE KENNEDY’s as yet-undisclosed test, it is difficult to envision anyone but the “stupid staff[er]” failing it. See Lucas v. South Carolina Coastal Council, 505 U. S. 1003, 1025-1026, n. 12 (1992). The trouble with economic development takings is that private benefit and incidental public benefit are, by definition, merged and mutually reinforcing. In this case, for example, any boon for Pfizer or the plan’s developer is difficult to disaggregate from the promised public gains in taxes and jobs.

(b) “Aesthetic pleasure” is nothing controversial as a public purpose. Age-old common law says that if your land use is too stinky, you are a public nuisance, and you can be constrained. To be sure, it is even easier to abuse the reason of aesthetic pleasure than the reason of increased city prosperity. That’s isn’t the issue in Kelo, though.

(c) In Midkiff, the Court said it was okay for Hawaii to take land because land ownership was too concentrated, because that concentration was a matter of public concern. I agree that land concentration is a legitimate matter for the police power, but that is not the same as “public use”. Thomas’s dissent in Kelo explains that well. What the Hawaii legislature should have done was to pass a law saying that nobody could own more than X property. They then would not have had to take any property. Violation would be dealt with by fines, prison, or whatever. And we wouldn’t have to worry nearly as much about abuse as when the government decides whose land to seize and who gets to buy it.

Compare this with antitrust law. According to Midkiff, it would be okay for the federal government–in fact, for the President, against the opposition of Congress– to seize General Motors Corporation on the pretext of it being too big for the good of the economy, paying the shareholders the current share price, and sell half to one of Bushs’s political backers and half to another at that same price— no takeover premium required, no worry about poison pills and such.

(d) The majority opinion has the following implication. Suppose Smith wants Jones’s property. He should be allowed to use State Power to seize it if (i) he is willing to pay Jones a price some court thinks is fair (that court’s finding getting deference from higher courts, even if they think it is probably too low), and (ii) he is willing to pay a bigger bonus tax sum to the government than Jones is.

Part (ii) is what is interesting. It says that it is okay for the government to set up a bidding war over who gets the property, because “public use” includes increased tax revenue. Thus, the state can use takings for extortion.

(e) Justice Thomas has the best opinion, as is true so often. He would overrule the earlier, bad, Supreme Court precedents such as Berman and Midkiff.

Something has gone seriously awry with this Court’s interpretation of the Constitution. Though citizens are safe from the government in their homes, the homes themselves are not. Once one accepts, as the Court at least nominally does, ante, at 6, that the Public Use Clause is a limit on the eminent domain power of the Federal Government and the States, there is no justification for the almost complete deference it grants to legislatures as to what satisfies it.

Notice how he says “this Court”. That is to contrast this Court with past and future Supreme Courts, to suggest that we have a temporary aberration.

More fundamentally, Berman and Midkiff erred by equating the eminent domain power with the police power of States. …

In Berman, for example, if the slums at issue were truly “blighted,” then state nuisance law, see, e.g., supra, at 5-6; Lucas, supra, at 1029, not the power of eminent domain, would provide the appropriate remedy. To construe the Public Use Clause to overlap with the States’ police power conflates these two categories.

That’s the point I was making in (c).

The Court relies almost exclusively on this Court’s prior cases to derive today’s far-reaching, and dangerous, result. See ante, at 8-12. But the principles this Court should employ to dispose of this case are found in the Public Use Clause itself, not in Justice Peckham’s high opinion of reclamation laws, see supra, at 11. When faced with a clash of constitutional principle and a line of unreasoned cases wholly divorced from the text, history, and structure of our founding document, we should not hesitate to resolve the tension in favor of the Constitution?s original meaning.

Recall that Peckham wrote the Lochner opinion.

This entry was posted on Saturday, June 25th, 2005 at 6:05 am and is filed under Economics, Law, Thoughts-New. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.