"One significant consequence of Kelo has been to alert Americans of the egregious abuses inherent in the application of eminent domain laws."
June 30, 2007
Wall Street Journal
In regard to your June 23 editorial "Kelo's Consequences" and, on the same day, Carla T. Main's commentary "The 'Blight' Excuse":
The debate surrounding the Kelo decision and how to remedy its negative fallout has been handicapped by ignoring the contribution of economists and economic analysis to the issue of property rights.
Every economist knows that Noble winner Ronald Coase long ago showed that if the government could define the property rights of individual persons or firms in such a way that all externalities could be handled by free exchange in the market, then there is no need for government to intervene to change the market outcome.
Resource allocation will be at what is called a "Pareto Optimum" in which all individuals are on their highest level of utility, given the distribution of income. A "taking" would be necessary only if all externalities could not be handled by defining property rights -- e.g., when a few firms are polluting the air of large numbers of individuals. Other situations that justify takings involve what are called "public goods" that voluntary exchange cannot bring about -- many highway situations; police force and fire departments; the Armed Forces; ensuring a minimal level of education for all children; and so on.
I think the Kelo situation outraged so many because the Coase rule, even though people had never heard of it, was so obviously ignored in that case.
If the individuals had been allowed to keep property rights in their homes, the drug company would have had the opportunity to buy out the owners and the outcome would not have involved any externalities. If the company had decided not to go ahead it would have meant the individual owners wanted too much money to get them to move and still remain at the same or higher level of utility. But this would have meant a lower level of tax revenue for the government, and this was the reason given for the taking -- which was so at a variance with the legal history of the takings clause that the outrage erupted. And thus came the "blight" reason for a taking.
The key question about using blight to justify a taking is whether or not the area is currently interfering with the lifestyle of existing individuals. If very few individuals in existing residential homes or apartments have to look at or walk through a potentially "blighted" area, then who is the blight harming? It would be like a processing plant giving off odors and ugly but harmless emissions located such that almost all existing residents did not smell it or see it.
In these cases the Coase rule should apply -- property rights should be assigned to people with businesses and property in the "blighted" area and developers should have to bargain with them, without holding them hostage with the threat of eminent domain.
Dave M. O'Neill
Adjunct Professor of Economics
Baruch College, CUNY
One significant consequence of Kelo has been to alert Americans of the egregious abuses inherent in the application of eminent domain laws.
Many states have risen to the challenge by passing laws to limit these property rights violations. Most significant from a corporate perspective is the stand taken by Winston-Salem-based BB&T Bank, the nation's ninth-largest financial holding company. BB&T has adopted the position that "it will not lend to commercial developers that plan to build condominiums, shopping malls and other private projects on land taken from private citizens by government entities using eminent domain."
To my knowledge, BB&T's eminent domain position is unique in American corporate history for its explicit moral implications. (http://tinyurl.com/2s6je5)
Edwin R. Thompson
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