Sunday, July 22, 2007

The Limits of Anti-Kelo Legislation

Ilya Somin has written an article in Reason Magazine's print edition about legislative reaction to Kelo v. City of New London, the Supreme Court case that allowed eminent domain for economic development purposes. The Kelo decision publicized the expansion in the definition of eminent domain that has occurred in recent decades. Under private use eminent domain, well-connected developers can contribute to politicians' campaign funds and request that the politicians steal property and transfer it to the developer in the name of "urban blight", "economic development", or any other "purpose" that the politicians and developers concoct. There is no reason to believe that governments are competent to assess economic projects, so in Kelo the Supreme Court legalized property theft by the states. Particularly laughable are the "cost/benefit" analyses used by agencies such as New York's Empire State Development Corporation and toasted by ESDC clients like the New York Times.

Somin, an associate of the Institute for Justice, which brought the Kelo case, points out that better than 80 percent of the public opposes Kelo and that opposition crosses party and racial lines. Somin adds that although many states have responded by enacting laws that seem to limit eminent domain, most of the laws have been false pretense. Somin estimates that only 14 states have passed meaningful eminent domain laws. Somin adds:

"Seventeen state legislatures have passed laws that purport to restrict eminent domain, but in reality accomplish very little."

The reason that 17 states have been able to pretend to pass anti-Kelo legislation when in fact they are passing laws that give pro-Kelo forces the nod, and Congress has failed to pass anti-Kelo legislation in deference to pro-Kelo forces in Washington, is in Somin's view an application of group interest theory.

Mancur Olson has written several books, such as Rise and Decline of Nations, that explain why it is difficult for law to reflect public purpose. It is too expensive and too difficult for non-specialists to track developments in a field such as eminent domain. Legislators have financial incentives to pander to special interests such as real estate developers. Courts are similarly corrupt. By cloaking legislation in terms that most people, including most journalists, do not understand, politicians can pretend to take action when in fact they do not. Laws such as the Employee Retirement Income Security Act of 1974 (ERISA), the Securities and Exchange Act, and real-estate regulation in New York City are examples of the many laws that pretend to protect the public when in fact they facilitate special interests, typically with the support of the federal courts.

Group interest theory suggests that the interest group with a gain per member that exceeds the cost of getting a law passed will be the one that triumphs. In the case of Kelo, although many small property owners have considerable equity in their homes, the right to steal is worth millions to developers. Hence, the courts' and Congress's pandering to wealthy developers; the mixed results from the public outcry; and the public indifference to the legislature's indifference to the public's wishes are all consistent with Olson's theory of special interests.

Besides the Institute for Justice, the Castle Coalition has been fighting eminent domain abuse. Real estate is a corrupt business; and press coverage of eminent domain is undoubtedly influenced by the fact that the New York Times has been one of the largest beneficiaries of private-use eminent domain taking.

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