Rethinking Kelo


There are times when a thought just won’t leave your mind. I try to blog on issues that are relevant. Some issues are current and others have happened in the past. In this article I would like to set things straight about the federal government’s position on eminent domain. The nagging thought entered my mind after reading an impressive article by economist Walter Block of Loyola University, New Orleans entitled, “Coase and Kelo: Ominous Parallels and a Reply to Lott on Rothbard on Coase”. The article in it’s entirety can be found here.

Dr. Block wrote the article as a reply to economist Dr. John Lott’s position on economist Murray Rothbard’s article on Ronald Coase and the infamous Kelo vs. New London case. Kelo is the U. S. Supreme Court’s landmark eminent domain decision where it came down in a 5-4 decision on the side of the government of New London, Connecticut. In so doing, Dr. Block lays out the background for Kelo. He does a superb job in letting the reader see how Nobel Prize lawyer/economist Ronald Coase had a strong influence in not just how the Supreme Court decided the Kelo case, but also how Coasean tenets have permeated all the courts at all levels. Jurisprudence in general, is fraught with Coase. There are exceptions, of course, such as the Michigan Supreme Court decision in 2004 of County of Wayne v. Hathcock in remembrance of the 1981 Poletown case, securing private property rights for all the residents of Michigan. This is again how diffused power secures freedom better than centralized power.

To understand the current state of affairs with property rights is to understand Ronald Coase. Coase claimed, in short, that the party that can best utilize a piece of property for the public good should be the one who is awarded the disputed property in a court of law. In essence, Dr. Coase claims that in a zero or low transaction cost world, disputes over resources don’t matter. He would advise the judge to simply give it to someone and let them bargain on their own for a mutually beneficial outcome. Because in a zero cost world it doesn’t matter who owns the resource. The public receives the same benefit. In another way, Coase claims also, where costs are a factor or bargaining is impeded the judge should decide on behalf of the party that will provide the best social benefit. But we don’t live in a “zero cost” world where externalities don’t matter. In the real world of costly transactions Coase’s “theorem” doesn’t apply.

The best way to explain Coase is by example. Let us say a cattleman allowed his cattle to free roam onto a piece of property that his neighbor uses to grows crops. The two dispute over the damages the cattle caused the farmer. The judge decides whether the cattleman or the farmer would best utilize the land in question or if by slapping a fine on the cattleman would be a public good. It so happens, at the time of the case, that beef futures are trading at an all time high and corn futures are not. The net advantage to the public would be in the taxes generated from the sale of the cattle at the market. So, are Coasean judge falls on the side of the cattleman. So, here the Coaseans claim a victory in the name of the public good. But the economic world in which the judge made his decision is only a snapshot of reality. We live in a dynamic economy. Profit and loss fluctuate with time. What if there is a drought in one part of the country and the farmer can realize greater profits than the cattleman? What if there is a pack of wolves or UFO’s out decimating the herd? Then the land isn’t being put to it’s best use under ownership of the cattleman.

Taking a look at the very real example of the Poletown case sited above, General Motors, with the aid of the City of Detroit and the city of Hamtramck removed, through eminent domain, some 42,000 residents, 1,400 homes, businesses and churches (to include the Immaculate Conception Church and the Beth Olem Jewish cemetery) from the Polish area of Hamtramck, Michigan known as Poletown to erect a 2,900.00 sq. ft. facility to build it’s Chevrolet, Buick, Oldsmobile, and Cadillac products. The promises made of thousands of jobs, new taxes and so on were the motivation for the cities to do what they  thought was best for the “public good”. Not everything worked out as GM had hoped. High tech robots failed and product lines were not selling. Certain Cadillac models were moved to GM’s Lansing facility and the plant was then utilized to build the larger front wheel drive vehicles. The proclaimed public good was also not realized with layoffs and lost tax revenues. The residents of Poletown filed suit in the Michigan Supreme Court but lost to eminent domain.

The plant was almost about to close when the U.S. Government intervened with grants to build the Chevy Volt there. It’s amazing how the government will “make” interventionism work.

This lesson was remembered when Wayne County decided to expand a portion of Detroit Metropolitan Airport into the surrounding suburbs for it’s Pinnacle Project. Most of the residents sold their property to Wayne County in memory of what happened to Poletown, but a small contingency, some 2% of the land needed for the project, refused to sell. Wayne County then proceeded to condemn the property of the hold-outs. This was brought to the attention of the famous eminent domain attorney Alan T. Ackerman along with the Legal Defense Fund who filed amicus briefs on behalf of the residents. The case of County of Wayne vs. Hathcock in 2004 decided once and for all, that private property in the state of Michigan would be protected.

So what does all of this mean? We see a clear demonstration of how our natural right to private property is at jeopardy in the face of a “public good”. This topic is constantly debated ad nauseam. What interests me is the idea of those that believe we need a limited government to protect our private property. How’s that working out for ya? Although, I have fashioned myself as a sort of minarchist, I can clearly see the case for an anarchist view in this case. It was Dr. Hans Hermann Hoppe who claimed that the biggest fool is the one who believes he will get an impartial outcome when the State decides legal cases against itself. This couldn’t be more true in cases involving eminent domain and the intellectuals who advocate Coasean pubic good dogma. The state of Michigan does show some light in the tunnel on this issue, but at the national level I remain deeply concerned as there is no better financed entity than the U.S. Government. Who could stand a long drawn out legal contest against the U. S. Government and the Federal Reserve’s printing press?

It may have helped to console me had I been able to have booked a room at the proposed Lost Liberty Hotel, the home of Justice David Souter. In in attempt to reap justice from Justice Souter in writing the majority opinion in Kelo, local residents proposed to enact eminent domain to evict Souter from his New Hampshire farmhouse and turn it into a bed and breakfast. The idea failed on a ballot initiative 3-2. It’s just the same, taking the property from A and giving it to B to punish A is still theft. Even if the State does it.

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