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No, Mr. Trump, Victims of Eminent Domain Do Not “Get a Fortune” – Article by George C. Leef

No, Mr. Trump, Victims of Eminent Domain Do Not “Get a Fortune” – Article by George C. Leef

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The New Renaissance HatGeorge C. Leef
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Trump’s huge mistake about eminent domain

During the debate among Republican presidential candidates last month, Jeb Bush hammered Donald Trump on his abuse of eminent domain. But Trump apparently sees nothing wrong in having government officials force people to sell their property.

Trump replied,

Eminent domain is an absolute necessity for a country, for our country. Without it, you wouldn’t have roads, you wouldn’t have hospitals, you wouldn’t have anything. You would have schools, you wouldn’t have bridges.

And what a lot of people don’t know because they were all saying, oh, you’re going to take their property. When somebody — when eminent domain is used on somebody’s property, that person gets a fortune. They at least get fair market value, and if they’re smart, they’ll get two or three times the value of their property.

This last assertion led George Mason law professor Ilya Somin (an expert on eminent domain) to quip at the Volokh Conspiracy, “If eminent domain really were a good way to make a fortune, the Donald Trumps of the world would be lobbying the government to condemn their property. But that rarely, if ever, happens.”

Put aside Trump’s hyperbole about the supposed impossibility of schools, hospitals, and bridges without eminent domain. What I want to focus on is his claim that eminent domain is not objectionable because people who have their property taken make out just fine financially.

That claim is simply indefensible. The truth is that people who lose their property to eminent domain proceedings are almost never made whole.

Legal scholars have for many years been writing about the injustice that usually befalls people who have to settle for what the government deems “just compensation” under the Fifth Amendment. I wouldn’t expect Mr. Trump to know about that because he is too busy making deals. But the kind of deals businessmen usually make involve two parties who can say “no,” unless and until they think the deal will improve their positions.

With eminent domain takings, however, the property owner can’t say “no,” and usually must settle for much less than he or she would have bargained for in a voluntary setting.

Professor Gideon Kanner has written extensively about the problem of inadequate compensation for people who’ve been forced to sell under eminent domain. In his article “[Un]Equal Justice under Law: The Invidiously Disparate Treatment of American Property Owners in Taking Cases,” he writes:

The true standard of compensation is not indemnity, but rather fair market value so artfully defined as to exclude factors that sellers and buyers in voluntary transactions would consider, and that the government need only pay for what it acquires, not for what the owner has lost.

Those losses include business goodwill, relocation expenses, and the emotional damage of having to leave a community where one may have strong ties. In the government’s calculus, people are expected to suffer such losses as part of the price of living in America.

As the Supreme Court stated in the 1949 takings case Kimball Laundry v. U.S., “Loss to the owner of non-transferable values … is properly treated as part of the burden of common citizenship.” That “tough luck, property owner” mindset still prevails.

Knowing that they hold the high cards (and ultimately the guns) when they deal with property owners, government officials take full advantage. As Kanner observes, “Condemning agencies regularly reap unjustified windfalls from the fact that the majority of their offers (including the many low-ball ones) are accepted without litigation or even involvement by a private appraiser or lawyer.”

Therefore, eminent domain causes many property owners to suffer uncompensated losses.

Far from “getting a fortune” or “two or three times” the market value of their property, most owners are left substantially worse off for their unwanted encounter with condemning government agencies. Few if any of them shrug off the losses as their part of the “burden of common citizenship.”

Although the eminent domain issue came up during a debate among presidential candidates, there is hardly anything that the president can do to rectify the problem of under-compensation for property owners. He (or she) cannot issue an executive order mandating that property owners be made whole.

If there is to be a solution, it must come from the judiciary.

Judges, and especially the justices of the Supreme Court, will have to stop ruling that merely because an individual is paid an amount deemed “fair market value,” the Fifth Amendment’s requirement of “just compensation” has been satisfied.

It would also help property owners if the Supreme Court would overturn Kelo v. New London and establish that property can only be taken for actual “public use,” as the Fifth Amendment requires, and not for private use that local politicians think might have some “public benefit.”

Since we are going to have confirmation hearings for a new member of the Court eventually, it would be important to find out precisely what the nominee thinks “just compensation” and “public use” actually mean.

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

This Crazy 100-Year-Old Law Makes Almost Everything More Expensive – Article by George C. Leef

This Crazy 100-Year-Old Law Makes Almost Everything More Expensive – Article by George C. Leef

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The New Renaissance HatGeorge C. Leef
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It’s time to repeal the absurd, costly “Jones Act”

The 2016 presidential campaign so far has featured almost no discussion of downsizing the federal government. Americans would benefit enormously if we could get rid of costly old laws that interfere with freedom and prosperity, and future generations would benefit even more.

I keep hoping that someone will manage to put this question squarely to the candidates in either party: “What laws would you seek to repeal if you were the president?”

There are so many laws that ought to be repealed, including countless special interest statutes that benefit a tiny group while imposing costs on a vastly greater number of Americans. But if candidates need an idea of where to start, one such law is the Merchant Marine Act of 1920, also called the “Jones Act.”

The Act requires that all shipments between American ports to be done exclusively on American ships. As Daniel Pearson explains,

Its stated purpose was to maintain a strong U.S. merchant marine industry. Drafters of the legislation hoped that the merchant fleet would remain healthy and robust if all shipments from one U.S. port to another were required to be carried on U.S.-built and U.S.-flagged vessels.

The theory behind the law is musty, antiquated mercantilism — the notion that the nation will be stronger if we protect “our” industries against foreign competition.

Imagine how strong we would be if there had been a Jones Act for automobile transportation. Would Americans be better off today if the Detroit automakers had remained an oligopoly by keeping out all of those Hondas, BMWs, and Hyundais? Obviously not — yet this logic has handicapped US shipping for 96 years.

A recent op-ed in the Honolulu Star-Advertiser nicely explain the absurd consequences of this law. The writer just wants to buy a cabinet, but “although the cabinet was made in Taiwan, it could not be off-loaded in Hawaii, but rather had to be shipped to the West Coast, then loaded onto an American ship for the costly backward journey to Hawaii.” Tons of time, fuel, and expense wasted, all thanks to the Jones Act.

We get a more comprehensive view of its costs from a report by the Government Accountability Office (GAO) last September. The report, titled “International Food Assistance: Cargo Preference Increases Food Aid Shipping Costs,” shows the heavy cost of the law. The GAO, known for its non-partisan, straight-shooting approach, found that the Jones Act increased the cost of shipping food aid by 23 percent.

What does that mean? Between 2011 and 2014, the taxpayers had to fork over an extra $45 million to ship food for USAID. With Washington’s prodigious spending, we’ve gotten used to the idea that amounts under a billion are too small to bother with, but that is the wrong way to look at things. Even if we didn’t have a constantly increasing national debt, we ought to root out every needless federal expenditure.

Treading very delicately, the GAO states that, because the Jones Act “serves statutory policy goals,” Congress should merely tweak it so that aid agencies can find less costly shipping. But the federal government has no constitutional authority to be in the business of international aid, and carving out a special exemption for this would simply help the government avoid the consequences that it is inflicting on everyone else. Congress should simply repeal the protectionist law entirely.

The Jones Act also distorts our energy market and leads to higher prices than otherwise. Writing at The Federalist, trade attorney Scott Lincicome points out that, due to the law’s restrictions, only thirteen ships can legally move crude oil between US ports, and those ships are “booked solid.” As a result, shipping American crude from Texas to Philadelphia costs more than three times as much as it would cost to send it all the way to Canada on a foreign vessel.

One of the Act’s few congressional opponents is Arizona Senator John McCain, who pointed out in this testimony that Hawaiian cattlemen who want to sell livestock on the mainland “have actually resorted to flying the cattle on 747 jumbo jets to work around the restrictions of the Jones Act. Their only alternative is to ship the cattle to Canada because all livestock carriers in the world are foreign-owned.”

Hawaii is especially hard hit by the Jones Act, but other states and territories that depend heavily on water-borne shipping also suffer. Consider Puerto Rico: a 2012 study by the New York Fed found that it cost about $3,063 to ship a 20-foot container from an east coast US port to Puerto Rico, but shipping the same container to a foreign destination, such as Jamaica, would cost only about $1,687. Because it is an American territory, the poor island pays almost twice as much to import American products.

For nearly a century, we’ve paid more at the pump, more for goods, more in taxes, and even more to do charitable aid, all because of this ancient special interest law.

All that the Jones Act accomplishes is to guarantee a market for costly, unionized American shipping. It is similar in purpose to the Davis-Bacon Act, which guarantees a market for high-cost unionized construction (as I explain here).

Such special interest laws are never good for the country as a whole, but they are passed and maintained because their lobbyists are crafty, knowledgeable, and highly motivated, while the voting public is mostly ignorant.

It takes a spotlight and presidential leadership to get rid of them. Will any of this year’s crop take up the challenge?

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Where Is Speech Most Restricted in America? – Article by George C. Leef

Where Is Speech Most Restricted in America? – Article by George C. Leef

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The New Renaissance HatGeorge C. Leef
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Tolerance of speech and thought is being throttled here first

A good argument can be made that free speech is least safe on private college campuses.

At public universities, the First Amendment applies, thus giving students, faculty members, and everyone else protection against official censorship or punishment for saying things that some people don’t want said.

A splendid example of that was brought to a conclusion earlier this year at Valdosta State University, where the school’s president went on a vendetta against a student who criticized his plans for a new parking structure — and was clobbered in court. (I discussed that case here.)

But the First Amendment does not apply to private colleges and universities because they don’t involve governmental action. Oddly, while all colleges that accept federal student aid money must abide by a vast host of regulations, the Supreme Court ruled in Rendell-Baker v. Kohn that acceptance of such money does not bring them under the umbrella of the First Amendment.

At private colleges, the protection for freedom of speech has to be found (at least, in most states) in the implicit contract the school enters into with each incoming student. Ordinarily, the school holds itself out as guaranteeing certain things about itself and life on campus in its handbook and other materials. If school officials act in ways that depart significantly from the reasonable expectations it created, then the college can be held liable.

As the Foundation for Individual Rights in Education (FIRE) puts it, “There is a limit to ‘bait-and-switch’ techniques that promise academic freedom and legal equality but deliver authoritarianism and selective censorship.”

With that legal background in mind, consider a recent case at Colorado College. If Franz Kafka or George Orwell had toyed with a similar plot, they’d probably have rejected it as too far-fetched.

Back in November, a student, Thaddeus Pryor, wrote the following reply to a comment (#blackwomenmatter) on the social media site Yik Yak: “They matter, they’re just not hot.” Another student, offended that someone was not taking things seriously, complained to college officials. After ascertaining that the comment had been written by Pryor, the Dean of Students summoned him to a meeting.

Pryor said that he was just joking. What he did not realize is that there are now many things that must not be joked about on college campuses. Some well-known American comedians have stopped playing on our campuses for exactly that reason, as Clark Conner noted in this Pope Center article.

In a subsequent letter, Pryor was informed by the Senior Associate Dean of Students that his anonymous six word comment violated the school’s policy against Abusive Behavior and Disruption of College Activities.

Did that comment actually abuse anyone? Did it in any way disrupt a college activity?

A reasonable person would say “of course not,” but many college administrators these days are not reasonable. They are social justice apparatchiks, eager to use their power to punish perceived enemies of progress like Thaddeus Pryor.

For having joked in a way that offended the wrong people, Pryor was told that he was suspended from Colorado College until June, 2017. Moreover, he is banned from setting foot on campus during that time. And in the final “pound of flesh” retribution, the school intends to prohibit him from taking any college credits elsewhere.

With FIRE’s able assistance, Pryor is appealing his punishment. Perhaps the college’s attorney will advise the president to back off since its own “Freedom of Expression” policy hardly suggests to students that they will be subject to severe punishment for merely making offensive jokes on a social media site. If the case were to go to trial, there is a strong likelihood that a jury would find Colorado College in breach of contract.

Even if the school retreats from its astounding overreaction to Pryor’s comment, the administration should worry that alums who aren’t happy that their school has fallen under the spell of thought control will stop supporting it.

This incident is emblematic of a widespread problem in American higher education today: administrators think it’s their job to police what is said on campus, even comments on a social media app. Many colleges and universities have vague speech codes and “harassment” policies that invite abuse; those positions tend to attract mandarins who are not scholars and do not value free speech and unfettered debate. They are committed to “progressive” causes and will gladly use their power to silence or punish anyone who doesn’t go along.

American colleges have been suffering through a spate of ugly protests this fall. Among the demands the protesters usually make is that the school mandate “diversity training” for faculty and staff. Instead of that, what most schools really need is tolerance training, with a special emphasis on the importance of free speech. Those who don’t “get it” should be advised to find other employment.

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.

Eminent Domain for Private Gain Is Terrible and Cruel — Even When It “Works” – Article by George C. Leef

Eminent Domain for Private Gain Is Terrible and Cruel — Even When It “Works” – Article by George C. Leef

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The New Renaissance HatGeorge C. Leef
August 18, 2015

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Despite a “success” story, eminent domain for economic development is a bad policy

Ilya Somin’s excellent new book The Grasping Hand on the infamous case of Kelo v. New London recently drew a negative response from a professor who defends the use of eminent domain for “economic development.”

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

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 for projects that are supposed to stimulate the economy and create jobs.

Mogk believes 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 when 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.

Consider this analogy: The law forbids warrantless searches by the police, but suppose that, in some illegal searches, important evidence of criminal activity is found. Should we conclude that the Fourth Amendment’s warrant requirement 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.”

Second, 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.

We have to oppose the collectivistic philosophy that says it is permissible to use coercion against some individuals as long as those in power think they might thereby create a net utilitarian gain for more politically powerful (and usually much richer) interests.

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, and car buyers would have benefited without property owners losing.

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

No, not every eminent domain seizure for economic development purposes is as pointless and utterly destructive as Kelo, but we still ought to stick with this rule: Government should protect property rights, not violate them. The government should do 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.

George Leef is the former book review editor of The Freeman. He is director of research at the John W. Pope Center for Higher Education Policy.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution 4.0 International License, which requires that credit be given to the author.