Wednesday, November 01, 2006

Score One for Richard Epstein


It Depends Whose Ox is Gored

California's Proposition 90, if enacted, would limit eminent domain seizures of property to property intended for a public use narrowly defined. It would also require government to compensate property owners if the value of their property is reduced by governmental actions such as new land use regulations. It thus enacts into law the position that Richard Epstein argued for in Takings and reverses, so far as California is concerned, the result of Kelo.

Santa Clara County's Measure A, if enacted, would impose a bundle of land use restrictions on property owners in Santa Clara County.

With an election coming up, I have been receiving the usual flood of electoral junk mail. The most interesting piece is a glossy flier arguing against Measure A—not on the grounds that the proposed land use restrictions are a bad thing but that:

"If Proposition 90 and Measure A, the land use initiative, both pass, there would likely be numerous claims for compensation filed by property owners who contend that their property has been substantially damaged as a result of the restrictions on property contained in Measure A."

Elsewhere in the flyer, the total cost to Santa Clara Country taxpayers is estimated at a billion dollars.

The economic argument for Epstein's position is straightforward. Government actions, like private actions, should only be taken if they make us on net better off, if their benefits, summed over everyone affected, are larger than their costs, similarly summed. If an actor is free to ignore some of the costs of his actions he may take them even if costs are larger than benefits. So government actors, like private actors, should be forced to bear the costs that their actions impose on others. It is the same argument used by economists to support tort law in general and environmental regulations such as emission fees—Pigou's solution to the problem of externalities implemented via the legal system.

Consider the application of the argument to Measure A. Its supporters argue that by keeping land in the county from being developed—the measure, among other things, imposes a minimum parcel size in hillside areas of 160 acres (a quarter of a square mile) and a minimum acreage per dwelling unit of 40 to 160 acres depending on slope—the measure makes the county a pleasanter place for its current residents to live in. If so, and if the benefit to current residents is greater than the cost to landowners of limiting their ability to use their land, then the residents should be willing to vote for the measure even if they have to compensate the landowners. If, as the authors of the flyer obviously assume, residents are unwilling to vote for it if they have to pay the cost, that is evidence that the measure on net makes people worse off, which is a reason why it ought not to be passed.

The flyer is presented as an argument against Measure A, written by people who sound as though they consider Proposition 90 a bad thing. It in fact is an argument for Proposition 90, a demonstration that shifting the costs of political acts to the people who expect to receive the benefits makes it less likely that governments will do things that ought not to be done.

Score one for Richard Epstein.


Mike Huben said...

While it may be possible to compensate for takings in an ideal Coasian universe with perfect information and without transaction costs, the real world has major transaction costs in trying to collect taxes to compensate and major information costs in evaluating claims to prevent fraud. And even worse, it doesn't take into account the compensation government should receive for public goods raising land values in the first place.

I'll let Epstein explain how his book was wrong in his own words:

"When you are young in this world, you believe that the class of deductive truths about social matters is larger than it turns out to be. The great attraction of libertarian thought lay in its deductive power. The hope was that you could axiomatize the system and sort of render social problems amenable to a set of principles that yielded necessary or deductive truths. That vision certainly fired my early academic life... Essentially, as I have gotten older and maybe a little bit wiser -- which why that 30 years really start to matter -- I have discovered, to my infinite regret, that most of the serious debates over the basic principles of any political order have an irreducible empirical content."
Richard A. Epstein, "Skepticism and Freedom"

That's why his "Takings" is bogus: in theory, it might work, but he ignored the empirical aspects.

Anonymous said...

the compensation government should receive for public goods raising land values in the first place.

Actually, land rent as a whole is a product of the community. Land is not the product of anyone's labor - why should landowners be compensated for something they didn't create?

John Fast said...

As a "Geolibertarian," I agree with Anonymous that land value is at least partially caused by uncreated natural resources. I would say landowners are owed compensation when they are deprived of property/value that they did create -- for example, the difference between the value of the land after development (farming, mining, etc.) and the value without any development. And they are also owed comepnsation when they are deprived of property/value that they did not create but still paid for themselves; for example, if the owner bought the raw land from the public or government at an auction.

I'm a little confused by Mike Huben's post. Is he saying that Epstein has changed his mind and no longer believes in the theory -- or the policies -- he espoused in _Takings_?

Or is he saying "Epstein now sees there are significant empirical issues involved with the takings clause, and even after taking them into account, he still stands by his theory"?

I'm a little curious, since I'm writing an article on Epstein's views (comparing and contrasting them with Ackerman's, and with the Supreme Court's rulings) on the First, Fifth, and Fourteenth Amendments, and I would hate to think I'm overlooking or misreading something in _Takings_, _Simple Rules for a Complex World_, _Principles for a Free Society_, _Skepticism and Freedom_, or _How Progressives Rewrote the Constitution_.

Or perhaps Mike is just pulling quotes out of context in order to imply that Epstein has repudiated his earlier views, even though Mike knows this actually isn't true. :-D

Anonymous said...

deprived of property/value that they did not create but still paid for themselves; for example, if the owner bought the raw land from the public or government at an auction.

Since the value of raw land is _always_ a product of the community, it's extremely unclear that "deprivation" is a meaningful concept. Suppose that the government depresses land values by selling off public lands, or relaxing zoning regulations, or whatever - is the landlord entitled to compensation?

John Fast said...

I'm afraid I'm a little confused by Anonymous' post.

As Epstein (and Ackerman) put it, there is a difference between actively harming someone, and merely refusing to subsidize them.

As far as I know, no one has ever suggested that people are entitled to compensation for the sorts of things he mentions; according to my legal textbook, "As a general matter, there is no property interest in the continuation of a rule of law."

"[A] person has no property, no vested interest, in any rule of the common law." Second Employers' Liability Cases, 223 U.S. 1, 50 (1912), quoting Munn v. Illinois, 94 U.S. 113, 134 (1877).

Compensation is due only when the government either takes away someone's physical property, or else forcibly stops them from doing things with their property that don't harm anyone else.