Eminent domain was not handed down by God.

My post (a few days ago) about toll roads and eminent domain sparked some imaginative commentary. One  reader left this intriguing remark:

"...if eminent domain didn't exist there are probably a lot of ways the market could solve the problem."

Uh...wait a second. The market existed long before eminent domain. That's anthropological fact. People were trading long before government at all.

Eminent domain came about precisely because the market could not solve the endless bargaining problem. Eminent domain was not part of some original condition given to us by God and from which we have to escape. It was adopted by human beings to solve a problem. You may not like eminent domain and indeed it has been and is abused and needs reform, at least in the USA. But let's start our discussion with reference to reality, not fantasy. Eminent domain is itself a solution to market imperfections. Eminent domain came into use precisely because the market could not solve the bargaining problem and so it conjured up a deus ex machina to intervene.

UPDATE: The issue is not whether you oppose eminent domain but the historical issue of how it came about. This post was not meant to ask whether you like it or not, but whether opposition to eminent domain can be squared with our history and how eminent domain came to be used.

Comments

[Glen Raphael]

Presumably you've heard the saying "God answers all prayers, but sometimes the answer is no." Market negotiations are like that too. Eminent domain was invented by people who didn't want to accept "no" for an answer, yet weren't willing to change the question to one that might merit a "yes".

Obviously the market did in the past and still does today solve a great many problems through bargaining. If you have endless bargaining, that usually means the people who want a deal aren't being creative enough or offering good enough terms such that the deal is perceived as win-win for all sides. And that's a good thing. That's a market success, not a market failure.

To categorize eminent domain as a "solution to market imperfections" is to simply assume that the failure of various parties to reach agreement is, in fact, an "imperfection" rather than a proper outcome.

Sometimes the answer is "no", and that's the right answer.

[Glen Raphael]

By "and that's a good thing", I meant that it's good that negotiations broke down and no agreement was reached in such a circumstance. Not that it's good that one side was offering bad terms and being inflexible.

[David Sucher]

Glen,
You speak with authority and as if you have great familairity with real estate negotiations.

[Tim Hulsey]

I wonder if, as a new urbanist, you're not at cross-purposes, defending the principle of eminent domain. Could eminent domain be a reason that people flee to the suburbs, instead of living in the urban center?

If you're buying property as a personal investment, you don't want to buy it in places where government is likely to take it away. The proposed baseball stadium in DC's Anacostia is a prime example of the eminent-domain problem keeping a neighborhood down: At a mere five minutes' drive (or a fifteen-minute subway ride) from the US Capitol, Anacostia is in the perfect location for "new urbanist" gentrification. But because the venerable, historically Black neighborhood is always on the verge of seizure by a greedy local government, no one wants to move in and start renovating. Result: Anacostia remains poor and crime-ridden, and the only local businesses to speak of are a few declasse Gay nightclubs.

[David Sucher]

Tim,
I don't "defend" eminent domain. I recognize it as a necessity. Like any tool, a gun, for instance, it can be misused.

[clew]

There's a big political opinion wrapped up in the assumption that anything not a "win-win" in the market is something we-the-polis should be happy to see fail. I'm not particularly a utilitarian, so there are a lot of counterexamples that I don't agree with; but the obvious common counterexample that leaves everyone worse off is of someone refusing a deal that would leave them better-off in absolute terms, but worse off in relative terms. Even that might be good or bad depending on details, e.g., whether the change in relative prosperity would balance or exaggerate some existing unfairness.

Demanding a market 'win-win' sounds to me like imagining that Pareto optimality is reliably optimal. This is nonsense, but a comfortable belief for those now advantaged.

[Glen Raphael]

What I have reasonable familiarity with is economics and public choice theory. Government does a great many things which are basically about raw exercise of power by the politically well-connected that we justify in retrospect as having been necessary to "fix market failures". However, there is no evidence that government has the ability to "fix market failures." It can change outcomes, of course. And if you're in favor of the new outcome, you can define the old outcome as having been "a market failure". (That's what some have been doing here) But that doesn't mean it actually was a "market failure" in any meaningful sense.

The theory of market failure starts with the claim that, in our potential set of outcomes, there exists some theoretically optimal, maximally efficient outcome that an omniscient and omnibenevolent bureaucrat-god might achieve by mandate, yet the free market won't achieve that outcome due to various structural difficulties. So far so good; that claim seems plausible. But it's not very useful, because there's a catch: The person who proposes government regulation is implicitly assuming our actual government can improve on the market outcome by mandating this optimal outcome should be achieved.

But our actual goverment does not contain any omniscient, omnibenevolent bureaucrat gods. Instead, it is staffed with fallible human beings working in institutions that have inherent structural flaws and conflicts of their own. The advocate for regulation is therefore exhibiting a touching degree of faith that their flawed institution of choice - the government - can improve on another flawed institution - the market.

[ian]

A question - how is the value of land assessed when eminent domain is exercised in the US? Who sets the value, what appeal rights etc exist?

[clew]

There's an invisible hand in a (healthy) government as there is in a (healthy) market system.

It does matter whether the gov't is, in the end, directed by a majority of the people it governs, they in turn moved by long- as well as short-term self-interest and some leavening of reason and/or ethics, in proportion to how much they want gov't to smooth the working of the market (contract enforcement, etc) or balance its Zipf's-law tendencies. It's true that a host of people with no sense, mired in mutual distrust, will make up a terrible government, but then they make up a terrible market too - one that relies heavily on pruning by failure.

Personally, I think it's obvious that the current optimum is some of each power and a great deal more transparency about what's going on than we currently get (I am optimistic that accountant-journalists will eventually arise.)

I second ian's question; I'd like to know how it theoretically and actually works. (And whether anyone has tried Henry George's tax system to spread out the win-losses more realistically; seems to me it would help with, e.g., the auto sales lot that was holding out against a straight monorail line, rumored to be doing so on some ideological as well as economic grounds.)

[Glen Raphael]

Clew: how does an "invisible hand" produce efficient outcomes in a healthy government? Have you a solution for the socialist calculation problem?

The "market price" you get from any sort of competitive market analysis only tells you what a property being sold voluntarily is worth to the seller. A property being sold involuntarily imposes a larger cost (and justifies a higher price) than the previous market price, and there's fundamentally no way of knowing what the new "appropriate price" is if you rule out the usual market mechanism of "ask them what they want for it."

Even if we grant the omnibenevolent part and declare that the bureaucrats genuinely want to do the right thing - perhaps because they need voter support, or just because they are nice people - and intend to make the property owners whole for the damage done by seizing and destroying their property, the omniscient part is still a problem. Any guess at "just compensation" is still a guess. There's no "invisible hand" that will lead such guesses to be accurate.

A court review process just means people who have more money, charisma, and political expertise will get better prices than others, it doesn't mean the "right" price will be set. Everyone being offered a buyout will claim the price is too low. Some of those claims will be true, but there's no way to know which. How can an "invisible hand" lead to efficient prices being set, when those prices are being set by fiat by some sort of administrative panel?

[David Sucher]

Ian's question is a good one. I have never been directly involved in a condemnation action, so this is all third hand, but my understanding that in most of the American states the process is something like this:

A duly-empowered PUBLIC body -- say a Port or Park District -- develops a plan for, say, a new Port or a new Park. It designates the boundaries. It approaches each property owner within those boundaries and says that it is implementing the plan and it needs to acquire the owner's property. It does or has already had an appraisal done to determine Fair Market Value for each parcel so it quotes that figure as the purchase price.

The property owner either accepts that figure as truly Fair Market Value or tries to negotiate by hiring his own appraiser to come up with what he thinks is the correct value.

Both parties know that at some price the owner must sell -- that's the whole point, of course, of eminent domain -- to the public body.

If the public agency's appraiser can be persuaded that the new appraisal is more accurate -- perhaps some attribute of the property (such as a good view) had not been considered in the appraisal -- then the sale probably proceeds.

If the parties cannot agree, then the public agency has to bring a court action and there is actually a trial in a court to determine the fair market value. Conceivably that value could be lower than the public agency's appraisal because I don't believe that the court simply says "Which appraisal is better?" but it can start the valuation process afresh. So there is some real strategizing to be done by both sides. The agency doesn't want the political fall out of a trial and the owner may end up getting less than initially offered if he goes to Court.

But bear in mind, I have no direct experience. I do know that it can be a very messy and unfair process and public agencys, though they claim the high moral ground of "the public interest." can nevertheless actually be acting on behalf of (in fact) very private interests. I am not even talking any illegality but simpy the fact that it is well-known that public bureaucracies very often get "captured" by private groups.

Condemnation doesn't (I believe) really take into account the value to (say) an ongoing business of the value of a particular location, much less sentimental value for a homeowner and of course you don't usually see condemnation in rich neighborhoods so the poor usually suffer most.

My defense of eminent domain has never been that it is a good thing but simply that it can be (and some, at least, of its abuses could/should be eliminated) the best of many bad ways to create infrastructure. And for certain public facilities like a road or rail line, I am not even remotely persuaded that some of the Rube Goldberg alternatives which are routinely set forth have any chance of working. So society is stuck with balancing benefit to the majority with trying to be fair to the unwilling seller. It's not pretty; but many of the benefits of our society -- I think the creation of Central Park in NYC involved condemnation -- could not exist without it. So take your choice.

I think that's the gist of it but then again I don't know much about it.

[TM Lutas]

I think it much more likely that eminent domain was an attempt to make more morally appealing, the ancient practice of government expropriation. I suggest that a bit of history is in order to carry the day for the argument that ED is some sort of cure for a market failure. You have to show where and when ED was first introduced. Was it a reform for rampant state theft or the impossibility of markets to solve infrastructure problems? A quick google search does me no good.

If the introduction of ED was a less immoral alternative to outright confiscation then no market failure was involved and we should be on a sharp lookout for two developments. The first is some market way of handling infrastructure development without ED. The second is some manner of transitioning off of the immoral ED regime to a functioning market regime, that regime having the benefit of being amoral, as opposed to actively immoral.

[David Sucher]

TM,
The one thing I do know is that ED was not set forth by Franklin Roosevelt in the 1930s as some sort of liberal plot. It goes back centuries into the middle-ages.

[Nicholas Weininger]

If it goes back to the Middle Ages, that's actually pretty good historical evidence that it was *not* a cure for a market failure. The rulers of the Middle Ages were not notorious for knowing anything at all about economics, much less having any particular respect for ordinary people's property rights.

[clew]

On the other hand, it also strongly suggests that the law of eminent domain was in effect when every single original land grant was made in what is now the US. Therefore, the markets have already calculated the risk of eminent domain into the price and existing owners bought at a lower cost because of this, so they have already been compensated. Etc etc, pony.

I think we need a historian of industrial England to tell us about why so enormously many of the private canal, rail, Tube projects went repeatedly bust until the various gov'ts took them over or bailed them out. (Although what little I've read of English real estate law suggests that that would be a long, long explanation.)

The 'invisible hand' in a representative gov't is a combination of the still small voice of conscience, or the vision of a fairer system, with the fear in the pit of the stomach that what we do to them can be done to me, the last two closely analogous to the thought that there is some risk or profit to be balanced in the market... I find it odd that the two systems are talked of as though they were staffed by alien races, when they're both staffed by Just Us.

At the moment, the only place I want the state to apply eminent domain is to get transit running down the middle of I-5; which is a different branch of gov't, so maybe eminent domain doesn't apply. Odd.

[David Sucher]

Clew, I wonder if the State of Washington could assert eminent domain against the Federal Govt (a superior level) which is in control of the Interstate highways, military bases etc.I doubt it. And no doubt the States surrounding National Parks and Forests would like to condemn them if they could.

As well, I wonder if/how eminent domain applies between relatively equal bodies e.g. a School District and a Port District.

[David]

(slight tangent)
Interstates aren't Federally-owned land. The USDOT lays down minimum design standards, and decides whether or not you can call something an interstate, but the road and its right-of-way belong to the state government.
(end tangent)

Interstates aside, when different governmental bodies are involved, the "higher" one does take precedence. States can take city-owned land. The Feds can take state-owned land. With ports, parks, schools, etc., it depends on each states' laws. Here in Texas, cities and school districts are equivalent in power, since both are chartered by the state.

(former (city) government employee)

[jeff]

Please if someone can tell me what a good eminent appraser means to the just ordinary person who is facing this process? How do you tell if they are not politicaly influenced?

We have a commercial store and a home right behind it which transit wants for a private operator.

Reaching out to learn and collect all that is smart. Do not wish to make bad calls.

[Ann]

Good question: Is the gov't appraiser biased or influenced to give the lower price to the private party?

How can a private property owner challenge a school district who tries to acquire the property?
Who does the property owner get to appraise the property?

[Steve]

Yeah, this eminent domain stuff at leas tot me is really scary. The concept leaves me with a feeling of helplessness.

[dreaded scarum]

Private Property is the most basic rights of a free society. Just because some big shot developer comes in and woo's the local government with the inticement of jobs and an expanded tax base, does not ever give the government the right to seize a person property, turn it over to a private developer and pay the price THEY want to pay. Everyone has the right to sell their property to the higest bidder . THATS what capitalism is all about. If the property is blighted or in disrepair , then enforce the local codes and if they are not adequate, then stream line and tweak them so they work. Beware of the ruse of Redevelopment authorities working hand in hand with developers, working with politicians ,whom received campaign contributions , taking property from tax paying citizens to give it to another to make a profit. Let them play by the same play book as anyone else that wants to purchase property for development.

[eddyp88]

Eminent Domain has far surpassed its original intent. No longer is private property just seized for road construction and public utilities. Local governments have lately been condemning private citizens from their property just for tax purposes and political or economic gain. Legal cases are springing up all over the nation in which local governments are taking property away from one private party and giving it to another private or corporate party. In one recent case , a township in Ohio is trying to remove one of its residents through the use of eminent domain. The city wants to level houses in the area to make way for new condominiums, which will bring in more taxes. One retired couple is putting up a legal fight against the township and the matter will go before the courts.

Lately however, the justice system has been in favor of eminent domain and its use to take property from one citizen, and give it to another. Most home owners would look at these acts as injustices against private property and individual rights protected by the constitution. Is there such a thing as private property in the US or does the government really own everything like in a communist society? Do you own your property or does the government? These are two questions that point straight at the heart of the eminent domain abuse issue.

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