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Property Rights and the Moral Hazard of Eminent Domain and Just Compensation

Written By: The Liberty Brothers - Mr. John C. and Mr. Lee G. Deming  |  Posted: Tuesday, May 24th, 2011

            Suzette Kelo of the Kelo v. City of New London decision, says, "The government stole my home. First, the municipal government of my home town in New London, Connecticut stole it. Then, the state of Connecticut said it was legal for them to take it. Finally, the federal government said it was Constitutional to steal, not only my home, but the homes of all my neighbors and in fact anyone's home for the purpose of economic development." As Michael Moore has stated in a separate yet related discussion, "We need to see these jobs as something we..collectively own, and you just can't steal these jobs and take them someplace else." It is important to note that this view is similar to the Kelo case, where a group of the public said that there would be a better use of the individual's property. In this way, the group's view of collective property ownership allows them to make a choice, democratically, to take control of the property and change its use. This is a moral hazard.
            With this lens, we can focus on property rights. Property should be defined as all things, including real property or real estate and includes intangible entities to which a person is entitled through purchase, labor, imagination, or otherwise. Why was "estate" or "property" supplanted by "pursuit of happiness" in the Declaration of Independence? John Locke believed that life, liberty, and estate should be protected by the State government as its sacred duty. Therefore, if you look at his writings on estate, he isn't just describing buildings and land. He is viewing it more in terms the definition of property we've included above. One of the reasons for this change in the Declaration was because of slavery. Even though Jefferson owned slaves, he understood that this idea of inalienable rights becomes more complicated if you view slaves as property. In the drafting of that document, they included "pursuit of happiness" in an attempt to untangle this difficulty.
            Often, supporters of these types of property confiscations use "just compensation" as the appropriate trade-off. The problem with this argument is that the current property owner might not want to "trade" the property, regardless of the compensation package. This problem has been voiced publicly by supporters of property confiscation. When discussing proposed legislation in Montana meant to protect property owners, John Fitzpatrick, a Northwestern Energy lobbyist, had this to say, "Pass this bill and you are going to find it next to impossible to do anything. This is a perfect example of tyranny of the minority. All it takes is one, particularly a large landowner, to stop a project." Remember, the project is a private project. Tyranny of the minority? This is one of the reasons the Founding fathers gave us a Constitutional Republic rather than a democracy. In their view, the rights of the minority had to be protected from the will of the majority, and clearly property is one of the unalienable rights.
            "Just compensation" is also a moral hazard. As pointed out, "Allee King Rosen & Fleming, Inc. (AKRF) [were contracted] to conduct an "impartial" blight study of Manhattanville in order to determine if an eminent domain taking was justifiable under state law [Columbia University, a private business, was attempting to gain control of the property]. Except there was nothing impartial about it. Not only was AKRF also on Columbia's payroll at that time, at least six different AKRF employees were simultaneously working on both the blight study and the Manhattanville project-a blatant conflict of interest. Furthermore, as internal documents have since revealed, AKRF promised to 'focus on characteristics that demonstrate blight conditions' and to emphasize 'highlighting any physical blight that may be present.' So the purpose of the report wasn't to objectively determine if blight conditions were present, it was to 'focus' on a pre-ordained result that fit the agenda of AKRF's two employers. AKRF failed to note that…of the five buildings cited as being hazardous to the public, for example, four turned out to be under Columbia's control. Similarly, all seven buildings cited for hazardous garbage or debris were Columbia-owned and all 12 examples of vermin occurred in Columbia buildings. Yet how did the state respond to Columbia's destructive and illegal behavior? By trying to seize the last holdout properties and hand them over to the university. So much for due process of law." It seems as though the private company (Columbia) colluded to systematically devalue surrounding properties precisely to gain support for transfer of property for "public good". The state seems complicit here, because the state didn't say that the blight was Columbia's fault, but pushes the transfer of property from one private individual to another (not to the public). One problem with "just compensation" is that the interested parties might devalue the property for their own gain.
            One insightful statement might shape this discussion. During the legal battle to obtain documentation, Siegel and other attorneys for the original property owners filed a Freedom of Information Law request. After almost three years of stonewalling, a May 12, 2006 email surfaced from Senior Counsel Joseph Petillo to his colleagues. In it, he said, "I'm uncomfortable with us shining a spotlight on the process used to manufacture support for condemnation." The email suggests that they acknowledge that they manufactured support. The state kept this incriminating document hidden from Siegel and his clients (not to mention from numerous state judges) during every phase of the case. The state had this information and chose to withhold it. One property owner, Nick Sprayregen, says that the state still refuses to turn over thousands of other documents. Has there been collusion between the private company (Columbia), the state, and the politicians of this area?  Another question that comes to mind here should be obvious, what possible excuse can the state have for withholding any information from those attempting an appeal?  The state isn't seeking justice, it is seeking a victory.  By any definition this constitutes tyranny of the most fundamental kind.
            Let's look back at the Kelo case. Pfizer was the private company attempting to confiscate Kelo's neighborhood. Their argument was that it would increase tax revenue, and therefore was a "public good". In the years since, the homes have been torn down but no new building has occurred. After their homes were demolished, Pfizer decided to pull out of the project. Now, years later, this former community is a barren field.
            Eminent domain and public good arguments are moral hazards. If these arguments are voiced in support of property confiscation, liberty-minded individuals would do well to argue vehemently against them. If the argument fails, at least require that "just compensation" means three-times fair market value of at least three similar if not identical properties. As Bastiat said, "When does plunder cease, then? When it becomes more burdensome and more dangerous than labor. It is very evident that the proper aim of law is to oppose the fatal tendency to plunder with the powerful obstacle of collective force; that all its measures should be in favor of property, and against plunder."
            Therefore, we propose that all human rights are viewed as property rights. In this view, property can only accrue to human beings who mix their labor with previously unowned resources (homesteading), and a person has absolute jurisdiction over his or her own body (a self-owner). This justifies the entire system of property rights, including mutually-agreeable contracts. Justice Hugo Black agreed with this analysis when asked about the freedom of speech, "Buying the theater tickets did not buy the opportunity to make a speech there. We have a system of property in this country which is also protected by the Constitution. We have a system of property, which means that a man does not have a right to do anything he wants anywhere he wants to do it…But you do not have to shout "fire" to get arrested…That is the way I would answer not because of what he shouted but because he shouted."
            This view of all human rights as property rights clears up any confusion regarding aggressive taking of rights by governments, individuals, or majorities. It also offers a defensible Natural Rights position across widespread issues. Eminent domain and "just compensation" are just the tip of a very big iceberg...


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