Interview with Dr. Bruce Benson on his book, “Property Rights”

In this IHS Academic Podcast, Jeanne Hoffman talks with Bruce Benson about his new book, ““Property Rights: Eminent Domain and Regulatory Takings Re-examined.” Dr. Benson is a Senior Fellow at The Independent Institute, the DeVoe Moore Distinguished Research Professor of Economics at Florida State University, and Contributing Editor of The Independent Review.

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Transcript: 

Jeanne Hoffman. Welcome to the Kosmos Online Podcast. I’m Jeanne Hoffman. Today we are talking
with Bruce Benson about his new book Property Rights: Eminent Domain and Regulatory Takings Reexamined. Dr. Benson is a senior fellow at the Independent Institute, the DeVoe Moore Distinguished
Research Professor of Economics at Florida State University, and Contributing Editor of the Independent
Review. Thank you Dr. Benson, thanks for coming on our podcast.

Bruce Benson. Happy to do it.

JH. Now the 2005 Kelo v. City of New London case drew national attention to eminent domain issues.
What was the effect of the Supreme Court’s decision on this, on state laws across the country?

BB. One of the contributors to this book, Ilya Somin, who is a law professor at George Mason, took a
very careful look at the state laws that were passed as a reaction to the Kelo decision. There was a
substantial backlash and, I believe, 37 states at least, passed laws by 2008 that supposedly limited the
ability of local governments to use eminent domain. He argues, I think quite convincingly, that only a
portion of those laws actually have any real effect, and the rest of them are sort of fake, or phony
announcements that really won’t make much difference.

JH. And what makes the difference between one that’s useful and one that’s not useful?

BB. One of the big issues that he raises is that the laws that allegedly limit local government use of
eminent domain, oftentimes leave open the possibility for local governments to use that power when
they maintain that some area is blighted. And of course, that’s a very broad term that can be used to
mean a lot of different things. And so, in fact, the Kelo case itself involved that sort of claim. Claiming an
area is blighted then would allow them to go in and use eminent domain and turn the property over to
a private developer of some sort, just as they have been. And so the state laws that don’t include that
option are much stronger in terms of constraining local governments than the state laws that do include
that section.

JH. You just said something really interesting about the Kelo case regarding labeling something as
blighted. Because, I see a blighted property as something you would see in a neighborhood you would
not feel comfortable being in. And I remember seeing pictures of Kelo’s home that had a white picket
fence around it, it looked perfectly upheld. So how can the term blighted be used in these houses? How
can you apply that?

BB. Well that’s the problem with the term. There have been cases, in fact, where land with nothing on it,
completely undeveloped land, has been declared to be blighted because it doesn’t have development.
And the argument in some cases like Kelo, is that the neighborhood is mixed, maybe a mixture of
residents and small businesses and various things like that, and the value of the property is relatively
low, even though it might be very valuable to people who live on the property, or who have their
businesses in the area. And so blighted, essentially means something that could be developed to
generate more value, I guess. And that’s a very broad idea.

JH. That’s a very interesting use of that word, I can’t say I would have ever, in the real world vs. legal
world, have considered it to mean that.

BB. Yeah it’s a word whose meaning has been changing, I guess, and they are taking advantage of the
vagueness of the term.

JH. So then where is the most meaningful reform going to come from then? We already have a Supreme
Court case, so that’s pretty binding. But should we be looking towards the courts, or towards the state
legislators?

BB. Well, there were several states that did, in fact, pass significant constraints on local governments,
my home state of Florida is one of them. So legislators certainly can impose these constraints. The
voters, the taxpayers, who want these constraints to be imposed need to look carefully at the laws,
however, not just take the word of the legislature. In terms of the courts, I certainly wouldn’t give up on
the use of the courts to try to limit takings power. There have been occasional signals that they’re willing
to listen. In fact, in Michigan the famous Poletown case which allowed a huge takings in order to
transfer land to General Motors, has essentially…the precedent implied by that decision has been
overturned, quite recently, by the Michigan courts. So the courts can backtrack and several of the
dissenting views expressed by current Supreme Court members, suggests that at least some of them are
seriously rethinking the direction that we’ve gone with eminent domain powers. And, of course, the
other option is referenda, there have been state wide voter referenda to try to limit this power as well.
So which works best, probably depends on the state, and the institutions in the state, as well as the
willingness of voters, taxpayers, to monitor the government to make sure it’s doing what they want it to
do.

JH. So, a lot of what I was just asking about has to do with private takings. There’s also takings for public
purposes. Do you believe that eminent domain powers should be eliminated completely? Or just the
private takings?

BB. My answer to that is probably long winded, but I would say it depends. It depends on what other
reforms are taking place at the time. If we were to simply limit the use of eminent domain for local
governments, they have an option, in the form of regulatory takings, that they may increase the use of.
Regulatory takings would involve things like zoning laws, or land use planning, and those sorts of things
that limit what people can do on their land, or mandate that they have to do certain things on their land.
So, for instance, I don’t know, maybe the government wants to encourage low income housing. So they
could use eminent domain, perhaps to seize the land and give it to a private developer, they could use
eminent domain to seize the land and build the housing themselves, or they could mandate that
developers include low income housing in their development. So they have these alternatives, and if we
don’t constrain them on all of those margins then constraining them on one margin could cause
problems on the others. I would love to see takings powers, all together, taken away from government.
That is not really what is happening, and in fact in a way, in some states they are trying to expand the
idea of eminent domain takings by mandating that compensation be paid in regulatory takings as well.
So that is a constraint on regulatory takings, Oregon has been wrestling with that kind of an idea for a while now. So, on one side I would say eminent domain is an archaic feudal power that the government
has essentially used for centuries with the presumption that really the government is the ultimate
owners of everything and individuals are just stewards. And it should be done away with. At the same
time, I worry about doing away with that while they still have the police powers to regulate. So, it’s a
conditional answer I guess. If you constrain government enough on other dimensions then, I would
argue, they shouldn’t have the power. I realize that there are situations where government has difficulty
buying property to do things it wants to do, but the consequences of government failure, with this
takings power they have, is far greater than any sort of market failure that they are trying to cure.

JH. You said market failure just now. If I have a house or a piece of land, that’s not something that’s
moveable, and if someone wants to build something on my property, they can’t just find someone else’s
house or land to buy. So that could make me charge more for my property than I would normally. Or I
might have some sort of nonconcrete value that I put on my property. So isn’t this justified through this
market failure. Isn’t eminent domain justified?

BB. Well that’s the primary economic argument in favor of eminent domain, the so called hold out
problem: that people will hold out for unjustified high prices. Of course, it’s impossible to distinguish
between the true hold out and simply an individual who subjectively values the property very highly.
There’s a situation in New Jersey where a woman’s house was seized and condemned, and the court
estimated the value to be about a quarter of a million dollars, as I recall. She had actually refused a
million dollar offer earlier because she grew up in the house, her kids grew up in the house, it had
tremendous sentimental value, and she just didn’t want to sell it for the kinds of prices people were
offering. That suggests, to me, that the highest and best use of that property probably is her use, not
building a parking lot for a casino. So, I think you can’t really tell for sure if something is truly a hold out,
or if something is just a situation where the property owner has high idiosyncratic value on the property.
Beyond that, you know Disney World gathered together a tremendous amount of land without using
eminent domain. Lots of private developers do so. Certainly the hold out problem as a justification for
private takings, takings that transfer land to another private entity, is very weak. And any time we… we
live in an imperfect world, there are market failures, but there are also government failures. And I think
the government failures associated with takings power are simply much greater than any kind of market
failure that might exist. So pointing to a market failure is not enough to justify government action. I
think you also have to look at how the government uses the power that they are given to allegedly solve
that market failure.

JH. And we’ve been talking about, just the loss… the cost of the loss of the property to the property
owner, but are there any other costs that go along with takings?

BB. Yeah, and a lot of those costs are hidden, and that’s part of the problem. Certainly, as an economist
we talk about deadweight losses that arise simply because we inefficiently allocate resources. And if, for
instance, the government has the power to take property and transfer it to someone else, it may be very
much cheaper for someone to use the government to get property, than it is to actually go on the
market and buy it. General Motors, in the Poletown case, had the city of Detroit seize property, paid
sixty two million dollars for the property. They then spent one hundred and sixty eight million improving the property so it could be made available, so that General Motors could build a plant on, and they
charged General Motors eight million dollars for it. So they spent two hundred million, and General
Motors got it for eight million. If General Motors had gone in the market, and paid a fair market value
for the property, it would have had to spend a lot of money. So if they can use government to take
property for them, and it’s a lot cheaper, then they are going to use government. And, in terms of the
allocation of resources, then if you get something really cheap like land, you tend to overuse it, and you
don’t use as much of other resources as you ordinarily would if you were looking at the true cost of the
various resources. So there is a substitutional way from other inputs into land, when land is made
available too cheaply. So that’s one cost. We’re allocating resources inefficiently. Another cost, of
course, is the cost that Gordon Tullock pointed to many years ago in his paper on, I think it was called,
Monopoly Tariffs… no, Theft, Tariffs and Monopoly or something like that. (The Welfare Costs of Tariffs,
Monopolies, and Theft) Anyway, he pointed out that when individuals try to use the government to gain
benefits, it’s just like theft, the individuals invest resources in what has been termed rent seeking in
order to get privileges from the government. And those who are going to lose in that process have to
invest resources to try to protect their property, rent avoidance expenses. And so nothing is produced
by those resources. It’s simply a competition for transfers of wealth. And we see tremendous
competition in terms of trying to shape regulations, and get local governments to use eminent domain,
and so on. So there is a lot of lobbying, legal fees, and payments to experts, and all those sorts of costs
that arise simply because government has these powers and people try to influence them. And, of
course, you mentioned exit, or moving. If land is not mobile, so it’s hard to escape the government when
they’re taking land or limiting its use. But still people can invest in ways that discourage that. And you
might have land that you see as a potential target for a takings, your incentives may be then to go in and
develop it really quickly, and perhaps in a way that would not be the most desirable in the long term,
because you are afraid the government is going to take it from you. So you act too quickly, your time
horizon is too short, you don’t consider the long run opportunities for using that property for something
else. And so there’s a cost associated with that as well. The insecurity of property rights because
government has the power to take, simply changes people’s decision making in ways that reduce the
efficiency of the allocation of their resources. So there are all sorts of hidden costs that come along with
this power that government has that don’t go into the calculation of cost benefit.

JH. Well thank you very much for joining us Dr. Benson.

BB. Thank you for advertising my book.

JH. And his book, again, is Property Rights: Eminent Domain and Regulatory Takings Re-examined, and it
can be found on the Independent Institute’s website, and also on websites like Amazon.com. For more
interviews with leading scholars, visit KosmosOnline.org. That’s KosmosOnline.org, connecting the
network of liberty advancing academics. And this is Jeanne Hoffman, signing off.