Paul L. Caron

Tuesday, November 25, 2008

Bell on Private Takings at UCONN


Posted by Ruth Mason


Abraham Bell (Bar Ilan, visiting at UConn) presented Private Takings at Connecticut Monday.  In this provocative paper, delivered in the land of Kelo, Bell argues that private parties should be able to invoke a power like that of eminent domain in order to force land sales, at least in cases where: (1) the taker would be a superior owner of the property, (2) strategic barriers (holdouts, bilateral monopoly, asymmetric information) block voluntary transfers to the superior owner, and (3) the taker “properly compensates” the owner (by paying the owner’s true reserve price). 


Bell does not fully specify how to determine when taker would be a superior owner or how to determine the price.  However, he argues that requiring the taker to compensate the owner will help minimize excessive takings, and it could make private takings more efficient than some forms of public takings.  For example, Bell identifies “government-mediated private takings,” in which the government acts as a “middleman” for a private party that wishes to seize property from an unwilling owner.  Current law may result in too much government-mediated private taking, since the government, not the private party, bears the cost of “just compensation.”  Bell offers the example of the City of Detroit, which, in an attempt to entice GM to remain in the jurisdiction, seized private property at a cost of $200 million and transferred it to GM for only $5 million.  If GM had been required to spend $200 million, perhaps the taking would never have occurred. 


Bell notes the fuzzy lines separating takings by eminent domain, takings by regulation, and taxation.  It seemed to me that the appropriate tax analog to his proposal for private takings might be endowment taxation--taxation according to income-earning capacity, rather than actual income.  Private takings and endowment taxation are similar at least insofar as both would encourage assets (human and real) to be put to their most productive use.  Additionally, both endowment taxation and private takings would tend to minimize the extent to which people could retain economic gains attributable to brute luck (talents; finding one’s property coveted by a developer).  Of course, the arguments for endowment taxation usually begin from the question of how to fairly distribute the tax burden across the members of society, not from the question of how to maximize the productivity of human capital. 


The liberal egalitarian objection to endowment taxation--that it unjustly constrains life decisions--would not apply with the same force to private takings, although private takings would constrain land owners’ choices regarding when to alienate their property.   Like endowment taxation, private takings face difficult measurement questions. Just as we cannot accurately measure people’s endowment, private takings would raise difficult questions about who is a superior owner of land, and how much a private taker should be required to pay to a current owner unwilling to sell in a private market transaction.

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I just found your wonderful blog. Thank you for taking the time to make such a wonderful resource.

After reading your summary of Bell's article I find myself compelled to respond. Aside from the problems you note, the argument is reprehensible in at least two respects.

1) It seems to give short shrift to the importance of voluntary transfers. Put in plain english, Bell is saying that it’s okay for larger, more powerful entities to take away weaker entities property based on the presumption that weaker party is not acting in their own best interests - That’s what it boils down to. This means that the strong can control the weak, regardless of any voluntary desire on the part of the weaker party. The theory presumes the desire on the part of weaker party, but this is a distant second to its other parts.

2) I hate to say it, but once you allow the weak to dominate the strong, it seems clear to me that Bell's thesis undermines the spirit of the constitution. The need to protect the weak from the predations of the strong is at the heart of social contract. Enlightenment philosophers like Beccaria, Rousseau and Hobbes all explicitly reject this in their philosophies of civil government. And - if I'm not much mistaken these are the philosophies that underlie the US constitution and accordingly the bulk of our legal system. I would therefore argue that Bell's thesis fundamentally undermines our principles of our system of civil governance.

Finally, In reading Bells propositions, I am sadly reminded of the work of John Yoo and others whose work has resulted in disastrous policies. One can only sincerely hope that his work will be consigned to the dustbin of history

Posted by: James Hendrickson | Nov 25, 2008 7:42:22 PM

You make it sound so complicated. Has Mr. Bell ever read the Constitution? We have private property rights in this country. What you call "difficult questions" about the legitimacy of eminent domain I call theft.

Taxation is supposed to serve the purpose of supporting legitimate government services. Now, that principle is turned on its head by implying that private property should serve government by providing maximum tax revenue. Otherwise, it is to be turned over to another owner who will maximize that revenue?

"Superior owner?" Paleeeze!

Please. Read the Constitution. It will clear up your "difficult questions."

Posted by: John L. Pehrson | Nov 25, 2008 5:57:55 PM