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To Take or not to Take? That is the Question…

By D. Eric Schansberg

Professor of Economics, Indiana University (New Albany)

Adjunct Scholar, Indiana Policy Review

Since the Supreme Court’s recent and controversial decision in Kelo vs. New London (CT), state legislators have begun to pass laws to temper the government’s ability to seize property under the auspices of economic development. For example, in Indiana, House Bill 1010 (HB1010; sponsored by Rep. David Wolkins) seeks to restrict the government’s powers of “eminent domain”. The bill has passed unanimously through the relevant House committee. But without a similar bill moving through the Senate, the sentiment will remain wishful thinking rather than becoming law.

In Evansville, the Department of Metropolitan Development has moved in recent weeks to reclassify another area of downtown as “needing redevelopment”—in particular, the Hadi Shrine. This is the first step in a process to have the property condemned, making it available for acquisition through eminent domain. A new law in Indiana—or lawsuits under existing statutes—may prevent the seizure. In any case, all of this is troubling for a number of reasons.

A philosophical and practical problem with eminent domain is that it arbitrarily violates the sanctity of private property. When is it ethical to take another person’s property? When is it ethical to use the government to take another person’s property?

In most value systems, this would be ethical only when that person’s use of the property causes direct and significant harm to others. In the context of eminent domain, one can make such an argument if a property is a terrific eyesore (significantly lowering the value of surrounding property) or a danger to public safety. Outside of such rationales, it is difficult to make an ethical case to use coercion on a property owner.

Beyond that, the practice of eminent domain can easily create a slippery slope. If any property can be taken to enhance economic development, where does one draw the line—if anywhere?

Moreover, eminent domain seems to be based on a limited understanding of markets. If the Hadi Shrine property is more valuable in an alternative use, then the buyer who holds that greater value should be willing to pay a price that satisfies himself and the seller. Value is in the eyes of the beholder. If something truly has greater value to the buyer, then voluntary, mutually beneficial trade should be right around the corner.

So why do we see eminent domain used? Presumably politics, not economics, provides the answer. One would guess that the potential buyer understands the economics quite well, but prefers a political outcome—enabling him to acquire the property at lower cost. Or perhaps the city development officials arbitrarily prefer one type of social activity over another—and are willing to sacrifice the liberties of an individual for the developer’s preferred vision of the community.

My young boys are fond of taking toys from each other. When I see it happen, I’ll often say, “You can’t take that from him. You’re not the government.” My wife rolls her eyes, but at least to an economist, the tongue-in-cheek comment conveys a vital truth. All levels of government—federal, state, and local—are far too comfortable with the idea of taking people’s stuff. In any case, failure to speak out against arbitrary seizures would be an injustice in the current situation and foolhardy in the long run. After all, who knows what property the developers will want to take next?

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