Does This Man Live on the Same Planet as the Rest of Us?

 There’s a new book out: Evicted! Property Rights and Eminent Domain, by David Schultz (ABC-CLIO 2010). It purports to tell the story of eminent domain, starting with a primer on property rights, through an occasionally flawed description of how the eminent domain process operates, to a final startling conclusion that to solve the problems of eminent domain abuse, this country need not refrain from reforming the law of eminent domain, and instead should enact “campaign finance reforms,” as well as adopt “tax policies that discourage concentrated wealth, along with renewed antitrust regulation aimed at addressing the political power that flows from economic monopolies.”

We have trouble understanding what all that has to do with the use and abuse of eminent domain and the ethical and economic problems it engenders, particularly at the local level where the action is and where redeveloper-influenced municipal politics, not principle, rule. Schultz is a credentialed gent and he may even be serious about all that, but it seems to us that if he is sincere, he is woefully detached from the daily reality of taking law and associated practices. 

Schultz’s core problem is that he never explains why liberals like himself – people who ostensibly champion the cause of the “little guy” as against big corporations – come down on the side of the “corporate thugs,” as he is fond of putting it, cheering on the Supreme Court’s Kelo majority decision that allowed the destruction of an unoffending modest New London neighborhood in order to feather the nest of Pfizer, a multibillion-dollar pharmaceutical manufacturer. Why would professed liberals be arrayed against the vital interests of the likes of Suzette Kelo, a lower-middle-class single nurse who was evicted from her now iconic little pink house on the New London waterfront, in order to increase the cash flow to the city, and to benefit Pfizer, to say nothing of Pfizer’s well-paid employees who – according to New London’s plans – would have been be the beneficiaries of upscale condos, shops and hotels that the city’s redeveloper was supposed to build for them before the redevelopment project ended in dismal failure, consuming some $100 million in public funds to no purpose? 

Schultz is thus trapped in cognitive dissonance – or if you’re a fan of Georger Orwell, in a mode of doublethink. On the one hand he is enamored of eminent domain in general and of its use for redevelopment in particular, but on the other hand he deplores its historical mistreatment of the poor and of people of color. But he does not seem to realize that at best his weltanschauung only gives rise to the proverbial problem of the irresistible force meeting an immovable object: if you are going to use eminent domain for redevelopment, it will perforce impact on downscale neighborhoods that need it – where poor folks live. 

In spite of his credentials, Schultz does not seem to understand that the history of eminent domain in America is a history of undercompensation of condemnees, starting with the abusive practices of 19th century railroads, to today’s municipal largesse being lavished on the likes of General Motors, Chrysler, Nissan, AM General, Otis Elevators, the New York Times, the New York Stock Exchange, megabuck owners of professional athletic teams, and mass merchandisers like Costco, Target and Best Buy, to say nothing of countless large automobile dealers, shopping center builders, and gambling casinos.  

Nor does he mention the dismal track record of urban redevelopment in America that though used repeatedly in places like Detroit, Cleveland, Philadelphia, Bridgeport, St. Louis, Kansas City, et al., failed to revive these cities as their populations fled (and are still fleeing) to the suburbs. 

Then there is the matter of the supposedly “just” compensation. All commentators agree that the prevailing law of compensability is deeply flawed. Even an eminent domain hawk like Professor Thomas W. Merrill acknowledges that “just compensation” in American eminent domain law means undercompensation. Strangely enough, compensation is not really discussed in this book. Schultz notes in passing that condemnees are paid “fair market value,” and that buisness owners are paid nothing for the value of their busines goodwill destroyed by condemnation. But he ignores completely the reams of commentaries criticizing the state of American “just compensation” law.

Over the years, studies have repeatedly demonstrated that undercompensation is indeed rampant, the proof of the pudding being that property owners who challenge condemnors’ valuation in court consistently recover substantially higher verdicts in the majority of contested cases, irrespective of whether their cases are tried before judges or juries. 

Nor does Schultz mention the concession of the U.S. Supreme Court that the nominally “just” compensation isn’t just but harsh. Or that market value fails as full compensation, because it does not take into account various incidental economic losses proximately caused by condemnation. In the legal context, the word “compensation” means that deserving persons have suffered some harm or detriment, and the law now requires that those who transgressed legal norms in causing the harm recompense the victims by making them whole. But is that what the law of eminent domain does? Don’t be ridiculous. It does no such thing. Your faithful servant once got slammed by the California Supreme Court for voicing the heretical idea that the judicial bromides about fairness, justice, and indemnity, should actually mean what they say, rather than being “idealistic” judicial window dressing.  

Don’t take our word for any of this. The U.S. Supreme Court has repeatedly conceded that though in theory “just compensation” must put condemnees in the same position pecuniarily they would be in had their property not been taken, in reality, said the court, this is true only to the extent the owners receive fair market value. Not only is that circular reasoning, but fair market value, conceded the court, is so artfully defined that it excludes factors that buyers and sellers would consider in arriving at the price in voluntary market transactions.

So what does Schultz have to say about all that? Nothing, nada, zip, bobkes. He only worries about the cost to taxpayers who by his lights are entitled to feast on the proverbial “free lunch,” i.e., the hoped-for nominally public gain at the expense of undercompensated condemnees. But in the context of eminent domain, keeping compensation down is not only ethically and economically unsound, it also conceals the fact that in most eminent domain cases involving a total take of a condemnee’s land, the cost to the condemnor (apart from transactional costs) is zero. That’s right – zero. Why? Because unlike in tort cases where the liable party has to pay damages but receives no quid pro quo, in eminent domain the condemnor only exchanges one asset (money) for another asset (land) which it acquires at its judicially determined fair market value, so the condemnor’s balance sheet remains unchanged.

Adding insult to injury, once the land is in the condemnor’s or a redeveloper’s hands, it is often put to a commercial, more productive use, resulting in a profit to the redeveloper and increased tax revenues to the condemnor. The classic example of that phenomenon is the TVA which condemned much land and put it to hydroelectric power generating uses that provided a windfall to industry in the form of dirt-cheap electricity, which led to the TVA becoming the largest utility in the country, at the expense of the people whose land it took. 

But in spite of Schultz’s professed concern for the downtrodden, do you see him worrying about any of that? No, you don’t and we suggest that you not hold your breath waiting for him to do so. He may talk a good game about the ill-used poor folks, and he may rail against “corporate thuggery,” but when push comes to shove, he comes down on the side of Big Brother’s bulldozers.

Finally, Schultz seems to be oblivious to the fact that lavish government spending, often on projects of dubious value, has brought the country face to face with bankruptcy. In that context, the continued profligate government spending to subsidize “corporate thugs,” to borrow Schultz’s phrase, would seem to be utter folly. In our book it’s time to put them on a leash, but if they are permitted to go on, let them fully compensate their victims and let them spend their own money, not yours.

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