Conservative Posturing vs. the Logical Incoherence of Efficiency in the Takings Context

Note to Readers: Yesterday, Verdict published my new column: "Elections, the Economy, and Trump: Part One."  There, I explain why Donald Trump's claim that the economy is great (and thus that he should be reelected) is pure nonsense as a matter of economic reality.  My column here discusses a different topic entirely, but I encourage interested readers to take a look at that Verdict piece as well.

by Neil H. Buchanan

Earlier this week, I returned to my recent musings about the incoherence of economic efficiency as a theoretical construct, much less as a practical guide to law or policy.  There is, I am both happy and sorry to report, more to say.

My overall point in that column was that the lack of a baseline against which to measure economic efficiency (in any context) is especially devastating to any conception of what counts as a regulatory taking -- that is, a claim that the government has done something that made an owner of property poorer by changing (or wiping out) the value of the property.

The problem is even worse than it seems, however, because the theoretical baselessness of economic efficiency makes it impossible objectively to measure the value even of a classic (non-regulatory) taking, that is, an actual seizure of property.  Any change in government rules will of necessity change what would count as the fair-market values of all property, and indeed a change in those rules (motivated by some other policy purpose) could even make some properties valueless.  For example, an owner of rural land who would be happy to have a new highway go through the property can be left with nothing if the engineers determine that the highway's route should be changed.  Thereafter, "just compensation" for actually seizing that property would be (by assumption) zero.

Here, I want to expand on an important aspect of the baseline problem in the takings context, partly because it is so fascinating but mostly to connect these arguments to a theme that has shown up repeatedly of late here on Dorf on Law, which is that conservatives' pretensions to offering objective, neutral, and non-ideological analyses in both economics and law are a lot of hot air.

In my column a few days ago, I laid out yet again what I call the Baseline Problem, which is inherent to all orthodox economic analyses that purport to measure as a positive (that is, not a normative) matter the net social costs of government policies.  The shorter version of the argument is that such a measure must have a neutral starting point that would exist in the absence of government "action," but no such starting point exists, because any capitalist economy relies on countless government actions in setting and enforcing rules of commerce.

When someone complains that the government has created economic inefficiency by disturbing the equilibrium in a market, therefore, they are at least implicitly saying that that equilibrium was somehow sacrosanct and existed prior to government action.  Yet any equilibrium will depend on what kind of property, contract, tort, criminal, financial, and other rules have been put in place to make commerce happen at all.  I will be richer if the government sets up rules that favor my talents and assets, and I will be poorer if it sets up less favorable rules.  Neither set of rules is natural or pre-government, and I certainly have no moral claim on one set of rules over another, even if one set of rules already exists.

Applied to takings -- and especially regulatory takings -- this means that a government action that makes my portfolio of properties drop in value is not necessarily taking something from me in the sense that we use the verb "to take" here.  That is, taking something in this context implies wrongly depriving someone of something that they have by right; but if what they have is entirely contingent on a random configuration of legal rules that could have been arranged in any number of ways (and it is), then what has been taken was not -- as an objective economic matter -- theirs in the first place.  This insight inspired the title of Liam Murphy and Thomas Nagel's book The Myth of Ownership, which explored the implications of that insight in the context of taxation.

Here, I can add one additional point that I omitted from Tuesday's column, which is that the lack of a baseline makes the analysis of a government taking even more incoherent when one considers the possibility of complaints against the government for failing to take action rather than for affirmatively doing something that reduces someone's wealth.

Consider the owner of rural property in the example above.  He might have purchased his land in the belief that it would someday become more valuable as something other than forested acreage, and he might even have had an inside tip that the civil engineers in town were leaning toward approving a route for a new highway that would have made his land prime real estate for the shopping and residential development that would surely follow.

Should he be allowed to sue the government for making a decision to put the road elsewhere?  Intuition says no, but the economic analysis is no weaker for this person than it is for someone who actually owns land on a road that is shut down for any other reason (for example, the discovery of an ancient burial ground or the requirement of a toxic waste cleanup operation, which involve government decisions to protect antiquities or the environment, to the immediate financial detriment of the property owner).  In all cases, a person can correctly identify a government choice that would have made him richer than what the government actually did.

This, by the way, is why I have stopped saying that "nothing is efficient or inefficient" and instead now say that "everything is both efficient and inefficient."  Because it is true: everything that the government does truly can be described as efficient from one baseline and inefficient from any other.  And to re-emphasize today's point, everything that the government does not do is similarly both efficient and inefficient.

As it happens, I thought of this action/inaction point the first time I read about the takings concept, back in the 1990's.  When I shared my thoughts with some legal scholars, they pointed out that Professor Frank Michelman had already explored that point at length in an influential 1967 Harvard Law Review article (Property, Utility and Fairness, 80 Harv. L. Rev. 1165).  Michelman's piece was insightful and important, as was Murphy and Nagel's book thirty-five years later, but none of those scholars did anything other than notice and explore what is inescapably true about the concept of economic efficiency.

Where does that leave the law?  As I noted on Tuesday, the existence of the Constitution's Takings Clause suggests that the Framers thought that there was something so important that it needed special counter-majoritarian protection.  The problem is that we do not know what that "something" was or is.  The logic of extending takings analysis from outright seizures to regulatory takings is alluring, but that effort fails due to its limitless application.  If everything is a taking and not a taking as an economic matter, then we have no economic guidance to tell us where to draw the line constitutionally.

I compared that conundrum to current disputes over the Commerce Clause, which attempt to determine just what it is that Congress is prohibited from doing in a world where it seems that nearly every commercial action has an interstate aspect to it.  The problem is no different, in fact, than disputes over the Second Amendment, in which disagreements over which "arms" people are allowed to bear significantly change the question of what can be done by the political branches and what cannot.

Saying that the Constitution requires us to prevent a populist mob from using the government to impoverish some propertied person, therefore, merely reinforces the difficulty of the inquiry rather than resolving it.  Yes, the Constitution says that the government cannot engage in an uncompensated taking, but if we go as far as economic theory would tell us to go in defining a taking, then we simply are stuck saying that every action and forbearance on the government's part requires compensation -- and good luck to anyone who tries to determine how much compensation is "just."

This leaves us in an interesting place.  Not only are we, as I argued on Tuesday, left to use some non-economic approach to put some meaning into the Takings Clause (and thus to decide which actions by the political branches are unacceptable).  We are also left with another instance where a long-term project of America's conservative movement is exposed as being nothing more than ideology masquerading as objectivity.

Originalism (in all of its mutually contradictory forms) purports to put an objective brake on what jurists can do, yet it ends up being infinitely manipulable.  All of the attempts to say that there is an efficiency-based reason to abandon so-called Big Government end up being nothing more than defenses of the privileges of the currently privileged.  And the attempt to extend takings analysis into the doctrine of regulatory takings even more blatantly leaves us at sea, with little more than intuitions and half-baked libertarian talking points that are used to condemn what conservatives dislike for other reasons.

As always, the bottom line is not that liberals have something that is actually neutral and objective on which to rely but that there is no such thing as a neutral or objective basis in any area of law or policy that can deliver us from tough political and legal choices.  We will make much more progress if everyone finally admits as much.