Sun 20 Jul 2008
Matt Yglesias has been showing his libertarian side more often in recent months, with a series of posts pointing out that many of the problems with urban planning can be laid at the feet of bad local government policies in various areas. It seems that one of the reasons that certain cities have awesome amenities that other cities lack is that the latter have laws that create huge barriers to entry for those particular amenities. Matt concludes this is a failure of political will:
A relatively strict licensing regime keeps the number of drinking establishments relatively low. That reduces one’s set of options. But beyond that, it makes for a less competitive environment with higher prices and less effort going into making an establishment appealing. Laxer licensing regimes and more liberal zoning policies about where you can open retail would produce lower prices and more options. To make that observation is to begin rather than to end the argument about whether we should prefer the “plentiful, cheap bars” equilibrium to the “rare, expensive bars” equilibrium. But the point is that instead of just vaguely complaining about this or that aspect of the place where they live, or musing about moving elsewhere, it would serve people well to educate themselves about policy in their own communities and make things better. When we don’t do that, the policy just gets set by incumbent interest groups whose main concern is to block competition rather than build a livable community.
Obviously, what we have here is a collective action problem. It’s in the interest of most Washington, DC residents not to have protectionist regulations that limit competition in certain sectors of the economy. However, the expected benefit to any given individual to becoming informed and active on any given regulatory question is quite small. Even if I became a full-time liquor-license-liberalization activist, it’s unlikely I could shift the equilibrium very much. And no matter how much I might like going out drinking, even a significant shift in bar regulation is unlikely to improve my quality of life very much, since I spend the majority of my waking hours doing things other than going to bars.
In contrast, as Matt alludes to, there are a variety of incumbent interest groups that are well-organized and have a much larger stake in preserving the status quo. Fewer new bars means larger profits for existing bar owners. No high-rise apartment building on my block means higher property values in my neighborhood. And so forth. And so the political process has a natural bias toward serving the interests of incumbent interest groups at the expense of the general public.
Here’s the thing: we have mechanisms for correcting systematic flaws in our political system. They’re called constitutional protections enforced by the judiciary. Consider free speech, for example. It’s in all of our interests for there to be freedom of speech, both so that we won’t have to fear censorship of our own speech, and because robust free speech is an important part of a healthy democracy. Yet there’s a collective action problem, because it’s not in anyone’s individual interest to invest the time it requires to learn about every free-speech controversy and fight to repeal censorious laws. Luckily, the framers of the Constitution recognized this problem and enacted the First Amendment. It nicely solves the collective action problem by delegating to the courts the authority to restrain the democratic process when it leads to censorious outcomes.
Now, for most of our nation’s history, we had precisely the same kind of protections for certain kinds of economic liberties. The Fifth Amendment, for example, has a clause restraining the democratic process from taking the property of one private party and giving it to another. Once again, this was a reaction to a collective action problem: it’s in each property owner’s individual interest that property rights be secure, but until you’re the target of a taking, you have limited incentive to become a property rights activist. Until the middle of the 20th century, the Fifth Amendment helped solve this collective action problem by preventing governments from abusing eminent domain powers for private profit. Then, in 1954, the Supreme Court effectively wrote the property rights clause out of the constitution, holding that the Fifth Amendment merely required a “public purpose” (which in practice means whatever the legislature wants it to mean) rather than a public use (which traditionally meant a government-owned facility like a road or a courthouse). The result has been a half-century of blatant rent-seeking, with incumbent interests using eminent domain powers to transfer wealth from others to themselves.
Now, I guess Matt would say that the solution here is for ordinary property owners to educate themselves about eminent domain policy and lobby their representatives not to use eminent domain power in abusive ways. But that approach hasn’t worked very well. People are busy. Very few have the time or motivation to become property rights activists. In contrast, the developers and big-box retailers who benefit from eminent domain abuse can afford to hire full-time lawyers and lobbyists to advocate for their interests. Property owners simply don’t have a chance. Rather, our best chance (and the approach we’re taking) is to seek a constitutional response: to re-establish the principle that taking property for private profit is unconstitutional. By making property rights a single up-or-down issue on the November ballot, we’re hoping to over-come the collective action problem that makes defending property rights on a case-by-case basis so difficult.
Limitations on eminent domain is just one facet of a sophisticated jurisprudence of economic liberty that we developed by the courts in the 19th and early 20th centuries. The courts would strike down the kinds of protectionist policies Matt decries on the grounds that they restrict the economic freedom of individuals. Unfortunately, those policies were dismantled between the 1920s and the 1950s under the influence of a Progressive movement that viewed them as obstacles to their regulatory goals.
The result, however, has been profoundly illiberal. Many industries today are choked with protectionist regulations. The Institute for Justice, the organization that spear-headed the eminent domain fight at the Supreme Court, has also waged an ambitious economic liberty litigation strategy to re-build the jurisprudence of economic freedom that the progressives destroyed. They’re pursuing a patient, media-savvy strategy, finding sympathetic clients facing the most nakedly protectionist barriers and seek to create precedents that can be built on in future cases.
Now, I wouldn’t expect Matt, as a good leftist, to endorse a full-scale return of the economic liberties jurisprudence of the early 20th century. Realistically, that’s not going to happen anyway as too much has changed over the last century. But the kinds of regulations and eminent domain abuses IJ has been challenging are so transparently illiberal that I would think even many people on the left would want to give some thought about whether some level of constitutional protections for economic freedoms are merited. When a legislature passes legislation whose transparent purpose is to enrich a well-organized interest group at the expense of the general public, that’s something liberals, of all people, ought to be concerned about. Telling state legislatures that they have to offer at least some plausible rationale for economic regulations would forestall the most nakedly protectionist policies while leaving legislatures with plenty of flexibility to pursue legitimate policy objectives.