Government Intervention In Business–Cute If It Were Not So Expensive And Ineffective

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The Grasping Hand: Kelo v. City of New London

   Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

      Wherein we see why Detroit has gone bankrupt. Just a few deals like this would do it.

by Alex Tabarrok on May 15, 2015 at 7:25 am in Books, Economics, Law
from marginalrevolution.com

The Grasping Hand, written by our GMU-law colleague, Ilya Somin, is an excellent read and the definitive treatment of eminent domain and the Kelo case. As you might expect, Somin discusses the legal issues with aplomb. So much so that the book is endorsed by both of Kelo’s opposing counsel! In addition to the law and economics, Somin offers what for me was an eye-opening investigation of the the history behind many of the major cases.

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    The Kelo case occurred in New London, Connecticut. Many people were displaced for a development which is now an empty lot.

In the famous Poletown case, for example, GM and the cities of Detroit and Hamtramck used eminent domain to forcibly remove 4,200 people, 1300-1,400 homes, 140-600 businesses, 6 churches and one hospital in order to build a factory. The primary argument for the expropriation was the economic benefits that GM and the mayor promised would flow from the creation of at least 6,000 GM jobs.

Even though the entire case hung on the number of jobs to be created this number was simply cheap talk. In the marketplace, if GM says that this 100 tons of aluminium is worth more building cars than it is building airplanes they have to demonstrate their belief by outbidding Boeing and all the other users of aluminium. In politics GM need only voice an assertion and with the right lobbying the political system will make the transfer for them. Neither GM nor the city were under any requirement to guarantee new jobs but the majority judges simply accepted the numbers as given to them.

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     Judges are government employees, thence, they are biased toward government “experts” where assertions are mistaken for data.

    …many judges may have an unjustified faith in the efficacy of the political process and thus may be willing to allow the executive and legislative branches of government to control oversight of development projects. For example, the Poletown majority emphasized that courts should defer to legislative judgments of “public purpose.” Whatever the general merits of such confidence in the political process, it is misplaced in situations in which politically powerful interest groups can employ the powers of government at the expense of the relatively weak.

So what happened?

    The GM plant opened two years late; and by 1988— seven years after the Poletown condemnations— it employed no more than 2,500 workers.

Moreover, as Somin continues, it gets much worse because not only were the benefits overstated the costs weren’t stated at all.

    An especially striking aspect of the Poletown decision was the majority’s failure to even mention the costs imposed by condemnation on the people of Poletown or the city of Detroit as a whole.

    According to estimates prepared at the time, “public cost of preparing a site agreeable to . . . General Motors [was] over $200 million,” yet GM paid the city only $8 million to acquire the property. Eventually, public expenditures on the condemnation rose to some $250 million. In addition, we must add to the costs borne by the city’s taxpayers, the economic damage inflicted by the destruction of up to six hundred businesses and fourteen hundred residential properties. Although we have no reliable statistics on the number of people employed by the businesses destroyed as a result of the Poletown condemnation, it is quite possible that more workers lost than gained jobs as a result of the decision.

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    Much to my surprise, the Hamtramck plant is still open, but, again, GM has had lots of subsidy from the Federal government. The plant currently employees 1600 people. One of its products is the Chevy Volt so, mistake sitting on top of error.

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies

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