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« Hypocracy, Thy Name is Drum | Main | They Also Serve... » August 18, 2004Paying the Costs of GovernmentSteven E. Landsburg takes a look at a recent Supreme Court decision and notes that the Court itself has determined that most of what government does isn't actually worth it. This isn't what the decision actually says, of course, but Landsberg correctly points out that it is what the decision means. I won't recap the decision or the article, so I urge you to read the piece if you're not familiar with the discussion. Landsberg has hit on one of the capital flaws of our current system of government: the fact that there are an inordinate number of hidden taxes out there. For example, zoning laws are a big part of what many local governments do. Yet zoning laws are, in effect, a taking of property by government without compensation. If you own a piece of property and the government decides that it sits in an area zoned residential, it doesn't matter if someone is willing to offer you more to build a shopping mall there. Let's say that you'll earn $250,000 if you sell your land to home builders, and $350,000 if you sell it to strip mall builders. The government has cost you $100,000 through its zoning laws, taking away some of the value of your property. And Heaven help you if your land is declared a wetland or otherwise environmentally endangered; you'll lose the full $350,000, because the government won't compensate you one thin dime even though it has eliminated the value of that land. You're out the cash, without any real recourse. Before you start to tell me about how important zoning and environmental laws are, understand that I'm not saying that the decision to zone land or protect the environment is a bad idea. (Although I don't really know enough about zoning laws to discuss them intelligently.) My point is simply that we hide the costs of government in this way. In our previous example, you're out $350,000 because of a government law protecting the environment. But politicians will sell the law as a winner, because it doesn't cost the public treasury a dime. The money you lost isn't taken into account. This makes it much easier for government to place these restrictions on people. If government was required to compensate people when it created laws like this, we could have a much more honest discussion about the costs of such laws. Given the high levels of support for environmental laws in this country (and count me among those who support them, at least in general), I believe that good environmental laws would remain on the books even though they would require the government to shell out money to compensate those being inconvenienced. But a lot of other laws would look a lot less appealing, because the costs would no longer be hidden. Some of them we'd choose to do anyhow. Others we might decide wouldn't be worth the costs. Isn't that a much more honest way of running government? Hat tip: Commentariat. Update: Link added. Posted at August 18, 2004 04:27 PM
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» Andrew Olmsted from Caerdroia Tracked on August 20, 2004 09:59 AM
» Hidden Costs of Zoning from FreedomSight Tracked on August 21, 2004 09:30 PM CommentsColour me dense, but where's the link? Posted by: Oscar at August 18, 2004 06:09 PM Actually, zoning laws work both ways. Suppose I live in a residential neighborhood and someone builds a shopping mall. But next door. Now my house has less value. A better example would be a factory or industrial zone. Either way living in a zoned residential neighborhood increases the value of the land. I pay more knowing that someone can't open a gas station next door. Of course this is only tangentially related to your post, but I thought it was an interesting side note. But, then again, I'm weird. Posted by: Enrak at August 19, 2004 06:26 AM Good point, Enrak. As I noted, I don't know enough about zoning laws to really discuss them intelligently. But I don't think that changes the argument; the zoning laws inflate or deflate the value of people's land without any requirement for compensation. I would guess that a zoning requirement that increases the value of some land decreases the value of other land, but that may not be the case. Couldn't you also prevent someone from building a gas station next door by buying the land, or by paying the owner not to do so? That would require us all to put our money where our mouth is, of course, but I still maintain it would be a more honest way of doing business. If you want to increase the value of your house, shouldn't you have to pay for the privilege rather than getting the government to do it for you for free? Posted by: Andrew at August 19, 2004 07:43 AM You are right, it doesn't change the point of you post. As I mentioned, it was just of interest to me. You are correct that people could band together to prevent the gas station from opening. But, that opens you up to hostage. Essentially, anyone could come by and threaten to put in a gas station. You would have to pay them all off. And there is very little incentive for them not to threaten. Yes, zoning does decrease the value of some land. The land of the person trying to sell it to the gas station. But that person is essentially stealing value from your land. They sell to the gas station and reap the value. Now your land value has gone down. Classic externality situation. The real problem is transaction costs. It probably would be worth it for the surrounding land-owners to pool their resources and buy the land. The problem is setting up a purchase agreement like that would involve ,say, oh, 20 lawyers. Lawyer fees would eat up enough of the resources that the surrounding owners can no longer afford (the old "and able" part of "willing and able" that always plays havoc with libertarian vs lefty economic arguments) to purchase the land. In a perfect world with no transaction costs, there would be no zoning. As to your last point, I agree. My statement wasn't to encourage zoning. I was just pointing out that zoning doesn't always reduce economic benefit. You also make this point: Yes. On the other hand shouldn't someone have to pay me for taking away from the value of my land? Again in a transaction free setting everything would work out fine as long as there is a clear legal standing. (ie, I have the right to not have a gas station opened up next to my house. You can however pay me to allow you to sell to the gas station. Or vice versa.) Alas, transactions costs do exist. And so do zoning laws. (Note: I stole all of this from Ronald Coase. All the errors are mine, obviously.) Posted by: Enrak at August 20, 2004 12:07 PM Post a comment |
