June 9, 2006

The Kelo decision - the case everybody lost...

The glacial schedule of our legal system too often turns out useless results. The now-infamous Kelo vs. New London decision, which has been interpreted with shock by many state governments as an erosion of property rights, has generated a mess in Connecticut.

The point here is not to play gotcha with Pfizer but to demonstrate that economic circumstances can change radically in a relatively brief period of time, and while private companies are capable of adapting, governments (and in particular "private-public partnerships") are not. Governments can react, however, as the NLDC is also finding out. The brutality with which the Fort Trumbull residents were removed has shocked the nation, and Connecticut Gov. Jodi M. Rell, a wavering supporter of the homeowners, has a strong disincentive to sink more money—beyond the $15 million that's already going to the Coast Guard museum—into the town of 25,000.

Regardless of whether the ruling was sound law, it is bad economics and even worse business. One of the crucial reasons the US is losing some competitive advantage globally is our increasing dependence on public policy to substitute for entrepreneurship.

While we seek to have government mitigate risks our competitors are placing bets with their own money and beating us to the punch. Eminent domain is cumbersome, unfair and expensive. For those reasons alone - not to mention the political questions - it is best used as a last resort.

As the world speeds up we may need less, not more government - simply because it cannot respond in time to be effective.

Perhaps there is a parallel here for farm policy.