The Taking

There's an interesting exchange at an interesting article in Environmental Economics. The article advocates cap-and-trade along with market creativity. (Pessimists argue that the market isn't all that creative, and that the wealth of the past century has been more about expending seed capital than about actual expansion in human per capita wealth. I don't entirely buy it, though there's certainly a case that it has been that way of late; see Fig 4 here.)

Anyway. There's an above-average exchange on the old "takings" question in the comments on the E-E article between "LVTFan" and "Hydra". The former suggests that land values in previously unpalatable places are the result of public investment, and the public rather than private investors should be capturing the increase in value. The latter argues that doing so retroactively is unfair, raising the old property rights problem.

I personally have been the "victim" of a government "taking" just recently. When I bought my house, I inquired about its flood status, and it was not in a flood plain. Due to recent FEMA reanalysis, I have been demoted to the 100-year floodplain, even though the property across the street, barely a foot higher it seems to me, is still outside the 500 year flood plain. I am obligated to buy flood insurance, and report this when I sell my home; two very substantial financial hits. I don't know whether the old or the new FEMA evaluation is the sound one; it's a strange gully behind the house, emerging from a highway interchange with no visible source upstream.

Now, I think the coal companies should not be allowed to sell their product without sequestration, and it's up to them to make that work. I think houses discovered to be in a flood plain should be required to be insured, too. However, changes like that are very disruptive. I am taking enough financial hits about now along with everybody else to have to put up with this totally random hit.

There is no question that policies need adjustment, and there is no question that such adjustment inconveniences people in what feels to be a random and capricious way. Being a liberal, I am willing to take this relatively in stride (though if anyone can tell me how to check FEMA's actual results I'd be grateful) but I can see how something like this would cause some people who run on tighter margins to become absolutely beside themselves. Changes like this should be softened by the public sector, but nowadays we seem to be too busy nationalizing the financial and automotive sectors to compensate individuals inconvenienced by factors beyond their individual control.

Unsurprisingly people are less opposed to capricious bailouts than to capricious liabilities. (Even though you could argue that public ownership of General Motors pretty much amounts to a capricious tax on all other industries.) On the whole, though, it would be best if there were some sort of meta-policy so people would understand how much invisible risk they actually carry.

On the other hand, the "takings" philosophy is nuts. The commons is held in common. Without air or water your property is worthless. Real estate confers some complex set of socially determined rights; your home may be your castle but it isn't a separate planet.