Shut City Hall! The Supreme Court concludes that most government agencies should be out of business

By Steven E.  Landsburg 
Posted Tuesday, June 4, 2002, at 12:48 PM PT


6/4/02- The Supreme Court concludes that most government agencies should be out of
business.


OK, it's official.  The Supreme Court has declared that most local
government activities are prohibitively expensive.  The routine business of
issuing building permits, investigating crimes, maintaining health codes,
regulating land use‚?"these are all unjustifiable luxuries.  In a world of
honest reckoners, there would be almost no government at all.

That's the thrust of the court's April opinion in the Tahoe case.  The case
harks back to the early '80s, when local governments around Lake Tahoe
formed a regional planning agency to develop a strategy for ecologically
sound growth.  While the agency was devising its plan, the governments
imposed a moratorium on economic development.  If you wanted to build a
strip mall, you had to wait.

Sound prudent?  Not according to Justice Stevens, who, speaking for a
majority of the Supreme Court, declared pretty much all land-use
planning‚?"and for that matter, pretty much all government activity‚?"an
extravagance.

Well, OK, that's not exactly what Justice Stevens said.  But it follows
inexorably from what he did say.  When local landowners requested
compensation for moratorium-related losses, the court turned them
down.  Why?  Because, according to Justice Stevens, land-use
regulation‚?"and for that matter most other government activity‚?"would be
prohibitively expensive if governments bore all the costs.

But if a regulation is too expensive when governments (i.e., taxpayers)
bear the costs, then that same regulation is too expensive, period.  If a
development moratorium costs landowners $10,000, then the cost of that
moratorium is $10,000, whether or not the landowners are compensated.
Without compensation, the landowners are out $10,000; with compensation,
the taxpayers are out $10,000; either way, the $10,000 cost is the same.

And is $10,000 a prohibitive expense?  That's like asking whether $10,000
is too much to pay for a car; the answer depends on how much you want the
car, or in this case on how much you value the benefits of land-use
regulation (which we haven't yet accounted for, and which might come to
either more or less than $10,000).  But shifting that $10,000 burden from
taxpayers to landowners can't change the size of the burden, so it can't
change the expense from reasonable to unreasonable.

This was a lesson that economists hammered into public consciousness in the
bad old days of the military draft.  Back then, the pro-draft lobby used to
argue that a volunteer Army would be prohibitively expensive.
Economists took to the airwaves and the op-ed pages to argue that a draft
is just as expensive as a volunteer Army.  To hire David Letterman as a
soldier, you'd have to pay him the same $30 million he earns at CBS.
But if you draft him, you cost him $30 million in lost salary.  Either way,
the cost is $30 million, and he should be in the Army only if he provides
at least $30 million worth of military service.

I believe, though I cannot prove, that through their persistence in making
that argument, economists had a lot to do with swaying influential opinion
against the draft.  But that was a long time ago, and the lesson has
apparently been forgotten.  So let me reiterate it: Anything that's too
expensive for the government to pay for is too expensive, period.

In the Tahoe case, that leaves only two possibilities.  Either a) the
justices‚?"having concluded that paying compensation would transform
routine government activity into "a luxury few governments could
afford"‚?"are prepared to draw the logical conclusion that routine
government activity is not worth the cost, and therefore local governments
should for the most part be out of business; or b) the justices are
incapable of employing enough elementary logic and economic analysis to
understand the implications of their own opinion.

What if the court had ruled differently, requiring governments to bear the
costs of their own regulatory activities?  Then those governments would be
forced to think hard about which regulations are worth preserving.
That's all to the good.  We should encourage policy-makers to be
reflective.  Instead, the court has encouraged policy-makers to ignore the
costs of their own decisions; that's a recipe for bad decisions.

In his decision, Justice Stevens expresses quite explicitly the belief that
if governments had to pay for the costs they impose on landowners, then in
almost every case, a sufficiently reflective policy-maker would opt for
almost zero government.  I'm not sure whether that's true or false, but if
it's true, then it follows that we should have almost no government.  So
the court's position comes down to this: We should exempt governments from
compensating landowners because that's the only way we can continue having
more government than we ought to.

Steven E. Landsburg is the author, most recently, of Fair Play: What Your Child Can Teach You About Economics, Values, and the Meaning of Life. You can e-mail him at armchair@troi.cc.rochester.edu


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