Of Raisins and Property Rights

Further to Ilya’s overview of today’s Supreme Court decision in Horne v. Dept. of Agriculture, it should be noted that it’s taken Marvin and Laura Horne over a decade to vindicate their rights in the raisins the government sought to take “for their benefit,” under one of the many economically foolish New Deal and later agricultural marketing schemes Congress has seen fit to enact. But in this lengthy process, the Hornes have helped the Court to settle a fundamental principle, namely, that the Fifth Amendment’s Takings Clause prohibits the government from taking both real and personal property for public use without just compensation.

At the same time, the Court is still confused in its effort to distinguish and adjudicate what have come to be called “physical” and “regulatory” takings. In Horne, the Court held, the government sought to “physically” take 47 percent of the Hornes’ raisins, much as ten years ago, in its infamous Kelo decision, the Court upheld the City of New London, Connecticut’s “physical” taking of Suzette’s Kelo’s little pink house. In other words, the government sought to take title to the Hornes’ property in their raisins.

By contrast, in a regulatory taking, the government, through regulation, takes certain otherwise legitimate uses an owner has in his property. The owner retains the title; but it’s usually a much devalued title. For almost a century, the Court has struggled to fit these regulatory takings under the Takings Clause—ever since Justice Holmes in 1922 wrote that a regulatory restriction that goes “too far” amounts to a taking requiring compensation. The three-part test the Court set forth in 1978 in its Penn Central decision only muddied those waters. In fact, we see that here when Chief Justice Roberts tries to drive home the point that in Horne we have a physical taking. In response to a point made by the dissent he writes that in such cases “‘we do not ask … whether [the taking] deprives the owner of all economically valuable use’ of the item taken”—citing one of the three Penn Central criteria.

Roberts is right: we don’t ask that when title is taken, as here. But in labeling Horne a “physical” taking, and distinguishing it from a taking that “‘deprives the owner of all economically valuable use’ of the item taken,” Roberts opens up a question: Just what does “the item” refer to? Clearly, Roberts means to refer to “the property” in the sense of the whole parcel or the underlying fee. But that is not “the item” that is taken in a regulatory taking. The owner still owns the fee. What is usually taken is certain “economically valuable uses”—but not all such uses. Indeed, in many regulatory cases the owner is entitled to compensation only when all the uses are taken. That was the case in the Court’s 1992 Lucas decision, where the regulatory restrictions left the owner with an effectively worthless title.

The nub of the matter here is really quite simple, and it was stated by James Madison in his famous 1792 essay, Property: “In a word, as a man is said to have a right to his property, he may be equally said to have a property in his rights.” In other words, it’s not simply the underlying fee that is our property. All the legitimate uses that go with it are our property as well. Thus, a taking occurs and compensation is due not simply when that last use is taken, which is what the Lucas Court effectively held, but when the first use is taken and the title is accordingly devalued. Those uses—those “items”—are our property too. Perhaps the Court will one day give us an integrated theory of property of a kind that Madison understood—before the rise of the modern regulatory state.

“Leveling the Playing Field Act” Hurts the Broader Economy

The Senate leadership is working hard to find the votes needed to support the trade agenda. Key to progress is passage of trade promotion authority (TPA), also known as “fast track”, which would commit Congress to vote up or down on a trade agreement rather than offering amendments. Opposition to trade liberalization has been a comfortable policy stance for senators beholden to organized labor and to the anti-growth left. Opponents on the right profess concern about the possible loss of national sovereignty and generally are reluctant to give President Obama greater authority of any kind.

Political realities sometimes require offering sweeteners to make a difficult vote more palatable. Trade adjustment assistance (TAA) has been legislated in the past to help workers and firms that are having difficulty dealing with competition from imports. Even though the economic and equity arguments in favor of trade-related unemployment benefits are relatively weak (Why treat people who are unemployed due to international competition differently than those who lose their jobs due to changes in technology, for instance?), the political rationale for TAA at times has been compelling. It’s not surprising that both the House and Senate have been searching for a way to pass both TPA and TAA. The president has expressed his preference to sign them at the same time.

With the outcome of the Senate vote on TPA not yet clear, it’s not surprising that there has been a search for additional sweeteners. The steel industry has pushed to include Sen. Sherrod Brown’s (D-OH) poorly named “Leveling the Playing Field Act” as part of the TAA package.  (My op-ed on the Act is available here.) Given the need to woo as many votes as possible, the Senate leadership has agreed to this request.

It’s not my intention to criticize pro-trade senators who are doing their best to pass TPA. Life can be complex, and political life all the more so. However, it may be worthwhile for free-trade proponents to think carefully about the implications of adding Sen. Brown’s measure as part of this effort to provide the president with negotiating authority.

Here’s the rub: the protectionist provisions of the “Leveling the Playing Field Act” would take effect as soon as the president signs the TAA legislation, but potential trade liberalization (if any ever gets enacted) would not be realized until sometime well in the future. The Trans-Pacific Partnership (TPP) – the first agreement that might be concluded once the president has negotiating authority – would not begin to be implemented until 2017 at the earliest, perhaps much later. Although details of the agreement are not yet public, restrictions on politically sensitive imports are likely to be phased in over perhaps as many as 20 years. Thus, the United States would be making its antidumping/countervailing (AD/CVD) regime more protectionist immediately in exchange for future liberalization that may or may not ever occur.

If possible, Senate leaders should remove the Leveling the Playing Field Act from TAA and let adjustment assistance be considered on its own merits. If that isn’t feasible, the effective date of Sen. Brown’s legislation should be changed so that it does not become operational until the eventual implementing legislation for TPP also becomes effective. That way there will at least be some growth-promoting liberalization to help offset the reduced economic welfare caused by the Leveling the Playing Field Act.

Patel: Right Result, Wan Rationale

Making short work of the idea that facial challenges aren’t available under the Fourth Amendment, the Supreme Court ruled today in Los Angeles v. Patel that a city may not require its hotels to turn over their business records without some opportunity for review of the government’s demands. It’s the right result, but the Court was too quiet about its treatment of Fourth Amendment doctrine, and it did not take the opportunity to fully address situations like the case presented, in which the government dragoons private businesses into surveillance on its behalf.

Justice Sotomayor, writing for a 5-4 majority, held: “the provision of the Los Angeles Municipal Code that requires hotel operators to make their registries available to the police on demand is facially unconstitutional because it penalizes them for declining to turn over their records without affording them any opportunity for pre-compliance review.” Justice Scalia led one bloc of dissenters believing it was reasonable to institute this kind of regulation on business owners suspected of no substantive crime because their facilities are sometimes used for crime. Justice Alito dissented as well, arguing that there should be no facial challenge to the statute because constitutional applications of it exist.

Had the stars lined up, the Court might have used the Patel case to address simmering issues around current Fourth Amendment doctrine, as the Cato Institute’s brief for the Court suggested. The Court indeed eschewed the backward “reasonable expectation of privacy” test, which finds that Fourth Amendment interest exists when people reasonably feel that it does. It instead examined whether the government’s scheme was reasonable, which is where the language of the Fourth Amendment focuses courts’ attention. But the Court did not broadcast the inapplicability of “reasonable expectation” doctrine, so most lawyers and lower courts will probably not realize that another in a growing line of cases is applying the Fourth Amendment in a new and better way, by hewing more closely to the text.

Part of the reason the Court didn’t take all the constitutional bait was the unusually narrow challenge the hoteliers brought. They attacked the collection of information by the government, granting for the sake of argument in this case that the government has the power to require them to collect information about their customers for the government’s later use. Had the Court considered the totality of what we called “the warrantless search scheme,” it would have had to assess whether it is reasonable in our constitutional system for private businesses to be dragooned into wholesale, comprehensive surveillance on behalf of the government. That scope might have brought the Court’s conservatives off the sidelines and into defending the degree of privacy against government that existed when the Fourth Amendment was adopted. (Surely, the government couldn’t have conscripted businesses into mass surveillance of the public at the time of the framing.)

Folks who are paying attention will recognize that the “reasonable expectation of privacy” test continues to recede in importance. We will continue to wait, though, for the case that clearly and articulately applies the right against unreasonable seizures and searches to information as such. While Patel is a technical win, some later case or cases will have to truly address how the Fourth Amendment is to be administered in the modern era.

Which States Have the Most Libertarians?

In 2010 I blogged about which states have the strongest libertarian constituencies, using some data from political scientist Jason Sorens, founder of the Free State Project, and also 1980 Libertarian Party results from Bill Westmiller. That column can be found here, complete with graphics.

Now Sorens has updated his results with 2012 data added to 2004 and 2008. As he notes, the results are fairly similar. You still find the most libertarians in the rugged individualist states of the mountain West plus New Hampshire. The mountain states were also best for Ed Clark, the Libertarian nominee back in 1980. As I noted previously, New Hampshire was in the bottom 10 for Clark, but near the top in Sorens’s ranking in 2010 and a bit higher this time. I’m not really sure what caused the change. 

Sorens notes that “Vermont, Maine, Kentucky, and Texas have gained, while Michigan, Idaho, Indiana, and Georgia have fallen” in the later calculations. I pointed out previously that Kentucky, my home state, was dead last for the Libertarian candidate in 1980. And it didn’t do very well in Sorens’s 2010 ranking either. Since June 2010, of course, Kentucky has elected the most libertarian member of the Senate, Rand Paul, and one of the most libertarian House members, Thomas Massie. So it’s about time the state’s voters started moving up the libertarian rankings, albeit only slightly. 

Here’s Sorens’s latest ranking:

state libertarians
Montana 5.504036
New Hampshire 4.163368
Alaska 3.586032
New Mexico 3.319092
Idaho 2.842685
Nevada 2.477748
Texas 1.632528
Washington 1.568113
Oregon 1.180586
Arizona 1.0411
North Dakota 0.7316829
Indiana 0.6056806
California 0.5187439
Vermont 0.4731389
Utah 0.2056809
Colorado 0.1532149
Kansas 0.107657
South Dakota 0.0328709
Maine -0.0850015
Pennsylvania -0.2063729
Iowa -0.3226413
Georgia -0.3296589
Virginia -0.3893113
Maryland -0.4288172
Rhode Island -0.470931
Tennessee -0.4882021
Missouri -0.4912609
Arkansas -0.5384682
Louisiana -0.5897537
Nebraska -0.6350928
Minnesota -0.7662109
Michigan -0.7671053
North Carolina -0.811959
South Carolina -0.8196676
Illinois -0.9103957
Ohio -0.9599612
Delaware -1.057948
Florida -1.072601
District of Columbia -1.091851
New York -1.225912
Kentucky -1.330388
Massachusetts -1.342607
Wisconsin -1.410286
New Jersey -1.431843
Connecticut -1.606663
Alabama -1.863769
Oklahoma -1.93511
West Virginia -2.244921
Mississippi -2.519249

Lots of technical background can be found at Sorens’s post on the Pileus blog. More on the broader libertarian vote here and especially in this ebook.

Texas Will No Longer Imprison Kids for Missing School

The AP reports some good news out of Texas over the weekend: 

A long-standing Texas law that has sent about 100,000 students a year to criminal court - and some to jail - for missing school is off the books, though a Justice Department investigation into one county’s truancy courts continues.

Gov. Greg Abbott has signed into law a measure to decriminalize unexcused absences and require school districts to implement preventive measures. It will take effect Sept. 1.

Reform advocates say the threat of a heavy fine - up to $500 plus court costs - and a criminal record wasn’t keeping children in school and was sending those who couldn’t pay into a criminal justice system spiral. Under the old law, students as young as 12 could be ordered to court for three unexcused absences in four weeks. Schools were required to file a misdemeanor failure to attend school charge against students with more than 10 unexcused absences in six months. And unpaid fines landed some students behind bars when they turned 17.

Unsurprisingly, the truancy law had negatively impacted low-income and minority students the most. 

In the wake of the arrest of a Georgia mother whose honor role student accumulated three unexcused absences more than the law allowed, Walter Olson noted that several states still have compulsory school attendance laws that carry criminal penalties:

Texas not only criminalized truancy but has provided for young offenders to be tried in adult courts, leading to extraordinarily harsh results especially for poorer families.  But truancy-law horror stories now come in regularly from all over the country, from Virginia to California. In Pennsylvania a woman died in jail after failing to pay truancy fines; “More than 1,600 people have been jailed in Berks County alone—where Reading is the county seat—over truancy fines since 2000.”)

The criminal penalties, combined with the serious consequences that can follow non-payment of civil penalties, are now an important component of what has been called carceral liberalism: we’re finding ever more ways to menace you with imprisonment, but don’t worry, it’s for your own good. Yet jailing parents hardly seems a promising way to stabilize the lives of wavering students. And as Colorado state Sen. Chris Holbert, sponsor of a decriminalization billhas said, “Sending kids to jail—juvenile detention—for nothing more than truancy just didn’t make sense. When a student is referred to juvenile detention, he or she is co-mingling with criminals—juveniles who’ve committed theft or assault or drug dealing.”

It’s encouraging to see movement away from criminalized truancy, but it’s not enough. As Neal McCluskey has noted, compulsory government schooling is as American as Bavarian cream pie. We shouldn’t be surprised when the one-size-fits-some district schools don’t work out for some of the students assigned to them. Instead, states should empower parents to choose the education that meets their child’s individual needs.

Summer Regulation: Does the Internet Need Saving?

Yesterday was the first day of Summer, and you know what that means? Sun, sand, the great outdoors…and a new issue of Regulation magazine. This issue contains a number of interesting articles that will be discussed in the coming months.

The cover articles provide perspective on the FCC decision to impose traditional public utility regulation on the internet. “What Hath the FCC Wrought”, by University of Pennsylvania professor and former FCC chief economist Gerald Faulhaber, argues that service quality will suffer to the extent that service providers can’t charge more for streams that require greater provider resources. Kansas State professor Dennis Weisman argues that internet regulation will likely protect competitors from competition rather than serve consumer interests just like the old telephone regulatory scheme.

A pair of articles discuss healthcare policy. West Texas A&M’s Neil Meredith and Heritage Foundation scholar Robert Moffit examine provisions of the Affordable Care Act encouraging the development of multi-state health plans (MSPs) intended to provide larger insurance pools while overcoming some of the regulatory burdens of state-regulated plans. They argue that eliminating questionable requirements would give consumers more opportunities to use MSP insurance.  University of Arizona professors Christopher Robertson and Keith Joiner propose two changes to health insurance to improve efficiency.  The first would set the stop-loss limit as a constant percent of wages rather than a fixed dollar amount.  The second would pay patients directly a portion of the cost of high-cost low-evidence-of-benefit procedures regardless of whether they obtained the procedure.  This would induce patients to think more carefully about the benefits of expensive uncertain-benefit procedures.

This issue continues Regulation’s long history of examining housing policy. Some Federal housing programs subsidize developers through tax credits to build affordable rental housing while other programs provide assistance directly to tenants in the form of vouchers. Edgar Olsen of the University of Virginia makes the case for moving to an all-voucher housing assistance program.

The Social Security Disability Insurance (SSDI) fund will run out of money in 2016. Consultants A. Bentley Hankins and Jeffrey Joy propose five reforms that would update the program to reflect increased life expectancy and the changing skill requirements of jobs.

For many decades, articles in Regulation have referenced work of the late Gordon Tullock to explain the political economy of regulatory policy. Zachary Gochenour examines Tullock’s legacy, and speculates about future trends in the field of public choice economics that he helped build.

For these articles and many more, read the full issue of Regulation here.

The Government Has to Pay for the Raisins It Confiscates

The near-unanimous Supreme Court decided today in favor of the farmers whose raisins the federal government wanted to take as part of a cockamamie New Deal-era regulatory scheme. The Court ruled 8-1 in support of Cato’s position that taking personal property is a compensable action, regardless of whether the government purports to act on the property owner’s behalf, and 5-4 on the question of compensation for that taking. (This is two years after the Court ruled 9-0 that the Marvin and Laura Horne could have their day in court and raise their constitutional challenge, rather than being stuck in some byzantine administrative purgatory.)

Of course, it should be rather obvious that when the government takes your property, its actions are subject to the Fifth Amendment’s Takings Clause, which requires that such taking be (a) for a “public use” and (b) subject to the owner receiving “just compensation.” And it should be equally obvious that the Constitution doesn’t distinguish between real property (your house) and personal property (your car). Yet the government insisted here that, at least in the context of agricultural-marketing/price-setting programs, it can take your crops and do whatever it likes with them so long as it’s all hypothetically for your own benefit.

Chief Justice Roberts swatted away that contention. Here are the key paragraphs (pages 4-5 of the slip opinion):

There is no dispute that the “classic taking [is one] in which the government directly appropriates private prop­erty for its own use.” Nor is there any dispute that, in the case of real property, such an appropriation is a per se taking that requires just compensation.

Nothing in the text or history of the Takings Clause, or our precedents, suggests that the rule is any different when it comes to appropriation of personal property. The Government has a categorical duty to pay just compensa­tion when it takes your car, just as when it takes your home. (citations omitted)

There are some other nuggets in the opinion, including a riff on the government’s contention that raisin farmers, to avoid the Raisin Administrative Committee’s attentions, could simply sell wine: “ ‘Let them sell wine’ is probably not much more comfortable to the raisin growers than similar retorts have been to others throughout history.” Moreover, “[r]aisins are not like oysters: they are private property – the fruit of the growers’ labor – not “public things subject to the absolute control of the state.”

In any event, thus the Hornes’ multi-year fight against the U.S. Department of Agriculture ends in a definitive ruling that the USDA cannot assess them nearly half a million dollars for the value of the raisins they refused to relinquish (nor a $200,000 civil penalty that added insult to injury). Let’s not forget that this epochal battle involved two trips to the Supreme Court, where the government only got one of a possible 18 votes.

For more background on the case, see Trevor Burrus’s commentary when we filed our brief. For early reaction to the ruling, see Ilya Somin’s post at the Volokh Conspiracy.