By DAVID MOON, Moon Capital Management, LLC
July 3, 2005
The most important role of government is to protect the rights of the individual. Economic expansion and entrepreneurship became possible when this concept was extended to the property of an individual. People will invest when that investment is protected from looters.
But what if the looters wear black robes and sit in a Greek Revival building in Washington, D.C.?
Based on a June decision by the U.S. Supreme Court, governments appear to have the right to take your home if a local legislative body decides it could be better utilized to benefit the entire community. In years past, the courts distinguished between a government that wanted to take property for public use (roads, sewers, etc.) and public benefit (shopping centers, fancier neighborhoods).
"Promoting economic development is a traditional and long accepted function of government," wrote Justice John Paul Stevens in defending the right of New London, Connecticut to condemn 15 old houses and transfer the property to a developer. “Clearly, there is no basis for exempting economic development from our traditionally broad understanding of public purpose."
Don’t assume that the risk of condemnation looms only over your real estate. Any asset is at risk. In a dissenting opinion, Justice Sandra Day O'Connor warned that "the words 'for public use' do not realistically exclude any takings, and thus do not exert any constraint on the eminent domain power…Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded."
If you own a piece of land (or any other asset) that can be redeployed in a way that will create more wealth for the other people in your community, that asset is a candidate for being taken by the government.
We are now what estate planners would call secondary beneficiaries of our own assets. Government is the primary beneficiary, leaving the individual with nothing more than a remainder interest in his own stuff. The Supreme Court now holds that the community collectively shares primary benefit of asset ownership; it is not reserved for the individual.
We aren’t talking about the government’s taking people’s assets to save babies or kill communists. The Supreme Court decision was in the name of economic development. Don’t forget Justice O’Connor’s warning about this slippery slope. If the government can take your home for the benefit of others in your community, what protects the assets inside your house? What about an asset inside your mind?
Net wealth creation is not the result of a reverse Robin Hood process, where government takes from the disenfranchised and gives to the rich and well-connected. Wealth is created as the result of the willingness of entrepreneurs to place their energy and capital at risk in exchange for the prospect of profit. Financial gain isn’t possible if asset rights aren’t protected.
The greatest economic development tool of a local government is its property deed book. On the federal level, by contrast, the U.S. patent office is responsible for creating more jobs than every chamber of commerce in the country combined. These are the tools that give individuals the confidence to buy, improve, develop and conceive assets that become productive engines for society.
Morally, that protection exists as a function of certain inalienable rights granted by our creator, not the government. It is a deal between us and God, not the government. “Thou shalt not steal. Thou shalt not covet thou neighbor’s house…nor anything that is thy neighbor’s.” We expect the government to help protect those rights, not violate them.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).