John Locke Update / Research Newsletter

Eminent domain and the libertarian problems with Keystone

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As noted previously this newsletter has expanded its focus. In addition to issues related to the environment, we will now also include discussions of topics related to economics. As in the past, the newsletter will discuss relevant analysis done by the JLF and other think tanks as well as items in the news.

1. Eminent domain and the libertarian problems with Keystone

Everyone on the right is enamored with the Keystone XL pipeline, or so it seems. After all, it appears to be all about the market. There is a resource that Canada has and, through free trade, we could be making use of it for the benefit of the American people — cheaper gas, more economic growth, and more jobs, all through the process of trade and exchange. But for many of us who believe strongly in these principles, there’s a problem: through the use of eminent domain, land will be taken from private citizens by force and transferred to private companies who will be building and profiting from the pipeline.

Recently in the Washington Examiner, Tim Carney focused on this philosophical problem for those who, on the one hand, believe strongly that we should move forward with the pipeline but, on the other, have been ardent defenders of private property and critics of the Kelo v. City of New London Supreme court decision, which allows the use of eminent domain for economic development purposes.

Carney highlights a current case in Nebraska where the court has shut down construction of the pipeline over this issue. "The plaintiffs were landowners in Keystone’s path who didn’t want to sell, and so became victims of eminent domain to benefit Keystone," writes Carney. The taking was approved by the state of Nebraska under a law that was passed in 2012 granting pipeline companies eminent domain authority. The judge, Stephanie Stacy, shot down the law as unconstitutional, taking the side of the private landowners against the state and the pipeline companies.

Who to side with in this case should be a no-brainer for conservatives and libertarians who argue that private property rights are the foundation of their free enterprise philosophy.  As Carney notes:

NIMBYism [Not in my back yard] is problematic from a free-enterprise view only if it’s used metaphorically. If somebody else is trying to build something literally through your back yard, shouldn’t you have the right to say no?

And from north to south, that’s exactly what Keystone XL’s owners are doing: working with state governments to use eminent domain and force reluctant landowners to allow the pipeline through their property.

So if eminent domain is not allowed, does it mean that the pipeline does not get built? The answer is no. What it means is that pipeline companies actually have to pay landowners their reservation price, not what some court says is the "fair market price." The vast majority of us at any given moment are not willing to sell our houses, farms, or other businesses voluntarily at the current market price. What makes any price a "market price" is that it brings together willing buyers and sellers. If force or strong-arming is behind a given sale, then the price that is paid or received has nothing to do with markets properly conceived.

But just because the market price at any given point in time is not one that would induce us to sell it doesn’t mean that there isn’t a higher price that we would voluntarily accept for our property.  This is what is called our reservation price, and for the vast majority of us who own property, it is above the market price. What pipeline companies need to do is negotiate with a landowner, find out what his reservation price is, and, if they really want access to the land, pay it. As Carney points out:

If the pipeline is economically so valuable, shouldn’t its developers be willing to pay what it takes to build it — without the government putting a gun to the head of landowners?

2. N&O mischaracterizes regulatory reform in attempt to associate Republican legislature with Duke ash spill

Toward the end of an otherwise informative article on Duke’s coal ash spill in Monday’s Raleigh News and Observer, reporter John Murawski gratuitously throws in the following statement, obliquely suggesting that Republican regulatory reform could have lead to the spill:

The move to tighten oversight of coal ash ponds met resistance here as Republicans gained control of North Carolina’s legislature in the 2010 elections. A bill titled "An act to increase regulatory efficiency in order to balance job creation and environmental protection" required the state "to reduce the burden" on regulated companies and disallowed state safety standards that are stricter than federal standards.

And then went on to quote a former DENR head under Governor Perdue as saying:

If you can’t be more stringent than the federal regulations, then it presents a real dilemma.

But the fact is the legislation referred to does not "disallow state safety standards that are stricter than federal standards." What the reform legislation says is that the regulatory agency, in this case DENR, cannot unilaterally impose regulations that are more strict than the federal government requires. Such regulations must be approved by the legislature. In other words, regulations in North Carolina that are more stringent than, for example, those that are implemented by President Obama’s EPA, can be as stringent as elected law makers want them to be, which may be more or less stringent than what would be decided by bureaucrats acting on their own preferences.

If Murawski had recognized this it might have lead him to a follow-up question for Mr. Freeman: "At any time between October 2011 when the reform was implemented and January 2013 when you left, did you go to the legislature and suggest that they approve new regulations in this area?" I do not know the answer to this question, but it seems to be the obvious question to ask, unless your goal is to pin something on the Republicans.

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Roy Cordato is Senior Economist and Resident Scholar at the John Locke Foundation. From January 2001 to March 2017, he held the position of Vice President for Research at the Locke Foundation. He also holds the title of Lecturer at… ...

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