A hidden danger of a government that intervenes in every aspect of its citizens’ lives is that it develops harmful alliances with the rich and powerful. Big Government and Big Business then create conditions that are mutually beneficial to each other, but that harm ordinary citizens.
Many examples exist. For instance, we see it in the decades-long conspiracy between telecom giant AT&T and the National Security Agency to spy on ordinary citizens. The fact that this conspiracy violated US law didn’t seem to bother either party.
Another example is the explosive growth of the military-industrial complex. Here we see a cycle that begins with fear-mongering politicians demanding that the government “do something” about some threat to US national security. The threat is often overstated, as in the events leading to the US entering World War I. Or, it might be fabricated altogether, as in the fictitious Gulf of Tonkin incident that led to US involvement in Vietnam.
Dealing with the threat requires military equipment, which politically connected defense contractors are happy to provide. And congressional representatives that don’t go along receive a stark warning. If they don’t play ball with the defense industry, they could lose their re-election bid. After all, almost every congressional district in the US has at least one munitions factory or military base. Voting against the threat du jour could result in job losses, and negatively impact their chances for re-election.
But nowhere does the incestuous relationship between Big Business and Big Government create more harm for ordinary citizens than in the practice of “eminent domain.” The Fifth Amendment to the US Constitution permits the government to take private property for “public use,” as long as it pays “just compensation” for the “taking.” Thanks to the way the courts have interpreted this clause of the Fifth Amendment, your property is safe only until politicians decide someone else needs it more than you do.
The most common use of eminent domain is for large-scale construction projects such as highways, bridges, dams, and railroads. But beginning in the 1950s, eminent domain came to be used to eliminate urban "blight." Thus, in my hometown of Charleston, West Virginia, the "Triangle District"—a low-income enclave occupied primarily by blacks—was razed to make room for interstate highways and other development.
Politicians have also discovered they can use eminent domain to force the sale of existing property to construct malls, hotels, and convention centers. This has the benefit (from the politicians’ perspective) of increasing tax revenues and appeasing well-connected private interests. Thus, many state laws and local ordinances now authorize eminent domain for "economic redevelopment." In 2005, the Supreme Court endorsed this practice in its infamous Kelo decision.
One of the highest profile abuses of eminent domain has been practiced by none other than billionaire, perennial loudmouth— and now presidential candidate— Donald Trump. “The Donald” has used eminent domain throughout his career for forcible economic redevelopment. For instance, in the 1990s, after building the 22-story Trump Plaza in Atlantic City, New Jersey, Trump persuaded the Casino Reinvestment Development Authority (CRDA) to seize adjoining properties to build a limousine parking lot.
Most owners went along, but a few didn’t. One was a Russian immigrant named Peter Banin. A few months before Trump sicced the CRDA on property owners, Banin and his brother had opened a pawn shop. They paid $500,000 for the property. Backed by Trump’s political muscle, the CRDA offered them $174,000 to buy it. When the Banins refused to sell for a huge loss, Trump and the CRDA sued.
The Donald lost that court battle, thanks to the intervention of the libertarian-leaning Institute for Justice, which financed their defense. But the outcome might be very different if the case had been brought today, thanks to the Kelo decision.
For that reason, I was somewhat surprised when I recently learned that the CRDA—the same agency that sued the Banins in the 1990s — had once again been rebuffed in an eminent domain case. Charles Birnbaum is an elderly piano tuner who owns an apartment building only a block away from Atlantic City’s famous boardwalk. He inherited the property from his parents, who were Holocaust survivors. The CRDA, to no one’s surprise, thought that his property would be better suited for a casino.
There was only one problem with that logic. Atlantic City has too many casinos. Indeed, in the last two years, four nearby casinos have closed, including—ironically—the Trump Plaza. So after originally granting the CRDA’s request last year, the court reconsidered and issued an order that temporarily postponed the seizure.
“The Court is greatly concerned that as a result of the uncertainty surrounding Atlantic City, if the condemnation is granted, the Birnbaum property could sit idle in a corner of Atlantic City waiting for years for the plan to come to fruition.”
The court gave the CRDA 180 days to provide “reasonable assurances” that a casino would actually be built on the property. In other words, seizing the property of an elderly man for economic redevelopment doesn’t violate any constitutional principle. His property is safe until the CRDA can convince the judge that economic redevelopment will actually take place.
The same principle, of course, applies in any state that permits eminent domain to be used for economic development. That’s true in most states today.
Does that give you a warm and fuzzy feeling about investing in the US? Maybe it’s time to consider a Plan B.