Assessing the Economic Impact of Banning Economic Development Takings:

The Institute for Justice (the libertarian public interest law firm that represented the property owners in Kelo v. City of New London) has an interesting study assessing the economic impact of post-Kelo reform laws that ban Kelo-style economic development takings.

Contrary to the "doomsday" predictions of planners and local government officials who claimed that eliminating economic development takings would drastically stifle development, the study finds that states with strong post-Kelo reform laws have not suffered any reduction in growth and development relative to preexisting trends or in comparison with states that passed ineffective reforms or none at all.

I tend to agree with the study's conclusion that takings for economic development aren't actually necessary to increase employment or promote local economic growth. For reasons I outlined in this article, economic development takings are likely to do more harm than good for local economies.

At the same time, I think that the IJ study is not yet a definitive assessment of the economic impact of post-Kelo reform laws. All but one of the laws considered in the study have been in force for less than two and one half years (Utah, which enacted its reform law a few months before Kelo came down on June 23, 2005, is the exception). It is probably too early to fully assess their longterm impact. In addition, while the study controls for preexisting economic trends, it doesn't take account of intervening events other than post-Kelo reform laws that might affect economic development in different regions of the country.

The IJ study is a compelling refutation of the more extreme doom and gloom predictions of Kelo defenders. In my view, time will show that banning economic development takings is a boon for local economies, not a detriment. A few state Supreme Courts, such as Washington's (1959) and Kentucky's (1979), banned economic development takings under state constitutions many years before Kelo; there is no evidence that their actions undermined their states' economies in any way. Development economists have long argued that protecting property rights is a good way to promote growth. If landowners' rights are protected, they are more likely to invest in their properties and establish enterprises that stimulate local economies.

However, it will probably take several years for us to accumulate more definitive data on the impact of post-Kelo reform laws. In the meantime, the IJ study, combined with other available evidence, has shifted the burden of proof to those who argue that economic development takings are an essential tool for promoting local economic growth. It is up to them to show that forcibly displacing homeowners and businesses for the benefit of other private interests really is a good way to promote economic growth.

CONFLICT OF INTEREST WATCH: As longtime VC readers know, I have done considerable pro bono work for IJ, including writing several amicus briefs on their behalf.