PrestoPundit

Archive for June, 2005

Posted by PrestoPundit on 06/30/2005

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THOMAS SOWELL IS 75

Posted by PrestoPundit on 06/30/2005

Happy Birthday to a great man. Dr. Sowell takes a look back.

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David Souter gets a personal helping of Kelo v. New London

Posted by PrestoPundit on 06/29/2005

A New Hampshire town will consider the eminent domain condemnation of David Souter’s house.

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The Sins of the Fed

Posted by PrestoPundit on 06/28/2005

Stephen Roach — chief economist at Morgan Stanley — on Alan Greenspan’s Original Sin. Quotable:

The problem with an activist central bank is that decision makers in the real economy — consumers and businesspeople alike — mistake the Fed’s point of view for strategic advice. And so do financial market participants. After hearing the Fed pound the table, consumers feel left out if they don’t spend their housing equity. Business managers felt equally deprived in the late 1990s if their companies didn’t achieve the dotcom-type valuations in the stock market that Chairman Greenspan insisted in the late 1990s and even early 2000 were well grounded in a once-in-a-century productivity miracle. The resulting overhang of excess IT spending was a direct outgrowth of this perceived deprivation. Needless to say, when investors and financial speculators saw the equity train leave the station and the Fed condone the high growth of a productivity-led economy by leaving interest rates low, they saw no reason to believe that a bubble was about to burst. When consumers hear from a Fed chairman that it makes little sense to take on fixed rate debt, they rush to floating rate instruments; not by coincidence, the adjustable rate portion of newly originated mortgage debt shot up in the immediate aftermath of Chairman Greenspan’s comments on consumer indebtedness. And should asset-dependent, saving-short, overly indebted American consumers feel at risk if the Fed assures them that there is no housing bubble — that the asset-based underpinnings of their decision making are well grounded? A record consumption share in the US economy — 71% of GDP since 2002 versus a 67% norm over the 1975 to 2000 period — speaks for itself.

The rhetorical flourishes of America’s central bankers have dug the US economy — and by definition, a US-centric global economy — into a deep hole. To this very day, the Fed has never confessed to the Original Sin of condoning the equity bubble. On the contrary, Greenspan & Company have been on the defensive ever since by dismissing the increasingly dangerous repercussions of the original post-bubble shakeout. Far from playing the role of the tough guy that is required of independent central bankers, the Fed has become an advocate of the easy money of a powerful liquidity cycle. One bubble has since begotten another — from equities to bonds to fixed income spread products (i.e., emerging market and high-yield debt) to property. And financial markets have gone along for the ride — not just in the US but also around the world as global investors and foreign central banks have rushed with reckless abandon to finance America’s record current-account deficit.

The day is close at hand when US monetary policy must get real. At a minimum, that will require a normalization of real interest rates. Given the excesses that now exist, it may even require a federal funds rate that needs to move into the restrictive zone — possibly as high as 5.5%. Yes, this would cause an outcry — perhaps similar to that which occurred in the spring of 1997 on the occasion of the Original Sin. But in the end, there may be no other choice. Fedspeak has taken us into the greatest moral hazard dilemma of all — how to wean an asset-dependent system from unsustainably low real interest rates without bringing the entire House of Cards down. The longer the Fed waits, the more perilous the exit strategy.

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Weintraub on Kelo v. New London — and California

Posted by PrestoPundit on 06/28/2005

“Court: OK to take from the poor, give to the rich”

The court ruled last week that the government can take one person’s property and transfer it to another for no greater purpose than to spur economic development and boost tax revenues.

This expansion of the concept of eminent domain ought to unite once and for all the political spectrum around the fact that economic freedom is not reserved only for the rich.

In fact, the history of government takings of private property shows that most often it takes from the poor, or the weak, and gives to the rich and the powerful. And the Supreme Court has just made that even easier.

In Kelo v. New London, the court, in a 5-4 ruling, said it was lawful for the city of New London, Conn., to force Susette Kelo and her neighbors to sell their modest but well-kept waterfront homes as part of an economic development project.

Their land will be turned over to a private development corporation to build a hotel, condominiums and an office building to complement a new Pfizer Pharmaceuticals plant recently built nearby.

The U.S. Constitution, of course, allows the government to force the sale of private property for public use. That power used to be reserved for the construction of things like roads, parks and schools. Every state constitution has a similar provision.

But over time, states and local governments have expanded that power to also include economic development. The idea is that “public use” really means “public purpose,” and public purpose can mean just about anything that a majority of a local city council says it means.

In California, this kind of work is generally done by redevelopment agencies, which are really just city councils acting in another capacity. These agencies get a share of the take in the new, higher property taxes they collect, which gives them an extra incentive to be aggressive.

State law allows redevelopment agencies to use the power of eminent domain only when the land they are taking is classified as “blighted.” But that is not a tough standard to meet. It requires that the property have at least one of four physical conditions and one of five economic conditions listed in the law.

This means, for example, that a piece of property whose uses are found to be “incompatible” with other nearby uses (a physical condition) and which sits in a neighborhood that lacks grocery stores, drug stores and banks (an economic condition) can be declared blighted and made part of a forced sale.

California has a rich history of cities trying to stretch this power to incredible ends, usually on behalf of powerful business interests. The city of Cypress blocked the construction of a new church and tried to grab the land instead for a Costco store, because churches don’t generate tax revenue and big-box stores do. The city of Lancaster also tried to do Costco’s bidding, this time by forcing out a 99-Cent Only Store so that the huge retailer could expand into its competitor’s space.

Both moves were eventually blocked by the courts, but only after costly battles. And who knows whether the plaintiffs would still prevail today, after the ruling in the Kelo case?

In San Jose, the redevelopment agency declared one-tenth of the city, home to one-third of its population, blighted. A Silicon Valley Business Journal report in 2002 detailed the city’s plans to uproot and move 99 businesses, 95 of which were owned by Hispanics or Asians.

Now the Legislature is considering expanding this power by allowing local agencies to declare neighborhoods blighted in part because they are not densely populated enough. Senate Bill 521, by Democratic Sen. Tom Torlakson of Contra Costa County, would expand the boundaries of “transit villages” near commuter rail stations and allow agencies to cite the “lack of high-density development” as a reason for using eminent domain to take property. The bill has passed the Senate and is pending in the Assembly.

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We are ruled by ..

Posted by PrestoPundit on 06/28/2005

“The dictatorship of a shifting Supreme Court majority.”

— Justice Antonin Scalia

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Political Economy in a Nutshell

Posted by PrestoPundit on 06/28/2005

COMMUNISM: You have two cows. The government takes both and provides you with milk.

BUREAUCRACY: You have two cows. The government takes them, shoots one, milks the other, pays you for the milk, and then pours it down the drain.

CAPITALISM: You have two cows. You sell one and buy a bull.

DICTATORSHIP: You have two cows. The government takes both, and then shoots you.

KELO v. NEW LONDON KLEPTOCRACY: You have two cows. Costco has 30 million cows. The government takes your two cows and gives them to Costco.

— adapted from Steven Greenhut

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Justice Kennedy

Posted by PrestoPundit on 06/28/2005

Is Justice Kennedy the worst Supreme Court judge in modern history? Betsy Newmark contemplates the author of one of the classic bonehead lines in recent judicial memory.

More on Kennedy here. Quotable:

in two particularly egregious recent decisions involving medical marijuana and eminent domain, Kennedy pissed off both strict constructionists and libertarians, abandoning the Constitution to endorse violations of individual rights. It may not have the unifying power of the fight against communism, but surely hating Kennedy is one of the few things that still unites the traditionalist and individualist strains of the conservative movement.

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Kelo v. New London — Tom McClintock fights back

Posted by PrestoPundit on 06/28/2005

“I am today announcing my intention to introduce an amendment to the California Constitution to restore the original meaning of the property protections in the Bill of Rights. This amendment will require that the government must either own the property it seizes through eminent domain or guarantee the public the legal right to use the property. In addition, it will require that such property must be restored to the original owner or his rightful successor, if the government ceased to use it for the purpose of the eminent domain action.”

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The Castle Coalition

Posted by PrestoPundit on 06/27/2005

Fight Eminent Domain Abuse.

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