Tuesday, July 05, 2005

Economic Liberty

Mancur Olson suggested there are 2 necessary conditions for economic prosperity in his book Power and Prosperity:
. . .it was natural to ask how a society can obtain the types of markets that generate the rapid and sustained growth that brings a cornucopia of wealth. If we bring all of the theory and evidence together at once, we see that. . . .only two general conditions are required for a market economy that generates economic success.

. . . .the first of these conditions is the paradoxical condition of secure and well-defined individual rights. Rather than being a luxury that only rich countries can afford, individual rights are essential to obtaining the vast gains . . .and to obtaining the bounteous harvests that property-intensive and contract-intensive production can yield. In particular, a market economy can reach its full potential only if all of the participants in that economy, whether individuals or corporations, native or foreign, have the right to the impartial enforcement of the contracts they choose to make. It may also reach its full potential only if all participants have secure and precisely delineated rights to private property. . . .

There is no private property without government -- individuals may have possessions, the way a dog possesses a bone, but there is private property only if the society protects and defends a private right to that possession against other private parties and against the government as well. . . . [pages 195-196]

The second condition required for a thriving market economy is simply the absence of predation of any kind. . . .one other kind of predation can and often does occur even in societies with the best individual rights. This is predation through lobbying that obtains special-interest legislation or regulation and through cartelization or collusion to fix prices or wages. . . .The distortions of prices and the obstacles to innovation arising from distributional coalitions make an economy sclerotic. . . . [pages 196-197]

I believe that since the "economic due process" era, the Supreme Court has given greater protection to political liberties than to economic liberties. In the realm of liberties such as free speech the Court seldom defers to legislatures, but it has often been very deferential with respect to economic liberties. I suggest this contrast is evident in its Kelo opinion because it allowed government to take private property for transfer to another private use (even though a "public purpose" or "public benefit" was asserted). If the Court had not deferred to a legislative determination, it could have seen the transfer from one private use to another.

In deferring to legislative determination in cases where economic liberties are at risk or are actually infringed, the Court moves our system of political economy farther away from the conditions necessary for continued economic prosperity. Is there any action of government that is more predatory than taking property from one private use to transfer it to a different private use, and from one private owner to another private owner? I think not.

It seems to me the Kelo opinion does precisely what Olson explains should not be done if we want continued economic prosperity because "there is private property only if the society protects and defends a private right to that possession against other private parties and against the government as well." In Kelo the Supreme Court chose not to defend the private right of property against either other private parties or against government.

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