The Supreme Court fights city hall.

How the dismal science applies to your life.
June 4 2002 3:48 PM

Shut City Hall!

The Supreme Court concludes that most government agencies should be out of business.

OK, it's official. The Supreme Court has declared that most local government activities are prohibitively expensive. The routine business of issuing building permits, investigating crimes, maintaining health codes, regulating land use—these are all unjustifiable luxuries. In a world of honest reckoners, there would be almost no government at all.

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That's the thrust of the court's April opinion in the Tahoe case. The case harks back to the early '80s, when local governments around Lake Tahoe formed a regional planning agency to develop a strategy for ecologically sound growth. While the agency was devising its plan, the governments imposed a moratorium on economic development. If you wanted to build a strip mall, you had to wait.

Sound prudent? Not according to Justice Stevens, who, speaking for a majority of the Supreme Court, declared pretty much all land-use planning—and for that matter, pretty much all government activity—an extravagance.

Well, OK, that's not exactly what Justice Stevens said. But it follows inexorably from what he did say. When local landowners requested compensation for moratorium-related losses, the court turned them down. Why? Because, according to Justice Stevens, land-use regulation—and for that matter most other government activity—would be prohibitively expensive if governments bore all the costs.

But if a regulation is too expensive when governments (i.e., taxpayers) bear the costs, then that same regulation is too expensive, period. If a development moratorium costs landowners $10,000, then the cost of that moratorium is $10,000, whether or not the landowners are compensated. Without compensation, the landowners are out $10,000; with compensation, the taxpayers are out $10,000; either way, the $10,000 cost is the same.

And is $10,000 a prohibitive expense? That's like asking whether $10,000 is too much to pay for a car; the answer depends on how much you want the car, or in this case on how much you value the benefits of land-use regulation (which we haven't yet accounted for, and which might come to either more or less than $10,000). But shifting that $10,000 burden from taxpayers to landowners can't change the size of the burden, so it can't change the expense from reasonable to unreasonable.

This was a lesson that economists hammered into public consciousness in the bad old days of the military draft. Back then, the pro-draft lobby used to argue that a volunteer Army would be prohibitively expensive. Economists took to the airwaves and the op-ed pages to argue that a draft is just as expensive as a volunteer Army. To hire David Letterman as a soldier, you'd have to pay him the same $30 million he earns at CBS. But if you draft him, you cost him $30 million in lost salary. Either way, the cost is $30 million, and he should be in the Army only if he provides at least $30 million worth of military service.

I believe, though I cannot prove, that through their persistence in making that argument, economists had a lot to do with swaying influential opinion against the draft. But that was a long time ago, and the lesson has apparently been forgotten. So let me reiterate it: Anything that's too expensive for the government to pay for is too expensive, period.

In the Tahoe case, that leaves only two possibilities. Either a) the justices—having concluded that paying compensation would transform routine government activity into "a luxury few governments could afford"—are prepared to draw the logical conclusion that routine government activity is not worth the cost, and therefore local governments should for the most part be out of business; or b) the justices are incapable of employing enough elementary logic and economic analysis to understand the implications of their own opinion.

What if the court had ruled differently, requiring governments to bear the costs of their own regulatory activities? Then those governments would be forced to think hard about which regulations are worth preserving. That's all to the good. We should encourage policy-makers to be reflective. Instead, the court has encouraged policy-makers to ignore the costs of their own decisions; that's a recipe for bad decisions.