Wednesday, August 01, 2007

Why Property Rights?

In response to my proposal to put strong protections for property rights and economic liberties in the Diefenbaker Bill of Rights, BKN asks a question that deserves another post:

What is the problem (beyond closing the barn door after the F*ck You Vets Act has bolted) that your proposed amendment is meant to solve?

There are two ways of interpreting "problem." The first is what problem facing Stephen Harper would merit taking on a project like this. I don't think that's what BKN means, but I hope to post on it next.

The other interpretation is what social mischief, as seen from the disinterested and Olympian perspective of the Pithlord, could be avoided? That's what I'll talk about right now.

There are two things going on in my mind. The first is a suspicion that the F*ck You Vets Act isn't totally isolated. The sovereignty of the legislature is a mighty club, and sometimes it is used to create individual injustices. So far, everyone seems to recognize the FYVA as one of these. It would be nice if there were a way that judges could do the right thing and just invalidate the sucker. The state gets its chance to make the public spirited case for what it is doing under s. 1. If it still disagrees when the SCC rules, Parliament can use the notwithstanding clause. So there's something to be said on that naive level.

But the second thought is more systemic. Security of property and freedom of contract have well-understood benefits, and make for good default rules for a liberal society. If we are going to take from somebody's private holdings and put it in to the public pool, then the cost should be borne by the whole community, not just by the private holder. Countries where this isn't the case develop parasitic states and strangle development. Ethiopia is an example I'm semi-familiar with. British Columbia in the 1990s is a less extreme example.

Governments can always compensate. Sometimes they don't want to because it would be too costly to do that. But that just means that the true social costs aren't showing up in the budget. The government uses the law-making power to do what it doesn't want to through the tax spending power not because it is more efficient, but because it is less transparent.

The risk of taking-by-regulation, like all risks, gets monetized in investment decisions. Capital requires a bigger expected profit than it otherwise would, which means that there are losses on the other side of the capital-labour transaction.

Granted that there have to be limits to a system of private property and free exchange. The institutional question is whether it is a good idea to require the state to justify those limits in court, subject to an exceptional non obstante power, or just to rely on the political process to keep the state from going too far?

As we've seen with the Charter, the non obstante doesn't answer the whole problem of judicial overreach -- at least not if it is going to remain exceptional (and if it isn't, then the whole process becomes meaningless). There are going to be costs of courts striking down beneficial legislation.

On the other hand, the existence of a property rights-guarantee will make governments think more about what they are doing and who is being affected. If they know they are going to have to justify what they are doing, they are going to have to figure out what the justifications are, and whether they could achieve their purposes less intrusively or with compensation to targeted losers.

I am sure that the judiciary would dismiss claims that represent a fullscale attack on the mixed economy or welfare state. On balance, I think that state would become smarter and less intrusive on the margins. I suppose I could be wrong, but this is a statutory instrument and there is an override.

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