Knowledge And Decisions

In addition to forcibly changing — distorting — the price signals that convey knowledge of scarcities and options, the government has also increasingly used force directly to transfer resources. Massive “urban renewal” programs, for example, have simply ordered people to give up their homes and businesses, in order that land may be cleared and something else built on the site. Similarly, the military draft has forcibly transferred people from one occupation to another. Less dramatically, but no less importantly, the government has also forcibly appropriated many property rights over the years, without appropriating the physical things to which these rights are attached. As noted earlier (Chapter 5), to appropriate 10 percent of the value of land is the same thing economically as appropriating 10 percent of the land itself. Politically, however, the two things are quite different. The cost of knowledge to the electorate is much higher when part of the value of land is appropriated by restricting the options as to its use than when an equivalent appropriation takes the obvious form of expropriating a portion of the land itself. The same principle is involved when the government forcibly changes the terms of contracts already voluntarily negotiated between private parties, as when it changes the so-called “retirement” age — i.e., the age at which one party’s obligation to employ the other ceases. Assets set aside for other purposes must legally be expended to retain unwanted services — thereby reducing the real value of given money assets by reducing the options as to their use, just as land that cannot legally be used in as many ways is less valuable than physically identical land unrestricted by entails, zoning, or lost mineral rights.

Much articulation goes into trying to demonstrate to third party observers that the forcible transfers lead to more beneficial results. Yet on general principle, it is not clear that articulation is the best mode for weighing alternative values or that third party observers are the best judges. When a given set of homes and businesses are destroyed to make way for a very different set of homes and businesses, as in “urban renewal,” a truly greater value of the second set would have enabled their users (or financial intermediaries) to bid the land away from the original users through voluntary market competition without the use of force by the government (especially since the second set of users almost invariably has higher incomes than the first).³¹ Voluntary transfers of land are so commonplace as to cast doubt on the “need” for force, if the second set of uses is in fact more valuable. Actually, force is used twice in urban renewal transfers — once to dispossess the original users and again to transfer assets from taxpayers to subsidize the second set of users. The issue here is not the unpleasantness of force so much as its implications for the claim that the transfer of resources was to a more valuable use.

The particular site of the “urban renewal” may be far more attractive afterwards than it was before, and this adds plausibility to the claim of social benefits. But any site, activity, or person, can be made more attractive by expending resources. Whether the incremental costs experienced by those who pay them outweigh the incremental benefits experienced by those who receive them is the crucial question. When those who pay and those who benefit are the same, as in voluntary market transactions, then it is unnecessary for third parties to incur the costs of deciding on the basis of plausibility, much less pay the still higher costs of obtaining more solid knowledge. Where force must be used to effect the transfer, the incremental costs apparently exceed the incremental benefits of the change as experienced by those directly involved. “Objective” data showing that the people dispossessed moved to “better” housing elsewhere likewise has more plausibility than substance. That “better” housing was always an option before — at a price, and the rejection of that option indicates a trade-off of housing for other things more valued by those actually experiencing the options. Forcibly reducing any set of options available can lead to a new collection of results — some part of which is “better” than its counterpart in the old collection, but the real question is which whole collection was preferred by the chooser when he had the choice.

More generally, “urban renewal” has involved visible benefits concentrated on a particular site and costs diffused over a nation of taxpayers, as well as costs borne by dispersed former residents. In other words, the cost of knowledge of benefits is much lower than the cost of knowledge of losses — even when the losses exceed the benefits. Therefore, it is rational for political decision makers to continue such programs, even when irrational economically or socially.