Takings Exception: An Interview with Richard Epstein

The maverick legal scholar on property, discrimination, and the limits of state action

Richard A. Epstein, the James Parker Hall Distinguished Service Professor of Law at the University of Chicago, is one of the most provocative, controversial, and influential legal theorists in the country. His three best-known books, Takings: Private Property and the Power of Eminent Domain (1985), Forbidden Grounds: The Case Against Employment Discrimination Laws (1992), and Bargaining with the State (1993), are powerful contributions to the theory of limited state powers.

"I took some pride in the fact that [Sen.] Joe Biden (D-Del.) held a copy of Takings up to a hapless Clarence Thomas back in 1991 and said that anyone who believes what's in this book is certifiably unqualified to sit in on the Supreme Court. That's a compliment of sorts," says Epstein. "But I took even more pride in the fact that, during the Breyer hearings, there were no such theatrics, even as the nominee was constantly questioned on whether he agreed with the Epstein position on deregulation as if that position could not be held by responsible people."

Epstein's work is characterized by a relentless and rigorous use of reason. While developing a position on a given issue, he is constantly searching for an argument that fully accounts for the facts at hand and all possible rebuttals. "My attitude is talk is cheap, so let's debate," says Epstein, whose newest book, Simple Rules for a Complex World, was just published by Harvard University Press. "When I'm confident I'm right, I want people to disagree with me out of hand. Otherwise, I run the risk of a kind of complacency which can lead to the loss of a cutting edge. I'm perfectly used to living in a world in which most people disagree."

Chicago Tribune columnist Steve Chapman interviewed Epstein at his University of Chicago office.

Reason: How did you get acquainted with libertarian ideas?

Epstein: My intellectual style has always been that of a contrarian. I think that if there's a position everybody thinks is right and is happy with, then they're probably wrong. And the reason they are probably wrong is that they spend too much time on self-congratulation instead of attacking each other.

I studied law in England. The great advantage of English law schools, at least in the 1960s, was that they left you alone. I didn't have teachers who told me what to think. The English system was to read a bunch of stuff and then talk to a tutor for an hour and then read another bunch of stuff and then talk again with the tutor for another hour. The only direction I got was being told to read the 19th-century judicial opinions.

These 19th-century guys were all high-powered intellectuals who had strong libertarian views. So I read a huge amount of things which resonated with my own maverick instincts. By the time I came back to Yale and I heard what the dominant collective sentiment was circa 1966, I knew that I had gone off on a very different path.

The experience of being wayward and independent allowed me to dip into a set of sources that few American students read. I think the most important thing about my career was that I was not socialized early on to the dominant views.

Reason: Despite your libertarian leanings, you feel that pure libertarianism isn't quite up to explaining the way the world works. What do you see as its shortcomings?

Epstein: There is the kind of libertarian universe in which every individual has property rights in his or her own name, and all individuals have the exclusive right to use and dispose of their possessions–land, capital, so forth. Coordinated behavior takes place only through voluntary exchanges. That's a pretty austere world. Among other things, it precludes any government interference to prevent the premature exhaustion of common and pooled resources. And it prohibits any government system of mandatory taxation for any purpose whatsoever because it would be a forced exaction.

On the opposite extreme, there is a system in which you say the state can take from A and give to B because it wants to make B better off. It's quite willing to make A worse off to do so. That looks to most people like theft mediated by legislative behavior.

The traditional accounts of laissez faire and the welfare state have basically said that those are the only two viable alternatives that somebody can describe. And since it's perfectly clear to most people that we cannot have a world with zero taxation, zero police force, and so on, they feel we have to accept the world in which there is extensive government regulation and massive amounts of redistribution through taxation and other systems of social control.

What I said in Takings is, No, there's a tertium quid, a third alternative that allows government regulation and taxation to be used to overcome the holdout problems, the public goods problems, the coordination problems. But the quid pro quo is that if you want to use these coercive powers, you have to provide benefits to the individuals who have been coerced that leave them at least as well off as they were before the coercion takes place.

You can't ridicule this theory the same way that you can a naive version of laissez faire. You can no longer argue that you can't have any state at all. You can no longer argue that public rivers are going to be destroyed by pollution. You can no longer argue that it's impossible to extract oil and gas from underneath the earth in any kind of a sensible fashion. You can no longer argue that it's impossible to have a decent bankruptcy law.

Essentially the point that I'm trying to make in Takings–and I come back to it again in Bargaining with the State–is that you can have a world with forced exchanges without having a world of rampant redistribution, that you can abandon laissez faire without falling into the lap of the New Deal. A well-ordered theory of taxation is supposed to accomplish that. It doesn't do it perfectly, but it gets damn close to it with flat taxes relative to progressive taxes.

Another way to put this is to ask, How are political decisions made? The libertarian world is one which requires the unanimous consent of all individuals in order to reach a political decision. We know that in the old days of the Polish parliament, which required unanimous votes, they often got unanimity by taking the lone dissenter and throwing him out the window. On the other hand, rampant majoritarianism means that 51 percent can indeed confiscate the wealth of all 49 percent, which is what you get under the New Deal.

What the eminent domain compromise says that makes me a moderate is that we will allow the majority to have its way so long as it's willing to buy off its dissenters at a fair valuation. We can bring ourselves to a position in which we stop anybody from being made worse off by virtue of collective impositions.

Reason: Takings has significantly influenced the way the courts interpret the Takings clause of the Fifth Amendment. Are you encouraged by the impact?

Epstein: On an intellectual level, not very. To figure out what's going on with takings cases, you have to break them down almost area by area. Before the book came out, the basic attitude was that all matters of economic affairs were decided in the legislature. If you turned out to be very badly disadvantaged, all you could do was use political efforts to change the outcome. But you had no judicial recourse whatsoever.

The first of the breakthrough cases was Nollan v. California Coastal Commission [1987]. It raised an issue which has always been present but has never been explicitly answered: What's the extent to which you have to worry about extraction from the permit and approval system which undergirds the land-use system in the United States?

This was the case of an individual who had a small shack on a piece of beach-front property. He wanted to build a nice fancy house like his neighbors. The government said, "We'll let you build that house as long as you give us a lateral easement in the front of your property for our citizens at large to move to and from. You want the permit. You surrender the easement."

So libertarians were in a very odd position of trying to explain why it was that this contract was unjust and unconscionable. Justice Scalia tried very hard to do that. On one level, he said, we're going to give a higher level of scrutiny toward what governments do in these local property matters. But he was not able to fully articulate the reasons why this particular transaction is objectionable whereas other bargains that governments enter into with their citizens are not.

You're dealing with the hardest case in classical contract law: the one in which it turns out that the gains to both sides are evident, but nonetheless not as large as possible. This is different from the kinds of takings situations that most people think about–where property is just wiped out by virtue of government regulation or there's no potential gain to the regulated party.

The second big case came up five years later in Lucas. And once again, you've got a Scalia opinion and once again you've got a very fractured, intellectually confused result. In Lucas, a landowner was just told by the state: "No bargains here. You're not allowed to build a home anywhere on your entire plot of beach-front land because we're afraid that it might damage the coast. We think it's better that the land be vacant for the benefit of tourism and leisure." The landowner said, "That's a taking."

To people not versed in takings law, what else can the darn thing be? It doesn't seem like it's a very difficult case at all. In fact, the landowner lost in the lower courts, winning only when it came up in the Supreme Court. But he won on a theory which, to put it mildly, does not promise long-term serenity for the political realm.

The Court ruled that the reason we should take his claim seriously is that he's completely wiped out. The land had no residual value once he couldn't build on it. But, says the Court, if he had been told that he could only build a very small house–perhaps tucked off in the back of the land–then the state could more or less get what it wanted. So what the Court did was make a rule: full compensation for full wipeouts and no compensation for partial wipeouts, no matter how large. Then, with respect to those cases in which there are complete wipeouts, they ask (and rightly so) whether or not there is some kind of a common law nuisance that the state regulation was designed to prevent in a reasonable fashion, which wasn't the case.

But what Scalia did–and what was so terrible about the opinion–was to say essentially that the whole area of partial land-use restrictions is now beyond constitutional scrutiny. If you tell somebody they can't build a skyscraper but they can erect a four-story building–that they can't build a house but they can build a little tent or shack–then there's nothing they can do about it.

What was really needed was a coherent hearing which started from the ground up and took the very simple position that any time you impose a restriction on land use, the state has to either justify the restriction or pay for the value that is being deprived. Under those circumstances, the state will no longer have an incentive to hold a claim. But that was never done.

So now we have a set of rather funny rules that derive from Nollan on the one hand and Lucas on the other. The last of the big cases, which may ultimately be more significant than the other two, was the Dolan case [1994]. On its facts, Dolan was a more complicated version of the Nollan situation–the state was trying to withhold a permit. But it wasn't a pure case of exaction. There was a respectable argument that if you covered over large portions of the land, it would increase the amount of illegitimate runoff into a public creek, and some adjustment ought to be made for that. Justice Rehnquist had the right attitude. He said, Look, this is a certain set of circumstances in which it turns out that we cannot and should not tolerate a regime in which the state has perfect discretion over what it does and how it does it. But he could never figure out which frame of mind he should bring to a transaction which was imposed in part for good reasons–to prevent nuisance runoff–and in part for bad reasons–to extract an easement so that flood waters from other places could run peacefully by the Dolan land.

You need to have a way of talking about the relationship between constructive regulation and abusive bargaining to settle out the two components in the case. That is simply something which is not yet in the courts. What you need is a very strong and well-articulated theory which indicates that what you're trying to do is get the best of both possible worlds: to maximize the useful value of land and to minimize the amount of harmful pollution, so that when you sum up the positives and the negatives, you manage to get as many positives and as few negatives as is possible. That's what the policy of takings law should be.

Reason: Were you encouraged by the resolution of Dolan, if not the theory behind the decision?

Epstein: I was certainly encouraged by the higher level of scrutiny that they brought into it. I was encouraged by the fact that Justice Rehnquist intuitively knew that there was something fundamentally unfair about a situation in which everybody else who had land that fronted this river was paid if they were to surrender any portion of it and that this is the only guy who's going to be forced to give his land without compensation. The problem was that Rehnquist did not understand why it was that the particular practice that seems to be discriminatory and abusive was socially wasteful as well.

The only way you'll persuade the public to understand the urgency of the takings cases is to get people out of the frame of mind where they think that for every dollar that the public body wins, the individual loses a dollar. What typically happens is the public wins $1.00 and private owners lose $5.00 or $10. If you do that hundreds upon hundreds of times each year, you have a major drain on the social welfare of the community.

The way to understand property rights is as a system of rights designed to advance community welfare rather than to frustrate it. A coherent theory would allow you to understand that the public interest is the sum of all private interests and that those private interests are properly arranged and organized in a world which respects property rights but allows the government to take them so long as it compensates for the full extent of the losses.

Reason: How does your book, Bargaining with the State, address topics such as gun sweeps of public housing projects?

Epstein: The bargaining with the state problem is best understood by a reference to the discussion about Nollan and Dolan. It has to do with the situation in which the state conditions permits and licenses of one form or another on the willingness of individuals to play ball with some kind of reduction in land ownership. The police sweep question seems to be a straightforward Fourth Amendment kind of issue.

Normally, in a search situation, you require some kind of particular information about the places to be searched. People realize that if you're trying to look for guns and drugs in a public housing project, that particularization is not going to be possible. Yet there seems to be a strong impulse for trying to have the search nonetheless.

As a libertarian of sorts, I'm extremely nervous about having police sweeps that are done in unauthorized ways. Does this tie into bargaining with the state? Here's a possible answer: Suppose this was a private housing project and it turned out that the landlord said to all of the tenants, "Look, I'm willing to take you in, but there are so many guns around here that I'll never be able to keep my better tenants unless I protect them. So one of the rules that I'm going to require is that I can come in at any time with my private police force and inspect your premises and throw you out on your ear if it turns out that you have guns."

My attitude to that is, if some tenants don't like those terms, they can find another housing project and go elsewhere. Now let's suppose for the sake of argument that 100 percent of all privately owned and operated housing projects have these kinds of provisions. It would be very odd and idiosyncratic to say that the government couldn't include the same kind of provision in its leases.

But things become much more difficult if it turns out that the government wants to impose a set of conditions that private firms don't do, and the way they try to get your consent is to give you a public subsidy from other people's pockets so that you're willing to live in this place. It's the constant interplay between government subsidies being used to buy off resistance to constitutional ideals that is at the root of this problem.

In 1926, when this issue came up in a case called Frost and Frost Trucking v. the Railroad Commission of California, the question was whether or not California could say to a private carrier who just hauled his own goods to market, "We're not going to let you on the public highway unless you agree to the same rate regulation that we post on public carriers." One of the arguments that Justice Sutherland made when he struck down that particular condition was that we would never allow the government to say that you can only use the public highways so long as you're prepared to waive your rights against unreasonable search and seizure with respect to your private houses and apartments. I think that's absolutely correct. The dangers of government monopoly power are so enormous that some kind of constraint has to be imposed upon them.

Reason: Should the Chicago Housing Authority be able to make granting you a lease in public housing contingent on your not possessing guns or allowing searches of your apartment?

Epstein: The first part of your question is relatively non-problematic because it doesn't involve the search-and-seizure question. The other part is right there at the cusp and I would have to see what the provisions would be. I hate to sound professorial, but I haven't made up my mind about this on a concrete level. But let me give you two arguments.

One is that you clearly don't want to allow this thing to happen at all. It sets a precedent for the use of similar government powers, not only with respect to state buildings. Since the government is everywhere, they can say, "Well, we won't let you enter a national park unless you allow the government to inspect your private cars or homes for guns."

On the other hand, the folks who live in these projects have a pretty good sense as to whether or not the things asked of them cost them more than the things they get in exchange. And you find that 90 percent of the tenants in public housing are desperately in favor of these kinds of conditions. That pushes me to believe that, at least under guarded and limited circumstances, they can have this, especially if the government can show the level of peril that can be averted is substantial enough to get noticed.

I have a better solution. The true vice of public housing is that at the expiration of the lease, the government cannot expel disruptive tenants. The only way you can expel them is to have a trial that requires the neighbors to testify. No sane person will take the risk of retaliation. Instead, you get public housing projects in which a bad eviction policy means that the bad tenants drive out the good tenants and you have what you see in Chicago. You can stop the problem by the eviction policy without the search-and-seizure issue. The inability to come up with a solution unique to government, to think through the terms of a lease the government could offer and make stick, makes it clear how difficult it is for the government to be in charge of a business enterprise.

The first best solution to the problem of unconstitutional conditions and of difficult bargaining is always to try and restrict the government's sphere. Running housing projects is not a situation in which the government is providing a useful service.

Reason: Let's talk about another area in which you think the government is not providing a good example: civil rights. You've argued that blacks and other minorities have been hurt more than they've been helped. How is that?

Epstein: If you have a state which gets in the business of race relations, you have to look at the down side. That seems pretty clear in the case of Jim Crow legislation in the South. Jim Crow was not a case of a few laws; it was a situation in which the heavy hand of the state acted on all areas of life directly or indirectly.

In the modern context, you don't have to deal with the problem of government malevolence, at least with respect to minorities. But you do have questions about whether or not the effects are the ones you desire. It's usually assumed that if you pass a civil rights law, it will affect all blacks and all whites. But one of the things that's quite striking about the data is that the spread between the top and the bottom of the black population has gotten greater. One possible explanation is that civil rights laws tend to help those people who are in the upper end of the distribution and tend to hurt those individuals who are toward the bottom. Those people on the top are the people who get hired, and you know they'll do pretty well. You know that there's less likelihood that you will want to fire them. They help you meet whatever requirements as far as quotas and so forth, and so by all means you hire them.

But the case is different for those individuals who are less fortunate. If you know that you can't fire them because of anti-discrimination laws, the tendency is to let them languish rather than hiring them at all. The dismissal costs are just too high. So you get a huge dispersion effect. Well-off blacks are made better off and poor blacks are made worse off by these laws.

The second thing these statutes do is say, in effect, that minority workers are no longer allowed to use good old-fashioned competitive mechanisms to achieve entry into a market. If you're black, you can't get a job by underbidding a rival white worker and showing you're every bit as good. That option is not open to you–you can't compensate the employer for his perceived greater risk. That means that people who are on the outside cannot use price-cutting techniques to improve their chances.

Another problem is that the civil rights laws systemically make it impossible to rely upon standardized testing to figure where people stand relative to their peers in a given market. The net effect is to force people back on stereotypes–racial or otherwise–when they make hiring or other personnel decisions.

When you have a statute which interferes with contractual freedom, it's going to reduce the total level of output and increase the total level of bureaucratic wrangling. Everybody who's a minority member is going to be victimized by that just the same as everybody who's a majority member. You have a situation in which there's less to go around and, no matter how clever you are with matters of distribution, people are always going to feel aggrieved when there's a shortage.

One of the things that is very clear about Americans today is that every group in society regards itself as a victim of discrimination. If you run a comprehensive survey of white males, white females, black males, black females, and members of other minority groups, you can't find people who don't feel that they are getting paid less than what they are worth for the work that they do. That means that you have a real morale problem because there is no way that you can satisfy everybody simultaneously.

What we have to do is find a way to get out of this cycle. The only way in which we can do it is to keep the government as far removed from employment relations as possible, except under those very rare circumstances where we think that there's an employer who has a monopoly position.

Reason: How would people be better off if we didn't have civil rights laws?

Epstein: For one thing, the number of job opportunities that would be available would probably increase because the cost of hiring somebody who's marginal will be reduced. When you look at the numbers, it is quite striking how much the black unemployment rate rose after the various civil rights reforms of the 1960s.

In any complicated social problem it's very difficult to make after-the-fact explanations because all sorts of things are going on. But if you're trying to figure out the level of black improvement in the United States in real terms, it was better in the period between 1946 and 1964 than in the period 1975-94. The greater improvement in the first period can be attributed to two things. One was a series of open-market principles that allowed people to move back and forth. The other was the emergence of a new dominant social consensus that the past practices of discrimination were just a mistake. You can check the data, but I think it will show you that, when controlled for education, etc., the ratio of black earnings relative to others rose very rapidly during that period. Basically, close to parity was achieved by 1963, 1964 with the passage of the civil rights acts.

Since then, the employment figures don't tell the full story. If you only look at the wages of those who are still lucky to be in the labor market, you're going to miss all the preclusive effects associated with the passage of laws that make it costly for employers to hire. You're going to miss the higher unemployment rates for black men and women.

So I'm telling folks out on East 63rd Street, "Would you rather have a steady job at decent wages and hope for constant productivity gains? Or would you rather depend on the law to give you a boost that it cannot deliver and leave you without any kind of employment options?"

Reason: Does this have any implications for William Julius Wilson's theory that many of the problems in the inner city stem from the fact that middle-class blacks all moved out once housing segregation broke down?

Epstein: Part of it. What he does is document the greater polarization of the black community after the passage of civil rights legislation. Those who were doing very well do better, those who were doing very poorly do even worse.

Where I disagree–very vehemently–with Bill Wilson is on what kind of non-race-specific statutes or legislative measures you would want to change the overall situation. Bill is somebody who still believes that the New Deal charm has not yet lost its magic and you can find some massive government program for housing, or for education and so forth, which will do better for people than they would do for themselves. He's right to think that race-specific remedies will not have any desired effects. But he's wrong to think that comprehensive social tinkering or engineering will do any good either.

What you really ought to do is to reduce the total level of government burden, let people live where they choose, and it will turn out that, in general over time, the level of the housing stock will improve and the level of incomes will increase, just as they did in the period between 1946 and 1960-64. That was a relatively unregulated period in which you had the benefit of the post-war growth and of moderate levels of government intervention. It wasn't a free market. Nobody pretends that it was. But there was far less going on than there was once the Great Society started up.

Reason: Do you think one of the reasons big employers moved out of the inner city was because of the civil rights laws?

Epstein: It's hard to say, because employers will follow their labor force. But there's certainly no reason to stay around in the inner city if it turns out that hiring workers under these circumstances will expose you to all sorts of penalties if you try to upgrade the work force and to fire people who turn out not to do well. But it would be a terrible mistake to assume that's the only thing that's going on.

A lot of it has to do with a powerful effect that no civil rights law can cure: The returns to education and employment are much greater now than they were 30 years ago. And this is a non-race-based effect. The gap in earnings between people who have quantitative skills and people who don't have quantitative skills is greater today than it was 40 years ago.

What one could say is that while you cannot measure for certain the level of harm that the civil rights statutes have done, still you cannot think of any benign outcomes or explanations that make it appear as though, on balance, they've been a net positive–particularly if you take into account the possibility of abuse and the administrative costs associated even with their beneficent intentions.

Reason: Do you think there's a new consensus emerging that recognizes the unintended consequences of civil rights legislation?

Epstein: My sense about the civil rights stuff is that the case for enforcement is less enthusiastic now than it was five or 10 years ago. And it's not because people are taking what I've said to heart. It's because they see all the individual cases and they try to look for any systemic improvement and they just have a sense that things are not better than they were 30 years ago. So they basically have come up with a very pragmatic conclusion: "Well, it may have been a great idea but it's not working as well as we hoped." It's not that they are opposed to it, but they are less enthusiastic.

There is relatively little discussion about civil rights as such. Of course, there's more anxiety about affirmative-action programs. That debate is much more closely contested than it has been before. I am of two minds with respect to affirmative action. I may not think it the best thing in the world with respect to internal policies of individual firms or institutions, but I'm extraordinarily reluctant for the government to come in and say it's just a stupid idea, now what we ought to do is to prohibit it from taking place.

So my general libertarian instincts carry over to this question: If a private firm wants to have an affirmative-action program, then that's their business.

Reason: What about affirmative action with regards to schooling, where minority candidates whose grades and entrance exams may be below the average non-minority applicant are granted admission? What would be the appropriate approach, say, for a law school?

Epstein: If there were no EEOC and no recourse against private schools, you would still see affirmative action, but a little bit more tempered than you do today. There would still be moral claims saying that it would be intolerable to have a law school which is overly white. I think most schools would do some of it, but the budget constraints would be a bit tougher and the preferences for admission would be a bit smaller than they are now.

The current position on affirmative action is reinforced in two directions. It has a cadre of genuine supporters, who'd be in favor of it no matter what the law required. And then it has a large number of individuals who are willing to go along with it for fear that if they don't, they will enmesh their institution in an ugly Title VII suit.

There are many cases on the books, including the most famous of them–the Sears Roebuck case–where it turns out a firm a) has an affirmative-action program and b) is sued to the hilt with respect to its so-called discriminatory policies. It's very difficult under current law to find yourself a safe harbor against the enforcement of the statutes.

With public institutions, the difficulties are enormous. To some extent, I would like public institutions not to exist. I think that states ought to sell off their universities. Give them endowments and let them run. But if they do exist, it becomes very difficult to look them in the eye and say, "You get some state funding so, even though you are relatively autonomous, you can't do anything that a private rival institution is able to do. You've got many fewer degrees of latitude."

It's quite possible that public institutions, if pushed by legislative pressures, can go absolutely overboard on questions of affirmative action. I can't make any generalizations on the subject. In some states, the policies are relatively rooted in common sense and in other cases they may be absolutely tyrannical. Trying to figure out what the optimal policy is with respect to the public sector is something which should always be regarded as a daunting task, verging on impossibility.