Afternoon Sell-off
Jude Wanniski
June 24, 2005


Yesterday afternoon`s 166-point drop in the DJIA began at 1:30 p.m. with 80 points falling in a matter of minutes. Yet there was nothing on the wires at that hour that could have abruptly changed the correlation of forces bearing on equities and there was no parallel move in bonds or commodities. We`ll never know, I suppose, but I`ve concluded that it was the Supreme Court decision putting new limits on property rights that caused the adjustment in the value of the nation`s capital stock. The 5-to-4 decision came over the wires at 10:30 a.m., but it was not the kind of news the financial community was watching for. It took a while for the news to spread and sink in. I`d spent the morning hours watching Alan Greenspan and Treasury Secretary John Snow in the Senate Finance China hearings and didn`t become aware of the SCOTUS decision until I returned from lunch. My instant reaction was surprise and dismay, sending an e-mail to our West Coast representative Wayne Jett, a California lawyer who had argued a case involving the "Taking Clause" of the Fifth Amendment to the U.S. Constitution before the Supreme Court several years ago. My note said simply: "This is communism. The government owns the means of production. Yikes."

That may sound extreme, but writing a dissenting opinion, Justice Clarence Thomas called it "far reaching and dangerous," and "The court has erased the Public Use Clause" from the Constitution. Writing the majority opinion, Justice John Paul Stevens noted: "Promoting economic development is a traditional and long accepted function of government." But never before has the government`s constitutional right to take a citizen`s property under eminent domain been used to transfer the property to a private developer for a non-public use. There`s been no question the government can take property, with compensation, for roads, public utilities, etc., where the function remains in public hands. But as of today, all private property in the country is less secure than it was yesterday.

My colleague Vlad Signorelli's first reaction: "This makes it more attractive to run for the city council." Of course, it means private developers who cook up similar plans to the one in New London, Conn., that was at the heart of this case, can now see new ways to use their influence with local politicians, razing perfectly good properties in order to construct condos or shopping malls. In her dissenting opinion, Justice Sandra Day O'Connor argued: "Any property may now be taken for the benefit of another party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms."

The New York Times, which praised the decision, got it right in the headline on its lead editorial: "The Limits of Property Rights." The Times acknowledges Justice O'Connor's concerns, but says they are "exaggerated."

As it is widely expected Chief Justice Rehnquist will announce his retirement this coming week, the court`s decision yesterday makes it clearer than ever that the stakes are high in coming Senate fights over High Court nominees. And yet Wayne Jett points out that three of the five votes in the majority were appointed by Republican Presidents.

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