Author: David Cay Johnston
For its first 280 pages, the new exposé from this Pulitzer Prize-winning New York Times reporter is an engaging look at how the superrich consistently—and outrageously—rely on public handouts while preaching about free markets and wasteful entitlement programs all the way to the bank. The villains in David Cay Johnston's tales run the gamut from railroad executives to sports-franchise owners to hedge-fund managers, all joined by a willingness to take enormous sums from public coffers while providing little or nothing in return.
Take former Treasury Secretary John Snow, whose csx railroad saved billions by skimping on maintenance; when there was a fatal crash, taxpayers footed the bill. Before entering politics, George W. Bush ran a money-losing baseball team, but ended up millions of dollars richer by getting a government-funded sweetheart deal on a new stadium. Retail chains like Wal-Mart win property-tax breaks and then squeeze out local businesses that pay their fair share. The free ride has become business as usual, but Johnston sees it for what it really is: cheating.
Free Lunch fizzles in its final chapter, where Johnston lays out some unconvincing solutions. He proposes "politician finance reform"—giving members of Congress all the money they want for dining, travel, and entertainment so they can't be tempted by their wealthy friends. Yet the end of Abramoff-style golf junkets and free box seats would do little to curb the influence of major campaign donors. Johnston's final appeal to handout-hungry ceos to "ask themselves how much they are willing to sully their reputations" feels naive, too. It will take more than a call for self-restraint to derail this gravy train.
Free Lunch: How The Wealthiest Americans Enrich Themselves At Government Expense by David Cay Johnson will outrage the average American by showing how the super affluent publicly profess "free market" economics while covertly using government policy to insulate their companies from competition and pocket taxpayer dollars as subsidies.
Johnson explains that taxpayer subsidies steal from honest entrepreneurs to benefit the greedy who manipulate the government. He calls this "corporate socialism" and says: "Corporate socialism makes it possible for Wal-Mart to grab market share by undercutting the competition that did not get subsidies, while appearing to win because it was just more efficient."
Surprisingly, Johnson says a bigger recipient of direct corporate welfare than Wal-Mart (per company size) is Cabela's, the outdoor-sporting-goods store. Cabela's convinces local governments that its stores are "destinations" which will benefit the local economy by serving as tourist attractions (a claim Johnson smashes). Cabela's then seeks tax benefits and other compensation to build its stores.
Johnson writes: "The tribute Cabela's demanded from Hamburg [Pennsylvania] amounted to roughly $8,000 for each man, woman, and child in town." Johnson points out that between 2004 and 2006, Cabela's earned $223.4 million. During those years, it collected at least $293.7 million in subsidies, more than its reported profits. Meanwhile a family business selling fishing and hunting gear was driven out of business in Hamburg.
Success didn't go to the best competitor, but to the most skilled at getting government handouts. Johnson says it's morally unfair to use tax dollars paid by a small business to fund its rival, a larger corporation. Johnson says such subsidies are inefficient and place a drag on the American economy.
To explain how subsidy economics work, Johnson quotes Cabela's annual report: "Historically, we have been able to negotiate economic development arrangements relating to the construction of a number of our new destination retail stores, including free land, monetary grants and the recapture of incremental sales, property or other taxes through economic development bonds, with many local and state governments?"
Johnson tells us the consequences of America's economic policy favoring the exploitation of the middle class for the benefit of the super rich has very negative long-term economic consequences. For example, Johnson writes about how the Chinese got neodymium magnet research and manufacture moved out of the United States. These magnets are used in precision guided missiles. Johnson says that in the coming years, Americans could see 40 million jobs move overseas, because of the availability of low cost labor overseas and government policies designed to protect corporations, not American workers, nor even America's national security. Johnson says this could lead to an American economic plight that rivals the Great Depression. He asks us to contemplate a future where the great majority of Americans are reduced to "servant-level wages and jobs."
What about that hallmark of Americanism, pro sports? Unprofitable without subsidies, Johnson says. Of course, just taking other people's property is the simplest way for the politically powerful to enrich themselves at the expense of others.
Johnson explains how George W. Bush used eminent domain to seize land held by other Texans to build a new sports stadium and entertainment complex for his Texas Rangers investment. Taxpayers, via stadium bonds and an increase in the sales tax, paid for enriching Bush and his cronies. Bush's group got the right to purchase the stadium for less than one-third of the cost to build it. And, they got a rent-to-own deal, where every dollar paid in rent applied to the purchase price of the stadium. As Johnson observes, try getting that kind of rent-to-own deal from your local appliance store! These deals only occur because those negotiating for the government are really bought and paid for by the special interests negotiating on the other side.
Meanwhile, Texans were subjected to Enron's promotion of "market" electricity prices, which drove up electric energy prices by fifty percent in four years. Consumers will be shocked to learn how (in many states) they are now ripped off by electric companies. Free Lunch: How The Wealthiest Americans Enrich Themselves At Government Expense explains that while the costs to produce electricity haven't increased significantly, policies now allow energy companies to artificially bid up the cost consumers must pay for their electricity.
Enron's new "market" economics went to work in other states, where Johnson tells us consumers in those states paid $48 billion more in average energy costs in 2007 than consumers in states which retained traditional regulated utility rates. Johnson says this change in how utilities are allowed to price is a major reason legendary investor Warren Buffett has invested in more utilities.
These changes in electricity pricing are the direct result of large corporations buying political influence and lobbying to benefit themselves at the expense of citizens. One of the biggest supporters of this new government policy of transferring wealth from citizens to energy companies is Vice President Dick Cheney. When confronted with how California energy prices were artificially driven up because many producers were intentionally offline, Cheney quipped, "You know what? You just don't understand economics."
Johnson tells us America's high health care and exorbitant drug costs also stem from government policies designed to benefit HMOs and drug companies and to help them maximize their profits by soaking American citizens.
I think every American who wants to understand America's present economic plight should read Free Lunch: How The Wealthiest Americans Enrich Themselves At Government Expense by David Cay Johnson.
