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Free Lunch: An Interview with David Cay Johnston

How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill)

By John W. Whitehead
July 17, 2008

To succeed in the long run, rules must have a moral or practical basis and the support of the people. If society says that you may do one thing and not another, there must be some rationale or the rule will be flouted. There is no legitimacy in officials writing rules as they choose simply because they have the power to do so. Such is tyranny.
            The Founding Fathers recognized this when they took that great leap to create our republic more than two centuries ago. They provided for checks and balances, recognizing the need to limit power and to control it. To many people, power is of little consequence, just as many people care little about beauty or riches. But to those who lust for power, of what use is acquiring power unless they can abuse it? In this, the philosophy of the power monger is no different from that of the cancer cell, which mindlessly seeks growth for the sake of growth until it overwhelms its host.—David Cay Johnston

How does a strong and growing economy lend itself to job uncertainty, debt, bankruptcy and economic fear for a vast number of Americans? In Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill) (Portfolio, 2007), David Cay Johnston argues that the answer lies in today’s governmental policies and spending that reaches deep into the wallets of the many for the benefit of what he calls the “rapacious rich.”

Johnston shows how, under the guise of deregulation, a whole new set of governmental regulations quietly went into effect—regulations that thwart competition, depress wages and reward misconduct. From how George W. Bush got rich off a tax increase to a $100 million taxpayer gift to Warren Buffett, Johnston puts a face on all the “dirty little tricks” that business and government pull. A lot of people are getting free lunches. However, there is no such thing as a free lunch. So who is paying the bill? You and me, the American taxpayer.

Johnston reveals how we ended up with the most expensive, yet inefficient, health care system in the world, how homeowners’ title insurance became a costly, deceitful, yet almost invisible oligopoly and how our government gives hidden subsidies for such things as posh golf courses.

In these instances and many more, Free Lunch shows how the lobbyists and lawyers representing the most powerful 0.l percent of Americans manipulated our government at the expense of the other 99.9 percent. In fact, Johnston reveals the forces that shape our everyday economic lives—and shows us how we can finally make things better.

David Cay Johnston, a Pulitzer Prize-winning reporter for the New York Times, has hunted down a killer the police failed to catch, exposed LAPD abuses, caused two television stations to lose their licenses over news manipulations and revealed Donald Trump’s true net worth. He has uncovered so many tax dodges that he has been called the “de facto chief tax enforcement officer of the United States.”

His last book, Perfectly Legal, was a New York Times bestseller and was honored as Book of the Year by the journalism organization Investigative Reporters and Editors. Over his 40-year career, he has won many other honors, including a George Polk Award. He lives with his wife and eighth child in Rochester, New York.

David Cay Johnston took a few minutes out of his busy schedule to answer some questions I posed concerning his new book.

John Whitehead: If you could sum up the basic point of your book in a paragraph, what would it be? And why is it important that people read your book?

David Cay Johnston: The American economy has been rigged to produce higher prices in some markets, rather than lower prices, to force the American taxpayer to subsidize all sorts of businesses and wealthy individuals—Donald Trump, Warren Buffet and George Steinbreinner, for example, all get gifts from the taxpayers—and to force you to overpay for products like title insurance when you buy a house. Free Lunch is an expose of government interference with the competitive market on behalf of people who are campaign donors. 

JW: When you say government, are you mainly talking about the federal government? Or is it all government?

DCJ: I’m talking about government at every level, from cities to the federal government.

JWW: Are you saying that every level of government in the United States is corrupt?

DCJ: No. I don’t necessarily say that it’s corrupt. If you can persuade the government to give you a benefit, I don’t know that that is inherently corrupt.

JW: But if government officials are not telling the American people about such benefits, isn’t that corrupt?

DCJ: Many of these things are in the public record. The news media is not reporting on them in some cases. In others, government asserts that to tell you how your tax dollars are being spent would interfere with the privacy rights of the people receiving gifts of government money. This is a fundamental systemic problem where government is behaving as a power unto itself and is responding to the interests and wishes of the people who donate to politicians. And the government is forcing the public as a whole to subsidize these wealthy people. This is a major reason that incomes at the very top have been soaring, while for the bottom 90 percent of Americans incomes have stagnated now for 30 years.

JW: The whole governmental system is set up to benefit the rich?

DCJ: That is exactly correct. My fundamental argument is that government has become a servant of that element of the rich who are rapacious and are milking it for all they can. It is much easier to mine gold from the public treasury than to earn it in the marketplace. And if you can get the government to put its thumb on the scale for you, then you are probably going to try to do that. I show how, for example, that locally owned stores are being pushed out of business by disguised government subsidies of big national companies like Wal-Mart, Target, Lowes, restaurant chains and big developers of shopping malls.

JW: How is Wal-Mart getting government subsidies and tax breaks?

DCJ: When Wal-Mart builds a new store, they typically try to get the local government to buy the land they want and to finance the construction of the store with tax-free municipal bonds. They then lease the store until it’s owned from a government agency.  How do they pay the lease payments on the store? Not from the money they earn in the market. Instead, in many cases, the sales tax you are required to pay at the cash register is kept by Wal-Mart and used to pay the cost of building the store. That means two things happen. First, the schools, the police, the library, the fire department and other government programs don’t get that money. Second, if you are a locally owned competitor and you own Joe’s Department Store, you now have to compete against a company that is getting its building and land for free. Eventually, economic theory says, they will run you out of business because of this government subsidy. 

JW: Is Wal-Mart, then, good or bad for America? If they’re skimming money off the top, are we really buying cheaper goods?

DCJ: I am not willing to go so far as to say that Wal-Mart is bad for America. But they should earn their money in the marketplace, and they should not be getting subsidies. There are a lot of things to subsidize—public education, public health, research—but the government should not subsidize big business, which destroys locally owned competitive retail businesses and which also starves local government, police, schools, libraries and fire departments. 

JW: It wipes out small-town America.

DCJ: That is exactly right. If they can wipe out small-town America, it may be a competitive market issue, but government should not be helping them do it. And small merchants seem not to understand that it is their local city and county government and special agencies called enterprise zones that are being abused and misused to destroy local businesses on behalf of the big national chain stores. The big national chains always emphasize to the news media that they are creating jobs, but they do not create jobs. They are more efficient, but, by nature, they destroy jobs. If you want a job creation program based on inefficiency, let’s ban all earth-moving equipment at the construction sites and require that gangs of people go out with teaspoons and move the dirt around.

JW: Why don’t they increase jobs?

DCJ: Because all they do is concentrate jobs at the location where the subsidy is. A new subsidized retailer like Wal-Mart comes to town, and let’s say there are 200 jobs at their site. But as they draw business away from the local merchants, they’re destroying the jobs at those other locally owned businesses and wiping out the fortune of the local family that owns the business. Thus, all the chain stores do is concentrate jobs at that location. And when government gathers data, it doesn’t measure the other losses. It only measures the overall numbers.

JW: Do we actually save money at these chain stores with their so-called cheaper products?

DCJ: I demonstrate in Free Lunch that the local merchants are cheaper than the big national chains. One of the stories I tell is about a guy who owned a hunting and fishing store. The way he made his living was to charge lower prices than Cabela. Then Cabela came to his little town and got a $32-million subsidy. It was the equivalent of the city council buying every family in town a brand new Honda Accord with leather seats and a 6-cylinder engine. It ran him out of business. And the new company charged higher prices.

JW: But if the public doesn’t know this because their public officials aren’t telling them, isn’t that corrupt government? Don’t the people have a right to know that?

DCJ: The public should know about all of this. I call for openness and transparency in government. No member of Congress or any elected officials, for that matter, should have a meeting with anybody that we don’t have a record of and know the issue that was discussed. We don’t need the fine details. But we do need to know who they met with and for how long and what they discussed. Also, subsidy contracts should be public record. The news media should be reporting on them. And this will stop when the public wakes up and starts demanding through calls to talk radio, letters to the editors and contacting politicians on those rare occasions when they present themselves to the public for questioning. We should be asking, “Why are you forcing me to pay taxes to give to big corporations and rich people? I won’t put up with it anymore.” It will only stop when the public wakes up and demands change.  

JW: If you have the power to put a large financial thumb on the scales of government—like a Donald Trump or a Warren Buffett—you can get your way. But your average citizen is never going to be able to do that.

DCJ: An individual is not going to have that type of power. It will take collective power. But too many Americans waste their time finding out who will be the next American Idol or what Britney Spears is doing instead of being citizens. When people start behaving like citizens and support organizations that favor their interests, then government will be responsive to them. In the meantime, if you are a politician, what do you care what the ordinary person thinks? They don’t contribute to your campaign. They don’t work on your campaign. They are not important to your being reelected because your district has been gerrymandered to be mostly Democratic or mostly Republican. So if people want a government responsive to them, they have to decide to be citizens. Outsourcing jobs has not been good for blue-collared workers. Outsourcing democracy to the rapacious among the rich and large corporations has been even worse for our government.

JW: While working-class Americans are getting poorer (there are five million more poor people today than in 2005), studies show that the rich are indeed getting richer. According to the Center for American Progress, 37 million Americans, a size roughly equivalent to the population of California, live below the official poverty line. Thus, in a nation of almost 297 million people, 12.6 percent are poor (for instance, a family of four that makes less than $19,971 is considered poor). And one out of every three Americans is considered low income. At the other end of the spectrum, 19 percent of the nation’s income is held by the richest one percent of Americans who have gotten richer as a consequence of taxes, subsidies and regulatory policies that, as you say, “take from the many to give to the already superrich.” And, as a result, government policies are favoring the super rich. What does this mean for the working poor? A class system has developed in America where there are only two classes—the rich and the rest of us. 

DCJ: We still have a middle class, but it is under tremendous stress. This is not good for the future of the country. It is the unstated but de facto policy of government to make the rich richer at the expense of everybody else. So long as our government follows a fundamentally atheistic policy that capital is more important than people, we will continue down this road. We did not create America to get rich, although a surprising number of college students I have interviewed believe that is the reason we created this country. But this is not true. We created this country to be free. There are six purposes laid out in the Preamble of the Constitution, such as providing for justice and the common defense. They don’t include individual riches or narrow wealth. But now the overarching purpose of the American government at all levels is to benefit the richest of the rich. That has to change or we are going to destroy our country.

JW: How is it going to change? Simply look at the United States Congress. For example, the Center for Responsive Politics reported in 2006 that about half of the Senate’s 100 members are millionaires and their average net worth is $8.9 million. Even those members of Congress who do not belong to the so-called “Millionaire’s Club” enjoy a host of congressional perks. In addition to their six-figure salaries, our representatives also receive millions to maintain offices in their home state and in the nation’s capital, as well as other benefits such as free life insurance, a generous retirement plan for life, 32 fully reimbursed road trips home a year, as well as travel to foreign lands—all of which comes at taxpayer expense. And then there are the “extras” ranging from discounts in Capitol Hill tax-free shops and restaurants, $10 haircuts at the Congressional barbershop and free reserved parking at Washington National Airport to use of the House gym or Senate baths for $100 a year, free fresh-cut flowers from the Botanic Gardens and free assistance in the preparation of income taxes. It is little wonder with such entitlement that elected officials who have, and have in abundance, are ill-equipped to relate to the struggles of those who have little to nothing at all.

DCJ: First of all, many of the greatest reforms came about because rich people were participating in them. The rich are not a monolith, just like the poor aren’t. There are people who are poor and work hard. Then there are people who are poor and don’t work.  There are rich people who care about their country, and there are rich people who are totally greedy. It’s the greedy ones we need to be after. A tremendous problem we have deals with campaign finance. If you are a senator or a congressman, the reality of your life is what your donors say to you. That matters. And the money they give you matters—not the votes. We need to look at expanding the size of Congress. That may seem counterintuitive, but we increased the size of Congress every 10 years until 1920. There are three times as many Americans today as there were in 1920. Let’s triple the size of Congress and cut back on their massive staff entourages, as well as their perks.

JW: Do you really believe they’re going to cut back on their perks?

DCJ: They will cut back on them when and if the public rises up and throws out some of the people who are not paying attention to what the people need. Herbert Stein, President Nixon’s Economic Advisor, used to say that a trend can only continue until it can’t continue anymore. This trend of the rich milking the government for everything they can get will eventually come to an end. My book Free Lunch is part of the effort to arouse people to recognize what is happening so they can act. There is only one thing you can say that is un-American, and that is that we can’t solve this problem. We started this country saying, “We don’t need King George to tell us what to do, and we don’t need the British Parliament to tell us what to do. We will solve our own problems.” We got rid of slavery. It took a war that killed over 600,000 Americans, some 40,000 of them Black Americans. Women got the right to vote. Men voted to let women vote. We can change this system, but people have to spend time and effort. It is not easy. It is not simple. But no one else is going to do it for you. If you want to live in a free society, if you want to have your liberty, if you want a government that looks out for you, instead of the already rich, then you have to spend time getting organized with other like-minded people and being citizens.

JW: We are in an election year. This year, we have two candidates that hail from a Congress that does very little for the American people. This is a provable fact. And these are also wealthy people. John McCain boasts an individual net worth of $29.21 million. His wife is also very wealthy. And Barack Obama has assets valued up to $1.1 million. However, his $1.9 million book advance in 2005 puts him on track to catch up with McCain. These two candidates are supported by millionaire gifts from the oil industry. Where is the hope? We’re reduced to voting for two people that we have to vote for. How are they going to change anything? Again we are voting for the rich. How do we get around the problem that we are always either ruled by the rich or we are voting for the rich? Is there a way out?

DCJ: John, there is a way out. First of all, remember that the two greatest reformer presidents in America were rich men—Teddy Roosevelt and Franklin D. Roosevelt.  They brought us all sorts of reforms to protect ordinary people. The issue is not that you are rich. It is how you regard your money. We did not get into this problem in one election, and we will not get out of it in one election. It will take time. As long as we have the current campaign finance system, we are going to continue to have candidates who are chosen because they are acceptable to the rich who want to live off corporate welfare and hidden gifts from the government. We need to break the campaign finance system, but it will take time. The abolition movement went on for decades. The suffrage movement went on for decades. I don’t think this will take decades. I think we can have change in a couple of election cycles. People need to start first and foremost talking to their friends and neighbors. The conversations need to begin in coffee shops, hair salons and on church steps. It will filter out through society and reach the upper levels. We need to start shaming people like the Walton family. They are the wealthiest family in America. They’re worth more than $100 billion, and they are taking your tax dollars for their enrichment. We should be shaming them. Charities that give gifts to people who live off the public taxpayer should be getting letters from people. We should be staging demonstrations in front of their offices to shame them. It is one thing to be receiving government money because you are disabled, elderly or sick. But what possible excuse is there for the healthy and the wealthy to be taking money from the government? We should be organizing to shame these people and to elect people to office who say, “I am going to stop this.”

JW: The American economy is in a shambles. We’re in a recession. You state that in America today there is economic anxiety aplenty—a rational response to the loss of so many well-paying jobs to China and other countries. However, you then go on to say that it would not take much to turn that anxiety into irrational fear. Why would such fear be irrational, especially in light of such other statements in your book as,
“Warren Buffett calculates that America is selling close to 2 percent of its wealth each year to sustain our appetite for imported oil and cheap manufactured goods, many of them mere trinkets.” And, “Just a generation ago we were the world’s leading creditor nation and now we are the world’s most indebted nation.”

DCJ: I am concerned about what happened in the 1930s, where the plunging economic fortunes of people made them turn to fascism and Communism as a solution to their problems. And we got World War Two, among other awful outcomes. The rational response to all of this is to organize and demand that the government change, which the people have done over the years. Government has changed because people took definitive action. Market capitalism works when the government doesn’t put its thumbs on the scale. We need to be active as citizens and not just vote. We need to do this not only for our sake but for our children and our grandchildren. And we need to stop listening to simplistic slogans. Look at Ronald Reagan. He changed America in big ways. He promised us balanced budgets, lower taxes and less government. But the government has balanced the budget only twice since then. And the government is just as big as it was back then. If Reagan had just kept the promise to balance the budget, we could cut our income taxes by 40%. We need to recognize that we were sold a bill of goods by people who didn’t perform the way they said they would. We have had our government captured by the rapacious among the rich and by large corporations, which by their nature are not concerned about the welfare of the country. They are concerned about the bottom line—profits. We need to reign in that behavior. The only way to do that is for people to rise up in every way they can—talking about it, educating people, writing letters, voting, contributing, volunteering their time and shaming people who are living off the public dole. It means being citizens. 

JW: Speaking of Reagan, you start your book off with a twist on Ronald Reagan’s simple question, “Are you better off than you were four years ago?” Your question being, “Are we better off than we were a generation ago?” Reagan’s question, which resounded with a majority of the American people, spoke to the individual. Your question is broader—assuming that there is a collective ready-to-respond. You already mentioned that people sit in front of their TV sets too much. Every poll shows that most Americans know the Three Stooges, but they can’t tell you anybody sitting on the U.S. Supreme Court. They can’t even tell you who represents them in Congress.  Who are you speaking to in today’s self-absorbed society?

DCJ: There are people who are listening. The groups I have found listening the most are those church groups that have some sense of social justice. Unfortunately, we have lots of churches today selling the concept that Jesus wants you to be rich. That is not in any New Testament that I have read. But church groups that understand the message of the Bible—both the Old and New Testaments—and understand our duty to the rest of the world and the poor, they get it. There are various union groups and some small business groups that get it and are in fact responding. A major problem here, however, is with the news media. The news media increasingly does three awful things. One, it covers a very narrow range of political views and attitudes at the top. Two, you turn on the TV and the main thing you see is one white male after another spouting off about this and that issue, often with a corporatist point of view. There is an enormous loss of skepticism. The news organizations used to be staffed with people who came largely from blue collar backgrounds. Now they tend to be staffed with reporters and editors who come from prosperous backgrounds. Many of them have no contact with and have never dealt with the poor. I say this of someone who has personally taken other journalists with me to places like South Central Los Angeles and the South Bronx and talked with ordinary cops and school teachers to see how the world really works. They live out in this cocoon. The third problem is the superficiality of much of the coverage. I spent a lot of time in my research going back and reading news accounts from the 1950s and when I began as a journalist in the 1960s. Those news accounts are much more fundamentally skeptical. When the president said something, it wasn’t just accepted as received truth.

JW: Thus, the corporate media is a major part of the problem?

DCJ: The corporate media is a major problem. We used to have independent owners of newspapers around the country. Some of them were terrible publishers, and some of them were great publishers. Many of them were quirky, but you got a lot of different voices and you heard a lot of different things. Now you have a handful of big corporations where the publishers of the papers are not the owners. They are hired help.

JW: The TV networks are the same.

DCJ: Look who owns the TV networks. How many Americans know that Disney owns ABC? Disney is an entertainment company. General Electric, one of the biggest companies in the country, owns NBC. A tobacco family owns, or did own, CBS. Such an environment has not been good for the interests and coverage of ordinary people. The industry also has been involved in covering silly nonsense, such as someone wearing a flag on their lapel or how long the skirt of a candidate’s wife is. What utter nonsense. There has been a sharp deterioration in the skill and the quality level of journalists and their understanding of how the world works. This has been an awful tragedy for democracy.

JW: I have always believed that it is the common person (you and I) who needs to participate in our government, not just by voting but in determining government policy. As Abraham Lincoln observed, “Wise men established these great self-evident truths, that when in the distant future some man, some faction, some interest, should set up the doctrine that none but rich men, or none but white men, were entitled to life, liberty and the pursuit of happiness, their posterity should look up again at the Declaration of Independence and take courage to renew the battle which their fathers began.” Is it too late for us now?

DCJ: I sure hope not. If we do not do the business of being citizens, then we are hastening the day when high school students will sit down and open up a book with a chapter on history that will begin with these words, “The United States of America was.”  If we do not participate in governing ourselves, we will lose our country. If we do lose our country, a form of violence will arise which will be vastly worse than anything history has ever seen. Pol Pot’s regime in Cambodia will be less violent than we would be if we fall into a revolution. The only way to avoid that is diligence. We don’t so much solve problems as work them through and then work through the next problem and the next problem and the next one. Right now, our biggest problem is that our government has been captured by large corporations and those among the rich who are rapacious. They are slowly destroying the economic fibers of America and, as a result, the moral and political fiber of the country as well. We need to organize, and we need to fight back. We can solve this, but watching American Idol is not going to solve it.