The Cost of a Free Lunch

David Cay Johnston on how the government protects the privileged

David Cay Johnston, a Pulitzer Prize–winning New York Times reporter, is the author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You With the Bill) (Portfolio). The heavily reported book takes on eminent domain, special favors for sports teams, legislative deals that put taxpayers on the hook for a private train company's crimes and errors, giveaways from small towns to attract big-box stores, and the ways government-managed markets in power and health care enrich a few special interests at everyone else's expense.

Almost every depredation recorded in Free Lunch can be traced back to government decisions, generally combined with a decision by some individual or company to act like a bit of a creep. Yet a fair amount of Johnston's rhetoric declares that "the ideology of blind faith in markets" is somehow implicated in this or that crime or ripoff. Still, he often uses sound free market arguments to make his case.

Johnston insists he's not selling any consistent ideology about government. He sees himself as an investigative reporter, looking for interesting untold stories. Nonetheless, in this edited transcript of a phone interview conducted by Senior Editor Brian Doherty in December, Johnston is aware his book has a moral message.

Reason: What is the theme of Free Lunch?

David Cay Johnston: Ronald Reagan asked Americans if we were better off than we were four year ago. Americans said no and elected him. This was supposed to lead to less government, more market solutions, and lower taxes.

What I'm asking is: Are you better off than you were when Reagan was elected? Government is just as big, there are vastly more regulations, and as I show, we have many new rules and regulations that handcuff the invisible hand of the market and in subtle ways extract money from the pockets of the many and funnel it to the politically connected few.

Reason: Which of the stories you tell sums up your book's message best?

Johnston: Jim Weaknecht, a merchant with lower prices than his bigger competitors selling fishing and outdoor gear, was run out of business in Hamburg, Pennsylvania, because of $32 million in subsidies from the local government to Cabela's [a chain store]. That's $8,000 for every man, woman, and child in town. Imagine that you are that competitor, with some big outside competitor getting a huge leg up, so they can run you out of business.

In its first three years as a publicly traded company, Cabela's had $223 million in profit—and subsidy deals worth $293 million. They are not in the business of selling sporting goods. They are in the business of reeling in subsidies.

Cabela's was actually held up by Bush and Cheney as a model of enterprise. It's not surprising Bush would praise a company like Cabela's. His own fortune, as I show from the public record and from interviewing his friends and from his own tax returns, derives from a subsidy via a tax increase! George W. Bush got rich from a sales tax passed by voters in Arlington, Texas, to build a stadium for the Texas Rangers [a baseball team Bush co-owned].

Reason: You don't often distinguish between a tax break and a pure giveaway when discussing subsidies. Why?

Johnston: In some of the subsidies that I explain, no dollars change hands, but value changes hands. When the government says to a rich person, you don't have to pay taxes, then that business gets to compete with an advantage against others who do pay taxes.

Reason: You often traduce unfettered markets, but aren't all the practices you condemn the result of government actions or decisions?

Johnston: Markets are the best mechanism to determine the price of things, but all markets have rules. In many of these markets established under the guise of deregulation, particularly energy, the new rules are rigged in favor of one group or another. Just this month [December] big manufacturing companies, chemical firms, and industrial firms including automakers joined together with their nemesis Ralph Nader to file a petition with the Federal Energy Regulatory Commission that said excuse me, electricity markets are not real markets. [The petition Johnston refers to urges the commission to open a nationwide probe into whether wholesale electricity prices are "unjust and unreasonable."]

Reason: Free Lunch goes beyond a "just the facts" attitude. It does seem that if something benefits the rich, you're against it.

Johnston: There is definitely a moral tone to the book. I cite Adam Smith, Andrew Mellon, and the Bible on the proposition that one of the most morally offensive things is to take from those with less to enrich those already rich. I have no objection to people getting wealthy. Just get wealthy off hard work and enterprise, not getting government to pass rules no one knows about that reach into my pocket.

Reason: You present a variation on campaign finance reform, something you think can address the problems of government being overly solicitous of the wealthy.

Johnston: I was inspired by the franking privilege. Have all the costs and expenses of being a member of Congress publicly funded—an unlimited expense account essentially, but with complete disclosure, including whom they met with and the substance of the conversation. Then there would be a rule that says, now that we paid all costs, including for keeping up two households, if you take so much as a free shot of whiskey, you go to prison. Zero tolerance for politicians.

Reason: Studying example after example of government working to prop up the powerful, do you ever just throw up your hands and decide that government is inherently the problem?

Johnston: We recognize that people abuse power, so we limit it; we put in checks and balances. I think a big problem is many Americans are giving up on democracy. I never throw my hands up about these problems. If I did, that would be saying that I don't think this ingenious idea, the Constitution, can work. And I do.