The wealthy feeding at the government trough

March 14, 2008

Leela Yellesetty shows how the rich get richer--at your expense.

FISCAL RESPONSIBILITY and accountability have long been the buzzwords in Washington, beginning with Ronald Reagan's pledge to end wasteful government spending and promote private enterprise and the "free market" as the most efficient mechanism for growth.

Nearly 40 years later, this ideology has borne bitter fruit. While government spending has not declined, only a tiny minority has benefited--to the detriment of the rest of us. How this came about is the focus of David Cay Johnston's new book Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill).

Armed with meticulous research and economic analysis, Johnston, a Pulitzer Prize-winning investigative journalist for the New York Times, crunches the numbers and names the names. What he exposes is enough to make anyone's blood boil. Or at least those of us in the bottom 99.9 percent.

Some of the stories Johnston includes will be familiar to readers, such as Enron's backroom deals that resulted in gouging the public's utility bills or the machinations of the for-profit health care industry. He destroys the argument that cases like Enron are the exceptions to the rule. Taken as a whole, Johnston's case studies prove that such practices are the norm and that executives have every incentive to rip off workers and taxpayers in order to line their own pockets.

A good example of this is the case of CSX, the railroad company formerly managed by John Snow, who would go on to become Bush's treasury secretary. Snow was praised for saving the company $2.4 billion by cutting costs on maintenance. The results were predictably deadly. Johnston follows the story Angelica Palank, whose husband was killed when his Amtrak train crashed due to a faulty switch that CSX was responsible for maintaining.

It turned out the switch had been held together with nothing but a rusty nail. After years of expensive litigation, Angelica was finally able to win her case against CSX and was awarded a total of $56 million in damages. This would appear to be justice at work, but it wasn't.

The damages awarded were dwarfed by the amount of money the company saved by cutting corners. It was the equivalent of a parking ticket, easily accepted by wealthy executives as part of the cost of doing business. What's even more outrageous is that CSX didn't pay a dime. Because of an absurd federal law, Amtrak must bear all liability for claims from their passengers, even though CSX was the party at fault. Since Amtrak is a publicly owned company, the damages were paid by the taxpayers.

Other topics explored include stadium and big-box store rip-offs, title insurance and home alarm system scams, student loan and mortgage catastrophes, the bizarre economics of hedge funds, and how Paris Hilton's grandfather made his fortune by stealing funds from a children's charity.

IN MANY cases, the fraud being carried out is perfectly legal--a product of the wealthy intimately crafting regulations through lobbying and campaign contributions. In the event that an illegal activity is uncovered, little punishment is meted out.

Johnston contrasts the polite slap on the hand given to executives who earned billions by illegally manipulating stock options with a man who is serving the rest of his life in prison for stealing $150 worth of videotapes from Kmart. The complexity of legislation and accounting mask the fact that the wealthy abide by a very different set of rules than the rest of us.

This is aided by a compliant media that treats every scandal as an aberration. The twisted logic of this system is that socially valuable public services like parks, schools, health care and infrastructure must be curtailed in order to give more money to corporations. As Johnston notes, "The huge gifts of money that wealthy owners of sports teams wheedle out of taxpayers are a free lunch that someone must fund. Often that burden falls on poor children...[L]ibraries imposed costs on taxpayers, but they also returned benefits as the nation's store of knowledge grew. That is, library spending is a prime example of a subsidy adding value."

Johnson frequently references Adam Smith, contrasting his idea of an invisible hand that regulates the market for the benefit of all to the very visible government handouts to business today. Like Smith, Johnston supports a fair and regulated market, combined with publicly funded services that the market cannot adequately provide

Readers would be better off looking to Karl Marx, who observed that the driving motive of profit in a capitalist economy inevitably led to such abuses. Far from being a neutral body working to balance the needs of all classes, Marx and Engels argued, "The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie."

There have of course been times when the state has intervened on behalf of ordinary people--the New Deal is a favorite example. But seldom talked about is how these reforms were won, by massive working-class struggle which threatened to topple the capitalist system altogether. Despite this omission, Free Lunch offers a powerful indictment of a sick system in which the few profit off the many.

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