Free Lunch [Book Review]

Free Lunch, by David Cay Johnston, is subtitled “How the wealthiest Americans enrich themselves at government expense (and stick you with the bill).” Yes, it’s one of THOSE books.

I’ve read and watched a fair share of media concerning how Corporate America ™ is bilking the Middle and Lower classes, so I honestly expected to not see anything I hadn’t seen already. But once I started this book, I couldn’t stop. Johnston’s ability to investigate, research, and synthesize this topic is astounding. The only thing that could have made this book better is a “happy ending,” or sense of resolution, at the end of each chapter; But that would just be sugar-coating the reality of things.

This book is not for the faint of heart, not for those that can’t tolerate the raise in their blood pressure from anger & aggravation, and certainly not for those that cannot deal with harsh realities.

The book’s primary focus is on the abuse of governmental subsidies and the political back-scratching involved in currying favor with Congresspeople. The irony that Johnston mentions multiple times is that, as much as the conservative business world may invoke Adam Smith’s “free market” when attempting to privatize public thoroughfares (eg. Enron), the very notion of subsidies is entirely antithetical to a free market system!

In fact, Adam Smith wrote (quoted on page 211):

…”what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable.”

A little requisite background knowledge: a subsidy is essentially a grant for which a business may apply. It may take the form of a tax break, or it may be hard cash, or any sort of financial benefit provided by the government (the public sector) to industry (private sector).

The reason this flies in the face of a free market economy, Johnston says, is that these subsidies are funded, in part, by the competitors of the business applying for them! In one case (“Goin’ Fishin’”), a locally-owned, modestly profitable, sporting goods retail back in the Hamburg, PA (not far from where I grew up) is eventually put out of business by a Cabela’s superstore, built not far from his own store. Cabela’s was shopping around for a town that would give them $32 million in subsidies. This ended up being approximately $8,000 from every man, woman and child in Hamburg. (105)

This book was published in 2007, not long before the banking crisis. But one particular quote struck me as strangely portentious is on page 252, where he delves into the world of hedge funds (“I’m Being Trapped”):

What makes such huge returns possible is not just computer programs that spot pricing gaps. What fuels hedge funds is debt. Lots and lots ad lots of debt. Hedge funds and banks have become joined like algae and fungus to form financial lichen. And just as attractive lichens can be poisonous, so can this financial symbiote, with its attractive investment returns, turn toxic.

Of course, if things go badly, the investor can be wiped out. Banks foolish enough to lend so much can offer huge losses. If the banks have no idea how many intertwined, cross-connected deals their money is in, and something unexpected goes wrong, it could wreak havoc with the global financial markets. (251-252)

Wow. Prescience for the win.

The book covers so much more than these two relatively small things, though. Every chapter is simultaneously aggravating, because the bad guys keep winning, and also somewhat cathartic, because finally someone is calling them to the carpet for their deeds.

He mentions things I had already heard about, such as the disproportionate distribution of wealth (10% of Americans controlling 90% of the wealth), but takes it to another level, breaking it down to the top 0.01% (1 out of every 1000 people, approximately 30,000 people total). Turns out, since 1980, that small sliver of America has seen their wealth grow more than any other demographic — the 90th to 99th percentile of America, while always wealthy, saw substantial increases in their income (209% from 1975 to 2005). But all of that economic wealth generated during the that 30 year period was severely weighted to that microscopic wafer of our populace. (650% increase in average income from 1975 to 2005) (276)

Johnston ends with a solution, however. The epilogue is not quite as long as I would have liked — more alternative solutions would have been nice, but the one he suggests is definitely worth doing. On the last two pages of the book (before Acknowledgements), Johnston suggests:

…We allow every representative and senator to send out all the mail they want for free. It’s called franking privilege. Let’s extend that concept to their expenses.

Let each member of Congress spend however much he or she deems necessary to do his or her job. I we can imbue representatives  and senators with the power to make laws, surely we can give them teh authority to manage their own expense accounts.

This would come at a price: No more free trips, no more free meals, and no more gifts. Senator, if you need to inspect the cleanliness of the sink behind the bar at a resort in Tahiti, go right ahead, just give us the receipts with an explanation of teh costs. We will collect the receipts from every elected representative monthly and post it all on the Internet in a format that makes for easy analysis.

In this we can move politics back toward the people and away from monied interests. The penalties for taking anything – even a free shot of whiskey – should be swift, certain, and severe. Take a gift, go to jail. Call it zero tolerance for lawmakers. (292-293)

Total accountability. Total transparency. THAT is how we will recapture America from the sticky-palmed quasi-Capitalist interests that are swindling we taxpayers and convincing us it’s for our own good.

Read the book. It will make you angry, it will make you throw up your hands in the air, it may even compel you to throw the book; but read it anyways. This book is the glass of cold water America needs thrown in its face to wake it up from its drunken stupor.

Anyone living in Wayne county is welcome to borrow my copy, provided they promise to not scuff up the Ralph Nader autograph on the  back cover. (He personally recommended this book to me when we saw him on the campaign trail back in 2008) :)