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Home » Opinion » Book review
How the richest Americans milk the government
By Wu Jiayin |
March 14, 2009, Saturday
|
Print Edition
Print Edition
DESPITE public criticism of excessively high housing prices, some local governments have been taking steps to support the real estate market in the name of sustaining economic growth or promoting employment.
While it is doubtful how much these moves will benefit the public, they will definitely help secure the profits of real estate developers.
This is, in essence, a free lunch that some local officials offer to real estate developers, a phenomenon that David Cay Johnston discusses in detail in "Free Lunch''.
Johnston's book exposes how some of the wealthiest Americans enrich themselves at government expense. However, these phenomena are by no means unique to the United States -- they occur in many other countries as well.
With numerous examples and detailed analysis, Johnston's report is enlightening as the issue of government spending receives increased attention.
Eighteenth-century philosopher and economist Adam Smith is often quoted as saying that the work people do out of self-interest -- say, to earn money -- also benefits society, and that society's combined economic forces impose order on the markets like an "invisible hand."
But Smith also said -- and this receives far less attention -- that people will try to thwart that invisible hand for their own gain when they can, and will seek profits beyond the normal returns of market competition.
Johnston's book proves Smith's argument by demonstrating how wealthy people exploit the US government to get richer.
"Evidence that the elites have captured the government and are milking it for their own benefit is so overwhelming that ... you can find it as an unstated assumption in everyday news reports,'' says Johnston.
For instance, the rich are using the nation's commonly held resources, such as parks, for their own tax-subsidized benefit.
As if parks weren't already facing budget constraints, wealthy sports team owners are consuming millions of tax dollars allocated for parks to build, refurbish and subsidize stadiums.
Ordinary taxpayers not only pay for the stadium, but also pay for costly tickets and overpriced snacks while owners and players make big money.
American healthcare is another example.
Though receiving subsidies from the US government, many for-profit healthcare companies consistently look for ways to reject claims.
The result is that many American families still get pushed to bankruptcy by a healthcare crisis even after years of paying for insurance.
No wonder Johnston's criticism: "Our government's blind faith in the wisdom of the market has created the most expensive and inefficient healthcare system in the world without making us healthier.''
The key to enrichment, says Johnston, is the use of well-connected, highly skilled lobbyists who lavish attention on those who influence laws or regulations, or who control where tax dollars are spent. Many lobbyists are good at skirting the rules and exploiting every ambiguity.
For example, when the rich want to build stadiums or other commercial projects, powerful interest groups increasingly use the government's power to take land for "public purpose'' to condemn and seize property.
This enables the real estate developers to buy the land at extremely low prices and thus make huge profits.
Despite illuminating the ways that the rich use the government to get richer, Johnston doesn't come up with practical solutions.
He does suggest that to stop the lobbyists from corrupting lawmakers, the state should give legislators generous budgets and forbid them from receiving freebies from influential lobbyists.
However, this could mean a heavier tax burden on citizens.
Moreover, the situation isn't likely to improve as long as many projects suggested by the rich stimulate the gross domestic product growth. Given these times of economic hardship, this is unlikely to change.
While it is doubtful how much these moves will benefit the public, they will definitely help secure the profits of real estate developers.
This is, in essence, a free lunch that some local officials offer to real estate developers, a phenomenon that David Cay Johnston discusses in detail in "Free Lunch''.
Johnston's book exposes how some of the wealthiest Americans enrich themselves at government expense. However, these phenomena are by no means unique to the United States -- they occur in many other countries as well.
With numerous examples and detailed analysis, Johnston's report is enlightening as the issue of government spending receives increased attention.
Eighteenth-century philosopher and economist Adam Smith is often quoted as saying that the work people do out of self-interest -- say, to earn money -- also benefits society, and that society's combined economic forces impose order on the markets like an "invisible hand."
But Smith also said -- and this receives far less attention -- that people will try to thwart that invisible hand for their own gain when they can, and will seek profits beyond the normal returns of market competition.
Johnston's book proves Smith's argument by demonstrating how wealthy people exploit the US government to get richer.
"Evidence that the elites have captured the government and are milking it for their own benefit is so overwhelming that ... you can find it as an unstated assumption in everyday news reports,'' says Johnston.
For instance, the rich are using the nation's commonly held resources, such as parks, for their own tax-subsidized benefit.
As if parks weren't already facing budget constraints, wealthy sports team owners are consuming millions of tax dollars allocated for parks to build, refurbish and subsidize stadiums.
Ordinary taxpayers not only pay for the stadium, but also pay for costly tickets and overpriced snacks while owners and players make big money.
American healthcare is another example.
Though receiving subsidies from the US government, many for-profit healthcare companies consistently look for ways to reject claims.
The result is that many American families still get pushed to bankruptcy by a healthcare crisis even after years of paying for insurance.
No wonder Johnston's criticism: "Our government's blind faith in the wisdom of the market has created the most expensive and inefficient healthcare system in the world without making us healthier.''
The key to enrichment, says Johnston, is the use of well-connected, highly skilled lobbyists who lavish attention on those who influence laws or regulations, or who control where tax dollars are spent. Many lobbyists are good at skirting the rules and exploiting every ambiguity.
For example, when the rich want to build stadiums or other commercial projects, powerful interest groups increasingly use the government's power to take land for "public purpose'' to condemn and seize property.
This enables the real estate developers to buy the land at extremely low prices and thus make huge profits.
Despite illuminating the ways that the rich use the government to get richer, Johnston doesn't come up with practical solutions.
He does suggest that to stop the lobbyists from corrupting lawmakers, the state should give legislators generous budgets and forbid them from receiving freebies from influential lobbyists.
However, this could mean a heavier tax burden on citizens.
Moreover, the situation isn't likely to improve as long as many projects suggested by the rich stimulate the gross domestic product growth. Given these times of economic hardship, this is unlikely to change.
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