Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense, part 1

Uploaded by MSLawdotedu on 23.06.2009

welcome to books of our time
produced by the massachusetts school of law and seen nationwide
my guest today is one of the country's most knowledgeable journalists on the
subjects of taxation and business he is david cay johnston
of the new york times he has written a new book
called free lunch
how the wealthiest americans enrich themselves at government expense
and stick you with the bill
his book deals with the methods by which the already wealthy have used government
since approximately nineteen eighty
to make themselves richer and richer
while the rest of us fall further and further behind
david cay johnston is with me today of course to discuss his book
and i am lawrence r. velvel the dean of msl david thank you for coming up from
rochester well thank you for having
me it's a pleasure it's the second time you've been on the show
and uh... we would have taped this a few days ago but
for the northeastern winter
which grounded you david I gather that after many years of a very uh...
i think it's fair to say a very distinguished career
part of part of it being with the los angeles times one of the country's
fine newspapers
part of it being with the the new york times one of the country's fine newspapers
you are in april going to
leave the new york times for the purpose of writing books and some magazine articles
but basically to work on books
that uh is that right
yeah I've been doing this for more than forty years I'm not even fifty years old yet but I've
been doing it more than forty years and
it's time to go do you're not even fifty I'm sorry not even sixty yet
and uh...
i want to go do books full-time do some long form magazine articles
documentaries possibly theatrical film
based on the kind of work i've been doing about the disconnect
between our political culture
and the reality of our economy
i noticed
over the weekend when i watched you
i think actually about one-and-a-half times 'cause we
tivoed it we don't have a tivo but we've got the equivalent
you when you were on c_-span
and you you mentioned uh... that you
wanted to write more extensively about some things than you had been
able to in the past or that
many even now you said that you yourself did a lot more research into
these things
and into the reality of what the politicians are talking about than most
reporters do
what what what what what causes you david
to uh... do so much more digging so much more research both the book kind you
do a lot of booking in your work
as well as a lot of human investigating
what why do you do that and other reporters don't
well you have to have lots of different kinds of reporters to make a newspaper work you
know you need to have people who can cover sports and
people who can write features people who can write funny
very important to have people who can write funny
and when i was a young man I discovered i could make more money as a teenager
writing for a newspaper than anything else that was open to me
one of the things i quickly learned was that there were two kinds of reporters there were
reporters who came to work and had a note in their typewriter
said this is what you're to go do today
and the reporters who told their editors this is what i'm going to do today and i
quickly decided that
i'd rather be in that group
and when i would sit in meetings of city councils and school boards and things
like that that I covered in my early years
i began to realize that
if you started digging into how the government really operated it was really
quite interesting
and that the superficial blather of the politicians the city council members
the supervisors or whatever you could right fun stories about it but
the real substance was
how the quality of people's lives was affected by the quality of their
and how the distribution of resources was affected by the government
things don't happen in a vacuum
so i took a deep interest in that and i was also interested in the exercise of power
one of the things that i've observed through life is that you know some people don't
care about beauty some people don't care about money some people don't care about power
people who care about power
can do enormous damage to a society
they're very hard
for journalists generally to write about
and you had to really focus on understanding exactly what people were
doing and never make stakes of any consequence if you are going to do that
and i just found it challenging and interesting david at the risk of
asking you to discuss the obvious
why is it that they're hard to write about and why is it that you must
never make mistakes well
the first reason it's hard to write about is that
people what's the point of gathering power if you can't abuse it abuse it for
your own interests okay there is none there is none
but you know people who are into 0:05:02.169,0:05:06.029 power are also smart about trying to hide what they're doing to persuade you
they're really doing it for your benefit benefit
we need to temporarily have a dictatorship because the people need
this not I need this
so you have to watch very carefully for their behavior and the acts they
take and to piece them together and there's no outside force telling you to do
that if you are writing about
most news
all you have to do is accurately record the official version of events
what happened... 0:05:30.540,0:05:32.399 the news media does a really good job of that
what the president said yesterday what took place in the debate in
congress the airplane that fell out of the sky
those are all well covered
the things that are sub rosa that are subtexts those are not nearly so well
and they're difficult to cover
the reason you can't make mistakes i have watched all throughout my career my
many of them have done well but I've watched a number of them blow up
they had some serious error in a story
or the story was fine but when the inevitable attacks on them came they
mishandled the attacks
so i've always been very careful about
making sure that you're
fair to people
and one of the ways i did that is when I'm writing a story I imagine myself
that i'm the person who is the focus of the story
i may be getting my skin flayed but did i have it coming and was it fair and did
i do my best to tell their
version of the events even if they won't talk to me
did I do my best to tell their version of the events
and those rules will generally keep you out of trouble
they wont keep you out of controversy you know i could introduce you
to people larry who will tell you that I'm the
greatest person they ever met in their life
'cause they're not in prison for a crime they didn't commit or something else and
i can introduce you to a lot more people who will tell you i'm the biggest jerk and the
worst person in the world they ever met
comes with the territory
uh... david
apropo of that
let me ask you your opinion if you're willing to give it
about a subject that has been much in the news
during the
ten days before this taping
the times did a story
about john mccain
the news media in general starting with uh... cable television
imediamente as they say in spanish if not sooner
started blasting the times
for writing this story and
pretending that's my word
that what the times was writing about was a sex scandal
when it seemed to me that what the times was writing about
was hypocrisy and inconsistency
and that sex
if it occurred
was only part of a much bigger picture
the times caught it's lunch for that because of course mccain and his people
and those who support him didn't want any of this coming out what's your opinion
if you're willing to give it on
who who was right and who was accurate in terms of what the story was about
well I didn't have anything to do with that story at all larry
I know that there are a couple of things i think that are kind of clear about it i
mean i read it like any other reader did one of them is
the story probably would have benefited a great deal if the line had said there were a couple of staff
members who believed
there was something romantic which was the phrase going on
and had pointed out that
there was no evidence of this but they believed it and it explained their
motivation as opposed to the facts
but more importantly the story was in fact about
whether john mccain is how well most people perceive him to be
and in that sense it was not unlike the stories that have been done on every other
candidate where there are these long pieces
into which an
enormous amount of work that you don't see goes into these stories to examine
the backgrounds and lives and activities of the candidates and
there was a lot of substance in that story and
you know the very morning the times story came out it went up on the
internet the night before the washington post was able to take and cobble together the
material it had on the same subject
and have a a matching story the next morning so it wasn't that others were'nt
looking at this
and for any candidate comparing
what you say to what you do
is just standard
you know there
seems to me that there's also a
an effort in this country by some people
see to it that the only news you get
is the official version of events yeah
uh... I'm
i'm in the business of the unofficial version of events i've spent my whole
career on the unofficial version of events
all across america you will see attacks on
on news organizations
for perfectly valid well reported stories and many of the attacks come
from people who clearly either have not read the story
or they're being dishonest about it and I would cite another example the Los angeles
times had a very carefully reported story
with women whom it named who said they had been sexually harassed by arnold
even though there were only named
women in the story
and many of them had been reluctant to talk they were not out seeking publicity
the l_a_ times lost something like one percent of its subscribers
and there were these massive attacks on them claiming that they were used unnamed
people clearly didn't read the story and i think this is a troubling development
in our democracy
i think you want to have
newspapers that are aggressive watchdogs of government
and government officials and people who exercise power
do newspapers sometimes make mistakes or get it wrong sure we do
there's a reason it's called the first roughed draft of history
but if you read the paper over a period of days or multiple papers which is even
better as your and my parents always did
uh and people of that generation
you will get a pretty good picture of what the government's doing and
government is central to the quality of our lives
government sets the rules and the rules define the civilization
you know it's an example of something
part of what you talked about struck strikes me as an example of something
you talk about extensively in the book
which we will get to I'm just so interested in some of the other things you have to say
the uh...
the vast reduction
in concern for honesty accuracy incompetence
when you talk about people
blasting the los angeles times for using unnamed sources when its sources are
when you talk about uh... people blasting the new york times for
allegedly writing an article about unproven sex
when it's really about inconsistency and hypocrysy
you're just talking about people who don't give a tinkers damn about honesty
or accuracy well there actually are some people i believe who are essentially
paid to manufacture ways to attack
the news media
one of the the salient things i think we've seen happen in this country is a
rise of the
a rise largely among the people who call themselves conservatives
of being statists
the other day I was watching a program on fox news where where the
anchor referred to the republicans as we
noticed nobody wrote a piece about that imagine if dan rather and I don't know what
party he's in but had referred to one party or other and said we instantly
God forbid it should be we democrats oh my god but the the thrust of the point being
made was that someone had
the government had the british government had asked that something not be
and some journalist somewhere had reported this
and it the thrust of it was
you weren't being patriotic you weren't silent when the government told you to
that's not my version understanding of
the idea of patriotism that doesn't mean this may or may not have been a mistake
to do
but the first amendment was adopted at a time when newspapers had no regard for facts they
were in fact made things up
jain adams was accused of all sorts of horrible crimes for example that uh...
he never committed and misconduct
and yet they passed the first amendment
they adopted the idea that
having a robust public discussion would advance this at the time radical idea
that we could govern ourselves yeah
you live over the if you're a journalist
you sign all your work there's a saying in my business
lawyers see their mistakes off to jail
doctors bury theirs
only reporters sign theirs on the front page for everyone to read
and the only thing you have to sell is your reputation about that and over the
long haul
your reputation will stand or fall but this notion that you should bow down before
the government
that you should not report things that we should allow courts to seal
and conduct government in private that we should say
we're going to give money to this or that party but you can't know how much of
your tax dollars were spent or how because of confidential business reasons
that should be deeply offensive i would think to people who understand the
theory of why we created america
well you know and you can extend that and on other shows i have
and we will in the future
executive privilege and the state secret privilege
people in power don't and in fact it's true in corporations it's true
in universities and police it's true everywhere people don't want you to know what
they're doing
because it won't you know the old saying david if you don't want to see it on the
front if you think you wouldn't want to see it on the front page of the new york
times don't do it don't do it yeah well they do it but they still don't want to see it
on the front page of the new york times
and this attack attacking journalists this goes back
well it goes back of course as you say
to the seventeen nineties jefferson actually paid some guy
I forgot it wasn't furneau it was the other guy he actually paid some guy
to go out and attack the administration
of which he was a party did it secretly and we had the alien sedition acts at one time
we used to have commercial criminal libel laws we've gotten rid of those
but the
it seems to me that you need to have journalists who do many different things any
you need to cover sports you need to have funny stories but you need to have a significant core of journalists
whose job is to be skeptical about the government's operations
to tell you not what the politicians say
but what the government actually is doing
and we will be better off in the long run i believe if we do that because it's a
funny thing truth tends to lead to better policies yeah
you know david I'm not going to ask you to comment on what I'm going to say because
I don't think it would be fair to ask you to comment
but then i will ask you something on which i will ask you to comment
i think that bill keller and arthur sulzberger are incompetent
I don't agree with you about that at all let let me tell you my
latest reason if i may put it that way
when the story about mccain came out
keller published
some kind of statement that the times this had gone through many drafts and
this is what always happens and they
printed it when it was ready
well and that's the kind of stuff he talked about with regard for example to
the breaking of the news about the NSA spying
which he actually sat on for one year
it would have had a dramatic impact possibly on the election had they not
done that but be that as it may
he didn't say word one
about in this last time he did not say word one about what you and
i've been talking about which is
this wasn't about sex this was about inconsistency
and acting contrary to what you've been preaching
okay i'm not a spokesperson for the times ok but as an individual
and somebody who's
been in the
top ranks of journalism as a reporter for a long time
the most important person in a newspaper if you're a reporter is not the editor it's the publisher
if the publisher doesn't have any spine or backbone then you don't get
things in the paper and i worked at the los angeles times when chandler was
there and the editors would go say we're going to run this story tomorrow and he
would say thank you and they ran whatever they felt they needed to run
and i worked there afterwards when publishers sort of went
uh... ya
and this self-censorship came into the paper and it was very damaging
and i was the the first person to leave over that kind of nonsense about two dozen
of us eventually left
arthur is faced in a very tough environment this isn't the nice
easy profits era of the past for news papers where they were printing money
they've been enormously successful at moving towards the internet
the size of the audience
the influence of the times and up until just recently while everybody else has been
cutting they were adding
to the staff
bill who
has been running the paper now since the
short brief unhappy reign of howell raines
has had to make a lot of tough choices but for example in the story you mentioned on
national security which i know nothing about except as a reader
i do know from my experience that editors all the time say to reporters
you don't have it
you think you have it you don't have it
just like prosecutors say to detectives
you don't have it yet go back and do more work
and in that case my recollection is the reporter took a leave to write a book
and during the course of that developed more material and then they felt you had it
you don't publish a story until you think it's ready I many times thought i had a story
ready to go and i am very glad
that some editor said
I put the hoop up here you haven't jumped through it yet go back and do more work
so uh... i i i i've never met an editor I had any respect for who would time a story or
care about the election
we run the story when we run the story we don't say oh we're going to get this in print
there are certain events that are coming up you're going to write about the fiftieth
anniversary of something you'd better have it there by the fiftieth anniversary
a but
for almost all news stories it's when you're ready to go you go with it and
by the way
they published the story
nobody else published that story and we now know
it was right on
we will gentlemanly like to agree to disagree on that particular story
and you know i have to say that i i think the time and one of the reasons i
get so angry about what i see as big mistakes
what I see as big mistakes obviously not everybody sees it my way
vis what you've just said 0:19:27.120,0:19:29.549 is that i think the times is a national treasure
and you know there's no other newspaper in it's league
I've worked for
five big papers the san jose mercury
the detroit free press the l_a_ times the philadelphia inquirer and the new york
times and i have good friends at the other top papers in this country and the
times is in a league by itself I
believe the times is absolutely vital if we're going to maintain the liberties of
the people
as a check on the abuse of power by government
you know that's a very strong
I agree with it
uh... i think it's
it's almost a criminal shame that we are at the a point in this country
where if a single newspaper were to be to go down
or if its people are to be a affected by the pressure that's put on them all the
it just means that our democracy could be in ever bigger trouble
we have a single life line if you ask me this is a very bad thing
I mean there are other forces at work but among newspapers
a lot of people look at the world as they're born into it and assume like
that it must needs be that this is the way god intended the world today
it is nowhere written down that we will have our liberties that we will have the
freedoms that we have come to know
there is a never-ending struggle against the need for the state to be strong
enough to be functional and to have a civilized society
and at the same time its desire to crush those who stand in the way
prior to our constitution and bill of rights
i think the historic problem
for the inconvenient individual
was predation by the state
yeah the king doesn't like you throw him in chateau d the king wants your daughter
when she's a virgin you don't want to hand her over cut the guys throat and
one of the great geniuses of of our constitution was the recognition that
the liberties of the people depended on
a certain set of standards habeas corpus being a crucial one
the ability to speak your mind the ability to follow or not follow
religion as you chose
and that when we
put these in place
we had this flourishing society it's not perfect we've go lots of things wrong in our
government has problems I spent my whole life writing about what's wrong with
but there is no civilization
there is no liberty without government
and to the extent that people have said well i don't care what the government's doing
you know I'm much more interested in you know did britney get drunk last night
who is paris sleeping with this week
and not with what the government's doing
then politicians fall under the influence of other people in
in our age
they've fallen heavily under the influence of their donors
because of gerrymandered districts that
this year is an exception but historically only about eight
congressional districts per election have been competitive
in your and my lifetime as adults and
therefore the real constituency of members of congress are the political donors and
seen how
money brokers and efforts at campaign finance reform have made things worse and
worse and worse
so that we have a government that is increasingly estranged
from the needs of the people
and focused on the needs of the moneyed people and large corporations
and that and that's the area i have been working on for years and part of the
reason i'm going to go work on books and things is because i want to do things that
are beyond the scope of the daily newspaper good as it is an important as
it is
i want to explore things on a level that's beyond the scope of even a great newspaper like
new york times
well now that is what free lunch is all about
i think
that while free lunch
which is what three hundred and seventy pages whatever it is
three hundred and twenty three hundred and twenty well
maybe uh... three hundred and uh... nineteen and a half
are about ways in which the wealthy
have since about nineteen eighty
used government
as in the gilded age of the nineteenth century
to get richer and richer
while the poor and the middle-class everybody but the top one percent essentially
you know struggle on
uh... at about the same level we were at in nineteen eighty
well maybe three hundred nineteen and a half pages are about that
there's a half a page which really
resonates with me
this book is because it makes a point clear that i think is implicit in the rest
of the book
this book is really a book about morality isn't it oh sure yes one of the
criticisms I've actually gotten is
you're a reporter what are you doing writing with a moral tone
and yes this is a book about political culture
and and morality
I cite adam smith the bible and andrew mellon as moral authorities in this book
all throughout the bible go with the first two i don't know about
I think it's important that andrew mellon says that
people are more important than capital and people have to be thought of first
not capital
'cause that's not our culture today
all throughout the bible
the most frequently denounced evil is taking from the poor to give to the rich
the bible tells us in in both books
your society will come to ruin if you do this
now it was written at a time when
we didn't know how to create wealth
balzac said two hundred years ago that behind every great fortune lies a crime
it's a great comment but we know how to create wealth now the industrial
created wealth
the information revolution and our ability to manipulate cyberspace and to
develop concepts and structures in mathematics and elsewhere
we can create real wealth
so per se being wealthy is now
not the result of taking from those with less
and yet this historic problem has come roaring back
and it's come roaring back under the guise of conservatism
conservatism to me means
we take the things that we know work
and we keep them and we maintain them and if you want to try something new you
want some new government program or policy
you're careful about it you're cautious about it you're skeptical of it if it
turns out it works we'll try incorporating that
but we have a great skepticism about doing that
well that's not what we got
we got radical ideas that no one else in the world is doing and lo and behold
these other countries are having fewer problems
and they're middle class is better off
because they didn't do these radical things they were in fact conservative
now the things they did we might view as liberal but they were conservative in
hanging onto those things
and so what were we promised in nineteen eighty when ronald reagan asked his
famous question
are you a better off than you were four years
and i'm here asking a question that are you better off than you were in
nineteen eighty
he said we'll have less taxes
well you know what taxes as a share of the economy are the same as they were back then
government spending as a share of the economy hasn't changed one iota 0:26:14.370,0:26:17.700 it's higher absolutely well what we've got but not as a share of
the economy I understand
and what we've gotten instead is all this government debt
so that now
if assuming that all the federal
interest on the federal deficit is paid just from the individual income tax
all the income taxes that you pay from january through the end of april
just go to pay interest on the national debt
and since eighty six percent of federal tax revenues come from labor
and fourteen percent from capitol
that means we explicitly have a policy now
to tax labor to transfer to capital
or to china
or well but that china's capital
so we didn't get less government
that we were promised next we were told
we should have deregulation
there's no such thing as deregulation everything has rules you have rules here
at the law school students have to follow
there are rules on how many
what size and shape a stop sign has to be
uh baseball has rules right down to how many stitches there are on the baseball
what we got were new regulations
and the new regulations were written by enron and the railroads and the banks
and they eliminated consumer protections or reduced them
took away enforcement of the existing laws they benefited
this political donor class
who were pursuing their own self interest and by the way I don't have a problem with people
pursuing their own self-interest it's just there's not been a push back
from the rest of society as we've seen
unions which help push back decline and other
uh... areas where there was pus back decline big churches some of them were
involved in this but
we've seen them decline
we were promised that we would have
that markets would provide solutions
a lot of my book is a defense of markets
the supreme court says a market is where
independent parties
neither under duress or coercion
and with knowledge of the facts
come to an agreement on a price
that's not what a lot of our new markets do
we now have markets
to thwart competition
to take andrew adam smith's invisible hand of the market
in which
there are lots of of sellers
and smart consumers who can compare prices
and this drives prices down
adam smith said to the lowest level at which businesses can continue
to operate
we've replaced that through government policies
with practices that
artificially restrict competition
that raise prices
that inflate profits
all under the guise of conservatism and markets will solve our
fundamentally i argue in free lunch what's happened is that a narrow segment of our society
large corporations
which are immortal
and amoral
there there they're necessary they're important they
are great producers of wealth but there's reasons that you want to
regulate and control
entities that are both
their purpose is to maximize return to capitol which is a perfectly good thing
to do
but they have no other obligation
and they are immortal unless they mess up in the marketplace they go on forever
unlike you and i who our time's going to run out someday
if we don't not soon I hope one hopes
unless we have rules that govern their conduct
they can do enormous damage to our society
and we have had a
massive effort to collect subsidies from the government
to get rid of government employees and replace them with private-sector workers
who typically cost twice as much
so the federal work force has gone down and everybody's seen news stories that the
federal work force is shrinking
but the number of people
who are paid by the federal government to work is going up
and the cost
per person per labour hour is going up enormously
and when we do that by the way unlike
creating a bureaucracy where you know empire building bureaucrats
now you have a corporation that makes campaign contributions to encourage more
of this and more contracts and more money flowing their direction
so all the things we were promised
most of them haven't happened well there have been some good things airfares have
we have a lot more air traffic than we used to have
there've been some benefits it is not black and white
but my focus is on these areas where we now have
massive transfers of wealth and income
from those with less to the politically connected few
billions and billions of dollars being handed up
the ladder
you know david
it strikes me as you were talking a couple of ideas struck me for the first time
what you're discussing
is not different is it
then what was happening
in the great britain against which
the founders of this country rebelled because
the east india company
they were monopolies that britain uh... they even let 'em have private armies
uh... which the east india company had in fact the east india company larry is
actually fundamental to the american revolution and is taught the wrong way in
american schools and anybody who is a school teacher i hope you listen to this
there's a wonderful book called the boston tea party by professor larabee
it came out forty some years ago
where he went and got the
british records of this event and the american records
every school child in america gets told i'm sure you did as i did as a child told
this was a protest against high taxes
no it wasn't it was a protest against a tax exemption
it was a protest against a favor
a government tax favor to the politically connected friends of
king george who owned this royal monopoly the east india company
they mismanaged it because guess what in a competitive environment managers who
can't run the business are gotten rid of
or they go out of business
but in a monopoly you can mismanaged for a long time and the same thing with a
duopoly and an oligopoly where there's
a little scintilla of competition among a few firms
and they were going to go bankrupt
because they had all this tea that they couldn't sell and they were going
to replace a market
in boston
not far from where we are
i think it was seven out of ten cups of tea drunk in november and december of
seventeen seventy three
were dutch tea 0:32:26.130,0:32:28.400 but under this law that was being protested
there would be a monopoly
and only british tea could be drunk well people understood that that would
eventually mean higher prices
that it would mean less competition there were lots of little petty
merchants who depended on selling tea to make their livelihood at the time
and if we have such a fundamental misunderstanding of how the country got
then we're going to have fundamentally flawed policies
that flow out of these myths and a lot of what i've been writing about in free lunch
and in my book perfectly legal and the thirteen years of stories i've been
doing in the new york times
are about what i see as a growing disconnect between our political
and cultural mythology
and how the economy actually works now all societies have to operate from myths
you have to have a shorthand for your culture
but ours is getting disconnected
from reality
and i believe one of the reasons that free lunch has done so well in the two months
it's been out is
that a lot of people have looked around after twenty eight years from
when they were promised all these things by ronald reagan
looked at their circumstances
realized that for the bottom ninety percent of americans incomes are unchanged
after twenty-eight years even though the country is more than twice as wealthy in
real terms and
productivity per capita
is up seventy percent for every dollar the economy put out back then per
person in real terms it puts out a dollar and seventy cents today
and they've said where's the beef
and that disconnect is i'm hoping opening up an opportunity to get people to
see what the government has done that's contrary to their interest because adam
smith said
any policy that
the majority of people
must be a good
thing for the society
you've just you know over the last ten minutes you've actually presented a fair amount
of your book
which it'll become more evident to people as we go along that you have done that that
you've summarized a lot of it very well
i'm going to go back and it seems that every time I bring up a historical point that it
gives you another shot at doing it I'mm going to bring up another historical point
isn't you
say in the book
I believe
and i think i heard you say on television
that what we have
is a
social system or an economic system
that uh... in reverse of the biblical
takes from the many
or from the poor
to give to the rich
now isn't that exactly one of the major reasons
for the french revolution
oh yes what happened in france
only determinate of your economic life in eighteenth-century france was how well
you picked your parents
uh... trusts and estates and
the functional equivalent of what would happen if we repeal the estate tax in
the united state's occurred in that all capital and all land and this was essentially
an agrarian society
were tied up either the church
or trusts
controlled so much
that there was no movement anywhere
one of the stories i tell in free lunch when i talk about the hedge fund
business in the united states and
the hedge fund managers who pay taxes at the same rate as janitors
in the united states
uh... janitors don't pay that much
fifteen percent tax rate I mean don't pay that little right they pay a fifteen percent tax rate on
their incomes and that's what hedge fund managers say they should be able to pay
there was some guy made one point seven billion
yes he made michael milken look like a piker
the the average hedge fund manager in two thousand and six
remember the hedge fund managers keep telling us if you raise our taxes the
whole economy will
will be negatively affected
said that it was not fair to make them pay more than a fifteen percent rate of course you know
school teachers and reporters tend to pay twenty five to thirty one percent
well-to-do americans pay thirty five percent
and you know the top twenty-five hedge fund managers average income was only eleven
million dollars
i'm sorry eleven million dollars a week
a week a week
but they can't afford the taxes
a cool six fifty a year there is a
there is a model
of la petite
la petite trianon
which was madame pompadour's residence and later briefly marie antoinette in
greenwich connecticut
and at the time the original was built
there was a room built so that the royals would not have to be
seen in the presence of their servants
the table was to be
laid out on the ground floor by the servants and then a mechanism
was was to raise it up into
the room where the royals could have their party and dinner and what not
and then it would be lowered back down
before the mechanism could be built uh... a revolution intervened
well if you
how unfortunate if you go now to the big stadiums
where we are
subsidizing commercial sports
two billion dollars a year
taxpayer subsidies to baseball
basketball football and hockey
all the new facilities have these
luxury boxes
most of them
uh... are owned by companies
almost all of them are which have tax deduct the expense you want to buy a ticket
to a baseball game
you pay with your after-tax dollars
people in the luxury boxes this is a business expense because they're entertaining
and so you're subsidizing this because they're getting a deduction
and guess what
the subsidy payments that you're making for these new stadiums
are being used also to create private walkways
so that the wealthy who go to these boxes don't have to mingle with the
likes of you and me
and we're the ones who are putting up the money
they don't have to be with us
this strikes me as not particularly egalitarian or democratic and much more
the french government of the sun king
when one talks to people about what's going on in their own society
at the time they don't want to hear it
because it hits too close to home or it destroys their mythology or whatever
reason when you bring it this is what happened two hundred years ago they want to
hear that and maybe that's a way of opening their minds
so let me add that if i understand this correctly
i think back in the days of the the french revolution louis the XVI
was it
was borrowing like mad to finance this that and the other and how did they
pay for the borrowing well they taxed the peasants who didn't even have any
well yes and you know the most widely read literature in western civilization
is jane austen
and her stories are about these young women from families that are going to
come to the end because there are no sons and the daughters have to find husbands
under that culture
or they face an awful life
there are these men that they're looking at these young men oh mister darcy has ten
thousand mister so-and-so has five thousand
and what they're talking about
is actually the british finance system in the seventeen hundreds and the eighteen
hundreds where
wealthy people loaned
large amounts to the crown and were paid interest that's what the ten thousand
and of course whatever money they could make off their their farm and whatnot
would supplement this but they had this cash income from the crown
and all the crown had to do then was raise enough taxes from the poor and the
the middle class to the extent there was one
to pay the interest
well what have we been doing since nineteen eighty ronald reagan came in
saying he wanted a balanced budget
we last had a balanced budget under richard nixon
we have seen budget deficits grow enormously over the years to the point
the federal debt
not adjusted for inflation
was just under
a trillion dollars when ronald reagan came to office and by the time george bush
it will be ten trillion dollars
and so this enormous amount of money over four hundred billion dollars a year
is just going
to pay interest on the national debt
that means it's money we don't have for
higher education
for infrastructure improvement so we don't have bridges collapse and kill people
in minnesota when they're commuting home from work
so we don't have
pinch points
that are costing us billions and billions of dollars 'cause we can't
officially move
goods around the country
we don't have it for all sorts of things that would grease the wheels of
commerce and make us
and this practice of borrowing
is a practice that in the long run will make us less wealthy
the practice of spending money we don't have
inherently in the long run
has to make you less wealthy unless you're spending it for things that
value to your society
so if you're borrowing to build the erie canal
which means wheat grown in iowa can now go to new york and will also mean the end
of the wheat business in rochester new york where i live
and new development will have to come along
if you're borrowing to build the erie canal the interstate highway system to
educate young people so that their productive minds will make more value in
the future
you're making an investment in the future
that's not what we're doing with our borrowing
we're with our borrowing simply
spending money we don't have today
and that we are in
transferring enormous amounts of money
to big corporations
and wealthy individuals we
we gave
as taxpayers we gave one of warren buffett's companies in two thousand six
an interest-free loan of six hundred and sixty five million dollars
and he only has to pay half of it back twenty eight years from now
think about that for a moment imagine
larry that you bought a house in nineteen eighty at the price of nineteen
and up until now you haven't made any payments on the house
and this year you gotta pay half in the number of dollars you agreed to back then
no adjustment for inflation you think that loan might make you a wealthy man
i would hope yeah you would hope
we gave warren buffett another one of his companies a hundred million dollar gift
last year
in fact the state of new york had to create a special district
in erie county where buffalo is
now the justification for this is that buffalo has the highest unemployment of
the cities in new york state
and this would create jobs it was a call center for geico insurance the one that has
the cavemen and the lizard
well first of all a competitor closed down their call center so there were no
new jobs created
and significantly
they didn't create this job center in downtown buffalo where the employment is
they created it in one of the whitest wealthiest suburbs where there's virtually no
public transportation
again transferring money
up the chain of command benefiting who the second wealthiest man
in america
there's more
warren buffett controls an electric utility that has operations in the
utah and
oregon passed a law saying whatever income taxes are embedded in the
electric rates paid to this monopoly electric company
must be paid to the government
or ratepayers get the money back
warren buffetts fighting that like mad because he knows that that company
can permanently capture those taxes if they're very smart about how they handle
their finances
and enhance their profits
in iowa you mean by capture you mean
money that should go to the government will instead remain with the company with
the company forever and in fact uh... enron which did not pay taxes i broke
that story about seven or eight years ago
uh... owned
portland general electric in portland oregon and people paid close to a
billion dollars in their electric rates to cover its taxes
money that never got to the government
buffet owns did they create shells and subsidiaries and by tax
shelters and
do other devices when i wrote a story about this on the front page of the new york times
the edison electric institute 0:43:44.819,0:43:47.999 wrote a letter as i expected they would complaining they didn't say this wasn't true
they just said we're just doing what the law allows 0:43:50.609,0:43:54.369 but there's one more element to this buffett's electric company in iowa
there used to be nine corporate owned utilities electric utilities in iowa they were
rolled up into two
the people in johnson city which is a manufacturing town
and five or six little neighboring communities got together and said we
want lower electric rates you've consolidated rates should go down
no way
said the company
so they started organizing to buy out warren buffett's company and have
municipal power everywhere in america that you have municipal power
it's cheaper
than corporate power
pretty soon they got advice and recommendations and help from the iowa
association of municipal utilities
there are I think nine little city owned electric systems
and one day a guy named bob hang who is the executive director of this association of
municipal utilities 0:44:35.809,0:44:38.449 was invited to the state capital in the des moines
two prominent republican legislators sat him down
and they said to him that they had a bill
a bill that would tax these municipal power agencies
and would hamstring them from any change in their business model whatsoever in
the future
and that unless they promised to never again
help people try to buy out mister buffett's company they had the votes to get this
or as carol spasiani the retired city librarian in johnson city and one of
the organizers of this drive said
you know i turn on the television and here are these images and these news stories about
this beneficent billionaire warren buffett who is giving away all of this
what nobody writes about
is how he's gouging the people of johnson city
with excessive electricity rates and that's how he's making his money
david let me ask you a question I'm going to go back to something we talked about a while
you you in the course of this discussion
this most recent discussion
you said that some article had been on the front page and then you
also said that
this iowa problem had not been written about
and something you said at lunch
really uh...
resonated with me
you pointed out some of your own
that had been
i will use the word relegated that's the word usually used
to section b of the new york times
buried inside the paper yeah okay
I was trying to be nice relegated buried okay
and these are important stories and you say that that when you asked
the times why didn't you put it
on the front page
well you've written about that before that's old news now here's my question
isn't it true
that every day the front pages of the new york times the boston globe the
washington post
every bloody newspaper in the country
is filled with repetition
i don't even read the first twenty five pages of the times anymore 'cause i've read
it since nineteen sixty six I've read the same stuff well larry I'll never think of you as a guy who throws
softball questions um
first of all all reporters think there stories should run on the front page
okay we all think that of course
and editors are the ones who decide
and there are times when i've had stories of mine on the front page i didn't think
belonged there but the editors thought that
i have written
exaustively in the new york times about
what's happening to incomes in america
that incomes at the very top
are pulling away from everybody else and we're talking about the top
basically the top tenth of one percent and above
and their incomes are exploding
and in free lunch there are lots of numbers about showing how this happens
uh... and
the bottom is falling out
they're dropping and the middle class is stagnent
so yes editors put the particular story that i did ah... inside the paper
this one showed that from two thousand three to two thousand five
the increase in incomes to the top one percent
just the increase
was greater than the total income of the bottom
twenty percent who are the poor
in fact for every dollar the poor had in total income
the increase to the top one percent
was about a dollar and thirty seven cents
and this although it's short term data it reflects this tremendous
change that's taking place
now when incomes fell after two thousand
it was the people at the very top who took the biggest drop
uh... as I reported and
in two thousand five the average income in the united states was still smaller than two
that's something that's never happened since world war two
it should be telling us something about whether our policies are working or not
some people in two thousand five had higher incomes than they did in two
the people who make over a hundred thousand dollars a year
and half of the increase
went to people who make over a million dollars a year
so the bottom ninety percent of americans had smaller incomes
the top roughly ten percent had
larger incomes tiny bit larger
for people making a hundred thousand up to a million
and then a larger increase for people above a million 0:48:46.939,0:48:50.859 because the rules we've set in our society are redistributing incomes up
our national myth is
that we have this socialism policy
that redistributes down
the reality of the data is that we are redistributing up
and we don't have trickle-down economics number that was the rap on mr.
we have amazon up
well david
but the editors of the paper
they don't seem to find those kinds of things
worthy of repetition on the front page
but the horse race aspects of
hillary vs barrack
man every day well the new things that happen in elections are front page
and the the thing i would focus on larry is
except for a handful of people peter goslin at the los angeles times who's
done some big series
and a few other reporters here and there now and then
why is it that this issue
of income redistribution and government taking from the many and giving to the
that's the key point is not being reported widely
you're not reading about it in many many many newspapers
around the country and I would think it would be one of the major things you know when i became a
reporter in the sixties
in california
one of the very first lessons i learned was you're supposed to be watchdoging
the government you're supposed to be looking out for the taxpayers
if the politicians want to spend more money
why what's it for why am i going to give up more of my sustenance to the
if the government needs it let's hear the case for it
well now we have city councils of big cities in the united states where no reporter goes for
months at a time to the meetings where the city budget doesn't get covered at
I remember reading a story one day in one of the biggest papers in the
country about the county budget
in the dominant
area of marketing for that newspaper the suburban county
it was this long
and it consisted of the three county commissioners
two of one party one of the other
yelling at each other over the budget and it had a single mention of the budget
will be x dollars it didn't tell me how much of my property taxes go up are they
spending more on the sheriff and less on schools or
are they going to fix the pot holes none of the substance was there
and one of the fundamental changes that's taken place is more and more coverage of
instead of issues
so i have encountered I don't know how many people
who have said to me written to me sometimes left me vicious e-mails
about how we have the strongest economy in history
no we don't
and nobody who knows the numbers would say something like that
but you could easily get that impression even
from watching just television news
and listening to the president repeatedly tell us what a strong economy we have
when it's just not true
david at lunch you told a story illustrated
the extent to which one of your colleagues found reagan to be
an extraordinarily bright individual
and yet
which is contrary to a widely held belief
and yet
wouldn't you say that uh...
reagan is fundamentally
responsible for a lot of this because
true well relying on people like milton freidman and
von.. and hayek who were his philosophers and his economists
true he relied on them true he carried a lot of people along with him there was a base
of support you know a leader better he looks behind if he doesn't find anybody there
he better slow down well he found people there
but this very bright guy
he is fundamentally responsible for all of this isn't he uh yes ronald reagan whether
you love or hate ronald reagan he was a great leader he really fundamentally
changed america
from nineteen forty-five
to nineteen eighty
we had a bipartisan consensus in this country
about nurturing and developing the middle-class this was no nirvana there were plenty of
fights back and forth but
both sides of the aisle agreed that government should be building up the
majority of the people to create a better wealthier society we had the g_i_ bill
probably the smartest single thing that government's done in modern times
can I interject something yeah 0:52:58.000,0:53:01.619 i personally think and i think i've said this on television
that except for the emancipation proclamation that's the most important single
law ever passed in the united states i think it's a very very important law and by the
way because my dad was a hundred percent disabled veteran
i went to school because of the g_i_ bill
we had the interstate highway bill that could cause a lot of people to regret the bill that may well be
we had the interstate highway system built although it was
built at the urging of the pentagon so that we could move material around if we
had to have productivity for a war
we invested in all sorts of things basic science education
we had thirty-year mortgages developed
and mister reagan came along and said
are you better off government is the problem
and persuaded people who were faced with
problems remember we had two oil shocks seventy three and seventy nine we had long
lines at gas stations there were a few cases where we had shootings of people in
line at gas stations
uh... one or two of those
we had
uh... inflation
that was scaring people at the time
and i don't think mister reagan intended what happened okay
i think that mister reagan had a clearly defined set of values
but what we got was not conservative what we got were radical changes
that have
i believe turned out to work to our detriment
but we live in a society where you know presidents and candidates presidents of both
parties are always saying god bless america and this is the greatest country
and they're not talking about the real facts of what's going on
child poverty is increased in this country since nineteen eighty
even though
we have had divorce rates fall
we have hundreds of thousands of young people who don't go to college because
they can't afford it you know
from tax data
the average income of the bottom half of americans is fifteen thousand dollars per
you know that's a I heard you say that the other day
that's an unbelievable figure even if you go well it's right out of the i_r_s_ table
but now some people say it's unfair to use that because there's income that isn't
like social security payments and it's taxpayers not households but even if you get
a household
the cost of going to state college now is about ten thousand dollars let remake a point about that david if you go to households
of course it's higher that's because women are working yes now
god bless 'em this is a terrific development in american society
although it has its difficulties for children but the point remains that
households are just about breaking even today with what one guy used to do
thirty years ago let me let me I want to develop that point larry
if you go to household income
even at the
typical median level fifty thousand dollars
how somebody making fifty thousand dollars with even two children
can afford ten thousand dollars a year for college for the kids is amazing and you know
when you and I were kids college was paid for it was free to us
society paid for it because they were investing in the future
now we're putting roadblocks in the way of the most valuable asset we have
we're subsidizing the owners of baseball teams and football teams which is lots of
fun but it's trivia
and we're doing it in part
by cutting money for this
we're subsidizing tyco and general electric through the burglar alarm subsidy that I
talk about in free lunch
while starving our parks and recreation programs
and what do we get in the big cities because we've starved those programs
youth gangs there always been gangs not like we have today not the viciousness
not the reach of them
and it's because of government policy
the fundamental affect that's taking place here is that
has changed from focusing on
nurturing and developing a stable middle class
to these other policies now you mentioned two-income households
i think it's a wonderful thing that we don't say to women who want to have a
career you can be a school teacher or a flight attendant and that's it my
wife is
the chief executive or president she would say
of a big charity
that's been very successful and very efficient lowered its costs all the time
she's been there
she wouldn't have been able to do that if she were her mother in all likelihood
and she's been able to fulfill her talents but lots and lots of women are out there
working at jobs that pay minimum wage or eight dollars an hour and
the result of the falling wage structure in this country
is that the average family with children does one thousand hours more paid labor
today than it did back in the early seventies
a thousand hours that's working essentially half of the year
now married women with children often have worked throughout history
a christmas job a saturday job they had what we used to call pin money
but they were not fundamental breadwinners
and there are costs associated with this
we have costs for day care
and by the way you know in rochester where i live we have the best
day care system in all north america and western europe
and the difference in cost
was this much we spent a lot of money on day care
but for this much more
we got a fabulous system so that
when i arrived in rochester new york in nineteen ninety three two-thirds of the
entering kindergarten
failed a test of are you ready to go to school could you tie your shoes you know
from left to right
you know the alphabet things like that
today two thirds pass
very small expenditure why this program hasn't been replicated all across america
is beyond me
but it's a good example of where we're not thinking about using government
effectively to improve the lot of the people as a whole which is what adam smith said we
should be doing
thank you david thank you and good luck with the book
what can i say
tragic situation we find ourselves in
be with us again next time ladies and gentlemen for the next installment of
books of our time