David Cay Johnston; How The One Percent Enrich Themselves at Government Expense, part 1

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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 government 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 that 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 covered and they're difficult to cover the reason you can't make mistakes i have watched all throughout my career my peers 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 and 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 and 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 and 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 pretending 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 practice you know there seems to me that there's also a an effort in this country by some people to 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 but 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 schwarzenegger 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 sources 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 also 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 named 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 I 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 reported 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 well 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 records 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 yeah 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 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 now 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 statement 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 time 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 doctor 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 and 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 society government has problems I spent my whole life writing about what's wrong with government 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 we've 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 that 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 revolution 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 they 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 designed 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 problems 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 amoral 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 fallen 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 monopolies 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 started 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 benefits the majority of people must be a good thing for the society david 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 clients 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 so they don't have to be with us this strikes me as not particularly egalitarian or democratic and much more like 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 bread 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 is 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 where 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 leaves 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 wealthier 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 add 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 eighty 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 midwest utah and oregon 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 enacted 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 money 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 ago you 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 stories 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 thousand 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 thousand 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. reagan 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 news 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 few 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 government 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 all 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 controversies 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 ever 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 taxpayer 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 but now some people say it's unfair to use that because there's income that isn't counted 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 government 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 and 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
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Channel: Massachusetts School of Law at Andover
Views: 34,821
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Keywords: david cay johnston, david cay johnson, free lunch book, free lunch, richest americans, United States, Adam Smith, Wall Street, Bush, Supreme Court, White House, Social Security, Warren Buffett, Federal Reserve, government, politics, corporate welfare, economic policy, Government Spending, America, Economy, one percent, inequality, wealth disparity, occupy wall street
Id: 5Ezb9rDIkbQ
Channel Id: undefined
Length: 60min 0sec (3600 seconds)
Published: Wed Jun 24 2009
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