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David Cay Johnston on How the Rich Get Richer

Investigative reporter David Cay Johnston explores in his new book how in recent years, government subsidies and new regulations have quietly funneled money from the poor and the middle class to the rich and politically connected.


Other segments from the episode on January 3, 2008

Fresh Air with Terry Gross, January 3, 2008: interview with David Cay Johnston; Review of the television show "The wire."


TIME 12:00 Noon-1:00 PM AUDIENCE N/A

Interview: Pulitzer Prize-winning journalist David Cay Johnston
on his new book "Free Lunch"

This is FRESH AIR. I'm Terry Gross.

Why are the rich getting richer while the middle class falls behind? That's
the question that Pulitzer Prize-winning journalist David Cay Johnston sets
out to answer in his book "Free Lunch." He says that since the Reagan
administration it's become the unstated policy to create federal laws and
regulations that favor the already wealthy and the politically connected.
Johnston writes, "Money for the basics that make society work, from raking
leaves in the park to highway bridge maintenance, is dwindling because so much
has been diverted to the already rich through giveaways, tax breaks and a host
of subsidies that range from the explicit to the deeply hidden. It's those
giveaways, tax breaks and subsidies that Johnston examines in his book "Free
Lunch." Johnston is an investigative reporter for The New York Times and has
written extensively about taxes.

David Cay Johnston, welcome back to FRESH AIR. Before we look at some of the
case studies in your book, make the larger point for us that you're trying to
make about how, as you put it, free markets aren't really free, they're kind
of rigged to benefit a select few.

Mr. DAVID CAY JOHNSTON: Well, you know, a generation ago, Ronald Reagan
asked a question: "Are you better off than you were four years ago?" And
Americans said, `No.' And they put him in the White House and set in motion a
vast new experiment in whether reducing the size of government, reducing
government regulation and relying on market solutions would make us wealthier,
would make us happier, would make us healthier, would make for a better
country. Well, a generation of time has now passed, and I'm asking the new
question: Are you better off than you were a generation ago?

And on the surface, we are. We're twice as wealthy as we were then as a
country, but when you look deeper, you find out that, no, most of us are worse
off. Incomes for most Americans have stagnated. At the top, they've gone
through the roof. Growing numbers of people don't have health insurance.
Fewer and fewer people have pension plans. More and more people are filing
bankruptcy and are in debt and are worse off. So the question I address was,
`Well, how did this happen?' What, fundamentally, has been taking place in our
society? And what I've done is examine the number of cases to show that the
government has rewritten the rules to favor the already rich, the politically
connected and the powerful at the expense of everyone else and, in effect, has
set up mechanisms that the government itself reaches into your pocket and
gives money to rich people, the government allows businesses to reach into
your pocket in some ways it never did, the government has all sorts of subtle
and hidden policies now that funnel money from the poor and the middle class
and the upper middle class into the hands of the super rich. And that is at
the core of what's happening in our society.

GROSS: Let's start with big box stores. You devote a chapter to them. Big
box stores, they move into a community and they often drive out local
businesses. The local businesses can't compete. Now, we assume that that's
because the big box stores buy in bulk and sell in bulk and therefore the
prices are cheaper. But you say it goes further than that. They also get
special advantages. What are some of the special breaks those big box stores
often get?

Mr. CAY JOHNSTON: Well, in many of the big new box stores, when you walk to
the cash register to pay for your purchase, you're required to pay sales tax.
But the government never gets that money. Instead, those sale taxes are used
to pay for the cost of the store. Now, on one level, this means that your
community's police department and fire department and schools and library
aren't getting those sales taxes. But imagine for a moment that you own the
retail store down the street that's been there for years. You're competing
against this enormous subsidy that is going to drive you out of business.

In a small town in the Poconos in Pennsylvania, a fellow named Jim Weaknecht
ran a little fin, feather and fur outfitting club. He sold hunting bows and
fishing tackle and things like that. And one day a big company named Cabela's
came to town. This little town, 4100 people, agreed to give Cabela's $36
million to build the world's largest outdoor goods store. That's over $8,000
for every man, woman and child in Hamburg. It is more than the entire city
budget for everything--the police patrols, road repair--for more than a
decade. Jim Weaknecht charged lower prices. He was run out of business. And
while he thinks he might have been run out of business anyway, he also says
that this isn't fair. This is not business. This is the government helping
the politically connected. And I think most people walking into a Wal-Mart, a
Cabela's, a Bass Pro, a lot of other stores, have absolutely no idea that the
sales tax money is going to the owners of the store.

GROSS: What's the rationale behind that?

Mr. CAY JOHNSTON: Well, the theory is that this is bringing new business.
In the case of the Cabela's store, they argued that people would come from all
around, they would drive a day or two from New York, from Washington and maybe
even North Carolina just so they could come to this Cabela's store. Jim
Weaknecht points out, `Why when you could just order out of the catalog?' The
argument is called tax increment financing, and from the point of view of the
people who get it--here's the pitch they make--they say, `Dear city
councilman, we want to make this big investment in your town and we're going
to build this store. And if we don't build the store in your town, why, we'll
just go down the highway to the next little town and they'll get all the
benefits of having our store in your town. And the price for this is, you're
going to let us keep the taxes from sales and you're going to not charge us
property taxes in return for our investing in your community.' They make it
sound like a free lunch.

GROSS: So the city or the town is hoping that this big store's going to
attract business from other places, that the big new store's going to create
new jobs and that it will benefit the town. I mean, is there proof that that
usually is or is not true?

Mr. CAY JOHNSTON: Well, it can't be true. In very selective circumstances,
it may be true temporarily, but Wal-Mart does this. About a third of Wal-Mart
stores, Wal-Mart has said it seeks these kinds of deals for them. Well, when
Wal-Mart opens a store, it's selling the same diapers and light bulbs that
every other merchant in town is selling. All they're doing is bringing
business to a concentrated location, and that's what these subsidies do. They
provide--the big retailers who get them--with the opportunity to lower their
cost of building a store, and to therefore run out of business the local
competition. They're not adding to the economy. If you want to invest in
building the economy, you do that through research and development, you do
that through manufacturing. You don't do it at the end of the chain, which is

GROSS: So you're saying that in some ways business competition means, `How
much of a deal are you willing to give us if we move there?'


GROSS: And the businesses are competing for the better deals from the cities
as opposed to competing for customers in a more straightforward way.

Mr. CAY JOHNSTON: That's right. And one of the companies I read out,
Cabela's, I show that, in the first three years that they were publicly-traded
company, they showed profits of about $222 million, but they made deals for
$294 million of subsidies. They're really not in the business of selling
goods, they're in the business of soaking the public. And this is going on at
an enormous rate all around the country. It's in the news reports, but not in
the way that people understand it. I mean, would you know, Terry, what it
means if you pick up your local paper and it says they're going to build this
wonderful new store and it's going to involve tax increment financing?

GROSS: I have no idea what that means.

Mr. CAY JOHNSTON: Right. And what it means is, the owners of the store get
to keep the sales taxes. They're not increasing the pie, they're simply
concentrating the pie in their hands. They're not competing in the market,
they're getting the government to make them rich, and they're doing it to the
detriment of the people who don't get those deals. Now, there's one company
in America, Gander Mountain--that's another outdoor outfitter--that employs a
lobbying firm to fight these subsidies. They won't take these subsidies,
they're actually given money back in, I believe, two communities.

Recently in Indiana, where they have a store, in Greenwood, Indiana, one of
their competitors wanted to build a store right across the highway, and they
wanted $18 million of subsidy. And the Gander Mountain lobbyist David Ewald
goes down and says to the city fathers, `Excuse me, we've already invested our
money. We built our store here. Why would you give $18 million to this
competitor to build a store right across the street from us?' And the local
burghers all say, `Well, because if we don't, then the next town down the
street will do it and we'll lose out.' This is not competition. This is not
the market. This is government thwarting Adam Smith's invisible hand,
handcuffing the invisible hand.

GROSS: Well now that big box stores are playing this game, it's hard to be
the city that says, `Well, we're not going to play.' I mean, you kind of have
to play at this point.

Mr. CAY JOHNSTON: You do. I mean, it is a real conundrum if you're a local
official. However, you know, the constitutions of almost every state have a
provision prohibiting gifts. This grew out of the scandals involving the
railroads, in particularly New York state, which was handing out money left
and right. And this will stop when taxpayers say to themselves, `Wait a
minute. I'm paying taxes so that the Walton family, the richest family in
America, can be richer? I'm paying taxes so the Cabela's out in Nebraska or
Johnny Morris, who owns Bass Pro, or others can get richer. That's what my
taxes are going for, that I am forced to pay?' People don't know about that.
That's the only reason that this goes on everywhere.

GROSS: My guest is Pulitzer Prize-winning journalist David Cay Johnston. His
new book is called "Free Lunch." More after a break. This is FRESH AIR.


GROSS: Let's look at a chapter you devote to President Bush and the Texas
Rangers. Now, you say that he doesn't owe his fortune to the oil business, at
which he failed, but to a tax increase that was funneled into his pocket
through his work with the Texas Rangers. What is the tax increase that you're
talking about?

Mr. CAY JOHNSTON: Well, George Bush is a very ironic case. The president
most famous for cutting taxes owes his fortune to a tax increase. What
happened is that he and partners, he put together, arranged to buy the Texas
Rangers baseball team. It was a money-losing team, and what they needed was a
stadium that could seat enough people to make them a lot of money. His
investors had more than enough money to build this stadium with their own
money, but they didn't do it. Instead, they had a special election, held in
January, which is not the usual time for elections, to increase the sales tax
by a half a cent in Arlington, Texas, and they then funneled that money into
building the stadium, and they made a deal to buy the stadium for a tiny
fraction of what it's worth. And they wanted a lot more land than they needed
just for the stadium, so they got the local government to use its power of
eminent domain to condemn land and take it from people. And eminent domain
always means you get less than the market would pay you. One wealthy family
didn't want to sell, they fought back in court. They ended up getting about
six times what the city had offered. And it is from this subsidy that George
Bush, based on his tax returns and his financial disclosures, owes two-thirds
or more of his entire fortune.

GROSS: There's another financial break that you write about pertaining to
President Bush and the Texas Rangers, and that's the rent-to-own deal that was
negotiated. Describe the break in that deal.

Mr. CAY JOHNSTON: Well, rent to own is used by poor people who pay
exorbitant interest rates to buy appliances because they have bad or no
credit. In this case, there was a rent-to-own deal by President Bush and his
partners to rent to own a baseball stadium. The president and his investors
were wealthy enough to build the stadium themselves. Instead, they had a tax
increase used to finance the stadium. That money paid for the building of the
stadium, which they then had a right to buy for a fraction of what it cost to
build. Having this beautiful new stadium made the team very valuable. They
were then able to sell at a big gain. And President Bush made a gain of $17
million off of this deal.

GROSS: So what do you find inappropriate about the amount of money that he
made? You say that a lot of that money is taxpayer money.

Mr. CAY JOHNSTON: Well, you're a little child buying crayons, or you're a
grown-up buying a car. You paid higher taxes, a half cent more per dollar.
That higher tax money was funneled into the pockets of George Bush and his
other investors through this mechanism. The total came to $202 1/2 million of
extra tax money that people paid. Now, President Bush has characterized this
as a win-win, that everybody was a winner. But the vast majority of people in
Arlington, Texas, don't go to baseball games. They, however, still buy
things. They buy crayons and automobiles and other stuff that they have to
pay sales taxes on. And so money was funneled out of their pockets and into
his pocket.

When I asked the White House about this, their position is, `Well, the voters
approved it, so what's the issue?'

GROSS: Yeah, and so what'd you answer?

Mr. CAY JOHNSTON: Well, it seems to me that for a president who is
constantly extolling the market, it's certainly ironic that he didn't make his
money in the market. He made his money off the tax increase. The difference
in value of the baseball team from when it was bought to when it was sold is
less than the amount of the subsidy. So one of two things happened. Either
the president didn't capture the entire subsidy, therefore it was inefficient;
or they so mismanaged the baseball team that they reduced its value, but the
taxpayers made it up. Well, that's not capitalism. That's not the market.
That's corporate socialism. That's the taxpayers being forced to pay sales
taxes to benefit this narrow group of individuals and make them rich or

GROSS: Yeah, but what about the point that the White House made, that the
citizens of Arlington voted in favor of the tax benefits to build the stadium?

Mr. CAY JOHNSTON: Well, first of all, it was a special election that drew a
small number of voters. So it was a distinct minority who were in favor of
this. But legally, there's no question that we can do this, and it's going on
all across America. So it leads to a bigger question, it seems to me. The
great economic mystery of our time is how can we have had almost 30 years of
wonderful economic growth--you know, more than half the wealth in America has
been created since Ronald Reagan was elected president of the United States.
The Wall Street Journal editorial page often reminds us of that. And yet, the
statistics show, the official government data show that the vast majority of
Americans are either not better off, barely better off or worse off. Well,
what's happening is that we have put in place all these policies, including
tax increases in a variety of communities, that take money out of the pockets
of the many and funnel into the pockets of the few. I don't think most
Americans, if they understood that, would be in support of that idea. This is
not market capitalism. This is handcuffing the market and having government
make your money for you.

GROSS: Isn't it typical nowadays that cities give some kind of incentive to
get a new stadium built on the premise that the new stadium is going to
attract a lot of business and give prestige to the city?

Mr. CAY JOHNSTON: Oh, indeed that's exactly the argument that's made. And
on a financial basis, it doesn't hold up and it has awful consequences. First
let's deal with what should be called the fiscal impact. When you build a new
stadium, you are not expanding the pie of money that people spend on
recreation. Instead, you're just concentrating it in one place. And we
actually had a real world experiment with this. There was a baseball strike
back in the '90s. And economists discovered that, lo and behold, in towns
with major league baseball, businesses did fabulously well that summer at
nightclubs and restaurants and video arcades, none of which get these kinds of
subsidies. Movie theaters did better. They don't get these subsidies. So
all these subsidies do is concentrate money in the hands of the few.

Now, there are side effects to this that are very important. Because
governments are spending money on baseball stadiums and football stadiums and
other arenas, they don't have money for youth programs and for parks. And I
show in the book that this subsidy plus a second subsidy that goes to Tyco and
GE and Honeywell and some others are intimately connected with the rise of
youth gangs in America, that because we've starved our parks for money and
recreation we have eliminated all sorts of programs.

GROSS: Let's get back to President Bush for a moment and the profits that he
made when he sold his share of the Texas Rangers. You say a part of the
profits he made is the way he declared it on his taxes.

Mr. CAY JOHNSTON: Yes. President Bush put up a very small amount of money
to invest in the baseball team. He owned 2 percent of the deal, and so that
was $600,000, which he borrowed, and when the team was sold he would've been
entitled to about $2 million. But because he was one of the general partners,
the partners gave him 10 percent of the enterprise for his work putting
together the partnership and promoting it. Well, that's called compensation.
It's wages. And when President Bush filed his tax return, he declared his
entire $17 million profit as capital gains, which is taxed at a lower rate
than wages. The IRS actually has a revenue ruling on this.

It is the same issue, by the way, that's being raised about hedge fund and
private equity managers and something called carried interest, where these
managers--some of whom make over a billion dollars a year, year after year,
for their labor--are not being taxed at wage rates, which would be 35 percent,
but at capital gains rates, which are currently 25 percent, even though it's
not their money at risk. It's the investors' money that's at risk, and they
are being compensated. As a result, President Bush paid about $3.4 million
less in federal income taxes than he should have paid. Now, this is a common
device used by rich people, and under our tax rules, if you are not audited
and you are not challenged, then you're entitled to whatever you put down on
your tax return. The year that President Bush's return would have been
selected for audit was just about the nadir of tax returns, and his odds of
being selected for an audit were in the neighborhood of 1 in 360. Now, there
are, by the way, special rules about handling the tax returns of presidents,
but at the time he filed this return he was not the president, he was the
governor of Texas.


GROSS: This is FRESH AIR. I'm Terry Gross back with Pulitzer Prize-winning
journalist David Cay Johnston. His new book "Free Lunch" is about how the era
of deregulation has actually resulted in rigged markets. He says consumer
protections have been eroded while tax breaks, giveaways and subsidies have
been diverted to the already rich and politically connected.

One of your chapters is about the alarm industry. And you say the alarm
industry has shifted a lot of its costs onto the taxpayers. How?

Mr. CAY JOHNSTON: Terry, this is one of the most brilliant hidden subsidies
in America. Because if you look at the books of the local government, and you
looked at the books of Tyco, General Electric, Honeywell, Brink's, you would
never see a dollar change hands, and yet local taxpayers spend over $2 billion
a year providing those companies with free labor. And that free labor
provides 100 percent of the profits of that industry.

Here's how it works. You buy a burglar alarm. Now, you've seen the ads on TV
that encourage you to buy a burglar alarm?

GROSS: Mm-hmm.

Mr. CAY JOHNSTON: Suddenly there's a picture on TV of this housewife and her
little children gathered around her and some guy at the door, and one of them
actually has a guy with a Bowie knife in his teeth, and it's a dark and stormy
night, and the announcer says, you know, `Your wife and children are in
danger!' And suddenly the alarm goes off, you see the burglar free, and the
announcer says, `And your family's safe. The police are on their way.' Well,
that's the subsidy. The police are on their way. The police spend about $50
every time they check out a burglar alarm. All the burglar alarm does is
install an electronic device that calls them if the burglar alarm is tripped.
Ninety-nine percent of burglar alarms are false. So first of all, it's an
enormous waste of time. Secondly, the average police response time is around
a half an hour. The average burglary takes five minutes. The police on the
false burglar alarm squad--that's what I call it--almost never make an arrest.
In some cities, arrests are made by those guys at 1/10th the rate of other
patrol officers.

Now, this subsidy might seem to make sense at first blush. I mean, isn't
there a public interest in having the police come if there's an alarm that
goes off? Here are the problems with it. Number one, only 1 house in 5 has a
burglar alarm, so 80 percent of the taxpayers are being taxed for a benefit
for the other 20 percent. Secondly, the police, when they spend time on
this--and in many big cities, 1 out of every 8 calls for service is a false
burglar alarm. Now think about that. Every eighth police officer is
basically working for the false burglar alarm squad. That means they're not
looking for criminals, catching criminals. They're not investigating other

Next, it turns out that having a dog, a federal study shows, is just as
effective at deterring burglars as burglar alarms. And finally, the
likelihood that you will be burglarized today is one half what it was in 1980.
And yet the number of installed burglar alarms is up manyfold, I think it's
about sixfold over the last 25 years.

GROSS: Well, maybe that's why you're less likely to get burglarized, because
of all these alarms.

Mr. CAY JOHNSTON: Not if only 1 in 5 houses has one. That's not the
connection. What's going on here is you have an industry that has figured out
how to prey on people's fears, and local television, the way it covers
news--and there are lots of studies showing this--enhances people's fear of
crime. A select segment of the population--it's not just well-to-do people,
by the way, who have burglar alarms. You'll find them in working-class
neighborhoods, too. But a small segment of the population, 1 in 5, has a
burglar alarm. And if they want to have one, that's fine, but you ought to
pay for the real costs of the service. You shouldn't make four of your
neighbors pay for the service that you're getting.

GROSS: Now, how are the burglar alarm companies benefitting from this? I
mean, maybe they're just charging for the service that they provide, which is,
you know, the technology they're installing in your house, answering your
phone call or, you know, answering the alarm system and contacting the police
about it?

Mr. CAY JOHNSTON: Well, the burglar alarm industry's own statistics, what
the industry says are their statistics, show that this is an unbelievably
profitable business. The margin on monitoring is 77 percent. Anybody who's
been in business knows that that's just an off-the-chart number. Overall
business in America counts as profit about a dime out of each dollar.
Seventy-seven cents. And so, yes, if we went to a system that said you can
have a burglar alarm but you have to pay for the response, they would have to
raise their rates in order to cover that.

But in the meantime, these companies are getting the benefits of this subsidy,
it is draining police resources from other areas and therefore making us less
safe, and it's not accomplishing any significant goal. We are not catching
burglars. Burglary is down for lots of other reasons, including, as I point
out in the book, changes in building construction laws because of work the
government paid for in '60s and '70s where they studied, `Well, how can we
make it, without spending a lot of money, harder to break into homes?' And so
building codes were changed. These things are called lock laws, which is a
virtuous effect of government.

GROSS: How did you get onto this story about burglar alarms?

Mr. CAY JOHNSTON: Well, I actually wrote about it first in the Los Angeles
Times more than 25 years ago. I was analyzing how effective and efficient--or
ineffective and inefficient--the Los Angeles Police Department was, and I came
to realize that for every dollar that the city of Los Angeles was spending
investigating homicides, they were spending $1.25 responding to false burglar
alarms. And over a 10-year period, the number of murders had doubled during
that 10-year period because of drug trafficking. The city had maintained an
even commitment to homicides. Basically, the same number of homicide teams
were at the police department at the beginning of the period as at the end.
So they'd cut in half their commitment to solving each murder, and lo and
behold the solution rate fell. But they maintained a 100 percent commitment
to false burglar alarms. So as the number of false burglar alarms tripled,
the number of officer hours spent responding to them tripled. And by the way,
most police departments send two squad cars to check out false burglar alarms
because, in the rare case where they actually do find somebody, they want to
have two cops there.

GROSS: And so you went back and updated the story?

Mr. CAY JOHNSTON: That's correct. And with the new data on what we found.
And this is a subsidy that has drained enormous amounts of money, and one of
the effects of it is that, in Los Angeles, you have these parks that gangs
have taken over where little children--I interviewed back later in the '80s,
all over the city of LA, children between seven and 11 years old who could
tell you what streets were safe to cross and which weren't and about gangs who
would show up with guns in the parks. And there were park directors who told
about locking all the children inside and sometimes the police didn't come for
hours after this happened. Why? Because so many police were diverted to the
false burglar alarm squad.

GROSS: You've told us about several case studies that illustrate your larger
point, that free markets are increasingly favoring a certain few who get the
benefits of tax breaks from their local or the federal government. And you
say that this relates to the widening gap between the middle class and the
wealthy. You have all kinds of statistics illustrating that widening gap.
Throw a couple at us.

Mr. CAY JOHNSTON: Well, the average income of the bottom 90 percent of
Americans, as reported on tax returns, when you adjust for inflation, peaked
in 1973. And in 2005, that's the most recent year we have data for, the
average income of the bottom 90 percent was about $74 a week less than it was
back in 1973. On the other hand, on the top incomes have grown exponentially.
Now, they're more volatile because they relate to the stock market, but here's
one little revealing number. From 2003 to 2005, just the increase in income
for the top 1 percent was greater than the total income of the bottom 20
percent. In fact, it was $1.37 of increase for each dollar of income that
went to the poor.

And we have created a society now in which the gains from this tremendous
economic growth that has gone on for years and years are all being funneled to
the top, and this is not the result of the market. This is a result of
unknown, hidden and subtle government policies that are funneling money up to
people at the top by taking a little here and a little there and taxing you
here so that someone can get rich and creating a way that requires you to
spend money in some way that makes a narrow group of people rich. And so what
we have is a de facto policy of government not to build up and sustain a
middle class, which is what we had in the years after World War II by
bipartisan consensus, but an unstated but actual government policy to make the
rich richer, and to do so in ways that take from the middle class not because
of the market.

GROSS: Now, what do you mean when you say it's an unstated government policy?

Mr. CAY JOHNSTON: Well, the government's stated policy is that we're
promoting less government, more efficient market and market solutions to the
problems that we have in our society. There are all these hidden subsidies
and rules that cause money to flow. There is this myth, this cultural myth
that there are free markets and that there is deregulation. There is no such
thing as a free market. All markets have rules. There is no such thing as
deregulation, there is only new regulation. And to give you an idea of how
thoroughly things are regulated in the world, baseball has rules all the way
down to how many stitches are on a baseball: it's 104.

GROSS: You say government policy has changed, that government policy used to
favor the middle class. There used to be policies to build the middle class.
This is particularly true you say during like, you say, the New Deal and
post-World War II. Give us a couple of examples of that kind of policy that
you have in mind.

Mr. CAY JOHNSTON: Well, let me take electricity. For years, electricity was
run as a regulated monopoly by locally owned companies that generated and
distributed their own power. And they made a few sales to neighboring
companies. We set out on a campaign promoted largely by Enron to have a free
market in electricity, to make electricity a competitively priced commodity.
The result, in the half of the states that have adopted this, has been rising
electricity prices, prices that are rising faster than in the rest of the
country. And just recently we had the big auto companies, the chemical
companies, big retailers, a whole panoply of large businesses go to the
Federal Regulatory Commission and say, `Uh, excuse me, these electricity
markets aren't really markets. They're not producing market prices. They're
producing inflated prices and outsized profits and you have an absolute
obligation under the law to stop unjust enrichment.' And this deal brought
together, by the way, the automakers and their historic nemesis, Ralph Nader,
in this complaint.

And the reason for the rise in prices is that the utility, the cells that you
power at your house, must buy whatever amount of power that people want. The
people, however, who manufacture the power, the generating companies, can
withhold power if they want. They're not required to sell into the market.
Well, it turns out that the way this system was set up, big utility companies
were allowed to sell their power plants to a sister company, they sold them at
fire sale prices. In one case, some power plants that were sold for less than
a billion dollars were resold 18 months later for a profit of over $5 billion.
And these companies, because they own many power plants, are able to
manipulate the bidding process so that power that they would sell for $1 a
megawatt they might even give away free at certain hours of the day, they've,
on occasion, gotten $990 for.

GROSS: At the same time that you say policies have been rigged to benefit the
wealthy few, have policies that used to help the middle class disappeared?
Have those rules disappeared?

Mr. CAY JOHNSTON: Oh, yes. We have radically cut back on all sorts of
consumer protections and enforcements. If you're one of the workers who was
locked in at a Wal-Mart store to clean or one of the workers at the fast food
chain restaurants who were ordered to work off the books and you want to go
find somebody to file a complaint with, it's really hard. We've radically cut
back the number of inspectors, the number of auditors. We have changed the
rules on banking so that there used to be usury laws that were designed to
protect people from lending practices, the kind loan sharks would engage in.
Now we have ads on national television promoting loans that have an interest
rate of 99.25 percent interest. Now, that's the kind of money loan sharks
used to be sent to prison for charging people, but now it's legal. And so all
the way through the system, this idea that markets are the solutions to the
problems of our lives has been extended to the detriment of consumers.

Now, I'm not against markets. Markets do great things. Markets will tell us
efficiently the price of things. But everything isn't a market, Terry. Is
there a market that sets the price for everything? No, markets tell you the
price of something at the moment, but they are not the solution to everything
we have.

GROSS: You know, your whole book is a critique of these kind of special tax
breaks that certain businesses and wealthy people get. Do you have any
recommendations for what could be done to level the playing field?

Mr. CAY JOHNSTON: I think the fundamental problem we have is the political
donor class has outsized influence on our government so that members of
Congress and the Senate respond first and foremost to their donors, this very
narrow group of wealthy individuals and corporations. The Supreme Court has
made it clear that campaign finance reform is something it doesn't like, it's
very hostile to, and it has essentially equated campaign contribution dollars
with free speech.

So my solution is that we switch to politician finance reform, that we take
the franking privilege in the Congress, we let every member of Congress send
as much official mail as they want, unlimited privilege, and we apply it to
the expenses of Congress. Instead of trying to get a free lunch out of
Congress by having corporations provide free jet rides and dinners and golf
outings, we pay every expense that members of Congress have. We require
complete disclosure of this and posting it on the Internet in a way that we
can all analyze and see it, and a record of every expenditure and of every
meeting. You know, you don't have to tell me just exactly what the
congressman was told by the people he met with him, but you have to tell us
what they met about and what the expenditure was.

And I call this politician finance reform. And I propose that we do it with
zero tolerance. Let's insulate our politicians from all of these influences,
where people are buying their time and money by getting them dinner and golf
outings and rides in their company jet by paying the real costs of Congress.
Now, that'll be expensive. It'll cost a lot of money. But it's going to be a
lot cheaper than continuing to allow the political donor class to treat the
government as their own personal cookie jar and draining money out of it
through policies, many of which are so technical it's hard to explain them.

GROSS: But couldn't politicians just be getting personal favors, too, that
they would give breaks for in return?

Mr. CAY JOHNSTON: Sure, and the world isn't perfect. But we've got to do
something better than what we have now. What we have now is a system in which
this very narrow group of political donors--they're the ones whose concerns
are being listened to. They're the ones for whom policies are being written.
Look at the Medicare drug benefit. It wasn't designed to provide drug
benefits to seniors, it was designed to maximize the profits to the drug
industry. And one of the key congressmen in this deal, he leaves and he
becomes the million dollar-plus chief lobbyist for the pharmaceutical industry
with a budget of over $100 million a year just to influence legislation. And
somehow we've got to break that cycle if we want to have a democratic society
in which our elected representatives represent the interests of the people,
not the people with money.

GROSS: David Cay Johnston is an investigative journalist for The New York
Times. His new book is called "Free Lunch."

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

Review: David Bianculli on the fifth and final season of "The

The HBO series "The Wire" returns for its fifth and final season on Sunday.
This ambitious and far-reaching drama series created by David Simon explores
the city of Baltimore from a variety of complicated perspectives, from the
streets to the docks, and from police stations to city hall. This season,
"The Wire" introduces yet another variable in the Baltimore equation, the
local media. TV Critic David Bianculli has this review.

Mr. DAVID BIANCULLI: "The Wire" is one of the best series on television, but
it didn't make a single critic's end-of-year top 10 list for 2007. That's
because "The Wire" wasn't on TV in 2007. But it's back to start off the year
right in 2008, with one final season that's even more startlingly dramatic and
unpredictable than its predecessors.

The action on "The Wire," which begins Sunday night on HBO, picks up more than
a year after we last saw these characters from Baltimore. It's as if, even
though our attention was elsewhere, they kept living their lives. Mayor
Carcetti is a year into his term now and already having a tough time living up
to his campaign promises from last season. The murders in the abandoned
buildings remain unsolved, and the ruthless killers remain at large. Drug
lords Omar and Marlo take aim at each other, and lots of characters we've come
to know and love--or just know and be fascinated by--are caught in the

The central thread that runs through "The Wire" year after year is a sense of
quiet desperation, or at the other extreme very vocal frustration. "Hill
Street Blues" redefined the cop show genre by painting its men and women in
blue not only as flawed human beings, but as police engaged in a daily battle
they could never really win. "Homicide: Life on the Street," based on a book
by David Simon, upped that ante by exploring the police bureaucracy as well.
What Simon does with "The Wire" is examine the inner workings of just about
everything. Not only the police chiefs keeping the crime stats down, but the
school boards looking to bring test scores back up and politicians tracking
poll numbers and drug dealers controlling and protecting their territory and
inventory. "The Wire" is about how things get done, why they often don't get
done, and why the problems are a lot easier to suggest than the solutions.

The title "The Wire" refers to a police wiretap, the main tool utilized by a
special police force to make a case against Baltimore's most powerful drug
dealer. In the first season, the unit was assembled as a public relations
farce loaded with veteran malcontents, drunks and losers. But they surprised
everyone, including themselves, by rising to the challenge. Ever since, this
special unit has soared and crashed like the real estate market. Depending
upon the politics and pressures of the moment, it's either dispatched to work
high profile cases, called red balls, or disbanded entirely.

Two of the unit's most persistent detectives are Lester Freamon, played by
Clarke Peters, and Jimmy McNulty, played by Dominic West. They've got
different jobs as the new season begins, and different approaches. But before
long, they'll join forces again in a way that's too surprising to mention.
It's safe to say, without spoiling anything, they're part of the hunt for a
new serial killer terrorizing Baltimore, and they're not the only ones

Each season of "The Wire" looks at the city from a new perspective while
continuing the ongoing story of the street-level drug war. This season, the
show looks at the local media, specifically the Baltimore Sun. It's even
called the Sun, though its characters are fictional. Fictional, but inspired
by actual editors and other types, because Simon, before writing books and TV
series, was a crime reporter for the real Baltimore Sun. That's why when "The
Wire" goes inside the newsroom, it's on as firm a footing as when it hits the
back alley streets. Simon, in both cases, has walked that territory

If there's a criticism to be made about his portrayal of the Sun, it's only
that it's a few years out of date. Everything he focuses on in "The Wire,"
from corporate interference and dwindling resources to staff buyouts and
editorial mismanagement, is as true now as it ever was. What's not accounted
for here, but is the hot button issue and Achilles heel of just about every
newsroom in America right now, is what to do with and on the Internet. Simon
left the building before counting clicks became the new management obsession.
But he got everything else just right.

The best addition this season is the character of city editor Gus Haynes, an
old school newspaper man with smart instincts and not-so-smart bosses. He's
played by Clark Johnson, one of my favorite actors from "Homicide." He's also
the guy who directed the first season pilot of "The Wire," so getting him
around to the other side of the camera sort of brings things full circle. It
also adds another layer to this tapestry of Baltimore. In one editorial
meeting discussing the pros and cons of a complex series about the state of
education in Baltimore, one of the senior editors expresses his dislike for
the idea of a series that's too complicated.

(Soundbite of "The Wire")

Unidentified Actor #1: (In character) Look, Gus, I know the problems. My
wife volunteers in the city school. But what I want to look at is the
tangible, where the problem and solution can be measured clearly.

Unidentified Actor #2: (In character) There's more impediments to learning
than a lack of materials or a dysfunctional bureaucracy.

Actor #1: (In character) But who's going to read that? What is this series
about in a sentence? What's the budget line?

Mr. CLARK JOHNSON: (As Gus Haynes) `Johnny can't write because Johnny
doesn't have a...(word censored by station)...pencil.'

Actor #1: (In character) Augustus.

Actor #2: (In character) I'm not as simple-minded as you might think. Now,
what do you want? An educational project or a litany of excuses? I don't
want some amorphous series detailing society's ills. If you leave everything
in, soon you've got nothing.

(End of soundbite)

Mr. BIANCULLI: The joke of course is that HBO's "The Wire" is itself that
very type of amorphous series detailing society's ills.

I've seen seven of this year's final 10 episodes, and they're fabulous.
They're also all over the place, full of detours and dead ends, because so is
real life. David Simon and company have left everything in, but they sure
didn't end up with nothing. Instead, "The Wire" begins 2008 with a drama
series so outstanding it may not be matched by another one for an entire
calendar year. All of us TV critics who have just presented our 10 best lists
for 2007, we've just been handed our first end-of-year entry for 2008.

GROSS: David Bianculli is the TV critic for


GROSS: I'm Terry Gross.
Transcripts are created on a rush deadline, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of Fresh Air interviews and reviews are the audio recordings of each segment.

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