Pulitzer Prize-winning journalist David Cay
Johnston explains how the economy is rigged to benefit the one percent
By Joshua Holland
This article originally appeared on
AlterNet.
Nobody has done more to expose the infinite ways in which the American
economy is rigged to benefit those at the top than Pulitzer
Prize-winning journalist David Cay Johnston. His rigorously researched
books –
Perfectly Legal, Free Lunch and now his latest,
The Fine Print, are
not recommended for people with egalitarian views and high blood
pressure – they’re every bit as maddening to contemplate as they are
informative.
Last week, AlterNet caught up with Johnston by phone. Below is a lightly edited transcript of our discussion.
Joshua
Holland: David, for years you’ve reported how those who can afford the
right accountants game this labyrinthian and opaque tax-code of ours.
How surreal has it been for you to observe the amount of political
conflict we’ve faced over the past few years over returning the top
marginal rates to the same rate they were during the Clinton era —
taking them from 35 percent to 39 percent?
David Cay
Johnston: I am actually heartened, Josh. I think that we’re starting to
see the end of those Chicago School economic theories. (By the way, I
went to the Chicago School 40 years ago, but I did not drink the
Kool-Aid.) The reality is people are now, finally — and I can claim some
of the credit for this through my books and my reporting — people are
looking around and saying, “Wait a minute! Starting back in 1980, I was
promised that I was going to have a better life. We’d all prosper. Yet
all the gains are going to the top.”
Let me give you a stunning
number I reported the other day. From 1966 – when Lyndon Johnson was
president — to 2011, 45 years later, the bottom 90 percent of Americans’
average income, as reported on tax returns, went up by a stunning $59 —
almost no change at all. If you measure that $59 increase for the vast
majority of Americans as one inch, then on the same scale, the incomes
of those in the top 10 percent went up by 168 feet. The top one percent,
888 feet. The plutocrats — the Mitt Romney crowd, the top one percent
of the top one percent? Their incomes rose by almost five miles relative
to that one inch.
JH: That is remarkable. We are talking about an economy that simply doesn’t work for 90% of working people in this country.
DCJ: My latest book, The Fine Print, looks at this in a different way. The first two books – Perfectly Legal is about taxes, Free Lunch is about all the subsidies we give to rich people. The Fine Print is
about all these laws the mainstream media has either not reported on,
or reported on in the most superficial and disconnected ways, that are
designed to destroy market competition and replace it with monopolies,
oligopolies, duopolies — with rules that allow the biggest companies to
raise prices and reduce services.
There are 6 million corporations
in America, but 2,600 of them, a tiny number out of 6 million, own 80
percent of the business assets in America.
JH: One of the things that, I think, really will jump out to readers as they dig into The Fine Print is
the way that you looked into all these little nickel-and-dime charges
that corporations levy on us constantly, often thanks to deregulation.
We tend to take them for granted, because when you look at your phone
bill – and you talk a lot about telecoms in the book – 35 cents here and
a 60-cent charge there, they don’t seem so pressing, but they really
add up.What’s going on with that?
DCJ:
Let me give you a real killer number here. If you can get a law passed
to collect a penny a day from everybody in America — and I show how one
industry did this, the pipeline industry got themselves exempted from
the corporate income tax, but they still get to collect it in their
monopoly rates – if you can get a penny a day from everybody in America,
at the end of the year you’ll have over a billion dollars.
What
this is about is very simple. If you can get the rules rewritten in your
favor… that means you can raise prices, you can refuse service wherever
it’s not profitable. You could refuse services as long as you don’t
say, “I don’t want to serve you because you’re a lesbian,” or, “You
belong to the wrong religion,” you can refuse service.
You know,
Americans had be sold on this notion that we are number one in the
world. But by some measures, our healthcare system is behind Cuba. We
pay almost the highest prices in the world for our Internet. If you buy a
triple-play package from one of the American cable or telephone
companies – Internet, cable TV and telephone — on average, you pay $160 a
month with taxes. If you go to France, the same package is $40 to $70.
There are some variations, but the range is $40 to $70. By the way, here
you get one foreign country to call for free. There you get 70. Here
you get American television. There you get worldwide television. Here
you get an Internet that’s the equivalent of a two-lane Irish road,
where you have to stop and wait every now and then, because the sheep
are on the path. There you get an information superhighway.
We are now 29th in the world in the speed of our Internet. We are behind Bulgaria, of all places.
We
are falling behind left and right. We have a Congress that just cut
money for scientific research. We’ve got people who are idiots. I mean
that word very clearly, “idiots,” like Sarah Palin going around saying,
“Why are we paying for fruit fly research?” Anybody who understands
science knows that massive advancements in human knowledge – knowledge
that has saved lives — has come from studying fruit flies. If you’re an
idiot like Sarah Palin, if you’re Donald Trump, if you’re Senator Cruz
from Texas, then you don’t get it.
We really have to get a society
that’s based on science and knowledge, that has an economic system
that’s based on competitive markets with protections for consumers.
While the rest of the world’s going to run right by us, we’re falling
behind!
JH: David, you detailed very, very well how we are
constantly being ripped off. It’s a death of 1,000 cuts. Why is that?
The story that we’ve gotten, for years and years and years, is that we
have less regulation in order to spur competition. Ultimately, that
competition was supposed to benefit consumers. What’s going wrong?
DCJ:
I want more competition. Here’s what really goes on, however. We put up
barriers to competition, and in fact, Wall Street has institutionalized
this concept. Morningstar, they’re a big financial advice firm. They
tell people that they should grade companies and decide whether to buy
their stock, based on something called a “moat index.” Moat, like around
a castle? A moat index asks, “What barriers has the government erected
to keep anybody else from competing against that company?” Indeed, as I
show in my book, you could get rich if you invest in those companies
that have regulatory moats — where under the name of deregulation, we
have insulated them from the rigors of the market.
By the way,
there is no such thing as deregulation. There is only new regulation.
Everything is regulated. I tell my students — I teach law and graduate
business students one day a week at Syracuse University — I tell them,
“Here’s how thoroughly regulated your life is. This university has a
rule regulating how many times you can ask somebody out on a date before
it’s harassment. Baseball regulates how many stitches are on the
baseball. Everything is regulated.”
Under the Chicago School
theories, we get new rules that encourage lying, cheating, stealing and
fraud. In fact, one of the leading professors from that school, Dean
Daniel Fischel, has written the bestselling textbook on securities law
in America. You know what that book tells law students? That there is no
need for a fraud statute in the securities markets. By the way, his
clients were Enron, Michael Milken and Charles Keating of the Keating
Five — three of the biggest fraudsters of our time. Yet, that’s the
number-one selling textbook for law students on securities law. And it
says there’s no need in the securities to have a fraud statute. Think
about all the trouble we’re in because of the frauds that went on in the
dot-con era — not “dot-com,” but dot-con era — in the late ’90s.
Think
about the selling of mortgages, not so much to the consumers, but to
investors — particularly public pension-funds — by Wall Street, where
they lied through their teeth, where they faked documents and faked
records. Massive fraud and not a single prosecution of any significant
person today. Whereas during the savings and loan crisis [of the 1980s],
Bill Black got us 1,000 high-level felony convictions and 3,000
convictions overall.
As a parodist on the Internet pointed out,
“Where did that get Bill Black? He’s a professor at an obscure college
in the Midwest.” Whereas the people who looked the other way, look how
well they’re doing.
JH: (Laughs) Yes, they’re all in the White House, at this point.
DCJ:
They literally are. Barack Obama has surrounded himself with people
from Wall Street. Remember when Glenn Beck was telling everybody Obama’s
not comfortable around white people? I went and looked at the White
House table of organization. (Laughs) I got to tell you, he was
surrounded by white people from Wall Street.
JH: A lot of
the things that you detail in the book come down to companies that are
not profiting only by providing goods and services — traditional
transactions of a capitalist society — they’re deriving rents. Can you
explain what rent-seeking is and how it differs from productive
capitalism?
DCJ: First of all, everybody is a
rent-seeker. Rent-seeking means you try to get paid more than you
deserve, more than you should be paid. We have lots of research on this.
For example, I know you’ll be shocked to hear that people who are
good-looking and taller tend to be better paid than people who are
unattractive and shorter. A shocking thought, but it’s a reality in the
world.
In the case of corporations, what they do is they get rules
passed that prevent competitors from coming into the markets, so they
can charge higher prices. As I said, all you need is a penny a day
extra, from every person in America, and you have an extra billion
dollars at the end of the year. This problem of rent-seeking is, then,
compounded by our campaign finance system. What big business — and
that’s those 2,600 companies which own 80 percent of the business assets
in America – what those 2,600 companies have figured out, and their
leaders have figured out, because people running these firms are very
smart people, is that it is easier to mine Congress and the state
legislatures for gold than to go out and earn it in the marketplace.
Sometimes all you need is to get one word put in to a regulation.
For
the lobbyists, they take a very long-term view of this. They get a
little change made this year and they say, “It’s no big thing!” A couple
of years later, they get another one, and another one, and another one.
After 40 years of doing this, you’ve had a very successful career.
You’re very wealthy. You can retire. You’ve also managed to totally
screw your fellow Americans.
JH: I want to talk about one
of the practices you describe that I find to be… I don’t know, I’d say
shocking, but I’m pretty hard to shock these days. You wrote about this
in a Reuters column — how in 16 states, big corporations collect state
taxes from their employees and pocket them.
DCJ: It’s now
up to 21 states. In 21 states, they’ve passed a law that says that
taxes withheld from your paycheck, for the state, can be kept by the
company. Now, every employer doesn’t get this windfall — you have to
have to get a deal from the government to do it — 2,700 big companies,
every big company you’ve ever heard of, General Electric, Procter and
Gamble, Deutsche Bank, you name it, they’ve got these deals, where they
get to keep the taxes. Billions of dollars are diverted this way. You
know the best thing for the companies about this?
JH: What’s that?
DCJ:
The workers don’t know, because once the taxes are withheld, the state
government treats you as having paid your taxes. You paid your taxes.
They just then give a credit to let the company keep the taxes. I’ve
called journalists. I’ve called union people who negotiate union
contracts. And they say, “What are you talking about?” I showed them the
work I’ve done. They go, “Oh my God!” They have no idea that this is
what’s happening, and the fact that it’s spread from the 16 states when I
first wrote about this and it’s now grown to 21 – eventually, all of
the 44 states with income taxes are going to allow this, if we don’t put
a stop to it.
I really, seriously hope people read The Fine Print. I wrote this so you’d know about these things. If you don’t read it, you’re not going to know.
Goldman Sachs chairman and chief executive officer Lloyd Blankfein. (Credit: AP/Susan Walsh)
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