Free Lunch (13 page)

The court cited the
hypothetical example of two similar Ohio businesses planning to expand, one of which chooses to build in Ohio while the other
keeps its existing facilities but expands in another state. “The business that chooses to expand its local presence will enjoy a
reduced tax burden” just as Chrysler did. However, “a competitor that invests out of state will face a comparatively higher tax
burden” because its continuing operations in Ohio will be fully taxed.

And so one chilly March
morning in 2006 Kim Blankenship found herself sitting absolutely motionless waiting for John Glover Roberts Jr., the chief justice
of the United States, and the rest of the court to hear her case. Chief Justice Roberts was not interested in the merits of the case,
however, which were hardly mentioned in the oral arguments. This illustrates another aspect of how the
markets-as-the-only-solution radicals have captured the government.

Roberts is the second
chief justice appointed since Ronald Reagan's election with his promise to remake the federal judiciary. Roberts, like William
Rehnquist, whom he succeeded, claims to possess a deep respect for the original intent of the Framers as his guiding principle. As
a young lawyer, Roberts was a clerk to Rehnquist. He was also a special assistant to William French Smith, who before becoming
attorney general was Reagan's personal lawyer. And Roberts worked in the Reagan White House. As such he proved his political
reliability to an administration focused on increasing power and reducing accountability for corporations and the richest among
us.

A major goal of the ideologues who nurtured Roberts is cutting off access to the courts,
arguing that many grievances should be handled by legislation or not heard at all. The “original intent” theory, legal scholars have
shown, relies at times on fanciful versions of history as well as third, fourth, and even fifth definitions of words to justify its
decisions to deny relief or even access to the courts. In the most extreme example, the court has listened, with seeming favor,
though no formal ruling, to an argument that it would be appropriate to execute a Texas man convicted of murder even if, after the
trial, a videotape of the crime turned up showing he was absolutely innocent. The finality of jury decisions needs respect, the court
has held over and over again, despite the flood of evidence showing that our prisons are strewn with the innocent (while the
actually guilty are presumably roaming free).

In its most extreme example of disregard for
decency, the court held in a 2007 case, Justice Roberts in the majority, that an Ohio inmate must rot in jail until he dies without any
review of his case. Why? Because although the inmate beat the deadline he was given to file an appeal, the judge made a mistake.
The deadline was three days earlier than the judge said. Justice David Souter, in his dissent, wrote that “it is intolerable for the
judicial system to treat people this way, and there is not even a technical justification for condoning this bait and
switch.”

In line with these attitudes, turning a deaf ear to issues involving mere money and
property comes easily.

Chief Justice Roberts focused the court on whether Kim Blankenship
had a right to even be in court. It was an issue never raised until the case got to the Supreme Court. Taking his cue from the chief
justice, Theodore B. Olson, another architect of the theories to limit access to the courts, argued on behalf of DaimlerChrysler that
Blankenship and the others “cannot demonstrate any actual, concrete, and direct injury.”

Douglas R. Cole, the state of Ohio's lawyer, joined in. “They haven't shown any harm to themselves,” Cole
said, then adding a modifier to make his statement technically accurate, “any judicially cognizable harm.” The only harm they could
show, Cole told the justices, was that the state would collect less money from Chrysler.

Hearing these words, Kim Blankenship had to muster all the strength she had to keep her emotions in check.
How can they lie like that?
she thought. She rolled her eyes, and then noticed a guard
glaring at her as if to warn that even that subtle move would be grounds for her removal.

Cole
and Olson were not lying; they were just making lawyerly arguments on what to them was a technical legal issue. Just because
you pay taxes gives you no right to challenge the government. The reasoning for this standard, which is not written into any
statute, is that the courts would be clogged with cases brought by malcontents, tax protesters, and anybody with a grievance and
either money to hire a lawyer or time to file their own case. Of course, there is a way to address this, which would be for the courts
to use their discretion to accept cases that address issues of great public significance and to toss out frivolous cases. And there
was no doubt that in this case, all sides agreed the matter was of great import. Even the Tax Foundation, which usually sides with
those seeking to reduce the burden of government, said in its brief that the Chrysler tax credit was bad policy. The Tax Foundation
just felt that Kim Blankenship and her fellow taxpayers should take their case to the legislature.

Blankenship and Mary Ebright, who had lost her home and who was seated next to her in the front row, dug
their fingernails into each other's hands to relieve the tension as the lawyers said again and again that there was no
harm.

No harm. No harm! Have they seen what happened to our
income? Do they care what the city did to ruin our business? No harm! I suffered plenty of harm and not just because I am paying
taxes to support Chrysler instead of the schools
, Blankenship thought.

Kim's
Auto was mentioned five times, only once in a full sentence, and only to say that it had no right, no standing, to press the case.
Olson even argued that it would be wrong to return the case to state court, where the case was originally brought.

When the Supreme Court ruled, two months later, Chief Justice Roberts made his views clear. Until this case,
the Supreme Court had indicated that subsidies were acceptable, but it never explicitly made a ruling on this. Instead it implied this
in the explanatory language of court opinions that lawyers call
dicta.
Chief Justice
Roberts sent a message to Kim Blankenship and the other residents of Toledo who were forced to suffer so that Chrysler might
prosper. It was a message directed at anyone thinking about challenging corporate welfare. So how will such challengers fare in
court? Their pleas for relief simply will not be heard. Blankenship and the others had no standing, no right, to challenge the
giveaway. Case dismissed.

And for what did the Blankenships lose their business? Did they
lose it for the greater good of high-paying jobs at the Jeep plant? No. Lost in the legal case was this simple fact never considered
by the Supreme Court: The site of what was once Kim's Auto and Truck Service is now a lawn at the factory's edge.

Now that the Supreme Court has erected a formidable legal barrier to protect corporate welfare, it should not
surprise anyone how this has affected those who seek subsidies. The practice of forcing people to pay taxes that are then given
away to the rich and politically connected is spreading. Even places known for their antipathy to taxes, like Arizona and New
Hampshire and Texas, are eager to conduct giveaways. The high court has sent a clear signal that the policy of the United States is
that government can take from the many to give to the few—and those who object will not have their grievances heard by the
courts. In a way, Kim Blankenship is one with the inmate who met the deadline given by a judge, only to be turned away because of
the judge's mistake. They had their cases heard by men who smugly insist that what they say and do is only what the Framers
intended.

The Chrysler giveaway at least had the merit of being a subsidy for an industry
which, in the words of Adam Smith, adds value. Making Jeeps and other vehicles means turning rocks, sand, and petroleum into
engines, glass windows, and all the rubber seals needed to make a vehicle work. In that way Smith, though not modern
economists, regarded manufacturing as adding to the wealth of a nation. But subsidies are not limited to manufacturing.
Sometimes, the less significant the enterprise, the greater the subsidy.

Sometimes cities and
towns will even borrow money to help create jobs that pay about ten bucks an hour plus health care benefits they can buy with a
portion of those wages. Next, the story of two wealthy families whose business is fishing for subsidies—and the competitor that
refuses to take them. Everywhere they go, the two families keep reeling in big ones, really big ones.

F
OR MORE THAN TWO DECADES JIM WEAKNECHT SOLD GUNS,
HUNTING
bows, tackle, and outdoor clothing from the little sporting goods store
bearing his name in Hamburg, Pennsylvania, population 4,100. Hamburg lies an hour and a half northwest of Philadelphia in Berks
County, one of those countless small towns in drive-by country—off to the sides of the interstate freeways. Most of them offer
interesting storefronts from a time gone by, charming salespeople who know their stuff, and just enough customers to keep the
doors open.

Weaknecht served local hunters and anglers heading into the lush glens of the
Poconos, his nearest competitor 15 miles away in Reading. He counted on a surge of customers every fall when deer hunting
season began and then again at Christmas. His best year, the register rang up a mere $1.3 million in sales. He kept enough as
profit, however, that his wife, Julie, could stay home taking care of their three children, which to Weaknecht meant he enjoyed a
very good life.

Jim Weaknecht attributed much of his modest success to a catalog he always
kept at the front counter. It came from Cabela's, which is to hunters and anglers what the Sears, Roebuck catalog was to farm
families a century ago, a cornucopia of everything you needed and a lot more stuff that made you marvel at what was available by
mail order.

“Hunters coming in to get a bow always want to know if they are getting a good
price,” Weaknecht said. “My main draw was always price.” While the prices of guns and hunting jackets have fallen over the years,
prices for bows have turned up, sharply. When a potential buyer seemed uncertain, Weaknecht would reach for the Cabela's
catalog at the front counter, turning to the page offering the same hunting bow. “I would show them Cabela's price,” Weaknecht
said. “Mine was always cheaper.”

Cabela's began in 1961 when Dick Cabela returned from a
Chicago furniture show to the wheat farming and cattle ranching town of Chappell, which lies on the far western Nebraska plains. It
is even smaller than Hamburg. At the furniture show, Cabela paid next to nothing for a giant nest of hand-tied trout flies from Japan.
He took out a classified ad in the local newspaper offering them at a dozen for a dollar. He got just one order. Then he hit on a new
idea. Cabela bought ads in the back of outdoor magazines. He offered five free flies for 25 cents to cover postage and handling.
Back then a first-class stamp cost four cents. Even after paying for the envelope, and recovering the mite spent on each fly, Cabela
and his wife made 11 cents on each order they filled from their kitchen table.

The Cabelas built
a mailing list from those who accepted their offer. They sent them mimeographed offerings of sporting goods items. In time, from
this bit of postal arbitrage, Cabela's grew into a $2 billion-a-year enterprise. The lesson of how government could give a boost to
business was not forgotten.

One day in 2001, Weaknecht heard that Cabela's might be coming
to town. The first Cabela's retail store had opened in 1987. A second opened four years later. Both were in Nebraska. In 1998,
Cabela's began an aggressive nationwide expansion drive. Hamburg was to be its eighth store. It was also to be the largest
sporting goods store in the world, more than 250,000 square feet, roughly six acres. It was to have more guns and reels and
hunting jackets than Weaknecht could sell in a lifetime. It would also have what the company called a “museum quality” display of
stuffed deer, geese, and hedgehogs that came to Cabela's by way of the taxidermist. Alongside the dioramas of stuffed and
mounted creatures, the Cabela's store would also feature a huge cold-water aquarium filled with bass, trout, and other native game
fish.

The American Association of Museums would find laughable the idea that these in-store
displays were anything but commercial come-ons of little educational value. Still, the pseudomuseum conferred a benefit on
Cabela's. It helped sell the idea that a Cabela's was a destination, not just another store. By organizing the faux museum as a
nonprofit, it also guaranteed that part of the building would forever be exempt from property taxes.

This giant sporting goods emporium was not going to be builton historic Fourth Street, with its varied
architecture built over more than a century. Cabela's favored a site of flat ground catty-corner from historic Hamburg, perfect for
acres of asphalt surrounding a concrete slab foundation. The land was more than a mile from the historic area. It was across both
the Schuylkill River and Interstate 78, which starts in Harrisburg, the state capital, and skirts Hamburg on its way to Manhattan.
Cabela's said its megastore would become the biggest tourist attraction in all of Pennsylvania, drawing six million people a year
down the interstate and through its doors. It would put Hamburg on the map.

Weaknecht never
believed it. Even if it was the first Cabela's in the northeast, and even if it was nearly 100 times larger than Weaknecht's Sporting
Goods, it made no sense that six million people would take a day or even two to travel to out-of-the-way Berks County to visit
Cabela's.
Why would people drive all day to buy a gun or a fishing pole? Why not just order out of a
Cabela's catalog? Or just go to their neighborhood sporting goods store?
Weaknecht thought. The state of New
York sold fewer than a million fishing licenses a year, a figure that had been dwindling slowly, while the other nearby states sold far
fewer. Deer hunting licenses were also in decline, down about a fifth since 1980. And besides, Weaknecht figured, in time Cabela's
would open a store somewhere else in the northeast, perhaps in New Jersey or Connecticut, or in West Virginia near the
Pennsylvania border, and that would dilute any interest in the Hamburg store.

Even if Cabela's
did not build another store, surely its two big competitors, Bass Pro or Gander Mountain, would open stores in the region, maybe in
Harrisburg, less than an hour away and at the confluence of much busier interstate highways. Bass Pro was privately held, while
Cabela's was about to go public, like Gander Mountain.

Between them the three largest
sporting goods operations had less than a tenth of the fin-feather-and-fur outfitters market, which was dominated by mom-and-pop
operators like Jim Weaknecht. So surely the big three would be building plenty of new stores as they tried to consolidate the
industry by running little operations like Weaknecht's out of business. Cabela's and Bass Pro, and to a lesser extent Gander
Mountain, were like Holiday Inn and Ramada in the early days of the interstate freeways. That one was being built generated local
excitement at first, but they soon became as ubiquitous as a freeway cloverleaf. And nobody drives to a Holiday Inn to experience
that brand; they just stay at the ones located most conveniently on the way to their destination.

To believe that Cabela's would draw six million visitors each year meant believing that a sporting goods store
could be as big a draw as Universal Studios in Orlando, whose commercials ran regularly on television, and which was really two
theme parks with enough rides and shows to keep a family occupied for several days. Why, it would mean that more than twice as
many people would come every year to Cabela's as visited Hersheypark, less than an hour down the highway from Hamburg, with
its roller coasters, water rides, and faux boardwalk. Weaknecht did not believe.

But what struck
Weaknecht even more than the fantastic visitor prediction was the tribute Cabela's demanded. Cabela's was not so much
interested in free enterprise and competition as in using the promise of economic development following in its wake to exact
tribute.

“They played it up that they were not certain where they would go, it could be Delaware
or Pennsylvania or New Jersey,” Weaknecht recalled. “They said they could end up in Berks County or in Lebanon County, so
they had the local politicians all competing for Cabela's.” The winner would be the community willing to pay the most in tribute to
the sporting goods chain.

The tribute Cabela's wanted totaled at least $32 million. That was
more than the borough of Hamburg spent on the entire city government, from paving streets to having police patrol them, in a
decade. But it was Cabela's price. Hamburg could pay up, the company made them believe, or they could watch the prosperity they
could have had go to another town in the Northeast.

Cabela's isn't saying how much it cost to
build that store, or any of the others. Its disclosure statements to shareholders are opaque on this point. But construction and
retailing experts estimated a cost of $220 to $230 a square foot. For the Hamburg store, that meant subsidies would cover more
than half the cost of construction.

The way Cabela's talked up the store, that $32 million gift to
itself sounded like a free lunch for the people of Hamburg. The company characterized it as money that would come from all those
hunting and fishing enthusiasts who would be driving to Hamburg. It was not supposed to cost the locals a dime.

First, Cabela's wanted an exemption from paying property taxes for the value of its building for years to
come. The so-called museum part of the building would be tax-exempt forever as a not-for-profit entity. Of course, if Cabela's
picked some other place for the store, it still would not be paying property taxes to the township. Thus the locals really would not
lose a thing if they let Cabela's skip paying property taxes, or so the argument went.

Then
there was the other big part of the subsidy. Cabela's wanted to apply this same reasoning to sales taxes. Cabela's wanted to
pocket the sales taxes, using them to help pay for its building. What if the town fathers said no? Then Cabela's would go
somewhere else—and those sales taxes would never materialize anyway.

On the other hand, if
Cabela's did come, and did get to keep the sales taxes and not pay property taxes, there would be plenty of spillover business.
Surely almost everyone driving in from New York, or the Pittsburgh suburbs, or from down near the nation's capital would want a
meal. A lot of them would want hotel rooms, too. And even if only a small fraction of them decided to go shopping in the historic
part of town, well, you could almost hear the coins jingling in the pockets of the Hamburg burghers. It all seemed so easy and
lucrative. Restaurant meals, hotel stays, gassing up the family SUV, all of it would mean greenbacks and Visa cards coming down
the interstate to little Hamburg. That the Cabela's store would be across both a river and a highway from Hamburg was not much of
a concern to the town fathers. They planned a free trolley to bring those Cabela's customers over to shop in the historic
downtown.

Weaknecht thought the town fathers had all lost their senses. “Cabela's got $30
million something in tax breaks,” Weaknecht said. “They don't pay any kind of school taxes. They got all the breaks in the world. If I
would have gotten just a million dollars in tax breaks, let me tell you, I would have run a very, very successful
business.”

In seeking these subsidies, Cabela's was not inventing a new scheme. It was
simply improving on a technique pioneered by an icon of retailing success, Sam Walton. The Walton story was not about the brave
capitalist taking on risk and proving his mettle by being smarter than the other guy, no matter how carefully the Wal-Mart company
has polished and sold that corporate fairy tale.

Sam Walton practiced corporate socialism. As
much as he could, he put the public's money to work for his benefit. Free land, long-term leases at below-market rates, pocketing
sales taxes, even getting workers trained at government expense were among the ways Wal-Mart took every dollar of welfare it
could get. Walton had a particular fondness for government-sponsored industrial revenue bonds, which cost him lessin interest
charges than the corporate bonds the market economy uses to raise money.

Back when
Wal-Mart started grabbing every subsidy it could get, hardly anyone was paying attention to the issue. Formal records and news
accounts are both scant, so the full scope of its taking probably will never be known. Phil Mattera of Good Jobs First, a group
backed by labor unions that tracks corporate subsidies, plowed through old securities records and news accounts, trying to find
out how much welfare Wal-Mart received. Mattera's research was paid for partly by a union for grocery store workers, the United
Food and Commercial Workers International Union, which had fought Wal-Mart, which has no unions and once closed the part of a
store whose workers voted for one. Mattera and his team found proof of subsidies at just 91 of the more than 4,000 Wal-Mart stores
in the United States, mostly those built more recently. It also found evidence of subsidies at 84 of 91 distribution centers. The
subsidies Mattera could pin down totaled $1 billion and change.

That $1 billion figure is surely
far less than the actual amount of money Wal-Mart took. One indication of this comes from an interview that a Wal-Mart spokesman,
B. John Bisio, gave to the
Telegraph Herald
newspaper of Dubuque, Iowa. Bisio let slip
that “it is common” for Wal-Mart to seek subsidies for its new stores and that it does so “in about one-third of all projects.” That
suggests that 14 times more Wal-Marts received subsidies than the Good Jobs First study uncovered.

Even more revealing was the response Wal-Mart gave to the report, which was ignored by many news
organizations and relegated to the back pages of many newspapers that did mention it. Mona Williams, a Wal-Mart spokesperson,
told
The New York Times
that if the estimate of a billion in subsidies was correct, “it
looks like offering tax incentives to Wal-Mart is a jackpot investment for local governments.”