Free Lunch (3 page)

But in the last quarter century or so, we have turned away from these policies,
shifting risk onto those least able to bear it by taking away protections for consumers, workers, retirees, and
investors.

For more than a quarter century now our government has been adopting rules that
tilt the playing field in favor of the rich, the powerful, and the politically connected. These rules accomplish this by taking from the
uninformed, handcuffing law enforcement, squelching whistle-blowers, and making it ever harder for those who were wronged to
get redress. The new rules have taken special aim at those supposed economic criminals, the regulators.

The reasons for this shift go deep into the human condition.

In his most
famous speech, in front of the Lincoln Memorial in 1963, Martin Luther King Jr. said he had a dream that one day his four daughters
would be judged by the content of their character, not by the color of their skin. We have made great, if far from complete, progress
in judging people without regard to that superficiality. But on another front we have gone backward. Today we often value people
less by the content of their character than by the contents of their wallet.

In this way we are not
unlike the ancients. Just as the Greeks once told tales of those who became intimate with the gods, our society is awash with
television programs, magazines, and tabloid columns that celebrate the wealthy as gods and demigods of our age. Often we
celebrate wealth for its own sake, without regard to whether it was obtained by means honest or corrupt, or is used for purposes
noble or foul. We not only celebrate the rich for being rich, we shower gifts and praise on them for nothing more than having
money, or sometimes for just the appearance of having money.

The pursuit of ever more
financial zeros and commas on net worth statements has in turn produced a moral breakdown at the top of our society that has
spilled onto the front pages. Most of the rich have not lost sight of everything but their own net worth. But enough have that they
are twisting our culture and our values in ways that tear at the fabric of society.

In less than
three decades presidents of companies have gone from apologizing when they had to lay off workers to boasting of the riches
they obtained through mass firings. We sing the praises of investors who owe their wealth not to creating businesses, but to
buying companies in deals that required destroying lives and careers, just so that they could squeeze out more money for
themselves. Too many of us missed the irony when Gordon Gekko, rewriting the eighth and tenth commandments, looked into the
camera and declared “Greed…is good. Greed is right. Greed works.”

To the addicted, money is
like cocaine: Too much is never enough. This mass addiction to money has grown in the past three decades into widespread theft
of shareholder assets by executives. The well-known cases from the Wall Street bubble—Ken Lay of Enron, Bernie Ebbers of
WorldCom, and Dennis Kozlowski of Tyco—were just the tip of the proverbial iceberg. Many more got away with cheating their
shareholders, their workers, and the taxman than were ever considered for indictment.

One of
the new rules has been to make sure that there are far too few cops on the beat on Wall Street to even write down all the legitimate
complaints, much less pursue more than a handful of wrongdoers. More important, the actions of Lay and Ebbers and the others
were just part of a massive shift in practices and policies that continues. The Wall Street scandals are not over; the conduct they
revealed is just becoming institutionalized.

Steve Jobs, a founder of Apple computers, was
awarded millions in stock options at a board of directors meeting that never took place. When given too much change by a clerk,
the principled person returns the money. Jobs arranged to have his fraudulently issued options exchanged for restricted stock
worth hundreds of millions of dollars. The government brought civil charges against Apple's general counsel and its chief financial
officer, the latter of whom admitted wrongdoing, gave up $3.5 million, and said he had warned Jobs about the improper pay. Still,
by late summer 2007 the government had taken no action against Jobs. The Apple board, which included Al Gore, portrayed Jobs
as an unknowing victim of complicated rules even though they have been in effect since before Apple went public decades
ago.

Jobs was hardly alone in the stock options scandals, which involved thousand of
executives working for hundreds of companies. Many of these executives took money from shareholders through deliberate,
calculated actions, including fabricating records. They differ from bandits only in that they wielded pens to steal with stock options
instead of pointing pistols while demanding cash or jewelry. Their techniques were subtle and not overtly violent, but for society
they are worse than street robbery, for their actions undermine the legitimacy of society's rules in ways that bandits
cannot.

Unlike the common thief or bandit, these executives have the best and brightest
lawyers to explain away misconduct or to obfuscate. In the rare instances when indictments are handed up, the cheated
shareholders sometimes end up paying to defend the thieves who robbed them. Added to this are the legions of publicists who are
paid to report what their bosses want us to hear, the antithesis of journalism's call to pursue the facts without fear or
favor.

The ranks of these image shifters are growing, while across the country many
journalists are being laid off as people pay less attention to the news, reducing further the chances that inconvenient facts will
become known. Nor have other watchdogs fared better. Later we will examine the fate of the brave bureaucrat who first exposed
the stock options frauds.

Best of all for the stock options thieves, they had a friend somewhere
in the White House. The federal prosecutors who had dared to go after them were fired. Yet in hearing after hearing before
Congress no one would say just who made the firing decisions or why, not even the attorney general of the United States. We were
told only that the prosecutors performed poorly, despite sterling written evaluations to the contrary. So not only have the
standards of business been corrupted by the love of money, but also one of the most powerful and sensitive centers of power in
our government, the Justice Department, has been compromised in the service of greed.

The
new rules also enable executive pay schemes that reward those who mismanage companies by handing them vast personal
fortunes, even though they destroyed wealth for everyone else. Many of these executives make money in a world in which they
face little or no risk but can reap great reward, another area in which Adam Smith, the father of capitalism, warned us about moral
failure and its corrosive effects.

All of this can be traced back to how the government sets rules
and enforces them. Many wasteful rules are gone. But so are many virtuous rules, replaced by ones that encourage and even
reward misconduct.

At the same time that the rules have been rewritten to favor the already
rich, new rules have been written that ensure harsh treatment for the poor, whether they are indolent or the victims of such
misfortunes as being born not so bright or healthy as the average person.

In this era of rules
for the rich we act as if poverty is a
free good,
meaning in the argot of economists that
it is not scarce but readily available. In that sense poverty is indeed a free good, but it is not a cheap one. Coping with the foul
effects of poverty costs us a half trillion dollars a year, a sum greater than what we spend on Social Security benefits. Poverty
wastes minds and spirits, robbing all of us of opportunity. When poverty fosters crime it costs us more than the harm done to our
wallets and our safety, or even the expense of a system to hunt down, prosecute, and incarcerate offenders. It makes us less
trusting, less willing to see ourselves as one people in our great experiment in self-governance. How we deal with poverty as a
society is a major factor in why the vast majority are worse off, for unlike the superrich, they cannot live in gated communities, fly in
private planes, or hire bodyguards for themselves and private schools for their children.

For a
nation whose leaders frequently invoke their belief in the Bible, curious indeed is how the political rhetoric ignores the overriding
duty of the New Testament to care for the poor. “Sell all that thou hast, and distribute unto the poor” for “it is easier for a camel to
go through the eye of a needle, than for a rich man to enter into the kingdom of God.” Jesus said those who believe must sacrifice
for the poor; we sacrifice for the rich at the expense of the poor.

The worst poverty is that of
the man who does not know how to fish. Even if he has the means to obtain hook and line, of what good is a tool that one does not
know how to use? People with the skills to sustain themselves and improve their lot build our society. Denying the basic skills
needed to succeed, starting with a decent education so that one can comprehend more than simple instructions, is itself a form of
crime.

Under what theory of morality do we grant those already in a superior economic or legal
position ever more power, especially when that power derives from rules in fine print that defy normal human
understanding?

Consider one example, the business of lending money. Usury laws that
protected consumers against rapacious lenders existed until 1978. Now they are gone because of a Supreme Court decision. In
that case the high court warned Congress that it needed to enact new laws to protect borrowers. That warning was ignored in the
lucrative trade of selling access, if not votes. In place of rules that protect the vulnerable, the innumerate, and the foolish, our
government has set forth onerous new rules that reward those who prey on the poor. We used to prosecute loan sharks. Today a
television commercial featuring Gary Coleman urges people to borrow money at 99.25 percent interest, paying back almost $10,000
to borrow a quarter that much. These new rules help Goldman Sachs and Lehman Brothers and Citibank exploit the poor, the
unsophisticated, and the foolish. These lenders, or their fronts, can now charge rates and impose penalties that were illegal, even
criminal, a generation ago. These and other lenders engage in conduct that goes way beyond that of Michael Milken, the junk bond
promoter who made a fortune pushing risk onto corporate balance sheets the way addicts inject heroin into their veins. Milken was
vilified by many; not so the latest usurers.

The result? In the past 25 years, one American
family in seven has sought refuge in federal bankruptcy court. They filed for relief from their debtors, not to immorally scam the
system, but because they were forced into it. Exhaustive research by Elizabeth Warren of Harvard Law School and her associates
into bankruptcy court filings has proven that the vast majority of people seek refuge from debtors after any two of three events
combine: divorce, job loss, or major medical problems.

The response of our leaders to this is
instructive, for it shows how much of the wisdom of our founders we have lost. Two centuries ago, a sitting justice on the Supreme
Court, James Wilson, was jailed for not repaying money he had borrowed to invest with a fellow signatory to the Declaration of
Independence. Back then debtors could avoid imprisonment by securing all doors and windows, conducting business by means
of notes tossed in and out of the upper-floor windows. Those sent to
gaol
usually were
held in a place with few locks and keys, where you brought your own furnishings and food. Imagine what would happen today if a
brilliant jurist who filed bankruptcy were nominated for the Supreme Court.

Today we do not
jail debtors. But under a new bankruptcy law written by credit card lenders, we deny some people the fresh start that the
constitutional provisions on bankruptcy were designed to ensure. Senators and representatives, after a decade of gathering up
campaign contributions from the lenders and their lobbyists, adopted rules that can leave the sick and the jobless at the mercy of
corporate Javerts pursuing Jean Valjeans until they die.

In this same era we have turned what
were once denounced as vices into pastimes. Witness the explosive growth of casinos and other gambling. And now we even
subsidize some of the gambling halls with money that was promised to help the poor, the elderly, and the sick. In this way does
Donald Trump benefit from money intended for the least among us to burnish his image as a supposed billionaire.

The checks and balances provided by oversight, inspection, investigation, and, in extreme cases,
prosecution have all been gutted in pursuit of deregulation and supposedly smaller government. It has become difficult and
sometimes impossible just to find someone to take a complaint that an employer refused to pay wages or locked people in to make
them work or stole the retirement money. When there is no policeman on the beat the greatest beneficiary is not the taxpayer who
is relieved of the cost of maintaining that police officer, but the thief. And when bridges, tunnels, and dams are not inspected and
repaired we are all in danger.

Despite all the deregulation rhetoric, government grows ever
bigger. The number of federal government workers shrinks, but the ranks of people who are hired on contract at much greater cost
increases. In 2000 workers hired on contract cost our federal government $207 billion. By 2006 this had swelled to $400
billion—rivaling the expense of either Social Security or interest on the federal government's growing debt.