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I recently read David Cay Johnston’s book, “Free Lunch” which is a critical look at how the wealthiest Americans seek and receive advantages from the government to the detriment of the taxpayers. The overall point is on target and I am sympathetic to many of the stories, despite the usual littering of economic nonsense in the book (for example, see his description of trade, or his cavalier assertion that if the government is distorting markets, it is markets that are failing, and not an issue of poor governance). I want to mention his work on professional sports team owners feeding at the government trough. And he is absolutely right that this is an abomination. The problem is that Mr. Johnston asserts that all of these lavish subsidies come at the expense of the poor. That is a difficult point to make on its face. Given that only roughly 50% of Americans pay federal income tax, and that the poorest Americans are net beneficiaries of government support, it is ridiculous to assert that the poor are being forced to pay for the hobbies of the rich. Since the top 5% of taxpayers (by income) pay over 50% of all income taxes (OK, I am ignoring other taxes here) while the bottom 50% of income earners pays less than 4% of total income taxes, stadium and sports team subsidies are not transferring dollars from the poor to the rich, but rather from the upper and middle classes to the super rich.

That does not make it any less reprehensible, but the constant harping on populist themes while eschewing the presentation of any data to support such themes makes the book far less credible, particularly in the eyes of non-liberals who would otherwise gain a lot from reading it.

UPDATE: my original concerns with the book are here.

One Response to “Sports Teams Feasting on the Poor”

  1. For four decades it has been interesting to see what people take away from my work, which has never been conventional. But given that this is an economist’s blog what is posted above is, well, bizarre.

    Perhaps the economist just skipped through Free Lunch and did not read with care because the specifics above repeatedly turn fact on its head.

    First off, the post acknowledges that the tax data cited above is only about the income tax, which is a small portion of all taxes. So the poster’s point is so far from reality as to make it meaningless and yet he makes a point anyway? It is easy to show from official government data (as I did in my earlier book Perfectly Legal and in many articles in The New York Times) that those at the top often face a smaller total tax burden than those who make much less. Citing the income tax out of context is what one expects from think tank shills, not professors.

    Second, my observations on trade are described as “nonsense” without a single example cited. Since my discussions on trade cite Adam Smith extensively are we to take it that the poster rejects Adam Smith? If so, fine, but then say so.

    Third, the subsidies to commercial sports are not described as coming primarily from the poor — they come from taxpayers, who include the poor.

    What I then do is show that a) the new Yankee stadium is built on land, taken without public notice, from people in the poorest Congressional district in America, b) EVERY resident of New York was effectively robbed by government of money to enrich the owners of Yankees and other teams and c) at least one team owner says that a commercial sports team is more valuable to a community than 30 public libraries. Showing that the poor are especially abused here does not undo my central point, that non-fans and the public generally are subsidizing a very narrow slice of society that loves an industry which, ironically, is all about competition in play, but has gotten itself exempted from the laws of business competition.

    Curiously unmentioned by the poster is my account of how President Bush got rich off a sales tax increase that was funneled into his pocket, a story whose facts the White House does not dispute.

    Fourth, the poster is so far off base about what I wrote about markets that it takes my breath away. The poster says I make a “cavalier assertion that if the government is distorting markets, it is markets that are failing, and not an issue of poor governance.” Wrong. Not even close, unless the poster believes that auctions that consistently result in higher prices are markets.

    I explain the new electricity markets and show that by their design they drive prices up to near monopoly levels. That, I argue, means that they are not really markets at all, but faux markets. I then focus on government as the source of the problem for creating these faux markets and then embracing them under the bizarre argument that whatever prices these “markets” produce must by definition by just and reasonable because market prices are just and reasonable, while refusing to address the issue of whether they really are markets.
    How did the poster miss my careful explanation of market rules and design, the research into the flaws in the designs of the “markets” I write about and my clear focus on government as the problem in enacting, authorizing and embracing these faux markets?

    Yes, governance is the problem. These markets fail because they are not really markets. Or does the poster believe that when a “market” consistently produces rising prices – quickly rising close to what an unregulated monopoly could charge – that this is a market? If so may I suggest a whole new line of inquiry that can easily fill the rest of the poster’s academic career: markets as ways to raise prices to the highest possible level and their benefits to society.

    In short, despite the initial kind words, the post above is not an accurate representation of what Free Lunch reveals. Maybe it is just muddled thinking from superficial reading. The post is clearly is wrong on the verifiable facts. Of course if the poster can provide verifiable facts I may alter my position.

    People who believe, as I do, that markets are the best mechanisms we have come up with to set prices ought to be deeply concerned with all of the examples I provide where government, invoking markets as its policy rationale, is putting its thumb on the scale, distorting markets, vitiating their benefits, destroying local businesses in favor of national chains, and transferring massive amounts of money extracted as taxes to private wealth.

    Now that the poster lives in Rochester I would be delighted to examine these issues over coffee, beer or lunch. I’ll even buy the lunch. My home number and email are at my website.

    David Cay Johnston, author of Free Lunch

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