Timothy Carney’s book, The Big Ripoff: How Big Business and Big
Government Steal Your Money, is so good that you might even
consider putting it under the tree of the liberals on your
Christmas list. Undoubtedly they won’t like the way government is
portrayed in the book, but they will likely find it fascinating how
big business uses government to its advantage. Furthermore, they
will likely find The Big Ripoff hard to put down due to
Carney’s compelling style of writing.
Carney smashes the conventional wisdom that big business is
inherently pro-free market and anti-government. In fact, business
is all too willing to use government to tax and regulate its
competition out of existence. But it goes beyond using government
to erect barriers to market access. Carney also recounts the role
of big business in using eminent domain to violate the property
rights of small landowners.
Even for those who are well aware of big business’s’ embrace of
big government, there are sure to be pages in The Big
Ripoff that will still raise their eyebrows. One of the most
stunning chapters is “The War Against Tobacco: Why Phillip Morris
Is Leading It.” As Carney points out,
Few Americans know that Big Tobacco, perhaps the most
vilified of all industries, has one of the coziest relationships
with government. For that, we can thank the 1998 tobacco
settlement, the so-called Master Settlement Agreement (MSA) between
states and the four biggest tobacco companies. In exchange for
settling all the lawsuits filed in the 1990s, the companies
promised huge annual payments to state governments. To safeguard
the new revenue stream, the states passed laws protecting Big
Tobacco from smaller competitors. Critics have called the MSA, “one
of the most effective and destructive cartels in the history of the
Nation.”
Although Big Tobacco has to hand over billions in payments to state
governments, the restrictions on smaller competition it gets in
return go a long way toward protecting its market share.
One of the book’s most fascinating parts is the account of
Enron. It is common for pundits to blame California’s electricity
crisis on the market manipulation of Enron. But, as Carney reveals,
none of that manipulation would have been possible had the state
government not yielded to Enron lobbying and imposed regulations
that enabled Enron to manipulate the electricity market.
Enron lobbied for and won a regulation that fixed the price that
an electricity supplier would pay to transmit over California’s
power grid. Transmission lines in a grid have finite capacity —
only so much electricity can be delivered at any one time. In a
free market, the companies running the transmission lines would
raise prices when the lines were in danger of being overloaded. But
with prices fixed, another way had to be found to alleviate
overloaded lines.
That other way was a “congestion tax” on companies that
overloaded the transmission lines. However, under the rules, the
proceeds from the congestion tax would be paid to any company that
worked to relieve the overloaded lines. Enron gamed this system
exquisitely. It would schedule deliveries of electricity (which it
never intended to make) over lines it expected to be filled to
capacity. Once the lines were overloaded, it would cancel the
delivery and pocket the congestion tax.
Those companies still using the lines had to charge higher
prices to compensate for paying the congestion tax. But
California’s screwball regulations also made it difficult for
companies to pass the added cost on to consumers. Unable to cover
their costs, electricity companies had to periodically stop
delivering electricity, causing the rolling blackout California
experienced in 2001.
The Big Ripoff has far too many illuminating stories
about the cozy relationship between big business and big government
to do justice to them here. So do yourself a favor. Buy a copy for
a family member or friend for Christmas, and then ask to borrow it.
Or just read it before you wrap it.
David Hogberg is a senior analyst at the National Center for
Public Policy Research. He also hosts his own website, Hog Haven. See his
earlier Christmas gift recommendations, “Have
Yourself a Very Healthy Christmas” and “A Classic
This Christmas.”
