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.”