Free Lunch

Preface

Chapter 1:
WITHOUT EVEN ASKING

Chapter 2:
MR. REAGAN'S QUESTION

Chapter 3:
TRUST AND CONSEQUENCES

Chapter 4:
CHINESE MAGNETISM

Chapter 5:
SEIZING THE COMMONS

Chapter 6:
PRIDE AND PROFITS

Chapter 7:
YOUR LAND IS MY LAND

Chapter 8:
BOUNTY HUNTERS

Chapter 9:
GOIN' FISHIN'

Chapter 10:
JUST SAY NO

Chapter 11:
BEAUTY AND THE BOUNTY

Chapter 12:
FALSE ALARM

Chapter 13:
HOME ROBBERY

Chapter 14:
INDENTURED SCHOLARS

Chapter 15:
SELLING THE FURNITURE

Chapter 16:
SUFFER THE LITTLE CHILDREN

Chapter 17:
TROJAN HORSE

Chapter 18:
SIGHTLESS SHERIFFS

Chapter 19:
PAYING TWICE

Chapter 20:
RISING SNOW

Chapter 21:
UNHEALTHY ECONOMICS

Chapter 22:
LESS FOR MORE

Chapter 23:
HOOKED ON DRUGS

Chapter 24:
“I'M BEING TRAPPED”

Chapter 25:
NONE DARE CALL IT STEALING

Chapter 26:
NOT SINCE HOOVER

Conclusion: What to
Do?

Acknowledgments

Notes

Index

A
KNOT OF TRAVELERS WAITED IMPATIENTLY ON THE CURB AT
RONALD
Reagan Washington National Airport, the air heavy and still, trapped
beneath an overturned bowl of clouds. Weary and anxious to get to their hotels, they fidgeted, but said nothing as the minutes
dragged.

When the shuttle bus finally arrived, everyone hustled aboard, the last few people
packing in like so many sardines. The bus lurched forward, off on a circuitous route to the rental car garage.

A thin man began talking out loud, perhaps to relieve the tension from being trapped between strangers and
wobbling towers of luggage. Soon everyone knew he had retired from the Agriculture Department, moved back home to Midwest
farm country, and discovered he could earn a living because of his knowledge of how Washington works. On behalf of some
clients, the man droned on to no one in particular, he had endured three airplane flights this very Sunday to reach the nation's
capital.

“I'm here to get money from the government for my clients,” the man
said.

“That's why we're all here,” a voice called out. “The only reason anyone comes to
Washington is to get money from the government.”

Everyone laughed. Instinctively, I tapped
my pants pocket to make sure my wallet was safe.

A
T BANDON
DUNES, ON OREGON'S RUGGED AND REMOTE SOUTHERN
coast, men at play
pretend they're in the eighteenth-century Scotland of Adam Smith.

By the tens of thousands
they come from all over the world to three golf courses in the style of the Royal and Ancient Golf Club of St. Andrews, the official
shrine of golf since 1754. Smith lived not far from this shrine when he developed the theory of market capitalism that guides
economic policy to this day.

The Chicago entrepreneur who created Bandon Dunes, Mike
Keiser, describes it as exceptionally, and unexpectedly, profitable. That he earns outsize profits is surprising. America has 16,000
courses. His lie far from the centers of commerce where his players live. When Keiser wrote a check for his first thousand-plus
acres, land that had been on the market for years, his wife thought he might as well have tossed the $2.4 million into the wind. But
Keiser paid only half the asking price because no one else had the vision to see what could be done to transform the land. Locals
knew it as a place to hunt rabbits and occasionally poach a deer by day, while at night amorous teenagers drove down the dirt
roads looking for a secluded spot beside the sea.

Gorse covered the land. Gorse is an Irish
shrub that grows in impenetrable stands six feet tall or higher. If ignited during the dry season, its oily leaves burn ferociously.
Three times in the past century, gorse fires reduced the neighboring town of Bandon to ashes, the last time in 1936.

By car, Bandon Dunes is a hard five-hour drive from Portland. The path goes through the rich farmlands of
the table-flat Willamette Valley. It then winds west over the coastal mountains. Getting caught behind a logging truck, a rare
reminder of a once vibrant industry, can slow the pace for miles.

Once the road reaches the
coast, it is south for an hour to Coos Bay. It is the only urban area for miles and the only deep-water port right on the coast within a
day's sail north or south.

Nature endowed the area with a temperate climate, clear water, and
enough timber and salmon to last forever. But the lumber companies, eager to squeeze out ever-bigger profits, cut faster and
faster. The firs and cedars matured at their own pace, however. The imbalance continued until there was little left to cut on the
private lands. Then the spotted owl became a cause célèbre. That added to pressure on government to allow less logging in the
area's national forests. New machinery reduced the need for mill workers, and the Japanese began buying raw logs, removing
more blue-collar jobs. As the eighties began, the region's timber business collapsed.

Over the
decades the government had dammed rivers and creeks for electricity and water storage. To mitigate the damage to nature,
government paid for hatcheries to perform tasks that nature had done for free. Still, the runs of chinook and coho dwindled. By
2006, there were not enough salmon to sustain a commercial fishing season.

For a generation
now, it has been hard times in what had been a workers' paradise. Families with children moved on. Home-cooked
methamphetamine became a scourge. The one hope for a brighter future now lies in all those visitors coming to golf at Bandon
Dunes, another 25 minutes down the highway from Coos Bay.

Many of the golfers avoid the
long drive, traveling instead in the luxury of private jets. A few arrive in little Learjets with no restrooms. Many more come in private
planes the size of junior jetliners. Before the first golf course opened in 1999 perhaps three private jets a year landed at Coos Bay.
Now about 5,000 corporate jets arrive annually. Soon that is expected to grow to 7,000 or more private jets, all ferrying players
eager to experience what Mike Keiser calls “dream golf.”

When players reach Bandon Dunes
they discover that, like the Scottish original, the fairways are broad and rough. The links sprawl among the depressions and rises
in the coastal dunes. The land seems to undulate, emulating the swells that roll across the Pacific until they crash on the rocks or
break on the strip of taupe sand that runs for three miles below the golf course bluffs.

The links
at Bandon Dunes appear to be works of nature, so picture-perfect that they suggest Mother Nature retained Kodak as her exterior
decorator. In fact, earth graders remolded the sand to create what Keiser calls “nature improved.” Then gardeners planted grass
and positioned silver beach weed, mock heather, and verbena along the fairway edges.

No
trees border the fairways, unlike the strips of forest at country clubs that act like traffic safety barriers separating golfers
commuting down narrow green lanes in opposite directions. The only trees at Bandon Dunes are random sentinels, weathered by
the salt air and, in the distance, the ridgeline of a once thick forest. The Bandon greens are not the smooth and gently sloping ovals
of most courses, but rippled and rolling challenges. The greens cover up to an acre, eight times larger than at a typical country club
or municipal course, making it all the more exhilarating to knock the ball into a cup just four and a quarter inches
across.

From the courses, two of which Zagat rates as the best in America, not a single house
is visible, unlike the mini-mansions and condominiums that wall the edges of so many modern golf courses. No electric power lines
mar the views, either.

Bandon Dunes is quiet; peacefully, naturally quiet, an aural oasis in the
industrial world. Only rarely does the whine from battery-powered golf carts offend the ear. Except for the rare player who is legally
disabled, everyone carries their bag of clubs or hires a caddy. Ocean winds, which unpredictably carry higher-flying balls, silence
the burly throat-clearing of diesel rigs hauling raw logs and manufactured goods up and down the grade of Highway 101, an
asphalt artery of commerce and pleasure that cuts unseen through a scraggly forest of Douglas fir a mile or so
inland.

To walk Bandon Dunes is to gain a sense of how the game was played, and life lived,
just before the Industrial Revolution brought us ugly factories, the inescapable noises of machinery, and riches beyond the
imagining of those who lived before. Golf began six centuries ago, when life was mostly short, nasty, and boring. Men with time to
idle started knocking pebbles around the sand dunes near Edinburgh Castle, aiming to drop them into natural holes. It was
addictive. So many military officers missed scheduled drills so they could play
gowf
that in 1457, King James II banned the game as a threat to national security. In English the original name of the game means
“strike.”

What Keiser created is a veritable time machine. So thoroughly does the noise and
look of the industrial world recede that one could almost expect to encounter Adam Smith, the moral philosopher, strolling along. It
is easy to imagine the great Scot working out his economic insights. Perhaps he would be thinking about how pins, which had
been a luxury of the rich, became cheaper than cheap once cutting wire, fashioning points, and creating heads were broken into
specialized, repetitive tasks.

It was Smith who showed us that pursuit of self-interest, far more
than selfless acts of charity, promotes the general welfare. In making the most of one's labors, Smith said, individual enterprise, as
if guided by an invisible hand, unintentionally benefits all mankind.

Among the father of
capitalism's lesser known but equally significant insights is what he wrote about the eagerness of business owners to make even
more profits by thwarting the invisible hand. He warned that unchecked self-interest, especially when aided by the government, will
spoil the benefits of capitalism.

“People of the same trade seldom meet together, even for
merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices,”
Smith wrote in
An Inquiry into the Nature and Causes of the Wealth of Nations.
“It is
impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and
justice.”

Smith followed this with an observation that is crucial to realizing the benefits of the
market. His sage words are usually ignored by those who cite him as their authority for all manner of government
policies:

Despite two centuries passing, those warnings seem never to have reached
all the presidents, governors, senators, and cabinet secretaries who take the rostrum at the annual gatherings of the National
Association of Manufacturers, the U.S. Chamber of Commerce, and the conventions of the bankers, farmers, and every other big
trade group.

Throughout his writings Smith warned of the damage done when government
interferes in the market by guaranteeing profits or handing out gifts. This damage can exceed that caused when government taxes
unwisely or imposes rules that needlessly obstruct commerce.

It is a universal truth that it is
easier to mine gold from the government treasury than the side of a mountain. Of a subsidy paid to herring fishermen, called in
those days a
bounty,
Smith observed that it was all too “common for vessels to fit out
for the sole purpose of catching, not the fish, but the bounty.”

Today in America, Smith's
“bounties” are everywhere. Whole industries outfit themselves to catch all they can. Most of these subsidies are available only to
corporations and those individuals rich enough to own a substantial business. Everyone, however, is forced to finance these
bounties.

Lobbyists fashion bounties tailor-made for companies they represent. State
legislatures and city councils deliver them by the tens of billions of dollars each year, taking from the many to benefit the few. Even
without spending money, government often confers benefits on the few. It does so by establishing arcane rules that create an
advantage in the competitive market. Government also grants a lucrative favor for the few when it allows companies to
shortchange workers and, especially, pensioners.

As well-paying jobs like those in the timber
and salmon industries fade away, demand for subsidies grows in the belief that this will keep people working.

Some of these bounties do not even require an ask. They are just there. Mike Keiser knows that. He had to file
applications for two small subsidies, one of which hardly seems worth the bother. He hired lawyers and lobbyists to seek a third.
Coos Bay business leaders supported this third subsidy, believing it was a good way to create even more jobs at Bandon
Dunes.

Yet Keiser benefits from four subsidies. The last is by far the biggest. He did not even
have to ask for this one. It flows on automatic pilot in such a subtle way that following the trail of money under government-set
rules of accounting would never reveal its true path. Yet this bounty totals more money each year than the payroll for Keiser's 325
full-time employees, including their fringe benefits and even the tips they collect from patrons. By some measures this hidden
subsidy, to be examined in the pages ahead, is several times the size of his payroll.

Beneath
the exquisite beauty of Bandon Dunes lurks an ugly truth. The economic development benefits at Bandon Dunes are illusory. From
the perspective of one depressed community, Bandon Dunes is all win. It provides desperately needed jobs. It is making Keiser's
fortune grow rapidly. But from a national perspective, those jobs are a drag on the American economy because they cost more
than they are worth. So even if you never visit Bandon Dunes, never golf there, you are being forced to pay part of the cost for
those who do. Many of them are far richer than you will ever be. They hardly need your help.

If
subsidies that cost more than the benefits they generate were unique to Bandon Dunes, they would be of little consequence. But
subsidies are not confined to one small and needy place. The harsh reality is that for the past quarter century, policies adopted in
the name of Adam Smith, policies that supposedly strengthen the invisible hand guiding the market, have weighed down our
economy while simultaneously stuffing the pockets of those among the rich and powerful who solicited them or, like Keiser, were
just standing in the right place at a lucrative time. This is our story, not of one free lunch, but of the many banquets at which billions
and billions of your dollars are being served to the richest among us.