Author Archives: Les Schreiber

A Book Review for an Election Year

Along with income inequality, one of the most-discussed issues in the Presidential election year is the role of money in political campaigns.  Following the Roberts Court’s ruling in the Citizens United Case, which basically equated money with free speech, large numbers of Political Action Committees masquerading as charities, such as the Americans for Progress, were supported by wealthy donors to funnel money to selected candidates.  These so-called super-PACs could raise unlimited amounts as long as they were not “coordinated” with the candidate’s campaign.  This process and it after-math are the heart of Jane Mayer’s new book, “Dark Money.”

According to the book, Ed Gillespie, currently the front-runner for the Republican nomination for Governor of Virginia, was one of the first political operatives to realize the potential surrounding the Supreme Court’s decision, and began to organize attacks on regulation having to do with environmental protection and tax policy.

The perception that business is under attack and a response must be begun dates back to the early 1970’s.  Lewis Powell, a Richmond lawyer who served as a distinguished member of the Supreme Court, outlined a type of response that included an organized to roll back regulations and other government policies that, he perceived, were undermining the American private Enterprise System. (see reclaim democracy.org). Powell served on many corporate boards including tobacco giant Phillip Morris.  His ideas were taken up by several individuals of significant wealth.

The book indicates that those who found the dark side of American politics are mindful in operations that have significant impact on the environment.

The Olin Corporation is an example.  Olin was a significant polluter.  It was the largest manufacturer of DDT, which was eventual banned by the government in 1972.  In the town of Saltville, Va., Olin’s Chlorine production spilled significant amount of mercury into the Holston River.  The company ceased operations shortly after it was reported from Japan that large exposure to mercury in water caused birth defects.  Members of the Olin family are significant contributors to conservative think tanks such as the Heritage Foundation and the American Enterprise Institute

The most significant of the “dirty money” fraternity are the Koch brothers (No relation to former mayor of NY Ed Koch).  Their oil refining and pipeline business if one of the largest privately-held pipeline companies in the United States.  The family has a very interesting history. Earlier generations did business with both Nazi Germany and Stalinist Russia. Family members were members of the John Birch Society. This is the same group that believed that President Eisenhower was a Communist.

In her research, Jane Mayer discusses many legal problems that Koch industries has had under the current leadership of Davis and Charles Koch, some involving outright theft of oil from Native Americans’ reservations, significant instances of pollution. One particularly disturbing case involved the death of an employee named Donald Carson who died of Leukemia in 1997.  Doctors believe that his cancer was the result of exposure to benzene, a chemical involved in refining crude oil. The Kochs refused to pay him Workmen’s Compensation even though a company-sponsored blood test indicated five years before his death that his blood was poisoned. The employee was subsequently terminated from the company.  Charles Koch believes that government regulations are “socialistic.” Employees within the company that brought up potential health issues to OSHA were fired. In one case, involving a pipeline explosion, resulting in the death of an employee, a jury found that the Koch’s not only negligent but malicious, ordering them to pay a settlement three times the hundred million Dollars that was originally requested.

Ms. Mayer does acknowledge that the Koch Brothers have given significantly to “real charities” such as Lincoln Center in New York and several medical research institutes. According to the author, these contributions served to soften their image and make their political activities seem less threatening and less self-serving.

Following the plan, laid out many years ago by Lewis Powell, American Universities are the fountainhead of anti-business attitudes in the United States. The theories of the Austrian school of economics was believed to provide an intellectual basis for the type of free-for-all capitalism advocated by the Koch brothers.  In 1981, the Mercatus Center was established at the George Mason University in George Mason University.  The Center claimed that it “bridged the gap between academic ideas and real world problems.”  Records obtained by Jane Myer indicate that the brothers have contributed $30 million to the Institute. One historian on the faculty describes the institute as a “lobbying group for corporate interests.”

Whether you agree with the author,  Jane Mayer, the current rise of “outsider politicians” in both parties shows that much of the public perceives that the system is rigged in favor of the ultra wealthy.

— D. Leslie Schreiber

Welcome to the Fan, Randy

randy_forbes

Watch out, Mr. Forbes, you have a new constituent, and his name is Les Schreiber.

In recent years Virginia’s politics has appeared disjointed. In the past two presidential elections, the Democratic nominee has prevailed here. The current governor as well as both U.S. Senators, John Warner and Tim Kaine, are Democrats. Yet representation in the House of Representatives favor the House G.O.P. by a ratio of 8-to-3.  It is small wonder that some observers believe that Congressional Districts were drawn to protect the Republicans.  An article and a map in today’s RTD indicates that a federal court states that in order to achieve more balanced representation, the City of Richmond will shift from the congressional district of Bobby Scott, a Democrat, that of Randy Forbes, a Republican.

A quick glance at Forbes’ website indicates that he supports the usual G.O.P. platitudes on domestic policy.  Forbes, as one would expect, would repeal the Affordable Care Act.  The question for Forbes is: “How would a 62-year-old making $45,000 per year with a pre-existing condition be able to buy almost any health insurance?

Rep. Forbes also wants a balanced budget amendment to the Constitution. Quick, Randy-name five federal programs you would slash, and how much would be saved by each cut.

If Randy can not respond to these questions with specifics, he joins Rep. David Bratt sharing the coveted title of Fauxconomist.

Like so many of Dave’s followers, he espouses programs that he can not possible implement.

— D. Leslie Schreiber

Thanks For the Memories

I have not written much over that past several months because I have been dealing with some family problems. I thought a brief article on the Dave Brat interview might be worth a comment. Boy,was I wrong.

I was upset at one of the responses to my Brat article and have decided that continuing to prepare and write an occasional article for this blog is not worth the time. I have never been accused of being a liar. It seems that some simply don’t understand the give and take, is not an excuse to call into question the basic values of one with whom they do not agree.

— Les Schreiber

Dave Brat, What to Make of this Guy?

As I flipped though the New York Times Sunday Magazine, I was shocked to find a full-page interview with Rep. David Brat.  The Times usually does not pay much attention to House freshmen, but Brat has created a high profile for himself by becoming an outspoken member of the “Freedom Caucus” of ultra-right wing Republicans that recently promoted the resignation of Speaker John Boehner of Ohio.

The interview was amazingly short on policy as Brat seemed to want to dwell on his knowledge of philosophy rather than on governing.  The brief outline that he did give of policy consisted of not raising the debt limit, lowering taxes, and bulking up the military. Brat refused to say how he would accomplish these goals, which taken into totality seem to defy simple math. How is he able to lower taxes and hike defense spending, without significant cuts in the rest of the budget? One doesn’t need a PhD in econometrics, to see that the numbers don’t add up: witness the presidency of George W. Bush and the deficit fiasco that followed.

Brat seemed to be critical of popular culture.  In the interview, he bemoaned what he perceived as a paucity of movies “capturing the highlight of Western tradition.” It seems that the congressman has forgotten that the purpose of free speech is to put all ideas in the public sphere.  Spoken by a federal legislator, this type of media criticism is nothing if not disturbing.

Brat, as most economists, is a fan of Adam Smith who in 1776, published Wealth of Nations, which described the fundamental workings of market-based economies, but Brat transforms the questions about the application of Smith’s principals to today’s complex problems into a criticism of European economies. Perhaps Dr. Brat is unfamiliar with the classic article written by Robert Mondell, the theory of optimal currency unions, and compares this work with the European Union’s plan to implement the Euro. Brat, this “scholar–his word”, should compare the present Euro zone that demonstrates the results of the type of austerity that Brat seems to advocate, with low inflation, but near-zero growth and very high rates of unemployment.

This guy should represent Disneyland!

— D. Leslie Schreiber

Nous sommes touts Parisien

Economics Works

Now that Jim and his great family are enjoying a break on the OBX, I thought some far Left stories from the New York Times might brighten his day.

I retired from teaching at the end of the 2008-09 school year. That was right in the middle of the financial crisis. Unlike Goldman Sachs, which was paid 100 cents on the dollar for credit default swaps, teachers didn’t get bailed out. In some states many were fired. At my former employer, Richmond’s Governor’s School, I believe they have had one two percent raise since I left. Even in these low inflationary times, teaching school has meant a decline in real income.

As a former teacher of economics, I often wondered how long teaching could remain a viable career for a recent college graduate. Today’s NYT answers this question.

Teacher shortages are showing up all over the country, from California to North Carolina. More interestingly, teacher prep programs at the university level dropped 30% from 2010 to 2014. According to this article, some districts are putting students in the class room before they finish their programs. I’m not sure how reflective the article is of the situation in this area, but the trend of a developing shortage does appear to be national.

— Les Schreiber

Comments on a Book Review

Yesterday, on this site, a book entitled “Ethics and Economics ,” authored by      Mr. Wight,was discussed. The review raised a few points that were a bit unclear to me.

One of the points made was that the government lacks knowledge about society. This is a bit surprising since the Bureau of Labor Statistics, the Commerce Department, and the Board of Governors at the Federal Reserve are probably the largest suppliers of raw economic data in the United States.  If, as a review of the book states,  legislators often act in a manner contrary to the public interest, perhaps a review of the Supreme Court’s recent Citizens United Case, which allows for virtually unlimited campaign contributions should be in the cards.

Like most conservative analysis, Mr. Wight ignores the basic concept of externalities.  When the state improves the highway system, this helps all by providing economic growth via ease of transportation.  When an entity pollutes, passing on the cost of cleanup to the wider society, this is a negative externality.  A purely market-driven economic policy will not provide positive for the wider society.

An examination of the 2008-2009 financial crisis demonstrates the folly of totally unregulated markets.  The institution at the core of the debacle was the insurance giant A.I.G. and its subsidiary A.I.G. Financial Products.

A.I.G.F.P. was the largest player in the credit default swap market.  Credit Default Swaps are insurance written to guarantee the principle of a bond.  A yearly premium is a percentage of the interest paid on the bond.  A.I.G.F.P. was a leader in insuring mortgage-backed securities.  This market was totally unregulated and unlike most insurance products and derivatives written against currencies or S&P movements, no reserves were required.  The A.I.G.F.P. was in effect renting the rating of the parent company to issue unreserved for insurance.

A.I.G.F.P. was closely monitored by then-C.E.O. Hank Greenberg until he was forced out in an accounting scandal brought on by Elliott Spitzer then Attorney General of New York.  The charges were later dropped but without Greenberg’s oversight, A.I.G.F.P. ramped-up its business, and in the short run was a significant contributor to the company’s overall products.

When the housing market burst, payments were required to fund the credit default swaps written against defaulted mortgages.  Because no reserves had been required, and there was no regulatory oversight for that market, the Federal Reserve Bank of New York was forced to bail-out the company to the tune of about US$180 billion.  Had the activities of A.I.G.F.P. been monitored in thee way Futures Exchanges and traditional insurance companies, the Great Recession and the recovery would have been less severe and costly.

Sometimes, the Government should play a role.

— Les Schreiber

Something to Think About

Last week I was reading in the New York Times an article on Jeb Bush’s plans for the economy. One of his talking points was to reduce the federal workforce by 10%. For a state as dependent on the Feds as Virginia, this could have serious financial implications. Already, in the CNBC rankings as the best state for doing business, Virginia has dropped from at or near the top to 12th in the most recent poll.  One of the reasons given was the decrease in federal spending. We can debate whether the government spends,  but such a cut in Northern Virginia and the Norfolk area could have significant impact.

— Les Schreiber