Author Archives: Les 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

A New Book On Recent Virginia History

Without trying to upset anyone, I can report that the dreaded left-leaning NYT has a book review that may interest some readers of this site. “Something Must Be Done About Prince Edward County” is reviewed in Sunday’s book review. The book,by Richmond resident Kristen Green is the story of how and why Prince Edward closed its public schools rather than integrate them in the wake of the Brown decision.

— Les Schreiber

Who Are They To Hate Now?

Virginia’s GOP has suffered some significant loses over the past few days. The “Stars and Bars” have become toxic, Roe v Wade is still the law of the land, the Affordable Care Act has again been ruled Constitutional by the Supremes and gay marriage is the law of the land. Isn’t it time for fauxconomist Dave Bratt, Kirk Cox,and their band of modern day “Know-Nothings” to start coming up with some real ideas instead of focusing on who we should hate?

— Les Schreiber

Coal Business

For those looking for something to do on a hot Sunday, have a look at the business section of today’s New York Times. On the first business page there is a very “interesting” article concerning Richmond based Massey Energy and Don Blankenship . The story told is not a pretty one and led to the Upper Branch Mine disaster that killed 29 men in 2010.

— Les Schreiber

Who Are the Real Fiscal Conservatives?

Source: "Truth and Integrity  in State Budgeting"

Source: “Truth and Integrity in State Budgeting”

Paul Volcker is one of the real heroes of the modern economic profession. During the late 1970’s and early 1980’s he conquered the “Great Inflation” by taming the growth of the money supply. Interest rates rose to levels unprecedented in modern American history. During my time in charge of cash management at AIG, I bought and sold money market securities yielding 20%; today similar instruments yield less than 1%. His efforts led to President Ronald Reagan’s “Morning in America” and a renewed attention to monetary policy. His success, as painful as it was,  gives him lots of “street cred.”

The Volcker Alliance recently published an analysis of the budgets in three states:  California, Virginia, and New Jersey.  The results will be surprising to many.  He gives kudos to California and Virginia, and holds a dim view of New Jersey, home of Republican presidential wanne-be, Chris Christie.

Standing alone, California would be the world’s eighth biggest economy with domestic output equaling US$2.1 trillion. Under Democratic Governor Jerry Brown, the Golden State’s credit ratings have been raised multiple times by the rating agencies.  Under his leadership,  voters have approved some temporary tax hikes, increasing budget reserves and improved funding for pension liabilities of teachers and other government employees.  According to Volcker, California’s outstanding debt has been reduced by approximately US$10 billion in three years.

The Old Dominion comes in for praise by the former Fed Chairman.  In an interesting comment he states that the budget professionals in Richmond serve for many years while the Governor is restricted to one 4-year term.  Budget cycle planning, which takes as long as 6 years, removes some of the politics out of Virginia’s budget process.  Virginia’s unfunded pension liability of US$ 3,436 per employee is only a few dollars more than that of the Golden State.

New Jersey, home of Gov Christie, leaves much to be desired according to the former Fed Chairman.  Volcker’s analysis paints a messy picture of the Garden State’s fiscal condition.  Volcker lists myriad accounting and financial tricks that have been employed to balance the home of the Jersey Boys: these do include not using the proceeds of bond sales for their stated purposes.  Frequent use of non-recurring revenues for operating purposes.  And diverting tolls from the turnpike from their stated use to maintain that highway.

It is a shame that Volcker did not include Kansas in his analysis.  Governor Sam Brownback, a Tea Party favorite, has enacted a budget cutting, tax reducing program that only a “fauxconomist” like David Bratt would endorse.  The budget deficit has ballooned, school systems in some detracts have closed early due to lack of funding, and a liberal website reports today that the Kansas Gov has threatened to cut off funding for the judicial system if it does not rule in his favor should a court challenge arise to his policies.

— D. Leslie Schreiber

Is This Guy For Real??

Please go to Salon. a liberal website, and read the story about an interview given by Dave Bratt on immigration. This is so over the top for 2015 .

— Les Schreiber