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Nobel Perspectives: Wassily Leontief: Input KPMG: Cheating Scandals US Economic Trends Fall 2021 APRIL 20- 2021

EVERYONE DESERVES A SECOND CHANCE The Economic Impact of Mass Incarceration and the Hope Presented

by Second Chance Employment

Who we are?

Publius

The Xavier Smith Scholars’ Magazine

Publius is a quarterly magazine that focuses on current affairs, global and domestic economic, finance, and legal issues, and political, economic, and legal thoughts. It is produced and edited by Xavier University’s Smith Scholars.

Contents

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I. Economics and Finance Nobel Perspectives: Wassily Leontief: Input - Output Models ............................................4 Swaps: The $37 Trillion Market .......................................................................................5 Bubbles; Efficient Markets and Behavioral Finance .........................................................8 Contributors to the Economic History of Thought ...........................................................11

II. Domestic Everyone Deserves a Second Chance .............................................................................15 Sprawl & Evolution of the American Dream ...................................................................18 Supreme Court v. State Rights .......................................................................................21 KPMG: Cheating Scandals .............................................................................................23

III. Global From Beaches to Battleships .........................................................................................24 Rwanda - After the Genocide .........................................................................................25

IV. Comments and Thoughts Commentary .................................................................................................................27 Book Excerpts................................................................................................................28

V. By the numbers Return Performance of Bloomberg Stock Index................................................................33 US Economic Trends Fall 2021 .......................................................................................34

Economics and finance

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NOBEL PERSPECTIVES: WASSILY LEONTIEF: INPUT OUTPUT MODELS An old economics professor always would start his principles classes by telling his students a trite story about some average person living in NYC: The person got up every morning at 7:00, drank several cups of coffee to wake up, drove to work, labored for eight hours, drove home, and so on. The professor would then tell his students that if they wanted to make the story more interesting, then they should consider the fact that there are millions of people in NYC, along with over 150 million people in the United States, who do roughly the same things every day. He then asked them the question: How is it that an economic system knows how to produce just enough coffee to wake everyone up, just enough gas to get people back and forth to work, and so on? The students would later discover that the answer lies in understanding how a market-oriented, capitalistic system works.

The professor would go on to explain that the study of economics focuses on explaining how complex systems function by developing models. Economist Fritz Machlup defined models such as Keynes’ General Equilibrium Model and Solow’s Growth Theory as abstractions of complex phenomenon. However, Russian economist Wassily Leontief (1906–1999) believed it was impossible to understand an economy by studying it in abstraction.

In the 1930s, Leontief developed the Input-Output Model: a general model of production based on economic interdependence. He later expanded the theory by generating the first empirical input-output model.

Leontief’s Input-Output Model is a matrix-based framework that explains the outputs of one industry as inputs to other industries and final demand.

The direct table shows the amount of sector inputs needed to produce $1.00 of a sector’s output. For example, the 2015 U.S. input-output model shows that to produce $1.00 of manufacturing goods, the manufacturing sector buys $0.045 from itself, $0.056 from the mining sector, $0.075 of professional services, $0.158 for labor employment, and spends $0.014 in taxes. In the direct matrix, each row shows the sales of that sector to other sectors. The direct/indirect table, in turn, shows the total output requirements needed to meet final sector demands. For example, in order to produce say $1.00 of construction goods, the table factors in both the direct and indirect input requirements needed by each sector to generate the $1.00 of output. Thus, the product of multiplying the matrix by each sector’s final demand equals the total output of each individual sector. The direct-indirect matrix is particularly useful in conducting impact assessments.

For instance, using the 2015 U.S. input-output model, a $1.00 increase in construction demand would lead to a

$0.398 increase in manufacturing output, a $1.004 increase in construction sector output, and a $0.122 increase in professional services; which means a $1.00 increase in construction results in a total increase in aggregate output of $1.485. Economists have also used the direct/indirect matrix to forecast sector outputs based on expected demand in each sector and to study the impact of policy changes.

Today, there are input-output models disaggregated into as many as 300 subsectors, regional and state models, and country models. These models have proved to be crucial in understanding the economies of the world and how they are interconnected through global supply chains. Leontief himself used his model to test the Heckscher-Ohlin theory. This classic theory held that capital-abundant countries like the United States gain by exporting relatively more capital-intensive commodities and importing more labor-intensive goods. However, Leontief, in examining the input-output structure of the U.S. economy found just the opposite —Leontief Paradox.

Input-output models also provide the framework for many of today’s supply-chain models. One of the most sophisticated of these models is Bloomberg’s supply chain platform. The platform provides a comprehensive supply chain breakdown for thousands of publicly traded companies. For example, Bloomberg’s supply chain platform for Apple Inc. shows that Apple has 343 suppliers and 166 customers. Apple pays 49.67% of their cost of goods sold to Hon Hai Precision, 14.09% to the Pegatron Corporation, and 10.23% to Quanta Computer.

Among Apple’s customer, 3.80% of its revenue comes from sales to AT&T, 2.46% from Best Buy, and 2.17% from China Mobil (Table 2).

In 1996, a graduate student at Stanford University developed an algorithm that ranked the popularity of pages appearing on the worldwide web. The algorithm is known as the “Page Rank Algorithm” and the author is Larry Page, co-founder of Google. Interestingly, the algorithm uses a methodology similar to the one used by Leontief to develop his input-output model. Leontief taught four doctoral students, who were awarded the Nobel Prize in Economic Science: Paul Samuelson, 1970, Robert Solow, 1987, Vernon L. Smith, 2002, and Thomas Schelling, 2005. Wassily Leontief was himself awarded the Nobel Prize in Economic Sciences in 1973 for his work on the Input-Output model—a model that goes far in helping us understand how an economic system knows how to produce just enough coffee to wake everyone up, just enough gas to get people back and forth to work, and so on.

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Source: U.S. Bureau of Economic Analysis

Table 1: U.S. Input-Output Model Table 2: Apple Inc. Supply Chain Source: Bloomberg

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Economics and finance

SWAPS: THE $37 TRILLION MARKET Financial Innovation Series

ecific payments.

This article examines this $37 trillion swap market.

INTEREST RATE SWAPS

Over the past 50 years, the investment industry has seen stock market and real estate bubbles, interest rates approaching zero, the emergence of hedge funds and private equity companies, the globalization of financial markets, the proliferation of derivative securities, and the growth of securitized assets and structured financing. Mirroring these events has been the academic contributions to the investment discipline: the development of capital market theories, the derivation of option pricing models, and the explorations into efficient market theories. The financial events and the academic contributions together highlight what is truly an innovative financial industry. In this article, we examine one of the most significant industry innovations in the last forty years— the rise of the $37 trillion swap.

In 1981, Germany and Switzerland limited the World Bank from borrowing German marks and Swiss francs to finance its operations. IBM, on the other hand, had already borrowed large amounts of those currencies but needed U.S. dollars.

To resolve this problem, Salomon Brothers arranged a swap in which IBM traded its borrowed francs and marks for the World Bank’s dollars.

Many observers point to this World Bank and IBM currency swap as the agreement that propelled the tremendous growth that occurred in the currency swap markets over the last four decades. Today, it is common for corporations and financial institutions to exchange loans denominated in different currencies, creating a $21 trillion currency swap market.

A year after the World Bank and IBM swap, the Student Loan Marketing Association (Sallie Mae) issued a fixed-rate, intermediate-term bond through a private placement and swapped it for a floating-rate note issued by the ITT Corporation. This exchange of the floating-rate loan for

the fixed-rate one represented the first interest rate swap. The swap provided ITT with fixed-rate funds at a rate below the rate they could obtain on a direct fixed-rate loan, and it provided Sallie Mae with cheaper intermediate-term, floating-rate funds – both parties, therefore, benefited from the swap.

Today, there exists a $14.7 trillion interest rate swap market consisting of financial and non-financial corporations who annually conduct (as measured by contract value) swaps of fixed-rate loans for floating-rate loans. Financial institutions and corporations use the market to hedge their liabilities and assets more efficiently – transforming their floating-rate liabilities and assets into fixed-rate ones or vice versa and creating synthetic fixed or floating-rate liabilities and assets with better rates than the ones they can directly obtain.

Concomitant with the growth of interest rate and currency swaps there has been a number of innovations introduced in swaps contracts over the years. Today, there are several non-generic swaps used by financial and non-financial corporations to structure their liability and asset positions.

Over the last decade, one of the most popular swaps has been the credit default swap. Introduced by JP Morgan in 1994, this swap allows companies to trade credit risk and by so doing change their debt and fixed-income assets credit risk exposure. During the 2008 financial crisis, credit default swaps on mortgage-backed securities were one of the contributing factors to the economic downturn.

Whether it is an exchange of currency-denominated loans, fixed and floating interest rate payments, or payments of insurance premiums for credit protection, a swap, by definition, is a legal arrangement between two parties to exchange sp-

The simplest type of interest rate swap is the plain vanilla or generic swap. In this agreement, one party provides fixed-rate interest payments to another who provides floating-rate payments. The parties to the agreement are referred to as counterparties. The party who pays fixed interest and receives floating is the fixed-rate payer; the other party (who pays floating and receives fixed) is the floating-rate payer. On a generic swap, principal payments are not exchanged. As a result, the interest payments are based on a notional principal (NP).

The interest rate paid by the fixed payer often is specified in terms of the yield to maturity (YTM) on a T-note plus basis points; the rate paid by the floating payer on a generic swap is the London Interbank Offer Rate, LIBOR (a short-term rate often used to set rates on floating rate debt). Swap payments on a generic swap are semiannual and the original maturities typically range from three to 10 years. In the swap contract, the effective date is the date when interest begins to accrue; the settlement or payment date is when interest payments are made (interest is paid in arrears six months after the effective date). On the payment date, only the interest differential between the counterparties is paid.

Thus, if a fixed-rate payer owes $3 million and a floating-rate payer owes $2.5 million, then only a $0.5 million payment by the fixed payer to the floating payer is made.

To illustrate, consider a 3.5% fixed rate for floating rate swap with a notional principal of $10 million, maturity of three years, starting on 3/15/Y1, and maturing on 3/15/Y4. In this swap agreement, the fixed-rate payer agrees to pay the current yield on a three-year T-note of 3.5% and the floating-rate payer agrees to pay the 6-month LIBOR as determined on the effective dates with no basis points,

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with payments made six months later. The semiannual interest rates are determined by dividing the annual rates (LIBOR and 3.5%) by two. Exhibit A shows the interest payments on each settlement/payment date based on assumed LIBORs on the effective dates. In examining the table, several points should be noted.

ng-rate (fixed-rate) to minimize the borrower’s debt position’s exposure to interest rate changes. For example, a company with floating-rate debt that was expecting a higher interest rate could fix the rate on its debt by combining the company’s floating debt with a fixed-rate payer’s position on a swap, thereby creating a synthetic fixed-rate debt position.

First, the payments are determined by the LIBOR prevailing six months prior to the payment date; thus, payers on swaps would know their obligations in advance of the payment date. Second, when the LIBOR is below the fixed 3.5% rate, the fixed-rate payer pays the interest differential to the floating-rate payer; when it is above 3.5%, the fixed-rate payer receives the interest differential from the floating-rate payer. The net interest received by the fixed-rate payer is shown in Column 5 of the table, and the net interest received by the floating-rate payer is shown in Column 6.

Synthetic Positions One of the important uses of interest rate swaps is in creating synthetic fixed-rate or floating-rate liabilities or changing a conventional fixed-rate loan (or floating-rate loan) to a floati-

For example, suppose a corporation has a three-year $10 million floating-rate loan, with the rate set equal to the LIBOR on March 15th and September 15th each year for three years. Fearing that interest rates could increase in the future, suppose the company would like to convert its floating-rate debt to a three-year, $10 million fixed-rate loan starting on 3/15/Y1. Instead of borrowing $10 million from a bank at a fixed rate to refinance its floating-rate debt, the company alternatively could attain a fixed-rate oan by combining its floating-rate loan with a fixed-rate payer's position on the swap.:

An example of a synthetic floating-rate loan is shown in Exhibit A (columns 10-12). The synthetic loan is formed with a 3.5% fixed-rate loan (semiannual payments) and the floating-rate payer's position on the 3.5% for LIBOR swap.

Exhibit A: Interest Rate Swap 3.5%/LIBOR Swap with NP = $10 million: Columns 3-6 Synthetic Fixed Rate Loan: Floating-Rate Loan set at LIBOR and Fixed-Payer Position on 3.5%/LIBOR Swap: Columns 7-9 Synthetic Floating-Rate Loan: 3.50% Fixed-Rate Loan and Floating-Payer Position on 3.5%/LIBOR Swap: Columns 10-12

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BUBBLES, EFFICIENTS MARKETS, AND BEHAVIORAL FINANCE “Markets may remain irrational longer than you can remain solvent” John Maynard Keynes From the beginning of 1995 to April 2000, the S&P 500 increased 227% from 466 to 1,524; even more impressive, the NASDAQ 100 index increased more than 12 fold from 347 to 4,692. This was the Dot-Com boom period, described by Federal Reserve Chair, Alan Greenspan, at the time as one of “irrational exuberance”. After peaking in April of 2000, the market crashed. One year later the S&P was back to 1,100 and the NASDAQ 100 index had decreased 70% to approximately 1,400; by April 2002, it had declined to approximately 1,000—the bubble had burst.

In general, a speculative bubble occurs when the price of an asset such as stock, gold, or houses, increases beyond a level that can be justified on economic grounds and once past that level the price continues to rise. History is replete with speculative bubbles: the South Sea Bubble, the internet bubble, and the 2008 housing bubble. Bubbles tend to have stages. First, there is an initial period in which an event, announcement, or invention changes expectations. This period is almost always followed by a period of abnormal returns for early investors.

In turn, other investors are attracted, even though fundamentals no longer make sense, leading to a boom period in which prices continue to increase. Finally, the fourth stage is the bust. In his book, Dot.Con, John Cassidy captures the essence of the internet bubble with the story of Priceline.com: “In March 1999, Priceline.com … was preparing to do an initial public offering … The word on Wall Street was that Priceline.com would follow the path of American Online, Yahoo!, and ebay to become an “internet blue chip.” The only question people in the investment community were asking was how much stock they w-

ould be able to lay their hands on….

On the morning of March 30, 10 million shares of Priceline.com opened on the Nasdaq National Market at $16 each, but the price immediately jumped to $85. At the close of trading, the stock stood at $68; it had risen 425% on that day.

Priceline.com was valued at almost $10 billion—more than United Airline, Continental Airlines, and Northwest Airline combined. …Priceline.com started operating on April 6, 1998. By the end of the year, it had sold slightly more than $35 million worth of airline tickets, which cost it $36.5 million. …The loss did not include any of the money Priceline.com spent developing its Web site…A few weeks after Priceline.com’s IPO, its stock reached $150, at which point the tiny company was worth more than the entire U.S. airline industry. Two years later, the stock was trading at less than $2, and the entire capitalization of Priceline.com would not have covered the cost of two Boeing 747s.” (Cassidy, Dot.Con, pp.

2-8) ARE MARKETS EFFICIENT? One of the most influential theories to emerge out of the finance literature over the last fifty years is the efficient market hypothesis (EMH). Introduced by Burton Malkiel in the 1960s, the EMH precipitated a considerable amount of controversy between proponents of the EMH (primarily academicians) and practitioners who employed fundamental and technical analysis.

EMH proponents argued that if the market consisted of a sufficient number of fundamentalists—those searching for securities priced below or above their intrinsic value—then their actions would inherently force the market price of a security to equal its intrinsic value. For example

if a security were underpriced, the fundamentalists would try to buy the security, pushing its market price towards its intrinsic value.

Thus, according to the proponents of the EMH, with enough fundamentalists the market price of a security is equal to its true value.

Similarly, EMH proponents argued that if the market consisted of enough technicians—those trading off price and volume trends—then their actions would eliminate the possibility of earning any abnormal returns from identifying trends in security prices. If a stock traded low on Monday and high on Friday, technicians would detect this trend and would buy on Monday and sell on Friday. These actions would augment the price of the stock on Monday and lower it on Friday, there by eliminating the trend and the possibility of earning an excess profit. If the EMH holds, in the sense that the market consist of a sufficient number of fundamentalists and technicians, then investors would be unable to earn abnormal returns from either fundamental or technical strategies.

One of the benefits of this controversial theory was that it spurred a considerable amount of research; in fact, there has more research devoted to the EMH than to any other subject in investments. At the forefront of efficient market research are the seminal works of Eugene Fama. For over thirty years, the studies by Fama have served as a template for research in efficient market. For this body of work, he was awarded the 2013 Nobel Prize in Economic Sciences.

The efficient market studies of Fama and other scholars addressed the question of whether or not security prices reflect information.

A perfectly efficient market is one in which all information is fully reflected in a security price. If such a market existed, then the price of the security would always be equal to its true value and investors would not be able to earn abnormal returns from fundamental and technical strategies or from inside information. The empirical studies

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Studies have found a number of anomalies may exist.

The most notable are abnormal returns (returns above risk-adjusted returns) from investing in small-size firms, low price-to-earning per share stocks, high book-to-market value stocks, and stocks in the month of January.

Studies also suggests that the market appears to react quickly and efficiently to events such as initial public offerings, new exchange listings, and expected earnings announcements, but appears to take some time to react to unexpected earnings announcements. Finally, studies have found that, with some exceptions, security analysts and portfolio managers do not appear to be able to consistently outperform the market on a risk-adjusted basis, but that insiders appear to have information not fully reflected in security prices.

The EMH has been the source of much debate, often pitting its proponents against technicians and fundamentalists alike. There is clea-

PUBLIUS rly merit to EMH, but as the aforementioned studies suggest there is also some merit to the arguments against it. For example, the Hurst exponent is a time-series measure name after Harold Hurst.

The exponent was originally used in hydraulic engineering to study the volatility patterns of rain observed over a long period of time.

In finance, the Hurst exponent is used to identify price patterns hidden within seemingly random stock price trends. In general, a time series can be defined as persistent with a tendency to continue its up or down pattern, anti-persistent in which it

has a higher tendency to reverse its current pattern, or random. For example, a value of 0.5 for the Hurst coefficient indicates that the movements in the price trend are random. If not, then there is pattern to the stock price movement. For the period 2010-2021, the Hurst exponent daily value for the S&P 500 averaged 0.7922. Applying the Hurst coefficient for individual stocks, one often finds more often than not that the stocks’ price patterns have Hurst exponent value higher or lower than 0.5, suggesting patterns to their movements and providing an argument for the use of technical analysis.

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For example, a value of 0.5 for the Hurst coefficient indicates that the movements in the price trend are random. If not, then there is pattern to the stock price movement. For the period 2010-2021, the Hurst Studiesexponent also suggests that for the the S&P 500 averaged daily value market appears react quickly and coefficient for individual 0.7922. to Applying the Hurst efficientlystocks, to events such finds as initial one often more often than not that the public stocks’ offerings, new exchange price patterns have Hurst exponent value listings, higher and or expected earnings lower than 0.5, suggesting patterns to their announcements, but appears to take movements and providing an argument for the use of some time to reactanalysis. to unexpected technical

BEHAVIORAL FINANCE Behavioral finance is a psychology-based branch of finance that looks at the systematic impact human frailties and biases have on stock price movements. In the absence of market efficiencies, behaviorists try to show how such biases lead to anomalies and discernible trends that technical investors, as well as fundamentalists, could exploit.

Behaviorists, in turn, counter the efficient market argument by pointing to fundamental risk that limits investors from taking advantage of mispricing. That is, a stock that is considered to be underpriced by fundamentalists, would earn an abnormal return if the stock moves to its intrinsic value.

The fundamental risk, though, is that the stock could continue to be underpriced.

Behavioral advocates contend that because of fundamental risk it takes time for a stock to reach its intrinsic value. They point to how such risk explains bubbles. Consider an analyst during the dot-com bubble

who argued that Priceline.com stock was overpriced at $68 and recommended a sell or no buy, only to later see it reach 150! Contrasted to the analyst who said Priceline.com stock was overpriced but still issued a buy recommendation. It is worth noting the epilogue to Priceleine.com story: From 2002 to 2008, Priceline.com traded between $50 and $65. From 2009 to 2013, the stock’s price skyrocketed.

On 4/3/2017, it was trading at $1,769!

Depending on the time, a different investment philosophy provided the right answer.

With the S&P 500 passing 4,700 in November 2021, has the market become irrationally exuberant?

There are some fundamental economic factors raising concerns about such levels: increased regulations, labor shortages, higher interest rates, inflation, and supply chain issues.

To quote the Economist (March 11, 2017), “Stocks may fly high for some time yet, but investors should keep a par-

achute handy.”

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CONTRIBUTORS TO THE ECONOMIC HISTORY OF THOUGHT Paul Samuelson (by Garrett Andrews)

· Considered one of the most influential American economists. · His work contributed to the development of statistical, scientific, and mathematical aspects of economics. · His Economics: An Introductory Analysis is the best-selling economics textbook of all time. · His studies of the allocation of resources, government spending, and welfare economics are all part of Samuelson’s legacy. · Proponent of Keynesian Economics · Re-interpretation of the random walk theory is considered one of his most influential work. · His work on contingent claims served as a precursor to the Black-Scholes Option Pricing Model.

At its conception, the random walk hypothesis posited that the fluctuations in the price of stocks were random and impossible to predict, but Samuelson argues that these fluctuations occur within an interval around the mean price of the stock, holding all other phenomena constant. For example, if a stock increased a half point in value with a standard deviation of three quarters of a point, it would be incorrect to argue that the value of the stock would be entirely random the next day.

· With George Stigler and others, Friedman was one of the leaders of the Chicago school of economics, a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago. The Chicago School challenged Keynesianism in favor of monetarism and rational expectations. Several of Friedman’s students and colleagues went on to become leading economists, including Gary Becker, Robert Fogel, Thomas Sowell and Robert Lucas Jr. · His political philosophy defended the free market economic system. In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, a negative income tax, and school vouchers. · Major scholarly contributions: · A Monetary History of the United States, 1867–1960 written with Anna J. Schwartz: Friedman and Schwartz use historical time series and economic analysis to argue the then-novel proposition that changes in the money supply profoundly influenced the U.S. economy, especially the behavior of economic fluctuations. · Consumption Function: Friedman argues that Keynes’s consumption function relating income to propensity to consume was in error by not distinguishing between transitory and permanent income. · Awarded Nobel Prize in 1976 in Economic Sciences · Served as economic advisor to Margaret Thatcher and Ronald Reagan · Emphasized using economics as public policy rather than mathematics · Along with Paul Samuelson, Friedman is considered one of the most influential economists of the second half of the 20th century.

Milton Friedman (by Hunter Pagon)

· Adam Smith’s Wealth of Nations inspired Ricardo to explore the field of economics · Holds similar views to Adam Smith but focused more on theory and applications rather than philosophy · In Britain, he opposed the Corn Laws on the grounds that the imposition of high tariffs caused wages to increase and profits to decrease. · Instead of protectionism, Ricardo thought comparative advantage was a better method; a country should focus on the relatively more efficiently produced product and outsource other products, so it can trade with other countries and create worldwide wealth and maximum efficiency. · Developed the Iron Law of Wages, where the working class's wages always shifted to the minimum value to subsist. If they had a surplus, then they’d increase their family size until they could only subsist.

David Ricardo (by Cam Kaderle)

Economics and finance Eugene Fama (by Luke Schmelzer)

PUBLIUS · Along with Carl Menger, F.A. Hayek, and Joseph Schumpeter, von Mises was one of the leaders of the Austrian School of Economics · Mises is known for his role, along with Hayek, in disputing the possibility of rational economic planning. · Could speak German, Polish, and French fluently by 12 · Known as a classical liberalist economist · Scholarly work mainly focused on monetary policy and the business cycle · Mises thought the success the West had after World War II was mainly due to the liberty and freedom individuals had in their societies.

Ludwig von Mises (by Daniel Joyce)

· Developed the Efficient Market Hypothesis that states share prices reflect all available information. This hypothesis contained three different forms of market efficiency: · Strong form - stock price includes all information, both public and private · Semi-strong form - all public information is included in stock price but private information is not completely accessible · Weak form - no information is available (only historical stock price information is available · Developed the Fama-French multi-factor model that determined the equilibrium return on a stock. By showing empirically that there were multiple factors determining an investment’s equilibrium return. He extended Sharpe’s CAPM.

· Received the 1991 Nobel Prize in Economics for analyzing financial markets and their relationship to expenditure decisions, employment, production, and prices · Keynesian economist who argued that monetary policy could not be predicted to determine output and unemployment · During 1961–62, he served as a member of John F. Kennedy's Council of Economic Advisors, and from 1962-68 as a consultant. Along with Walter Heller, Arthur Okun, Robert Solow, and Kenneth Arrow, he helped design the Keynesian economic policy implemented by the Kennedy administration. · An advisor to presidential candidate George McGovern in 1972 · While interest rates were important, Tobin did not think they were the only factor in consumption and capital investment. · “Tobin’s q” was a tool to predict whether capital investment would increase or decrease · Developed portfolio-selection theory that stated investors have a balance between high-risk, high-return investments and low-risk, low-return investments.

James Tobin (by Jacob Tarter)

· Developed the Capital Asset Pricing Model (CAPM); a theory that proposes that the equilibrium return on an asset is determined only by market risk since other risks can be diversified away with a well-diversified portfolio. · Developed the Sharpe Ratio that measures an investment’s risk premium (expected return minus the risk-free rate) per market risk to rank stock and portfolio investments.

William F. Sharpe (by Michael Donovan)

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James Buchanan (by Addison Moe) · Recognized for Public Choice Theory: “Politics without Romantics” · Provided a political science perspective to economics. · Believe that serving in the Navy encouraged his socialist and populist views. · In politics, there is a self-gain incentive; compares politics to Game Theory. · Not a follower of Keynes; · Quote: “Economists should cease proffering policy advice as if they were employed by a benevolent despot, and they should look to the structure within which political decisions are made.”

Gary Becker (by Molly Kilbane)

· Received the Presidential Medal of Freedom, the Nobel Memorial Prize in Economic Science, and the National Medal of Science for Behavioral and Social Science. · Becker studied discrimination; his theory was that discrimination is costly to the company because the opportunity for a productive worker is lost. · Becker’s human capital theories addressed how companies should invest in humans. · His works included studies on social issues

2021 NOBEL PRIZE IN ECONOMICS

Joshua D. Angrist, Ford Professor of Economics, Massachusetts Institute of Technology

Guido W. Imbens, Professor of Economics, Stanford University, were awarded the 2021 Nobel Prize in Economics for natural experiment research on labor markets

David Card, Professor of Economics, University of California, Berkeley,

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EVERYONE DESERVES A SECOND CHANCE The Economic Impact of Mass Incarceration and the Hope Presented Poverty is an issue of which all people are aware. Mass incarceration is another major issue present in the United States, but it typically does not get nearly as much attention.

However, these two issues are closely linked, and any effort to alleviate poverty must consider mass incarceration.

Michael Tanner is an economic and public policy researcher and author with the Cato Institute in Washington D.C. In 2018, Tanner released The Inclusive Economy: How to Bring Wealth to America’s Poor. The book outlines opposing theories about the factors that cause poverty, and Tanner provides his own possible solutions to those factors.

The very first factor that Tanner highlights is mass incarceration. He begins by presenting some statistics that show the extent of the problem of mass incarceration: “At any given time, roughly 2.2 million Americans are in jail or prison, with another 4.7 million on probation or parole, a population that has grown substantially over the past 30 years.”

This extremely high rate of imprisonment leads to numerous issues including increased poverty.

Tanner writes that “[a] study by scholars at Villanova University concluded that mass incarceration has increased the U.S. poverty rate by an estimated 20 percent.”

This impact on poverty rates stems primarily from the difficulties that people with a criminal record face when trying to find employment.

When companies discover that an applicant has a criminal record, many will not even consider that person for the position. According to Tanner, “[r]ecent job application experiments find that applicants with criminal records were 50 percent less likely to receive an interview request

or job offer, relative to otherwise identical applicants with no criminal record.” People who have been arrested in the past, especially those who have been convicted of a felony, are deemed “hard-to-hire” candidates. However, a couple of companies right here in Cincinnati have begun to debunk this claim by committing to provide work for past convicts, also known as second chance employment.

One of those companies is Nehemiah Manufacturing. This small consumer packaged goods company was founded in 2009 by Dan Meyer and Richard Palmer with the specific purpose of providing opportunities for so-called hard-to-hire people in the West End and Over-the-Rhine neighborhoods of Cincinnati.

Nehemiah’s mission is a simple, three-part statement: “build brands, create jobs, change lives.” Over the last eleven years, Nehemiah has been able to expand with the help of Procter & Gamble. The Fortune 500 company “awarded Nehemiah the license to manage the Pampers Kandoo line of toddler products in 2009, helping launch our growth.”

With the support of P&G and other “local social service agencies who serve individuals with criminal records, gaps in employment, and other barriers to finding meaningful work,” Nehemiah has made a significant impact in the lives of many second-chance employees.

According to Dan Meyer, Nehemiah currently employs 180 individuals of which 130 are second chance employees. However, Meyer and Palmer have found that there is still even more demand for second chance opportunities. As a result, the two men partnered with other businesses once again in 2015 to create the Beacon of Hope Business Alliance.

Since an average of “2,500 people return to Hamilton County from incarceration” every year, Beacon of Hope’s ultimate goal is to create an additional 2,500 jobs each year in order to match the number of people searching for second chance employment. So far, Nehemiah and Beacon of Hope have provided much-needed opportunities for hundreds of Cincinnatians and have done a tremendous job of helping to address some of Michael Tanner’s concerns about the effect of mass incarceration on poverty.

Still, Tanner worries that many people with a criminal record who are able to find employment will not earn enough money to comfortably support themselves and their families. Tanner attributes this issue to the fact that “[t]he people most likely to go to prison are disproportionately likely to experience other markers of socioeconomic disadvantage, including low educational attainment [and] weak attachment to the workforce.” Tanner also writes that a “criminal record also limits future educational opportunities.”

The issue of a lack of educational opportunities is being addressed by another local establishment, Venice on Vine in Over-the-Rhine. “Venice on Vine is a pre-employment training & job placement program, for individuals with barriers to employment, that utilizes both a traditional pizzeria and a commercial catering kitchen as unique classrooms.” In addition to providing employment opportunities for past convicts and other impoverished people, Venice on Vine stresses education.

The pizza and catering restaurant has its roots in the non-profit organization Power Inspires Progress (PIP). PIP began in 1986 under the guidance of Sr. Judy Tensing of the Sisters of Notre Dame de Namur and Sr. Barbara Wheeler, a Dominican Sister of Hope. For the last thirty-four years, PIP has sponsored many efforts to provide employment and training to impoverished people.

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Similar to Nehemiah Manufacturing, Venice on Vine is dedicated to serving people who are too often left behind by the majority of other companies. It is extremely difficult, sometimes even impossible, for people who grow up in poverty and for people who have been incarcerated to take part in the economy.

As Michael Tanner presents, mass incarceration and poverty are closely related. However, organizations like Nehemiah and Venice on Vine are perfect examples not only of how second chance employment can be implemented but also how it can open companies to an untapped portion of the labor market.

If more companies begin to treat previously incarcerated people as these two local establishments do, poverty and future incarceration rates could be greatly reduced.

Obviously, not all companies can be founded with the explicit purpose of or be completely devoted to second-chance hiring like Nehemiah and Venice on Vine. One may wonder how companies that already exist or are yet to be founded can incorporate second chance employment into their normal hiring process. In March of 2020, Xavier was fortunate to have a panel discussion on this topic. The event was promoted as providing “A Business and Ethical Case for Second Chance Hiring.” The members of the discussion were Dan Meyer, Marcus Sheanshang, and Rachel Alex Love, and the moderator was Jeffrey Korzenik who is the Chief Investment Strategist at Fifth Third Bank.

PUBLIUS pes and other packaging materials, but the company’s focus is much deeper. Similar to Nehemiah, JBM is guided by a three-pronged purpose: “Better Solutions. Better Lives. Better World.” JBM was not founded with the specific intent of hiring ex-offenders, but that is where their family mindset and mission statement have led the firm. As Mr. Sheanshang stated at the panel discussion, JBM’s involvement in second-chance hiring was “not as altruistic as Dan and his team […]. We were really trying to solve a business problem.” As JBM aimed to grow as a company, the management team was struggling to find enough new workers. After trying to fill their needs through multiple different groups of possible employees, Sheanshang finally realized the untapped potential of former offenders. With the help of Dan Meyer, JBM began the Fair Chance Program in 2016. This program “provides opportunities for individuals to learn transferrable and meaningful job skills […] with the goal of expanding career and employment opportunities to more individuals and successfully reintegrating ex-offenders into society.”

Currently, JBM has twenty-two, second chance employees, leading to more company growth and an even greater purpose-driven culture.

Although this number is not as large as it is at Nehemiah and second chance employees make up a much smaller percentage of the workforce at JBM, this story of the Fair Chance Program provides an example for other companies that could benefit themselves and the lives of many others by implementing second chance hiring even to a small degree.

Rachel Alex Love, the final member of the panel, created a consulting firm in New York City that helps to coach companies through the process of finding and hiring previously incarcerated people. During the discussion, Sheanshang and Love both admitted that beginning second chance hiring at a company is not an easy task. There are several changes that each company must make, for example altering the application and background check processes, but all Marcus Sheanshang is the President three members of the panel agreed and CEO of JBM Packaging in that the effort was more than worth it.

Lebanon, Ohio. JBM produces envelo- By tapping into the often-forgotten po-

pulation of previously incarcerated people, their companies have been able to grow while also helping to support their communities.

One of the final questions posed to the panel focused on the role of state and local governments in promoting second chance hiring. Meyer and Sheanshang both noted the assistance they have received from the city of Cincinnati and other local governments, specifically with transportation for employees and programs within the prison systems.

However, there has also been some support for criminal justice reform and second chance employment from the federal government. For example, Congress passed, and President Trump signed into law, the First Step Act (FSA) in December of 2018. According to the Federal Bureau of Prisons, “[t]he acts was the culmination of a bipartisan effort to improve criminal justice outcomes, as well as to reduce the size of the federal prison population while also creating mechanisms to maintain public safety.” The act aims to reduce the number of past convicts who re-offend, provides correctional reforms such as greater protections for prisoners and greater rewards for good behavior, and reforms the lengths of certain sentences. The simple fact that this bill received bipartisan support in the House of Representatives and was approved by President Trump, which rarely happens in these highly polarized times, should provide an indication about the importance of this issue.

Although the First Step Act does not specifically mention it, second chance hiring has gained significant support in Washington D.C. On June 13, 2019, President Trump delivered a speech in the East Room of the White House about the opportunities created by and the need for greater second chance hiring in the United States. President Trump began his remarks by highlighting the practical and ethical significance of expanding second chance hiring. He stated, “[t]o realize America’s full potential, we must unlock the talents of every single citizen. […] Second chance hiring is about safer communities, a

Domestic stronger workforce, and a thriving economy. We believe in the dignity of work and the pride of a paycheck.”

He also announced two new efforts intended to encourage more companies to adopt second chance hiring and to prepare formerly incarcerated people to reenter the workforce.

First, Trump revealed that “the Federal Bureau of Prisons announced that it will work with employers to help those leaving prison to have a job lined up when they are released.” Second, he declared, “[w]e are expanding our Second Chance Pell Grant Pilot Program to allow individuals to use their time in prison to take college-level classes.” These reforms are an important step forward in raising awareness about the need for second chance hiring across the country. Clearly, the local and national attention second chance hiring is receiving, the economic benefits it presents, and its altruistic goals, provide a strong case for many companies to begin to strongly consider giving everyone a second chance.

SPRAWL AND THE EVOLUTION OF THE AMERICAN DREAM “And as the moon rose higher the inessential houses began to melt away until gradually I became aware of the old island here that flowered once for the Dutch sailors’ eyes—a fresh, green breast of the new world.”— F. Scott Fitzgerald, The Great Gatsby”

PUBLIUS The impulse to push boundaries and to seek new and unknown environments has been an integral part of American culture since the country’s founding. It is no real surprise that, when technological and economic circumstances aligned in the early 20th century, Americans began taking the opportunity to pour out of the cities in waves. The haphazard suburban development that followed was eventually termed urban sprawl. Its impact on the structure of our communities, government institutions, jobs, and the environment was profound, engendering challenges for the country on developing infrastructures, maintaining economic sustainability, and resolving resulting cultural divides between urban, suburban, and rural communities. This paper examines how the emergence of urban sprawl directly impacted the evolution of the American Dream in the 20th century and, along with economic and technological changes, allowed an increasing number of Americans to pursue that Dream.

Defining the American Dream is a difficult task. American cultural values, which form the foundation for the Dream, have evolved since the c-

ountry’s founding.

Freedom, equality, and justice are values that very few Americans would contest.

But when one examines how these core values interact with other values, such as citizenship, sustainability, and diversity, inherent contradictions begin to emerge. In “Beyond Sprawl and Anti-Sprawl,” Thad Williamson pinpoints the heart of the matter, asking: “How can a measure of justice and freedom be realized in a world … in which there are continual tensions between public and private interests?”¹ American democracy is founded on the idea that all individuals possess certain inalienable rights; however, individuals will also inevitably possess different views of how those rights should be exercised.

Williamson examines contradicting American values using the example of sprawl and argues that Americans must decide which values they will prioritize if they wish to form cohesive initiatives to counteract the effects of sprawl. Anti-sprawl activists, for example, are likely to “[appeal] to the core values of justice, citizenship, and sustainability over others such as privacy and individualism.”² Williamson’s choice to elevate these

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Domestic three values above other conflicting values in the sprawl debate is an excellent example of the process that must also occur when dealing with the American Dream. In the end, not all of the American values can be equally reflected in the Dream.

Rather, the Dream of each generation will be determined by the values that that generation prioritizes above all others. Different generations produce different dreams, prioritizing their values in a way that reflects not only their moral and ethical beliefs but also the technology and economic circumstances of the time.

To understand the rapid decentralization of American cities beginning in the 1920s, one must look at the underlying values and technologies that led Americans to first flock to, and then fly from, the cities. Douglas Rae examines this question in his book City: Urbanism and Its End and concludes that between 1840 and 1920 technological and economic circumstances aligned to produce the ideal environment for the growth of cities.³ The agricultural revolution and development of national markets made the existence of new, large cities possible, just as steam-driven manufacturing and a rush of immigration provided fuel for urban growth. Even more significant was a “critical timing gap between the maturation of the rail system (which centralized cities) and the coming automotive and truck transportation (which decentralized them).”4 Americans had every economic and technological incentive to go to the cities and did not yet possess a feasible way to leave the cities while still taking advantage of city facilities and employment. The core values of this period of urbanism conformed to the circumstances described, emphasizing tight-knit, urban communities and socio-economic mobility within those communities.

Rae recounts the story of Joe Perfetto, an elderly business owner in New Haven, Connecticut, as an example of how a creative and hardworking youth could succeed in the age of urbanism. The following is an account from Perfetto himself, detailing the events after he quit his first job and decided to work for himself: “I went down to a friend of m-

PUBLIUS ine…He took me over to Commerce Street, to a print shop there, and we had some name cards made up.

Monday morning, I went out, passed out some of those cards, telling people I was working for myself now, and if they could use me I’d appreciate it.

Would you believe I made $113 the first week working for myself? I didn’t have anything but a tool bag, not a ribbon to sell, not anything.”

dimly and already crumbling through the powdery air.

Occasionally a line of gray cars crawls along an invisible track, gives out a ghastly creak, and comes to a rest, and immediately the ash-gray men swarm up with leaden spades and stir up an impenetrable cloud, which screens their obscure operations from your sight.”

Perfetto’s account parallels with one of a longstanding interpretation of the American Dream: rags-to-riches. The “rags-to-riches” dream focuses not just on “riches” but also on the idea that a person who comes from nothing can build a successful life with hard work, perseverance, and self-reliance.

Joe Perfetto followed this Dream, and the potential opportunity to do the same was more than enough to draw millions of immigrants and Americans to the booming cities. The Dream, following a significant pattern, aligned itself with the technological capacities and economic inclinations of the age.

In the 1920s, the foundations for the post-World War II explosion of urban sprawl were laid in new technological developments and cultural changes.

Rae identifies the growth of General Motors and the dominance of AC electricity as key factors in making sprawl economically feasible.6 Along with the expansion of the highway system throughout the mid-twentieth century7, these technological developments made sprawl possible; however, it was the cultural changes occurring in the same time period that eventually motivated Americans to take advantage of that possibility. F. Scott Fitzgerald’s The Great Gatsby, written in 1925, provides valuable primary source material in examining American attitudes toward these cultural changes as they occurred. In the following passage, Fitzgerald describes the industrial outskirts of the city, which his narrator must pass through to reach downtown: “This is a valley of ashes—a fantastic farm where ashes grow like wheat into ridges and hills and grotesque gardens; where ashes take the forms of houses and chimneys and rising smoke and, finally, with a transcendent effort, of men who move

Fitzgerald’s Valley of Ashes is a metaphor for purgatory that conveys his negative perception of the city in the 1920s. To journey into the city is like a descent into hell. Fitzgerald’s narrator, Nick Carraway, considers the tragic events in the novel, which begin with his move to New York City. Nick explains the fact that he and the other characters “possessed some deficiency…which made [them] subtly unadaptable” to the urban lives that they attempted to lead. 9 Fitzgerald’s characters use the city and its outskirts as a setting to lie, cheat, and sin, and at the conclusion of the book, Nick decides that the only way to recover from what has occurred is to return home to the country.

Fitzgerald’s message concerning urban life is clear: the city breeds corruption and death, not the American Dream; that dream of “the old island here that flowered once for the Dutch sailors’ eyes—a fresh, green breast of the new world,” is forever lost to the past. Fitzgerald’s writings clearly displayed that for many Americans, their perception of the cities and the American Dream in the 1920s was changing. Some u-

Domestic rban Americans, including Fitzgerald, were beginning to long for the purity and privacy of the suburbs.

The growth in urban sprawl slowed during the Depression and World War II. When Americans returned home in the 1940s, however, they began what Richard Register identifies as “the last great binge” of American expansion and individualism: a massive, unprecedented boom of urban sprawl.¹0 In the decade after WWII, more than nine million people moved to the suburbs, taking advantage of a growing highway system, cheap and abundant oil, and government support for housing development.¹¹ For the first time, middle-class Americans were able to move their families out to the suburbs while still working in the city. They could afford new homes with property, privacy, and better schools, along with the car necessary to take them to and from work every day. In his book The Prize, Daniel Yergin argues that the suburbs became “a haven for optimism and hope in post-Depression and post-war America.”¹² Back in the 1920s, a small portion of Americans had already begun to question the virtues of urbanism and the rags-to-riches Dream. Following the Depression and World War II, Americans became even more disillusioned with urban life.

Perceptions of the city began to correspond with those revealed earlier by The Great Gatsby. The city was a center of corruption, and Americans wanted to escape. The values of individualism and privacy trumped those of community and economic mobility—a new American Dream emerged.

Post-war America gave birth to the dream of a comfortable home in the suburbs, with a white picket fence, children in the yard, and dinner waiting on the table.

The rags-to-riches dream was not lost but rather absorbed into a new dream centered on homeownership and private life. Richard Register, when describing the primary activities of soldiers returning from World War II, states: “they built cars

PUBLIUS and suburban houses and roads and reallocation of wealth and income went to college on federal money to from urban areas to the suburbs learn how to do more of the same.”¹³ resulting from urban sprawl has led to a growing cultural divide between the The dream of homeownership city and the suburbs that often became so significant during this manifests itself in heated political and period that it is still considered by social conflicts.

Many urban, many to be the core of the American suburban, and rural communities Dream today. As recently as 2003, remain socio-economically segregated.

George W. Bush signed the American With limited opportunities for Dream Down Payment Act, with the economic and social mobility within stated goal of helping low-income many urban communities, the cycle of buyers to purchase homes and poverty continues unbroken, and the “achieve an important part of the cultural divide remains..

American Dream.”¹4 In 2008, Barack Obama gave a speech titled To fully understand and address the “Reclaiming the American Dream,” consequences of urban sprawl, it is in which he states that his family necessary to understand the manner was able to achieve the Dream in which sprawl took root over the “because my grandfather got the course of the 20th century. The Great chance to go to school on the GI Bill, Gatsby is just one example of how [and] buy a house through the Americans in the 1920s were Federal Housing Authority.”¹5 For beginning to deprioritize the values of decades now, the prevailing urbanism and look for an escape from conception of the American Dream the cities. Following World War II, the has centered on homeownership. values of individualism and privacy, with economic and The rapid and consumer-oriented paired housing development that technological circumstances allowing constitutes urban sprawl is a direct for mass development, led Americans result of the immense demand for to place homeownership at the center the American Dream.

The the American Dream of of homeownership. Moreover, as long ever-increasing demand for homes as homeownership continues to be outside the perceived corruption of the the driving element of the American city led to the rapid and often Dream, Americans will continue to unregulated development now termed urban sprawl. Each version of the sprawl.

American Dream has its There is nothing negative in the consequences; the question facing dream to own a home. The future generations is how to minimize preference of post-war Americans for the negative consequences that the suburbs over the city was a sprawl can produce so that a balance perfectly rational reaction to the between urban, suburban, and rural technology and economic communities can be maintained. circumstances of a generation. Science and technology now provide However, urban sprawl has us with a far greater understanding of to develop communities produced many problematic how and ever-increasing externalities that future generations efficiently, makes it economically will need to address. Not all mobility Americans had the financial means feasible for Americans from diverse after World War II to move their socioeconomic backgrounds to make families out to the suburbs, and a choice of where and how they live. those who did were primarily middle What remains to be seen is the Dream and upper-class whites—"white that will drive that choice—the flight.” As a result, many urban balance of values that future areas today have low tax bases and a generations will choose as their high percentage of low-income American Dream. residents. Many Americans living in the suburbs, in turn, face hours of commute time into the city each day, changing the dynamics of their families and communities as well as creating environmental issues. The

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SUPREME COURT V.STATE RIGHTS The prestige of the Supreme Court stems from its impartiality and its ability to make decisions that are consistent with the Constitution.

Political parties, personal beliefs, and public opinion aside, the Court is solely concerned with the integrity it holds under the Constitution to make objective decisions. Although the Supreme Court is widely known as the interpreter of the supreme law of the land, it is rare that the Court will intervene on a matter that concerns the rulings of a state legislature. The Founding Fathers constructed the Constitution very intentionally; independence was essential and federal oppression was the enemy.

This distinction has proven to be a matter of contention throughout our nation’s history. Each state has its own constitution that is under the “big-C” Constitution written in 1787.

This is a delicate balance that has been tested, pushed, and at times unstable.

Past cases can give insight into when the Court intervenes in state matters and when they must respect the state’s decisions. Most state power is protected under the Tenth Amendment of the Constitution; yet, in Palko v. Connecticut (1937) and Adamson v. California (1947), the Court was conflicted in balancing state and federal powers. A selective incorporation policy was established in Palko and its purpose was to prevent states from violating some essential rights protected in the Constitution. In essence, the Court will decide which provisions can apply to the states. This ultimately gave the states more power when compared to the other doctrine: total incorporation, where, under the Court’s authority the first eight amendments are enforced in states’ rights issues.

Selective incorporation leaves all states with the power to implement laws that are unique to their respective state.

These pressing questions raised almost 100 years ago continue to affe-

ct how the Court operates. For example, many states with Republican Attorney Generals expressed their frustration with President Donald Trump’s recent election loss citing inconsistent voting laws among different states. There was strong support for Texas’s and Trump’s efforts to reach the Supreme Court with eighteen states expressing their support. The Supreme Court heard their case after more than 86 lawsuits filed by President Trump and others have been lost. Texas’s AG Supreme Court case argued for the invalidation of 62 Electoral College votes belonging to Pennsylvania, Georgia, Michigan, and Wisconsin.

To even bring the case to the Supreme Court, Texas had to alter their argument so that federal damage was the pressing issue rather than concern for the legislatures in other states (in which they would have no jurisdiction). The Texas plaintiff filed the lawsuit citing amici curiae.

Meaning “friend of the court” in Latin, it was constructed so that “a person or group who is not a party to an action but has a strong interest in the matter” can still file a suit.¹ Texas’ main argument sought to delegitimize the accused states because they had

“selected electors based on a manner established by governors, judges, secretaries of state, election officials, and private parties” that overpower legislative authority; these states are therefore subject to “corruption and foreign interference.”² According to the beliefs expressed in past cases by justices such as Rehnquist, Scalia, and Thomas, the most appropriate way for the Court to fulfill its duties while maintaining the trust of the American people is to apply constitutional principles as closely to the text of the Constitution as possible. Under this philosophy, it is not the differing conclusions of justices who apply the same standards of review that alters the integrity of the Court. Rather, the Court threatens its own legitimacy when it attempts to act as a super-legislature by imposing change upon the American public. In Texas’s case, overturning a decision made by a democratic republic would place the Court in an autocratic position. The existence of the “three separate, distinct, independent, and coequal departments of government” restricts the court to the specific purpose of upholding the federal Constitution.

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Pennsylvania passed Act 77 in 2019; Act 77 established mail-voting and was not challenged until it was implemented, utilized by all parties, and aided Pennsylvania in reaching a decision. 4 A state legislature can decide to amend their voting procedures; the act was not challenged until after the election and the Pennsylvania Court could no longer reverse the voting procedures because votes had already been counted.

Even if this voting method proved to be inefficient or confusing, the Supreme Court cannot legislate laws that the justices think would be better; the Court’s role is to uphold the Constitution. The effort became officially futile when the Supreme Court struck down Texas’s and all pending cases regarding election results. The case was denied for the “lack of standing under Article III of the Constitution” and because “Texas has not demonstrated a judicially cognizable interest in the manner in which another State conducts its elections” 5 Even if Texas’ argument was crafted perfectly, the Court’s asks: why is Texas concerned with the internal electors from casting their state’s vote. If they could prove that the sele-

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ction of the electors was improper, interest in the manner in which they could possibly throw out their another State conducts its elections.” votes in the Electoral College.

However, in analyzing the decision, the Federalist concludes: Ultimately, the democratic process is protected heavily. This lawsuit could “The Supreme Court’s resolution thus not throw out millions of people’s “addressed” two separate questions, votes because of something as the first a narrow procedural disparate as the appointment process question: Whether the U.S. Supreme of electors. The election votes were Court must allow a state to file a verified by each state in accordance complaint against another state. with their respective process; these processes are voted and approved by Current Supreme Court precedent the representatives of that state. State holds the high court retains governments are much more discretion to decide whether to accept productive and subjective than most a lawsuit between two or more states. people realize, and under a federal The Constitution provides the republic, they run more independent Supreme Court “original jurisdiction,” of the federal government than most or the power to hear the case initially people realize. Voting processes are for such cases. The Supreme Court presented, then voted on by all parties has “exclusive jurisdiction” for such that represent the people of each lawsuits, meaning no other court has state. The American democratic the power to hear a case when a state process is the most important part of sues another state. maintaining a republic, and while questions should always be raised, Nonetheless, the Supreme Court has the un-elected Supreme Court has held that it is not required to accept a always maintained an inability to complaint filed by one state against over-legislate and overrule legislation another. That is why, to initiate its that is voted on by the people. lawsuit, Texas filed a “Motion for Leave,” or a motion asking permission The Supreme Court closed the case by to file its complaint. Procedurally, denying Texas’s request to file its then, what the Supreme Court did on complaint against the four swing Friday was to deny Texas “leave” or states, stating that “Texas has not permission to file the complaint demonstrated a judicially cognizable against the four putative defendant states.” The Federalist

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KPMG CHEATING SCANDAL In accounting, auditors utilize their judgment to determine decisions that will best benefit the company while practicing transparency and honesty. Three former KPMG audit partners were recently charged by the Securities and Exchange Commission (SEC) for their negligent behavior. A statement was released by the U.S. SEC on May 18, 2020, stating that misconduct occurred that jeopardized the integrity of internal training exams. Internal training exams ensure that auditors remain up to date and are continuing CPA educational standards.

It was revealed that three former KPMG LLP audit partners were giving answers to the internal training exams and wrongfully acting while the investigation of potential cheating was taking place. Timothy Daly, Michael Bellach, and John Donovan are the three former KPMG audit partners who were questioned for potential cheating. Each was responsible for committing wrongful actions in regard to exams that test the knowledge of audit professionals. These exams identify whether or not audit professionals are equipped to be in audit practice by testing accounting and auditing concepts.

According to the facts of the SEC, Bellach sent Daly photos of a training exam in October of 2018, including questions and answers. Daly asked Ballach for the questions and answers to the required training exam according to the SEC. The misconduct occurred further once KPMG began investigating the potential wrongful acts of cheating.

KPMG mandated that their employees comply with them as they addressed the possible cheating by sending each KPMG professional a notice. Once this notice reached KPMG employees, Daly deleted the texts that transpired between Bellach and himself. Additionally, Daly reported to KPMG investigators that he did not receive answers for the exams. Upon further investigation, it was discovered that Daly asked Bellach to delete the messages, and once Bellach was given the notice from KPMG, he deleted them.

Donovan was charged on similar grounds in regard to sharing exam answers to members of his team. Donovan was found to have obtained answers to training exams on multiple accounts between the months of April 2018 and September 2018. During these encounters, he informed his team members of answers three times. During the cheating investigation, Donovan inaccurately informed investigators that he had not partaken in the actions of sharing or receiving answers.

The SEC argues that the qualities of integrity, honesty, and responsibility are necessary within audit professionals due to the role they play within the financial reporting sequence. The SEC determined that Timothy Daly, Michael Bellach, and John Donovan violated a PCAOB Rule due to their lack of integrity in their profession. None of the three former KPMG LLP audit partners admitted or denied the charges against them; however, all three surrendered their ability to practice accounting for the SEC. This prohibits the three from participating in public companies' financial reporting and auditing practices. However, Timothy Daly, Michael Bellach, and John Donovan are entitled to be considered for reinstatement depending upon the number of years they are required to wait to reapply, between one and three years. Steven Peikin, Co-Director of the SEC’s Division of Enforcement, stated that “These actions reflect our commitment to hold these gatekeepers responsible for breaches of their professional obligations.” In accounting, it is imperative that rules and regulations are being followed to protect the trust between individuals and the market.

Without exams to ensure that professionals know accounting principles, transparency and trust within the market could be lost.

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FROM BEACHES TO BATTLESHIPS How a fight for gas has reignited disputes in the eastern Mediterranean

The once treasured beaches of the Mediterranean, emptied by the global outbreak of COVID-19, have now become hosts to naval ships and fighter jets due to the most recent dispute between Greece and Turkey. Although the current decline in diplomacy between the two nations is not new, the ramifications of the conflict may have more importance than ever before.

On August 12, the Turkish frigate Kemal Reis, accompanying a gas and oil exploration vessel into the eastern Mediterranean, collided with a Greek naval ship in what Greece considers its “Exclusive Economic Zone” (EEZ), an area of ocean that lies on the continental shelf of various islands extending 200 nautical miles outward. The United Nations etched the idea of the EEZ into international law in 1982 to define the ownership of oceanic resources, but Turkey claims that Greece’s eastern-most islands rest on the Turkish continental shelf and that they are, therefore, not entitled to independent EEZ’s. The result was the resurfacing of Greek-Turkish tensions and renewed calls from European countries to denounce Turkey. This skirmish, however, is unique. Emboldened by more nationalistic leadership and pressured by the need for energy security, it would be dangerous to underestimate the role Turkey plays in broader European affairs.

After Greece gained its independence from the Ottoman Empire (Turkey’s predecessor) in 1830, the two countries have sparred on a whole host of religious, political, and territorial disputes. In most recent years, these tensions have led to nationalistic growth in Turkey, which can also be attributed to the recent transformation of the Hagia Sophia into a mosque. In response, Greek church bells tolled across the country in protest. Turkey saw this protest as a symbol of continued anti-Turkism that they have perceived from cold European relations in the past years. Turkey has been a candidate for accession to the EU since the mid-1980s. Since then, however, talks have been stalled on numerous occasions. European countries cite that Turkey fails to meet the European standard of liberal democracy, but Turkey maintains that it democratized in the early 2000s and has liberalized many of its domestic policies in hopes of attaining accession talks. Only when the EU stalled on admitting Turkey did they once again start to embrace more nationalistic policies, drifting further away from European democracy. As made evident in the past, Turkey will only become more liberalized when the EU makes their dreams of having a voice in European affairs attainable, and at this point, they are not willing to do so.

The old disputes over religious and political affairs have now given way to the fight for energy independence. As the world continues to fight global Russian influence in the promotion of democracy and world security, the EU will never be able to sever their ties with Russia until they become energy independent. Germany, one of the biggest players in the EU, however, relies on Russia for over one-third of its gas imports. Germany and the EU have less leverage in imposing sanctions on Russia if they rely on them to keep their economy running. Turkey has also seen increased energy independence from Russia. Recently they have fought against the Russian gas line Turkstream 2, which would lead to more pipeline transit fees and steal countries from Turkey’s gas market. Turkey is relying on the production of more gas in the Mediterranean to have a larger share in the energy market. The discovery of new gas would aid Turkey in their dreams of becoming an energy hub between Europe and the Middle East. This is why they have been working more aggressively to discover new sources, even if it means provoking Europe.

Since the conflict this summer, Turkey has continued its gas exploration in the eastern Mediterranean. In early December, Turkey threatened war with Greece should they expand their territorial waters by 12 nautical miles. This move is allowed by the UN Convention on the Law of the Sea, which was ratified by the EU as law. The EU, therefore, sees the challenge posed by Turkey as a broader European affair, and has promised to impose sanctions. Such sanctions will continue to throw Greek-Turkish relations into a spiral, but may deter further aggravation from Turkey amid grim economic outlooks and further ramifications of the COVID-19 pandemic.

With the discovery of new sources of gas both in the Mediterranean and the Black Sea, Turkey would inevitably play a larger role in geopolitics, especially, within the exportation of energy. Turkey has decided to push Russia away in hopes of gaining gas clients in eastern Europe. Meanwhile, the EU has pushed Turkey away because of its increased assertiveness in the region. Turkey could become the key to European independence from Russian energy. This would allow the EU to pursue tougher sanctions on Russia in hopes of more global stability. By isolating Turkey, the EU makes its path to energy independence much more difficult, and the eastern Mediterranean will continue to breed choppy diplomatic relations.

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RWANDA—AFTER THE GENOCIDE Many people’s knowledge of Rwanda is limited to the 1994 genocide. Since then, though, the country has undergone a remarkable transformation. Twenty-six years after a genocide in which up to a million people were murdered in a hundred days, Rwanda surprisingly shows only a few obvious scars from the tragedy. New construction is transforming the capital, Kigali, where there are now upscale hotels, a grand shopping mall, and a state-of-the-art convention center. Rwanda's standard of living is on the rise with the country experiencing steady economic growth for the last 17 years, and crime and corruption are low. To many, Rwanda is the envy of the continent.¹

RWANDA—BEFORE THE GENOCIDE Rwanda is a landlocked country, approximately the size of Maryland. The country borders Tanzania, The Democratic Republic of Congo, Burundi, and Uganda. In 1961, Rwanda became a republic. The capital, Kigali, has a population of approximately 11.2 million. Christianity is a major religion, and the country has three official languages: French, English, and Kinyarwanda.

The area encompassing current Rwanda was originally inhabited by the Twa and Hutu people. From the early 1300’s to the early 1900’s, the Tutsis migrated into the area. With roots in Ethiopia, the Tutsis are tall and thin in stature. By contrast, The Hutus are short and stocky.

Although never good, the relationship between the Tutsis and Hutus started to deteriorate in 1916 when Belgium began its colonial control over the country. At that time, the Belgians introduced identity cards, which classified people based on their ethnicity. By most historical accounts, the Belgians considered the Tutsis superior to the Hutus. As a result, the Tutsis enjoyed better jobs and had more educational opportunities than the Hutus, creating economic and political inequality.² This underlying inequality was, in turn, the root cause of constant conflicts between the two. The conflicts led to tens of thousands of Tutsis

fleeing Rwanda to Uganda and other neighboring countries. In 1963, the conflicts escalated when approximately 20,000 Tutsis lost their lives. The fighting between the two groups continued intermittently over the next three decades.

In April 1994, presidents Juvenal Hbyarimana of Rwanda and Cyprien Ntaryamira of Burundi were returning from a meeting with Tutsi rebels to draft a peace treaty when their plane was shot down above the Kigali airport by Hutu extremists. Following this fatal crash, extremist Hutu groups began a one-hundred-day frenzied killing of Tutsis and moderate Hutus. When the killings were over three months later, approximately one million people had been executed—most of them Tutsi.

RWANDA—SINCE THE GENOCIDE After the genocide destroyed the already fragile economy, Rwanda experienced a period of political stability and impressive economic growth. Contributing to the economic growth were government infrastructure investments, humanitarian relief efforts from international organizations, and the implementation of various government humanitarian programs to help pe-

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At the forefront of the Rwanda transformation is the current President, Paul Kagame. Kagame, a Tutsi, whose family fled to Uganda before the Rwandan genocide, commanded the rebel office that was instrumental in ending the genocide. He then served as Vice President and Defense Minister from 1994 until 2000, when he was elected president. Since assuming the presidency in 2000, Kagame is credited with restoring the political stability and turning around the economy of Rwanda. As President, Kagame has launched a number of programs aimed to transform the country into a middle-class nation by 2020. Based on economic indicators, Rwanda has improved in health care and education. Inequality, as measured by the Gini coefficient, has declined from 0.49 in 2011 to 0.437 in 2016 ³. By 2006, Rwanda’s GDP had caught up to its pre-genocide level, and from 2010 to 2019, the economy grew at an average annual rate of 7.16%. Over the last few years, Rwanda has consistently made it to the list of “fastest-growing economies in the world.” (Table 1). In 2016, Bloomberg’s Economist Intelligence Unit placed Rwanda at number eight in their list of top ten best economies.4 One of the major goals of the Kagame presidency has been to reduce poverty by investing in education, infrastructure, and foreign and domestic investment. A number of innovative programs initiated by the government have led to a reduction in the poverty rate and an increase in the country’s GDP. The Girinika program is a notable example. Launched in 2016, this government program provides every poor family in Rwanda with a milk cow. The goal of the program is to alleviate poverty, improve family nutrition, increase fertilizers for crops, and generate family income through the creation of small business opportunities from the sale of surplus milk.

PUBLIUS UMUGANDA The last Saturday of the month in Rwanda is a national day of community service called Muganda. On Umuganda, everyone in the country is required to participate in some community service, including the President. The program has led to the building of schools, medical centers, and hydroelectric plants, the rehabilitation of wetlands, and the cleaning of Rwanda’s cities, towns, and villages—Kigali ranks as one of the cleanest cities in Africa. More importantly, Umuganda has been instrumental in healing the pains created by the genocide. It encapsulates the good that is now Rwanda.

Table 1: Rwanda Statistics _Source: Bloomberg The Gini coefficient measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of zero represents perfect equality and 100, perfect inequality.

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ACADEMIA’S OTHER MISSION: MAKING STUDENTS INTERESTING In an interview with CBS, Dr. Nannerl Keohane, the former President of Duke University, was asked what she thought was the real mission of her university. After some reflection, Dr. Keohane responded that she saw the mission of Duke as one of making each student a more interesting person.

At first, her answer may seem a bit simple (more elegant and practical mission statements can certainly be found on Duke’s Website). Academia does educate and train society’s future doctors, lawyers, scientists, teachers, and engineers, but through instilling knowledge, developing math or logic skills, enlightening a student’s feelings and sensitivities, and most importantly developing depth to their understanding of subjects, academia also makes students more interesting.

The writer Herbert Stein commented that today’s students seem “to know a lot, but understand very little.” Today, with a media-influenced society, developing depth in students’ understanding of a subject has become more of a challenge in the halls of academia. A relevant question is: How does academia develop depth in our students’ knowledge and understanding of subjects?

First, intellectual depth is often the product of mastering seminal works. Whether it is Keynesian economic theory, a work of Shakespeare, Einstein‘s theory of relativity, or the philosophy of Descartes, a student who studies such intellectual works inevitably learns how great minds work, the subtleties inherent in great ideas, the power of logic, and the beauty of thoughts and ideas. In many finance classes, for example, students are required to study the Nobel Prize-winning works of Modigliani, Miller, Markowitz, Sharpe, Scholes, and Fama.

Mastering these influential works undoubtedly brings depth and quality to finance majors’ understanding of the subject.

Intellectual depth is also fostered when students learn to express concepts in different ways. In economics, for example, students are often required to explain a theory, strategy, or idea mathematically, graphically, and intuitively. By doing this, a student’s understanding and retention of theories and ideas is enhanced. A professor teaching an executive MBA class once related a story about how a lawyer in his class acknowledged the value she found from his insistence that she focus more on expressing the concepts mathematically rather than verbally. On the other hand, an engineer expressed his thanks to the professor for urging him to focus more on explaining concepts verbally rather than mathematically.

Both the lawyer and the engineer gained depth to their understanding of business by learning how to express business concepts in more than one way.

Finally, intellectual depth is achieved when students are able to relate their subjects to other areas. In writing about the differences between science and the humanities, the novelist Tom Robbins wrote that “the scientists needs the humanists to keep the scientists human, and the humanists needs the scientist to keep the humanists honest.”

Economic students, for example, gain depth when they see not only an abstract concept, a statistic, or a dollar sign, but also when they are able to connect the idea to what is real. The U.S.’s gross domestic product grew from $8 trillion in 1984 to over $25 trillion today and the Dow Jones Average increased exponentially from 700 in 1982 to over 35,000. Behind the statistics, though, is an economy that has evolved: Paperwork that once filled an entire office could now be put in a small computer chip and instead of a trip to the library, data and information can be accessed in seconds via satellites and the internet.

In the 1960s, the late historian Richard Hofstadter wrote about anti-intellectualism in America. Evaluating various historical periods in terms of their literature, court decisions, religious movements, and other social indicators, Hofstadter defined different historical periods as being either intellectual or anti-intellectual. Today, when we look at how vulnerable our society is to media and political spin, we might be inclined to conclude that we are living in a period that Hofstadter would define as anti-intellectual. If so, in a very fundamental way, the role of the academy may well be one of countering the spin of society by promoting intellectualism. In addition to turning out the next generation of professionals, academia, by enlightening students’ intellectual curiosity, exposing them to great thinkers, and helping them master complex theories and concepts, promotes intellectualism. In the end, the final product is a deeper, more intellectual, and maybe even, a more interesting person.

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BOOK EXCERPTS “This is the fundamental fact on which the whole philosophy of individualism is based. It does not assume, as is often asserted, that man is egoistic or selfish or ought to be. It merely starts from the indisputable fact that the limits of our powers of imagination make it impossible to include in our scale of values more than a sector of the needs of the whole society, and that, since, strictly speaking, scales of value can exist only in individual minds, nothing but partial scales of values exist—scales which are inevitably different and often inconsistent with each other. From this the individualist concludes that the individuals should be allowed, within defined limits, to follow their own values and preferences rather than somebody else’s; that within these spheres the individual’s system of ends should be supreme and not subject to[…]”

F.A. Hayek, The Road to Serfdom, p. 377 “Most people are still unwilling to face the most alarming lesson of modern history: that the greatest crimes of our time have been committed by governments that had the enthusiastic support of millions of people who were guided by moral

impulses.”

F.A. Hayek, Mirage of Social Justice Condoleezza Democracy, p. 19

Rice,

“If democracy is broadly understood to mean the right to speak your mind, to be free from the arbitrary power of the state, and to insist that those who would govern you must ask for your consent, then democracy—the only form of government that guarantees these freedoms—has never been more widely accepted as right. Yet, while the voices supporting the idea of democracy have become louder, there is more skepticism today about the actual practice and feasibility of the enterprise. The pessimism is understandable …. If there is cause for optimism, it is in recognizing that people still want to govern themselves. Democracy activists in Hong Kong and mainland China risk persecution and arrest if they press their cause. Elections still attract long lines of first-time voters, even among the poorest and least-educated populations in Africa—and sometimes even under threat from terrorists…. No matter their station in life, people are drawn to the idea that they should determine their own fate. Ironically, while those of us who live in liberty express skepticism about democracy’s promise, people who do not yet enjoy its benefits seem determined to win it.

Paul Johnson, Modern Times “It was Jean-Jacques Rousseau who had first announced that human beings could be transformed for the better by the political process, and that the agency of change, the creator of what he termed the ‘new man’, would be the state, and the self-appointed benefactors who controlled it for the good of all. In the twentieth century his theory was finally put to the test, on a colossal scale, and tested to destruction….

By the year 1900 politics was already replacing religion as the chief form of zealotry. To archetypes of the new class, such as Lenin, Hitler and Mao Tse-tung, politics–by which they meant the engineering of society for lofty purposes–was the one legitimate form of moral activity, the only sure means of improving humanity .... At the democratic end of the spectrum, the political zealot offered New Deals, Great Societies and welfare states; at the totalitarian end, cultural revolutions; always and everywhere, Plans. These zealots marched across the decades and hemispheres: mountebanks, charismatics, exaltés, secular saints, mass murderers, all united by their belief that politics was the cure for human ills: Sun Yat-sen and Ataturk, Stalin and Mussolini, Khrushchev, Ho Chi Minh, Pol Pot, Castro, Nehru, U Nu and Sukarno, Perón and Allende, Nkrumah and Nyerere, Nasser, Shah Pahlevi, Gadafy and Saddam Hussein, Honecker and Ceausescu. By the 1990s, this new ruling class had lost its confidence and was rapidly losing ground, and power, in many parts of the world.....

But it was not yet clear whether the underlying evils which had made possible its catastrophic failures and tragedies–the rise of moral relativism, the decline of personal responsibility, the repudiation of Judeo-Christian values, not least the arrogant belief that men and women could solve all the mysteries of the universe by their own unaided intellects–were in the process of being eradicated. On that would depend the chances of the twenty-first century becoming, by contrast, an age of hope for mankind.”

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George Orwell, 1984, p. 360 "This process of continuous alteration was applied not only to newspapers, but to books, periodicals, pamphlets, posters, leaflets, films, sound tracks, cartoons, photographs—to every kind of literature or documentation which might conceivably hold any political or ideological significance. Day by day and almost minute by minute the past was brought up to date. In this way every prediction made by the Party could be shown by documentary evidence to have been correct; nor was any item of news, or any expression of opinion, which conflicted with the needs of the moment, ever allowed to remain on record. All history was a palimpsest, scraped clean and reinscribed exactly as often as was necessary. In no case would it have been possible, once the deed was done, to prove that any falsification had taken place."

Only in his own consciousness, which in any case must soon be annihilated. And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. “Who controls the past,” ran the Party slogan, “controls the future: who controls the present controls the past.” And yet the past, though of its nature alterable, never had been altered. Whatever was true now was true from everlasting to everlasting.

It was quite simple. All that was needed was an unending series of victories over your own memory.

“Reality control,” they called it; in Newspeak, “doublethink.”

Tara Westover, Educated, p.

197 “Not knowing for certain, but refusing to give way to those who claim certainty, was a privilege I had never allowed myself. My life was narrated for me by others. Their voices were forceful, emphatic, absolute.

It had never occurred to me that my voice might be as strong as theirs.”

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Jordan Peterson, 12 Rules for Life—An Antidote to Chaos, p.

360 “Failure to make the proper sacrifices, failure to reveal yourself, failure to live and tell the truth—all that weakens you. In that weakened state, you will be unable to thrive in the world, and you will be of no benefit to yourself or to others.

You will fail and suffer, stupidly. That will corrupt your soul. How could it be otherwise? Life is hard enough when it is going well. But when it’s going badly? And I have learned through painful experience that nothing is going so badly that it can’t be made worse. This is why Hell is a bottomless pit. This is why Hell is associated with that aforementioned sin.

In the most awful of cases, the terrible suffering of unfortunate souls becomes attributable, by their own judgment, to mistakes they made knowingly in the past: acts of betrayal, deception, cruelty, carelessness, cowardice and, most commonly of all, willful blindness. To suffer terribly and to know yourself as the cause: that is Hell. And once in Hell it is very easy to curse Being itself. And no wonder. But it’s not justifiable.”

Mollie Hemingway, Rigged, 2021, p. 7 “In 2016, absentee and mail-in ballots accounted for roughly 33 million of the 140 million ballots counted. In 2020, more than 100 million of the 159 million ballots counted were cast prior to Election Day, including by early voting. The change was enough for former attorney general William Barr to sound the alarm about how widespread early, absentee, and mail-in voting was negatively affecting the voting public. Extending voting well beyond voting day “is like telling a jury in a 2-month trial that they can vote any time they want during the trial,” Barr said after the election in an interview at his home.

“You can’t say it’s really a national consensus because people are all operating on a different set of facts.”

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By the numbers

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RETURN PERFORMANCE OF BLOOMBERG CINCINNATI STOCK INDEX Bloomberg's Cincinnati Index is a weighted Index Measuring the Equity Performance of the Equity of the Cincinnati Area’s Companies

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ECONOMIC UPDATE : FALL 2021 Economic Trends, Fall 2021 In the fourth quarter of 2021, The U.S. economy moved into a moderate recovery stage with GDP reaching its pre-pandemic level. However, the slow labor market recovery, supply-chain disruptions, energy price increases, product and material shortages, and transportation bottlenecks, combined with the unprecedented expansionary fiscal and monetary policy stimulants, contributed to a high inflation rate of 7%.

The Federal Reserve’s October 2021 Beige Report found that a majority of the Fed Districts saw positive growth in consumer spending, but saw declines in auto sales and low inventory levels and rising prices. Other reported economic notables from the October Beige Report:

possible new policy initiatives and executive orders of the Biden Administration will have on the overall economy. Policies to monitor include: energy, environment, taxes, immigration, government debt, and trade policies.

- Manufacturing grew moderately as did trucking and freight.

[The monetary base is the total amount of a currency that is either in general circulation in the hands of the public or in the commercial bank deposits held in the central bank's reserves.]

- Growth in nonmanufacturing activity ranged from slight to moderate.

- Residential real estate activity slowed slightly but the market remained healthy, overall.

- Agriculture conditions were mixed.

- Outlooks for near-term economic activity remained positive, overall, but some Districts noted increased uncertainty and more cautious optimism than in previous months.

As of November 2021, the leading economic indicators point to a continuous modest economic growth in 2022.

The projected modest recovery can be attributed to the stimulus package and an accommodating Federal Reserve monetary policy of keeping rates low.

The fiscal policy stimulants, though, are projected to increase the Federal Government’s deficit from its $779 billion level in 2019 to over $3.668 trillion in 2021. The projected deficit, in turn, is expected to augment the Federal debt from its $23 trillion level in 2019 to $29 trillion in 2021. The Federal Reserve’s purchases of that debt from 2019 to 2021 has led to an increase in the U.S. monetary base from $4.945 trillion in May of 2020 to 6.331 trillion in November 2021. In the long run, the fear is that the current expansionary monetary actions, unless reversed, will lead to even higher inflation as the economy moves back to full capacity. Furthermore, the unprecedented deficits and federal government debt levels will result in higher interest rates in the future. In the absence of a strong supply-side economic growth, the long-run cost of the monetary and fiscal policy stimulants will be a slower economic growth accompanied by inflation and relatively high levels of unemployment.

Finally, there is considerable uncertainty over the impacts that

TRENDS PRODUCTION AND ENERGY PRICE The moderate growth in GDP in the second and third quarters of 2021was characterized by similar patterns in production. Total industrial production in October was 5.1% above its year-earlier level and at its highest level since December 2019. In October, capacity utilization for the industrial sector increased 1.2% to 76.4%. Energy production in November 2021 was up from 8.9% from its year-earlier level, but 5.6% lower than its November 2019 level. The lower energy production combined with moderate economic growth contributed to higher energy prices. Crude oil prices, in turn, increased 101% from $39.40 per barrel in November 2020 to $81.48, and 54% from $53.96 in November 2019 (pre-pandemic period) to $81.48 in November 2021. Similar trends characterized electricity and natural gas prices. Of particular note to the production trend was the decline in U.S vehicle sales, which after increasing 62% from April 2020 to April 2021, decreased 30% from April 2021 to November 2021. Lastly, after peaking at 1.73 in April 2020, the manufacture and trade inventory-to-sales index declined 27% to 1.26 in November 2021.

- Industrial production measures the output of industrial establishments in the following industries: mining and quarrying, manufacturing and public utilities (electricity, gas and water supply).

- Capacity utilization tracks the extent to which the installed productive capacity of a country is being used in the production of goods and services. It is reported as the percent of capacity being used for production (as opposed to sitting idle).

By the numbers - Manufacturing inventory-to-sales ratio is the ratio of business inventories to sales in the manufacturing, retail and wholesale trade industries. Business inventories are either goods ready for sale or shipments that are still being held by the producer, or goods acquired for the purpose of reselling them without further processing.

RETAIL SALES AND E-COMMERCE Similar to the GDP trends, retail sales spiked in the first quarter of 2021 and then grew at lower rates in the second and third quarter.

CAPITAL INVESTMENT The pandemic led to a 14.5% decrease in the level of aggregate domestic investment during the second quarter of 2020 from $3.34 trillion to $2.85 trillion. In the third quarter, investment did rebound, increasing 16.8% to $3.33 trillion. Much of the increase, though, was replacing the inventory shortage in production.

Overall, for the first three quarters of 2021 new business investment grew only moderately, while corporate earnings increased, resulting in an increase in corporate cash positions. The large corporate cash positions reflect an economic environment of uncertainty. In addition to the moderate rate of growth in corporate investments, the first three quarters of 2021saw a significant decrease in bankruptcy.

Bloomberg’s bankruptcy index decreased 90% from 301 at the beginning of August of 2021 to 29.9 in November of 2021.

HOUSING After hitting a low of 4 million sales in July 2020, existing housing sales increased 50% to 6.34 million sales in November 2021. Housing inventory, in turn, for the same period decreased 19% from 1.54 million houses to 1.25 million. However, construction of new houses decreased by 11% from 839,000 to 745,000 during this period. With the decline in construction and inventory, median home prices soared during this period. The S&P/Case-Shiller housing price index increased 22% from 220 in July 2020 to 269 in November 2021. Contributing to the uptick in the housing market were lower mortgage rates, with the 30-year mortgage rate average 2.9% for the past year.

- Inventory of Houses for Sale tracks the number of homes that are currently on the market.

- S&P/Case-Shiller U.S. National Home Price Index tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions

PUBLIUS FISCAL POLICY In 2021, the federal government raised over $3.58 trillion in revenue from income, social insurance, and corporate taxes, and it spent over $7.25 trillion on welfare and individual security programs (social security, health care, and income security programs), national defense, interest on the federal government debt, and physical resources (energy, commerce and housing, transportation, and regional development).

Two trillion of the $7.25 trillion government expenditures in 2021 funded the pandemic stimulus relief bill. The government's excess of expenditures over tax revenues in 2021 equated to a deficit of $3.675 trillion. The 2021 deficit follows a $3.12 trillion deficit in 2020. The deficits, increased the government’s debt to $28.9 trillion and the public debt-to-GDP percentage to 125%.

MONETARY POLICY The Federal Reserve continued to undertake extraordinary monetary measures in dealing with the 2020 financial crisis resulting from the pandemic. The Fed slashed interest rates and purchased a large proportion of the government debt as part of their open market operations. The Fed has signaled that it will remain accommodative for a prolonged period of time, but in the face of inflation may start reducing their Treasury debt purchases. In 2018, the Fed’s balance sheet was approximately 20% of GDP. With the Fed’s expansionary monetary policies in 2020 and 2021 of monetizing the rising federal debt, its balance sheet has risen to 38% of GDP. In the long run, deficit spending and monetizing the debt can lead to higher interest rates and/or high inflation once the economy moves back to full capacity. The long-run cost can be a lower steady-state economic growth accompanied by inflation and relatively high equilibrium levels of unemployment. In a seminal work by Reinhart and Rogoff (This Time is Different), the authors found that public debt above 90% can reduce average growth rates by more than 1%. In 2000, the US federal debt was 60% of GDP, by 2013 it had increased to 100%, and for 2021 it is expected to be 125%.

EMPLOYMENT With the moderate growth in 2021, the unemployment rate decreased to a 4.6% level in November 2021 and the underemployment rate to 8.3%. At the same time, though, the recovery increased job vacancies by 81% from 5,769,000 in April 2020 to 10,438,000 in November 2021, with an increased number of workers electing not to enter the work force. .

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By the numbers - Underemployment: This measure of unemployment includes the total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

INFLATION From 2016 through 2020, the U.S. inflation rate remained relatively low, averaging 1.78%. This lowflation environment persisted even with a public debt at 125% of GDP, quantitative easing, a pre-pandemic tight job market, and high capacity utilization. As noted, in 2021the slow labor market recovery, supply-chain disruptions, energy price increases, product and material shortages, and transportation bottlenecks, combined with the unprecedented expansionary fiscal and monetary policy stimulants, led to a 7% inflation rate.

With the Biden Administration’s emphasis on expanding renewable power and, at the time of this writing, possible passage of a pending “Build Back Better” bill, there is a growing concern of a continued increase in inflation, as well as a concern that if the Federal Reserve were to increase interest rate to slow down the inflation, it would precipitate a recession.

TRADE AND EXCHANGES RATES The U.S current account trade balance deteriorated from a deficit of $65.8 billion at the beginning of 2021 to $80.93 billion in November. The increase in the current account balance, in turn, did not lead to a depreciation of the dollar against most major currencies in 2021. For example, from the beginning of the 2021 to November 2021, the British pound decreased slightly from $1.36/BP to $1.33/BP and the price of the Euro decreased from $1.22/Euro to $1.12/Euro.

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