Month: July 2026

A landscape of brown hills and far off mountains framed by the entry of a cave

Beyond Our Cave

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July 26, 2026

By Stephen Stofka

For the past few weeks I have been writing about the political polarization of voters based on where they live. Last week I wrote that voting behavior depends on our prediction of how a particular candidate or party will affect our own well being or that of  our family, our community. A choice is the result of a prediction. A vote is a choice. Those who vote for a Republican candidate are making different predictions than those who choose a Democratic candidate. To understand the polarization in this country, I want to understand the prediction process itself. How much information do we need to feel like we have enough knowledge to make a prediction? That depends on many things – the circumstances and the consequences of making a prediction.

The Pool of Possibilities

The future is an infinity of possibilities. We cannot gather enough information in the present to flawlessly predict the future. What do we do? Take a small sample of the present and trust that that small sample will reliably represent the future. But how do we decide the size of that sample? Some voters meticulously research candidates and issues before voting. Some people vote by the dominant political party that represents their interests and values. However, in states that allow citizen ballot issues, there may be no clear party line. Some voters rely on a media source to do the research and make recommendations.

Some cities were large enough to support two daily newspapers. The editorial board of one newspaper would present a conservative position on candidates and citizen initiatives. The other newspaper would  present a liberal perspective on candidates and issues. Some people grew up learning only one perspective because their parents subscribed to that newspaper. People who moved to a city soon learned which of the two perspectives aligned with their personal values. The newspapers did the work of filtering all the information.

The Media Jungle

From 1970 to 1990, the circulation of daily newspapers peaked at over 60 million, almost the same number as the number of households in the country. By 2020, estimated circulation was about 25 million. Here’s a chart from Pew Research (Source).

In addition to local and national news, the newspaper had that day’s TV listings, the daily weather forecast, and the results of yesterday’s sports games. Readers checked their horoscope, read cartoons and played the games in the back pages of the newspaper.

Today, digital algorithms serve up news sources and content that engages a reader. We are like donkeys endlessly walking in circles, powering a flour mill as social media dangles a carrot to keep our attention. Like cute cats? Here’s more. Like hearing about Trump’s latest outrage? Here’s more. Before we show you that, here’s a commercial.

The General and the Particular

A President has a relatively small impact on the personal circumstances of most voters. People often vote based on their prediction of whether a particular candidate will be good or bad for the country as a whole, or an industry. Gallup conducts two separate polls for opinions on the general economy, the Economic Confidence Index, and people’s individual financial circumstances, the Personal Finance Survey.

The Economic Confidence Index plunged into negative numbers at the onset of the pandemic and was still negative on the eve of the 2020 election. Sentiments recovered somewhat shortly after Biden took office, then plunged again as inflation climbed to 9% in the summer of 2022. As inflation declined, those polled grew more optimistic. On the eve of the 2024 election, that index was still negative and voters elected Donald Trump, who promised to restore economic confidence. However, a few months after he took office, Trump initiated his “liberation day” tariffs. Public sentiment and the stock market both fell in response. While the stock market recovered, people’s confidence has not. Confidence in the economy is now lower than when Trump left office in January 2021 (Source).

What about people’s personal financial circumstances? In a poll conducted during the first quarter of this year, a third of those polled were “very worried” that they would not have enough money for retirement. Another third were “moderately worried.” Sixty percent of respondents were worried that they could not cover medical bills in case of a serious illness (Source).

Party Loyalty

Some people make voting easy. They vote for each candidate from one of the two dominant political parties. Researching the electoral platform and record of each candidate can be time consuming. Also, many voters do not pay a lot of attention to politics until a few months before an election, so this strategy is practical. Mike Rosen was a conservative radio talk show host in Denver until 2016. His experience working in Washington helped him understand that party politics drove the legislative machinery. Party cohesion, power and connections gets legislation passed. Party affiliation is more important that the merits of individual candidates. Because of that, he endorsed a voting strategy of “party over person.” Having to choose between two dominant parties makes prediction much easier. Each party constructs a brand from a platform of policies meant to strengthen attachment with current members and to attract newcomers.

Attachment

As social creatures, we instinctively seek attachment. Branding is a marketing strategy that promotes attachment between consumers and products or voters and political parties. The Republican Party brands itself as the party of low taxes and low regulations. It promotes larger military spending, which helps support local communities in the southern states where Republican support is strong. The Democratic Party stresses equality and fairness for all. They promote programs which assist lower income families in urban areas where housing and other monthly costs are relatively high. Both branding strategies rely on predictions of the future. Elect our candidates and the future will be better, each party says.

Religion

Religious conviction relies heavily on predictions of the future. The Christian religion evolved from its Jewish roots but stressed individual salvation in contrast to the Messianic culture of the Jewish people that predicted a group salvation. Religious and political affiliation manifests the human desire for attachment. It is understandable that one or both dominant parties would incorporate religious sentiments into their brand.

In the mid-19th century, the Democratic Party promoted expansion of the country into the western lands occupied by Indians and held by Mexico. Expansion of land was necessary for the expansion of slavery, a cornerstone concept championed by the party. The party justified expansion under the banner of Manifest Destiny, an idea that the U.S. had a divinely ordained mission to spread Christian and republican government throughout the continent (Source).

In the past several decades, the Republican Party has absorbed a diverse group of Christian conservatives and evangelicals into the fold. The party has endorsed policies that outlaw abortion and same sex marriages, supported exemption from laws that conflict with one’s religious beliefs, and the rights of religious schools.

Postdiction

The past, particularly the ancient past, is almost as hidden from us as the future. We sample our present circumstances and often invent origin stories to explain the present. We speculate on the creation and composition of the cosmos, the formation of our world, the Earth, and how what is came to be. These speculations are like predictions but they come after the fact. Perhaps we should call them postdictions.

Organized religions promote an attachment to certain origin stories, claiming a divine authority and imprimatur on the opinions, values and interests of that religion’s congregation of believers. There are many religions and religious sects but only two political parties to absorb those congregations.

History

We are a politically divided country because the framers of the Constitution glued two different countries and cultures, north and south, together. Historians note the many dichotomies and contradictions of those founding documents. Thomas Jefferson penned the words “all men are created equal” in the Declaration of Independence, but owned 200 slaves. Article IV, Section 2, Clause 3 of the Constitution itself contained a fugitive slave clause, recognizing and treating human beings as property like domesticated animals (Source). That same declaration grounded government in “the consent of the governed,” but excluded women, blacks, Indians and poor white men.

Although the founders valued liberty and private property, many states allowed the imprisonment of debtors. Governments protected creditor rights above the property rights of farmers. Creditors were usually from urban areas. Debtors, mostly farmers, were from rural areas. From the beginnings of our country, there was a propensity for voters to sort themselves into two interest groups, rural and urban. Because we have a “winner-take-all” election system, this naturally leads to the formation of two political parties. A proportional representation system of elections gives formal recognition to marginalized communities. In our country, minority interests must work within either the Republican or Democratic parties.

Errors

Our actions today represent our predictions of the future, but our predictions aren’t always accurate. How do we cope with the errors of our conclusions? That’s something I want to take a look at next week, and I hope to see you then.

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Photo by Maria Lupan on Unsplash

A crystal ball outside on the ground. Inside the ball is the reflection of a lake and trees

Different Predictions

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July 19, 2026

By Stephen Stofka

In last week’s post, I ended with a promise to explore our political polarization. We are divided not only by values and ideologies, but by population density. Some of us prefer less density and less regulation. Those who live in a small town may have a limited choice of dining, shopping, health care and entertainment. There may be only one movie theater with one screen. In rural areas, the land doesn’t sit there as a space for human homes, businesses and institutions. The land works. It provides food for human or animal consumption. It provides trees, minerals and other resources. Its mountain peaks reach into the skies to collect water from the clouds, channeling water down the slopes to the valleys below. In these areas, the human community is a part of the land. People live with the land.

The U.S. Census Bureau has long distinguished rural and urban areas by population density. Recently, they have included outlying areas with low population density whose economies are tied to a nearby metro area. The distinguishing characteristic is that 25% of residents commute to a metro area for work (Source).

In dense urban areas, people live on the land. The human community dominates the land. Grass and trees serve as a spiritual refuge for humans, and a habitat for birds and small mammals. Land is space for human designs of concrete, asphalt and lumber. People who live there appreciate the availability of choices in most areas of their lives. They tolerate the regulatory environment needed to manage the frictions between neighbors. They are accustomed to a diversity of cultures and religious traditions.

In the small east Texas town where my mother grew up, there were churches of a variety of Protestant sects. In less than a mile on the main street of the town, there was a Methodist, Baptist, Christ the King and Presbyterian Church. That’s all the variety that people needed in that community. Those who attended an Anglican or Catholic church could drive almost an hour to Dallas on Sunday morning. My mother could not remember meeting a Jewish or Muslim person until she moved to New York City after World War 2.

Different Outlooks

The residents of rural and urban areas have different sensibilities and outlooks on life. They may share values and ideologies, but they place a different emphasis on those values when they vote. In rural towns, change is slow and the residents are suspicious of new developments. In many rural towns, there aren’t enough job or educational opportunities for young people. Many move to urban areas, where they must become accustomed to a faster pace of life. They try on new ideas, music, and other diversions. They become part of social groups that may seem alien to their parents. They question the choices and morals of the political leaders their parents voted for. A recent study by Pew Research shows that younger voters under 30 vote more heavily for Democratic Presidential candidates. Those over 60 favor Republican candidates (Source).

Density Signpost

Several studies in the past twenty years have found that population density is a significant factor predicting party affiliation. It’s not a direct cause of course, but it represents important differences in economic and social circumstances between urban and rural environments. After reading several papers on this topic, I’ll rely on a paper by Trevor Brown and Suzanne Mettler (2024) (Source). The paper is openly available and the authors reference a lot of other papers on the topic. Brown and Mettler note that, until 2000, there was not such a clear partisan divide between rural and urban voters. Here’s a chart from their paper to show the wide divergence in voting patterns in the past two decades.

The chart shows the percentage of voters, urban and rural, who voted for the Republican Presidential candidate. In the year 1996, there was only a 3% difference between urban and rural voters. In the 2020 Presidential election, that difference had grown to 21%. What happened?

Multiple Causes

There are several causes that account for the behavior of an airplane in flight, and human beings are a lot more complicated than airplanes. Different authors have highlighted a number of causes. Those in areas of higher population density are more educated. Not smarter. Just more educated. They work at jobs that require more education, or a degree becomes a filtering mechanism in a competitive job market. Job growth in rural areas has been stagnant. Those in urban areas have higher incomes but have higher housing and living costs. As already discussed, there is a greater variety of religious institutions, and less social pressure to embrace any religion.

Brown and Mettler pointed to some studies that stressed rural “consciousness, identity, or values,” but that didn’t explain the urban-rural divergence in political sentiment of the past three decades. Some authors cited the resentment that rural voters might have for urban voters who impose their priorities on everyone. However, this is not a recent development. In the 1960s, voters in rural upstate New York voted Republican. Voters in the urban area that included New York City voted Democratic. For decades, Colorado voters in the Front Range east of the Continental Divide have voted Democrat, while those in the western part of the state and on the eastern plains voted Republican. Perhaps readers will have similar experiences of longstanding urban-rural divides in other states.

A Shift in Outlook

Many election analysts have struggled to explain the change in voter sentiments before and after an election. Just prior to the 2016 election, Gallup asked voters for their assessment of the economy. 81% of Republican voters thought the economy was getting worse. Soon after Trump won the election, only 44% of Republican voters felt the same way. Among Democrats there was a similar shift, although not as extreme (Source, McCarthy & Jones, 2016). In the weekly Gallup surveys over the following weeks, Republican confidence improved while Democrat’s outlook declined. A similar shift happened before and after the 2024 election. Some analysts have termed the phenomenon partisan perceptual bias. A better term might be partisan prediction bias.

We Predict

We are creatures who must survive on our ability to predict. Unlike a cat, we do not have fast reflexes. To navigate our world, we must predict the motion of others. We get more comfortable driving a car as we learn to make many predictions in a short period of time. Secondly, we are social animals. To survive, we must learn to read the feelings and intentions of others to anticipate how they will act.

Vote Forecasting

Writing in the Public Opinion Quarterly, Andreas Graefe (2014) noted that asking people to predict an election winner was very accurate. She analyzed vote forecasting surveys from 1932 to 2012 and found that the majority of respondents correctly predicted the outcome 89% of the time (Source).

Notice that these forecasting surveys are different from voter intention surveys that ask people who they intend to vote for. These kinds of polls are probably the most reported on. For these kinds of polls, analysts must apply several statistical techniques to align the characteristics of their polling samples more closely with the characteristics of all voters in an electoral region. Sometimes they simply do not make the correct adjustments. Surveys prior to the 2016 election accurately predicted that Hillary Clinton would win the national popular vote. However, the national popular vote does not determine the winner of the Electoral College vote. Analysts misweighted the survey samples in several swing states, which delivered the winning electoral votes to Donald Trump (Source).

Gut Prediction

Asking voters how each of them will vote takes a lot of statistical tweaks to achieve an adequate level of accuracy. Asking voters for their gut predictions of the winner turns out to be quite accurate without those tweaks. When researchers ask people for their opinion on the economy, I think what many people respond with a prediction. Those predictions are based on our perception of our personal circumstances, local and national conditions. We filter those perceptions by ideology, values, and our previous experience. What pops out is a binary prediction of a likely winner from each of the two dominant political parties, not an assessment of the broad economy.

Why do people make such different predictions? Next week I want to look more closely at the components of our prediction process. And with that, I hope to see you next week.

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Photo by Brad Switzer on Unsplash

Notes:

Brown, T. E., & Mettler, S. (2024). Sequential Polarization: The Development of the Rural-Urban Political Divide, 1976–2020. Perspectives on Politics, 22(3), 630–658. https://doi:10.1017/S1537592723002918  

Graefe, A. (2014). Accuracy of vote expectation surveys in forecasting elections. Public Opinion Quarterly, 78(S1), 204–232. https://doi.org/10.1093/poq/nfu008  

McCarthy, J., & Jones, J. M. (2016, November 15). U.S. economic confidence surges after election. Gallup. https://news.gallup.com/poll/197474/economic-confidence-surges-election.aspx

The Ethosphere

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July 12, 2026

By Stephen Stofka

Last week I wrote about the ethosphere with a promise to expand on that this week. There are four interlocking areas that consistently affect our daily lives: economics, sociology, politics and the law. Each is interconnected by a system of ethics. Economics, sociology and politics concern the flow and distribution of power. The law is the rules by which those flows occur. Politics is the struggle over who gets to write the laws. Sociology is about the people who are affected by the distributions of power. Economics is the study of resources and their flows. Resources include capital, land and labor. Each of the other three areas governs the owners of resources and the flows.

A college student with an emphasis in either one of these four areas could probably design an interdisciplinary program that uses theories from one course of study to understand issues and events in other areas. For instance, a good understanding of the regulation of industrial pollution explores each of these areas.

Election Decisions

Many election issues are best understood if we look at each of these aspects. Let’s say there is an affordable housing issue on the ballot. We may not have the time or energy to do as much homework on the issue as we would like. Prompting an LLM like ChatGPT or Claude with these four aspects of the problem can help us. Here’s a prompt I put in ChatGPT: what are the economic, political, sociological and legal aspects of an election issue like rezoning for more affordable housing?

The two page response from ChatGPT began with: Each discipline asks different questions, uses different methods, and emphasizes different values. It went on to list the positives, negatives and unknowns from each of these four perspectives. Finally, it listed the central concern from each discipline. Sociologists are concerned about the effect on communities and social groups. Economists ask whether a policy will improve efficiency and affordability in the local housing market. A political scientist will ask who makes the policy decisions and ongoing administrative rules. A lawyer might be concerned with a ballot initiative’s compatibility with the state constitution. You might say that this is too much information, but it’s rare that we consider all aspects of an issue. Usually, there are one to three factors that are important enough to help us make a decision. The AI program is a reminder list.

Distributing the Gains from Productivity

If we have grown up with a set of rules, we may think that there is something natural about those rules, that there is some underlying principle. However, if there were clear and consistent principles of the distribution of profits, for example, our courts would not be busy. Let’s consider tools that increase worker productivity. The owner of a small construction company buys a tool that will help an employee become more productive. With the tool, the employee can do 25% more work in the same period of time. Who gets to keep the profit from the additional productivity? The employee, the employer, or a split of some sort?

The Constraints of the Market

If the employer paid for the tool then the employer decides, but that decision is subject to constraints. If the labor market is competitive, the employee may capture the majority of the gain in productivity. If a tool pays for itself in a month or two, it is likely that other employers will buy such a tool, then offer higher wages or benefits to an employee.

If there are a lot of companies competing for business, then a business might pass on the productivity gains to the consumer in lower prices. If a company is trying to expand, it might offer more return to investors or partners. In each of these cases, the distribution of the productivity gains responds to market conditions.

Human Capital

In the first example, the employer bought the tool. In this second example, the employee buys the productivity enhancing tool. The most common example is some educational training beyond high school. According to the Bureau of Labor Statistics, the median weekly earnings for an employee with a bachelor’s degree was $1530 in 2024, $600 more than the median for workers with only a high school degree (Source).

What is an employee’s total investment in that four year degree? Economists at the New York branch of the Federal Reserve estimated the total cost, including the opportunity cost, at $180,000 per year (Source). That total included $30,000 in direct costs per year, and governments contributed student aid of about $15,000 per year. An employee has invested a whopping $720,000 in that four year degree, more than most people invest in their home. That same study estimated a 12% annual return on investment.

Federal and state governments have contributed about $60,000 total in aid over a four year period. Where did the student aid come from?General taxes. Is this charity for college students? Not so. Over a 40 year working career, an employee with a four year degree pays back the initial public investment with higher taxes. In 2009, researchers at the RAND organization estimated a worker with a four year degree contributes about $160,000 (in 2002 dollars) more in payroll taxes over a lifetime than a worker with a high school degree (Source). In 2024 dollars, that’s $284,000, almost five times the initial investment using government taxes.

Students are Capitalists

Most students do not think of themselves as capitalists. Like the employer who bought the tool, a student makes an investment in their own human capital and this affects their future earnings on average. The principle of distribution seems to be that whoever invests the capital, whether it is money, or a combination of one’s labor and money, gets to keep the majority of any additional profits from the increased productivity.

The Economic Policy Institute compiled federal productivity data since 1948 and calculated that workers have captured 60% of labor productivity gains in higher compensation (Source). What is not visible is the relative shares of investment by employees and employers.

The Distribution of the Gains From Invention

When an employee or group of employees invents a new product or process, current law holds that the product or process belongs to the employee(s). Here’s the text of an opinion in Banks v Unisys (2000): “The general rule is that an individual owns the patent rights to the subject matter of which he is an inventor, even though he conceived it or reduced it to practice in the course of his employment. There are two exceptions to this rule: first, an employer owns an employee’s invention if the employee is a party to an express contract to that effect; second, where an employee is hired to invent something or solve a particular problem, the property of the invention related to this effort may belong to the employer” (Source). Naturally, businesses work hard to draw up ironclad employment agreements to secure those intellectual property (IP) rights. The default legal principle may be that the creator owns the patent rights but a patent is a form a long term capital. A business survives by securing that capital. Legal principle is simply an obstacle to be overcome.

AI Competes with Human Capital

If an employer buys a tool for an employee, the tool is portable. Another employee can use it. A college education is regarded as human capital, but it is capital that is non-transferable. The development of Artificial Intelligence (AI) has fundamentally altered this aspect of human capital. ChatGPT, Claude, and other AI machines have been trained on the writing of millions of people. AI agents reduce knowledge to a series of connections between words, then compute the probability of those connections. They do not always understand context, but they don’t call in sick, take holidays or want healthcare insurance. AI may not replace the human brain’s ability to synthesize knowledge into new paradigms but it can replicate a lot of the work that people depend on for their livelihood.

The Constraints of Democratic Government  

Conventional economic models treat government mandates like minimum wage, sick and overtime policies and safety regulation as outside the market. Those who favor laissez-faire economics want to minimize those kinds of policies. Why? Government policies usually do not respond to changing market conditions. Secondly, they create incentives for businesses to avoid those additional costs by hiring people “off the books,” or treating them as subcontractors even though the workers perform their duties under the direction of the employer.

In a democracy, however, politicians are very much a part of the market. They must appeal to voters. They must compete for political donations. They must align with other politicians to get anything done. To exclude them is to ignore a vital component of the marketplace. Politicians get elected by promising to fix problems. Fixes come in two varieties: repair and restore. Populist Presidents like Reagan and Trump chose the restore option. They appealed to voters by promising to undo some of the policy fixes of past decades. Other politicians like Bernie Sanders promise to implement existing solutions on a broader scale, like Medicare-for-all, or solutions that have been tried in other countries.

The Weaknesses of the Price System

The price system cannot manage large imbalances of supply and demand. During the Gilded Age in the late 1800s and in the first decades of the 20th century, eastern cities were crowded with an influx of European immigrants. There was a plentiful supply of workers willing to work for low wages to survive and gain a foothold in their new country. Jacob Riis documented the appalling housing conditions in New York City at that time (Source). The free market system encouraged landlords to offer the least living space for the most money that the new immigrants could afford. In many businesses, human labor was an indistinguishable commodity. Business owners maximized their profits by offering low wages and few worker protections. Tragedies like the Triangle Shirtwaist Factory fire in 1911 alerted the general public to the inhumane working conditions that many people endured (Source). These events aroused a public demand for reform and regulation that marked the Progressive Era from 1900-1929 (Source).

The Demand for Regulation

The more dense an urban area, the greater the desire for regulations. In a densely populated area, people make choices that have an impact on their neighbors. Freedom of choice is limited by our neighbors’ freedom of choice. Land, drinking water and proper sanitation are, by their nature, limited resources. The free marketplace and the price system cannot manage naturally limited resources. Those who want to minimize the number of regulations they have to live with should move to a less crowded area. Many people do. Over time, that migration has created two sets of voters: those with a preference for less density and less regulation, and those whose tolerance of their neighbors and greater regulation is balanced by the advantages of an urban area.

I hope to see you next week when I explore that polarization.

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Photo by BoliviaInteligente on Unsplash

Effective Governments

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July 5, 2026

By Stephen Stofka

Last week I wrote about the system of rent control  in New York City as one of the many ways in which government interferes with a utopian model of laissez-faire economics. I had written that post earlier in the week and was surprised when the Rent Guidelines Board (RGB) voted to pass Mayor Mamdani’s proposal to freeze rents on rent stabilized units in the city for the next two years. This policy was similar to the old system of rent regulation known popularly as rent control. This week I want to look at several ways that government controls the price of essential commodities and services.

The Federal Reserve is an independent government agency that indirectly sets interest rates for all credit in the United States. This includes mortgages on homes, car loans, and credit cards. Higher interest rates increase business costs and businesses raise retail prices to their customers. Or do they? This is a debate among economists. The Fed raises interest rates to curb inflation, or the change in prices, not fan the inflationary flames. The theory is that higher interest rates will curb the use of credit, and push business costs higher. Interest is a factor of production that competes with other factors of production, namely labor. A reduction in the use of credit should lead to a lower demand for goods and services, prompting businesses to slow down their hiring and wage increases. That model fits the new car market where demand responds to price changes. That is not the case for goods and services that we buy each week.

Consumers pay higher monthly charges for rent, utilities, and food. Higher interest costs increase costs for landlords, leading to higher rents. Grocery stores pay for their food inventory with short term credit so higher interest rates put upward pressure on their costs and consumer prices. Farmers depend on credit so higher interest rates increase commodity prices, reduce farmers’ profits, or both. Electrical utilities finance all their capital improvements so higher interest rates increase utility bills each month. Unlike the market for cars, demand for these essential goods is inelastic, meaning that demand is rather insensitive to price changes.

Production costs and prices for new cars are affected, but demand for new cars does respond to price changes so this provides a counterbalancing effect, reducing the price increases. However, since people hold onto their vehicles longer, this reduces the number of used cars available for sale. Because the price of used cars is less than new cars, the demand for used cars increases. Both supply and demand factors increase the prices for used cars.

In setting interest rate policy, the Federal Reserve pays closer attention to a measure they call the Core CPI, the Consumer Price Index without volatile food and energy costs. They do this to gain a sense of underlying inflation trends. Here is a chart from the Bureau of Labor Statistics comparing different CPI measures as of May 2026 (Source).

Rising gas prices after the U.S. and Israel attacked Iran produced a spike in gasoline costs which accounted for most of the huge increase in energy costs. The Fed’s target inflation rate is 2%,  below either the All Item CPI (red), or the Core CPI measure (lime). Because of that, the members of the Fed’s interest rate setting committee, the FOMC, will lean toward a policy of rising or at least steady interest rates. This will put further pressure on consumer sentiments,  reducing the number of consumers who can qualify for home mortgages and car loans, even as higher gas prices effectively tax consumers.

Consider a small business whose employees make service calls. Plumbing, electrical, HVAC and home repair businesses typically consume a lot of gasoline. In addition, they frequently use a short term line of credit to carry their accounts receivable. Higher interest rates and higher gas prices are squeezing these kinds of companies from both directions. The same for farmers and ranchers who use a lot of gas and short term credit.

Interest rate policy affects all businesses and consumers but especially redistributes wealth among different businesses and consumers just as effectively as a policy of rent regulation does in New York City. Donald Trump’s decision to be led by the nose into Israel’s long running feud with Iran sparked a sharp rise in the price of gasoline. This effectively redistributed wealth from the working class, the blue collar trades, and rural folks to the weapons manufacturers and bankers who profit from war and a higher deficit. It’s an especially cruel blow to rural folks who voted for Trump. His comment that he doesn’t think about the effect of the war on the finances of everyday folks was an indication of the contempt he holds for working people (Source).

The government subsidizes a lot of perishable foods, influencing the pricing and availability of milk and dairy products, fruits and vegetables, meat, poultry, eggs and seafood. It does this largely through subsidies for animal feed, disaster assistance, crop insurance, and USDA purchases of food for public nutrition programs. A person who favors a policy of minimal government interference in markets may not realize that the price of their eggs is influenced by government programs which help to lower consumer prices.

The most government subsidies are channeled to commodity crops like corn, wheat and soybeans. Fruit and vegetable farmers complain that they receive far less subsidies for their crops than the growers of these crops. The subsidies for corn used to produce high fructose corn syrup have led to a sharp rise in obesity and higher healthcare costs (Source). Lower prices for fruits and vegetables would lead to greater consumption and might reduce the obesity epidemic. Subsidies for one type of food producer, the growers of commodity crops, redistributes wealth from tomato farmers in California to corn farmers in Iowa.

SNAP benefits, known as food stamps, provide food assistance to low income households (Source). Those who favor a reduced role for government may be accused of lacking compassion for others, particularly children. They argue that such programs are not the role of the federal government. Let the states create, administer and fund such charity programs. However, those states with the highest percentage of low income families don’t have the resources to fund such programs. One in five households in New Mexico, for example, qualifies for SNAP benefits  (Source). The national average is one in eight households. This is the irony of need. Those with the greatest need have the fewest resources. How a society handles these resource contradictions are central to its character.

Economists of the late 19th century forced a separation between the disciplines of economics, sociology and political science in order to understand economic principles better. Stanley Jevons, Alfred Marshall, and Francis Edgeworth were some of the leaders of this movement away from the complicated socio-political analysis of economics of Marx, David Ricardo and the Ricardian Socialists of the mid-19th century. The social, political, economical and ethical aspects of our daily lives are bound together in what I will call an ethosphere, the how of engaging with others in a society. Studying just one aspect in isolation leads to faulty conclusions.

Some economists and pundits treat the government as an actor outside the marketplace because it has taxation and police powers that other members of society lack. A corporation has unique features and powers as well. We don’t treat corporations as alien to the marketplace. The question is not whether government should take an active role in this ethosphere. It can’t help but take an active role. The question is the type of role it takes, not how active it should be. An effective government creates programs of redistribution to solidify political support among the various factions of a society. These programs increase a government’s capacity, build its legitimacy among its citizens, reduce the frictions that lead to civil war and help a government survive.

Next week I hope to explore the four components of the ethosphere. Hope to see you then.

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Photo by Ayush Kumar on Unsplash