Category: law

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

The Bounded and Boundless

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November 23, 2025

By Stephen Stofka

I forget how old I was when I learned that there were numbers between the numbers, that 1.333 was between 1 and 2, for example. We lived on the east coast near the ocean. Learning that there were more decimals between 1 and 2 than all the grains of sand on all the beaches in the world astounded me. A brush with infinity. My dad worked for Lockheed Aircraft doing sheet metal fabrication and worked with decimals all day. “The prices in the grocery store are simple decimals,” he told me. “Take away the dollar sign and you have a decimal.” To me, it was a revelation, a connection between what we learned in school and the adult world outside school. Math was a skill, a mind tool.

This week I want to examine two axes. The first is an axis of countability, from discrete to continuous. The concept is familiar to students in computer science, math and statistics, but I want to use that axis to help me understand some philosophical and historical ideas. Discrete data is countable, like the number of students in a class. Continuous data is not countable, like a person’s height. At first, this might seem confusing, because we do measure height. Parents may mark their children’s increasing height on a door jamb, but those are marks we make of a continuous process of growth.

Like the marks of height on a door jamb, I want to contrast countable things as they appear in a continuous field of related data. For instance, we can count the number of days but time itself is continuous. We can always discover a smaller unit of time until we get to Planck time, the smallest unit of time current theory allows us to count (Source). We borrow money for a car. We can count that, but we can’t count the use of that car, the utility we will get from the car.

Most of us are familiar with the drawing of the Mandelbrot fractal that I included at the beginning of this essay. At first glance, the protuberances or spikes on the blob seem countable and the image seems defined, but as I zoom in, I see that the Mandelbrot fractal is replicated inside of each protuberance. I can keep zooming in and the fractal appears much like it did when I was zoomed out.

At the opposite ends of another axis are law and custom. Laws and regulations are defined rules. We can identify when a law was made, a regulation written. Customs, on the other hand, are behaviors and understandings that evolve over time. Marriage and funeral ceremonies help bind a community together. Trading goods and services helps us manage our daily needs. As a society becomes more organized, these customs become institutions. People write laws to codify the customs.

 
A law becomes law on a certain date using a specific number of words. It has definition like a whole number, but the meaning of that law is not so definite, like the real numbers that lie between the whole numbers. In a 1965 decision in Griswold v. Connecticut (1965), the Supreme Court struck down an old Connecticut law that banned the use of contraceptives by married couples and forbade medical personnel from providing information about birth control. The decision was based on a right to privacy not explicitly stated but contained within the “penumbra” of the guarantees of several amendments to the Constitution (Source).

Justices and scholars of different persuasions liked the result of the decision but not the reasoning. Former Justice Ginsburg thought the justification was too vague and that the court should not have restricted the right of privacy only to married coupled. She thought that the court should have based its decision on the equality principle in the 14th Amendment (Source). In a 1992 case Planned Parenthood of Southeastern Pa. v Casey, the majority of the Supreme Court held that the right to privacy had a better grounding in the 5th Amendment’s Due Process clause (Source).

Conservative justices who favor textual analysis do not like penumbras. They favor a just the text approach as though the text of a law provided some definite boundaries that separated the judiciary from the legislature. Sometimes the text of the law gets in the way of a desired conclusion and a textual analysis simply ignores the text as Justice Scalia did in the 2008 Heller decision. His reasoning dismissed a third of the words in the Second Amendment and overturned two centuries of law and custom. A law and its interpretation often follow separate but related paths.

Textualist justices prefer a narrow interpretation of the word liberty in the 5th and 14th Amendments. Richard Epstein (2014, p. 323) disagrees, making a case for an interpretation of liberty to include a broad liberty of contract. What does that mean? We enter informal contracts when we buy and sell goods in the marketplace. We enter employment contracts when we begin working for an employer. We enter a contract when we get married. He advocates limits on government intruding on these liberties which are grounded in custom, in the very nature of being human.            

Last week I wrote about many of the variables that economists must infer from the data. Many of these inferred variables are rates, like the natural rate of interest, or a potential rate of growth, or a natural rate of unemployment. In these cases, the word “natural” is used as Adam Smith and other people of the 18th century used the word, as usual, common or average. If an unemployment rate averages 5% over ten years, that 5% becomes a benchmark. Economists focus on any deviations above and below that benchmark. The 5% is like a pencil line on a door jamb to mark a child’s growth. Each month personnel at the Bureau of Labor Statistics try to estimate unemployment but it is only an estimate, a mark within a continuous process. People leave jobs and start new jobs every minute of the day.

The economist John Maynard Keynes attributed the business cycle to an imbalance of “animal spirits.” While this sounds very much like Galen’s medical theory involving humors, Keynes recognized that investor sentiment is a continuous process. We can mark the day that the stock market dropped 10%, for example, but that is a discrete event that occurred within a field of investor sentiment. Because sentiment is continuous, it does not suddenly turn unless in reaction to an act of war or some other catastrophic event. When sentiment reaches a particular threshold, investors buy or sell. They react to the buy and sell decisions of other investors. The buying and selling are discrete events but the animal spirits that provoke those events is continuous.

What are discrete customs or cultural institutions? Rituals or holidays like Christmas and Thanksgiving come to mind. A people or a culture define the beginning and end of a holiday period. If it is May 10, it is not Christmas. What is continuous is the preparations for Christmas. Shortly after Christmas, stores begin to plan for the following Christmas. First comes the analysis of what was sold and not sold, the excess inventory or items out of stock during the holiday season. Was there a problem with the displays, the layout of the store or the merchandise? Were customers not directed properly to popular items? Did the store managers misjudge the popularity of some items? Were there problems with the wholesale distributors? Once again, we see a discrete event like Christmas operating in a field of continuous activity.

We can count the letters of the alphabet like we can count whole numbers. We use ten symbols like 1, 2, 3 and so on, adding to them and rearranging them to count to infinity. We have 26 letters and we can do the same as we did with numbers, adding letters to form the names of columns in a spreadsheet or words in a book. The letters and numbers are symbols, formed by darkening some of the points of a page that has an uncountable number of points. Again, we see this phenomenon of the defined, like the number 1, as little more than a mark in a field of white that is not countable.

Historians study events, marking their beginnings and endings with other events. World War 2 began when Hitler invaded Poland and ended when he committed suicide as the Soviet army entered Berlin, the capital of Germany. Like a law, the interpretation of a war defies easy analysis because war emerges from a continuous stream of perceived injustices, human vanities and vices. This provides a deep pool of research material for historians as they try to unravel the causal threads before, during and after a war.

We define people, animals, plants and things with a set of facts that act as a boundary. Anatomically, a horse has four legs, and a long head, and long legs, and one hoof per leg, and so on. Like the drawing books we had as kids, these facts are the dots, the boundaries of the definition of a horse. But that doesn’t answer the question What makes a horse? Those are amorphous qualities that each of us might see differently. Gentleness, agreeableness, patience and pluckiness come to mind. A horse is its well defined physicality and its less defined qualities, as well as the feelings that a horse evokes in me.

I began this essay with a story from grade school. Finally I jumped off the philosophical cliff, concluding that everything that is bounded swims in a pool of the boundless. Everything that exists is an instantiation of a continuous process, an emergence from some sequence of circumstances. What do you think? Have a good turkey day and I hope to see you next week!

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Photo by Shino Nakamura on Unsplash

Epstein, R. A. (2014). The classical liberal constitution: The uncertain quest for limited government. Harvard University Press.

Claims to Truth

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August 4, 2024

by Stephen Stofka

In this week’s letter I will clean up my notes on the judiciary before I start a series on investing next week. For several millennia, human societies have struggled to figure out the how and the who of lawmaking. How to construct a rule whose language is clear enough to be understood but flexible enough to apply to varying circumstances? Who will enforce the rules? How will they be enforced?

Let me start with a real story from my childhood. My younger brother and I were only one and a half years apart in age and were quite competitive. Tired of listening to my brother and I argue over the rules of various card games we played, our dad bought us a book called Hoyle’s Official Book of Games. This resolved some of our disputes, but still we argued over the interpretation of the rules. If a rule in Rummy requires a player to play a card once they have touched it, how to interpret the word “touch?” If a gust of wind threatens to toss a few cards from the deck, can a player reach out to prevent that without having to take that card? What if a player grazes the card with their elbow while reaching for a drink?

Former Supreme Court Justice Stephen Breyer (2024) wrote that many cases the court decides can hinge on the interpretation of one or two words in a law. In the Heller decision on the Second Amendment, the majority and dissenting justices wrote 80 pages of argument over the meaning of “bear arms” in the Second Amendment. He quotes the example of a railroad that required passengers to pay full fare for each animal they brought on board. When a biology teacher brought a number of snails on the train for a class, the conductor charged the teacher a fare for the snails. When the teacher complained that the rule was meant for pets, the conductor explained that the rule used the word “animals,” not “pets.” Snails are animals.

If you were a judge, how would you rule? Breyer’s story raises the question: what if the rule said, “domestic animals?” What does the term “domestic” specify regarding animals? An animal related to a person’s home or family. Snails can be kept at home so even this change in the rule could be interpreted to include snails. The most important symbol in mathematics is the equals sign. There are specific rules of valid operations on either side of an equals sign. Plain language has no equals sign. For centuries, French was the language of diplomacy. The language has fewer words, which conveniently left agreements between diplomats open to interpretation.

If the truth were an island, it would be stained with the blood of millions. Throughout history, kings, philosophers and countries have laid claim to and fought over the truth. In 17th century Britain, a civil war erupted between monarchists, those loyal to the king and the power of the king, and Parliamentarians, those loyal to the Parliament as representatives of the people’s will. Robert Filmer, a noted monarchist, argued that the right to property comes from God through the King. John Locke argued that the right to property comes directly from God. When God drove Adam and Eve out of the garden, He told the couple they would have to work the land for their survival. Therefore, those who cultivate the land add value to the land and “thereby makes it his property” (PDF link, p. 116). The state merely recognizes that title. In later centuries, the American colonists would use this reasoning to deny that Indians had any right to the land because they did not cultivate it.

Journalists often make claims on the truth. Matthew Yglesias wrote on his Substack “this is journalism, and we owe a duty of truth to our audience.” He referred to “journalists’ obligations of candor,” but truth and candor, or honesty, are different. In its 1964 decision New York Times v. Sullivan, the Supreme Court ruled that statements about public officials were not subject to claims of libel unless they were shown to be made with “actual malice” and a disregard for the truth. That is a standard of candor, not truth.

The American Bar Association states that lawyers “must be honest, but they don’t have to be truthful.” They distinguish between being honest and being truthful. “A defense lawyer has no obligation to actively present the truth.” Being honest requires only that “Counsel may not deliberately mislead the court.” A lawyer who serves their client’s interest by making a false representation to the court risks disbarment. Rudy Guiliani was recently disbarred for making deliberate misrepresentations to further Trump’s claims of a stolen election.

A witness, on the other hand, must vow to “tell the whole truth” to the court. Politicians take no such vow, nor do they pledge a vow of candor, to be honest with the public. They take an oath of office to “support and defend the Constitution against all enemies,” a vague statement open to wide interpretation. It is up to the public to judge their lies, and to assess the importance of those lies. Abraham Lincoln supposedly claimed that all the people could not be fooled all the time, but a politician does not have to meet that high bar. They only need to fool enough of their constituents to get re-elected.

Should Congress set minimum years of service as a judge for Supreme Court nominees? Chief Justice John Roberts, and Justices Kagan and Thomas had the fewest years on the bench before joining the Court. I will leave the details and links in the footnotes. I have many more notes after reading Breyer’s recent book, but I will close this for now. Next week, I hope to present some perspective on investing in plain language without equations.

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Photo by John Cameron on Unsplash

Keywords: rules, honesty

Breyer, S. G. (2024). Reading the constitution: Why I chose pragmatism, not textualism. Simon & Schuster.

The link to the justices’ bios is here. Chief Justice John Roberts served as an Appeals Court judge for only 2 years before becoming Chief Justice. Justice Clarence Thomas – one year. Justice Samuel Alito – 16 years. Justice Elena Kagan had no prior judge experience. Justice Sonia Sotomayor – 16 years. Justice Neil Gorsuch – 10 years on an appeals court.. Justice Brett Kavanaugh – 12 years. Justice Amy Coney Barrett – 3 years. Justice Ketanji Brown Jackson – 9 years.