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 20^th 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