The strong performance on Tuesday (11/4/2025) of Democrats—particularly the governors’ of NJ and VA races and the NYC mayor’s race—has been attributed to the candidates’ disciplined messaging on their intention to address questions of affordability.

In the case of Zohran Mamdani, he promised to freeze Rent Stabilized apartment rents, to deliver free and efficient bus transportation, to open a city-owned grocery store in each borough, and to provide universal free pre-school child care.

All these component costs of the household’s monthly budget (shelter, transportation, groceries, child-care) share one thing in common: their increasing un-affordability was predicted in the 1960s by William Baumol and William Bowen in an economic analysis known as “The Baumol Effect,” which Baumol also called “Cost Disease.” This phenomenon reveals a number of mathematically predictable effects within an economy that experiences a difference in growth of productivity across sectors:

1. Increased productivity in one sector of the economy raises the wealth of the whole economy taken together
2. The phenomenon of cross-sector elasticity between the inputs (i.e., labor) of high productivity-growth sectors and of low productivity-growth sectors will cause upward pressure on wages of those working in the low productivity-growth sectors even without increased output
3. High productivity-growth sectors will engage a shrinking proportion of the labor force as (by definition) fewer workers are required to produce the same output, so a growing proportion of the population will be engaged in lower-productivity sectors
4. While the rising cost of labor input for goods in the high productivity-growth sectors is absorbed by the increased productivity and allows prices for those goods to remain the same (or even decrease) even as the wages for those (fewer) workers producing these goods rise, goods and services produced in the low productivity-growth sectors must adjust for higher input cost of labor by raising the price charged
5. KEY POINT: While the price of these low productivity-growth goods will never rise in cost as a proportion of the value of the economy as a whole, the actual price for these goods will rise out of reach for those workers whose labor market value lags behind the productivity of the whole economy (see NOTE below)

This is exactly what we see: whereas it used to be a good rule of thumb that housing cost should comprise about one quarter of one’s wages, it is now common to sink half or more of a month’s income into NYC rent; the cost of (hand-picked) fresh vegetables is climbing out of reach; and the 1:4, 1:6, or 1:12 ratio of care taker to pre-school child presses compensation for this work down to poverty level while most hard-working families can’t even afford to pay it.

It should be clear that all these goods and services are in low productivity-growth sectors., and are therefore obviously going to be increasingly unaffordable for all except for those who benefit disproportionately from their participation in—and control of—the high productivity-growth sectors.

The fact that we have come sixty years without acting on these predictable conditions is not at all surprising, according to the theories of Neil Howe and William Strauss regarding cycles of American history (see “Generations; the History if America’s Future, 1584 to 2069” William Morrow & Co, 1991). Within their theory, they observe that the “Fourth Turning,” or winter season of the cycle, is the time when many festering ills that have been allowed to persist are addressed. We are now in this winter season of American history; the season to remake, re-invent, and re-imagine this last, best hope of humankind is upon us. By 2030, this country will either be firmly entrenched as an authoritarian kleptocracy or we will be well on our way to more fully realizing a multi-cultural egalitarian democracy. It is also interesting that the conditions of an entrenched, authoritarian kleptocracy look very much like the conditions that Jared Diamond describes in “Collapse; How Societies Choose to Fail or Succeed” (Penguin Books, 2011) of a society about to fail.

Following Tuesday’s results, as Democrats begin the work of delivering on their promises to tackle the problem of increasing un-affordability, their task is to model an economic structure that accounts for the Baumol Effect and re-establishes the value and dignity of each member of society.

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NOTE: Just as the cross-elasticity of demand would push up wages in the low productivity-growth sectors, so also will it pull down (from otherwise supportable levels) the wages of those lucky enough to work in the high productivity-growth sectors. This leaves considerable “unconstrained” value ripe for extraction by those who control the high productivity-growth sectors. We see the effect of this in the data that shows relatively flat income growth over the last 20-40 years despite great strides in productivity growth in many sectors of the economy over the period.

The inevitable result is a tendency to concentrate this “excess” wealth into the hands of a shrinking group of individuals. Anti-progressive tax policy has exaggerated this ill effect. Rather than enhancing the ability to extract and silo the excess value that increased productivity within subsets of the economy enables, tax policy ought to provide the distributive economic pressure that laissez-faire markets fail to provide.

We now have 0.1% of the population controlling a full 30% of the economic wealth of the country, and 10% of the population controls considerably more than 50%. Are these 0.1% inherently of more value as human beings than the teacher or strawberry-picker or day-care worker whose wages in low growth-productivity sectors have fallen behind the productivity growth of the over-all economy? Are they smarter? More capable? Surely, some combination of initiative, insight, access to resources, and connections peculiar to a few individuals enabled their success that has contributed to this great advance in productivity. They should reap substantial rewards for exploiting these advantages (instead of wasting them through sloth) to the benefit of the entire economy.

But should they be entitled to hoard the full, unconstrained value to the extent that they destabilize the whole?

This question is important because “Tax the rich!” Is a compelling argument to the many in the less well-placed population, but to the well-off it is a non-starter and evidence of vindictive politicking against those who (in their own minds) have taken extraordinary risks to enhance the productivity of the economy. Framing the question in the manner suggested—synonymous to the effort to repatriate the externalities of environmental degradation to those whose economic contributions gave rise to it—the issue becomes a question of government intervention to re-establish equilibriums missed by purely market forces.