Back in the days when I ran Florida Gulf Coast University’s Regional Economic Research Institute, I made regular presentations on Southwest Florida’s economy. I’d occasionally introduce monetary theory in my talks, which is not something recommended for aspiring young economists. While these concepts cause some economists’ hearts to pitter-patter, they don’t connect with the rank and file who consider monetary anything synonymous with boredom. So, I treaded lightly in those presentations.

But the monetary lesson is important for understanding our region’s economy and even its broader culture. Then and now, the monetary models guiding policy invoke the neutrality assumption, which is the idea that increases in the money supply affect the economy equally. If true, we can instead turn our attention to more pressing concerns such as Taylor Swift’s relationship status or the latest diet fads, and not on Fed policy—if its effects are the same from Maine to Florida to California.

The neutrality assumption has deep roots in economic theory, going back at least to David Hume and updated by Milton Friedman’s helicopter theory. The problem is that new money isn’t distributed equally across the economy. Rather, it goes from pocket to pocket, and the first recipients of the new money benefit because they spend it early in the business cycle before it causes prices to rise. Wall Street and urban areas receive the brunt of the benefit relative to, say, small-town Main Street or Appalachia.

This explains why, when the national economy is growing, Florida tends to grow at an accelerated pace and why Southwest Florida often outpaces the rest of the state. That would be the extent of monetary theory brought into my presentations. I’d move on to airport data and hope eyes weren’t glazing too much.

Fast forward to today. Elites are finally asking what’s feeding yawning ideological and political chasms, why they happen and what they portend. This discussion usually focuses on how technology—and especially social media algorithms—has changed how we consume the news, feeding disagreement and disunity relative to the landscape existing before individualized newsfeeds were invented.

But monetary theory also feeds these divisions, especially if money is not neutral and favors some groups or regions over others—a lesson supported in “Partisan Expectations and COVID-Era Inflation,” a new research paper by Carola Binder, Rupal Kamdar and Jane Ryngaert. These economists (from Haverford College, Indiana University-Bloomington and Notre Dame, respectively), found that U.S. metropolitan areas dominated by Republican and independent voters tended to have more inflation in 2022 than those dominated by Democrats.

The paper’s authors emphasize the economic point that inflationary expectations often lead to higher prices as businesses respond to rising costs. They write: “[H]ouseholds of different partisan leanings interpreted macroeconomic conditions and information about the inflationary impact of shocks differently. Regional variation in political composition means that different parts of the country were differentially exposed to these differences in interpretations. Thus, even though the United States is a monetary union with a common monetary policy regime across regions, expectations of long-run inflation vary across regions.”

An uncanny Wall Street Journal analysis of the paper supported this conclusion, finding that the 25 states voting for Donald Trump in 2020 tended to have higher price increases from December 2019 to April 2024 than the 25 voting for Joe Biden. (It also reported on a March 2024 survey finding concern in swing states that inflation was still moving in the wrong direction.)

What to conclude?

First, if money were neutral, increases in the money supply would flow equally in Immokalee and Naples, or on Sanibel and in Lehigh. But capital tends to go where it’s most protected and productive.

Second, money’s non-neutrality feeds the political division in ways not possible when government spending—and the inflation making it possible—were constrained. It’s not just Facebook algorithms feeding these silos.

One is reminded of economist Murray Rothbard’s point that the correct money supply is whatever amount necessary to satisfy desired transactions—and increasing it above this amount confers no long-run social benefit. Is mainstream economic analysis catching on?

Christopher Westley is dean of the Lutgert College of Business at Florida Gulf Coast University.