Having a surplus is an essential component in the creative process. To bring an idea to fruition a surplus is necessary. Moreover, the greater the amount of surplus that is devoted to higher priorities, including additional consumption, the less of it is available for creative ventures. Not only is that true for a novel work of art, it also applies to any invention or innovation. For more about the creative process see my blog post entitled “Creativity: Ideas, Invention, and Innovation”. It makes no difference whether we are talking about a new product, a new process of production, a new way of getting products to consumers, a new work of art or any other new, novel concept.
Let’s begin by looking at works of art. It is important to realize that a surplus is required before any work of art can be created. That is because the artwork is not part of the goods and services the artist uses up daily for current consumption. On a daily basis survival, along with one’s other priorities, comes first. Moreover, the materials, equipment and supplies that go into making the work of art come out of surplus as well. An essential element of the creative process is that there is no guarantee ahead of time that the idea will ever come to fruition. Regardless of whether it does or doesn’t, the person who comes up with the idea must use some of their limited TERF just to survive and to fulfill any obligations and commitments that they have taken on. That takes priority over all else. Continue reading “Surplus: Creativity”→
Having a surplus is essential to creativity. Without a surplus there would be no new products or new processes of production, some of which can lead to lower costs and prices.
Typically when we think of “efficiency” we imagine that the product was made in the simplest, most direct, least expensive way — avoiding any waste. Certainly, new products and processes of production can be more efficient than the old ones.
However, that is part just of what we, as economists, mean when we talk about efficiency. When we call a society efficient there is a second and very important component: that the society produces the mix of goods and services that the people want most at a price that just covers the cost of production.
While the existence of a surplus makes that possible, it also creates circumstances that make it less likely. Surplus puts money into the hands of the innovators — both the companies and those at the upper-end of the income distribution. They can use that extra surplus to reinforce a company’s market position and promote the recipients political agenda. When the innovation is widely adopted the significant addition to surplus makes that outcome more likely. It reminds me of the old adage ‘Money talks’.
Let’s take a closer look at how the increased surplus can lead to greater inefficiency.
Initially there is strong incentive to inform potential customers about the new product and to get it to market as soon as possible. Other considerations fall by the wayside. The Boeing 737 Max is an example. Effectively the company took over the government’s role and responsibility for ensuring plane’s safety.
As we discussed in the earlier blog posts about surplus, our primary responsibility is is to use some of our limited time, energy, resources and funds (TERF) to take care of ourselves and fulfill any commitments and obligations that we have taken on. The balance of our disposable TERF is our surplus. Not only is that true for us as individuals and for households, it holds true for any aggregation of them and for the society as a whole as well. The groups of individuals to which the concept of surplus applies include: families, extended families, teams, tribes, communities, villages, churches, clubs, firms, organizations, towns, the district, states, nations, international organizations and the world’s population.
Just as with individuals, first and foremost, the group must produce or have enough goods and services available to sustain itself over time. The decision of how to use the balance of their surplus is not only the aggregate decision of the single individuals and households, it also depends on the aggregate decisions of the group.
Regardless of how a decision is arrived at, a group decision on what projects to undertake and how to use their surplus is effectively a joint decision. Furthermore, in order to transform any idea into a reality, collective, coordinated, collaborative action is required. Depending on the size of the project, it can take a considerable amount of the limited TERF, and sometime years, decades or even longer to make it happen. Continue reading “Surplus: Collective Decisions”→
Here I am at 92 still learning important lessons. Let me tell you a story. As things have changed, like not being able to drive and the deterioration of my vision due to an inflamed retina and Age-Related Macular Degeneration, I realized that I needed additional assistance to to do some of the things I used to be able to do on my own. I got in touch with an organization that hires out companion care for seniors. They provided me with a delightful assistant. Her name is Lauren.
I arranged for Lauren to come by every Monday from 2 to 4 PM. Typically, Lauren and I would jump into her vehicle do some chores, including the week’s shopping. Lauren, just 26, quickly learned the things I like. Moreover, she is a delight to work with and to be with. One time we picked up a nice piece of salmon. We got back to the house and began preparing dinner. I was pan broiling the salmon and the LP gas ran out! Luckily, my next-door neighbor, Deborah, said that we could use her electric stove. Lauren and I carried the pots over and finished the preparations. We sat down to dinner together and cleaned up afterward. What a delight.
When we were ordered by our governor to stay-at-home because of COVID-19, Lauren went to Trader Joe’s and picked up everything I needed for the week. I was set. However, a few weeks later Lauren did not show up at our normal time. I found out from her supervisor, Ann, that Lauren had a fever and would not be available for a couple of weeks. Ann provided a backup. Continue reading “Lesson from Lauren”→
Let’s take a look of the broader effects on society that the changes in technological and economic conditions have brought about. The first step is to check out a list of products that were not previously available. A good starting point is the list in the previous blog post entitled “The Changes”. Then try to imagine what life would be like without them. In some cases, like no plastics, no smartphones and not having the Interstates, it is very difficult even to imagine. There is no question that many of the changes have made almost everyone better off.
That is certainly true for anyone who has adequate surplus, making it possible for them to purchase new products. It is also true for those who were pushed into upper-end of the income distribution as a result of the changes.
The role of the economic system is to provide the goods and services that consumers want most at a price that just covers the long run costs of production and distribution in the most efficient manner. When the market mechanism does not adequately perform that function, it opens up a possible role for government intervention. Just look at the recent pandemic and the chaos that has ensued. We’ll talk more about that later.
In a democracy the government is of the people, by the people, and for the people with liberty and justice for all. It is not a government controlled by the elite few who have been able to obtain a position of power, like a dictatorship, an oligarchy or by those at the upper-end of the income distribution.
Those who developed the new products and new processes of production deserve to be rewarded for the contributions that made others better off. However, often they have used their newly acquired additional surplus to engage in activities that push them even further into the upper-end of the income distribution and enable them promote their private agenda.
They often use some of their newly gotten gains — additional surplus — to promote and extend their market position and to engage in activities that are self-centered and designed to increase their surplus even further. By doing so they fail to take account of the members of society that have been harmed by their actions.
In attempting to understand the consequences of the new technological and economic conditions, and the changes that covid-19 has brought along with it,we need to take a look at the list of products that were not available previously. The list on the previous blog post is a good starting point. Then try to imagine what life would be like without them. In some cases, like no Smartphones and no Interstates, it is even difficult to conceive of the possibility. There is no question that many of the changes have made almost everyone better off.
That is certainly true for anyone who has an adequate surplus, making it possible for them to purchase those products. Those who developed the new products and made them available deserve to be rewarded for their contribution. They benefit from the changes and have been pushed into the upper-end of the income distribution.
However, that is not true for everyone. Let us take a look at the effects on consumers when companies charge prices in excess of the long run costs of production and distribution.
Consumers and other users benefit from the new products that become available. They also benefit when the lower costs that are the result of the new processes of production and distribution lead to lower prices. Clearly, the companies who provided those products benefit as well. So do their suppliers and distributors. In addition, the executives, managers, owners and employees of each of those firms experience an increase in their surplus.
Changes in technological and economic conditions is the primary underlying cause for the income redistribution. In 1945 at the end of World War II things were a lot different than they are now. TVs had just come on the market. Planes had propellers. There were no Jets. With the exception of Bakelite, there were no plastics. Nylon, the first of the synthetic fibers, had just come on the market. Microwave ovens had not arrived yet. Business machines used punchcards. The IBM machines, with 90% of the market, used cards with rectangular holes. Remington Rand’s, with the remaining 10%, had circular holes. We did have adding machines and desktop calculators, but no computers. They had not yet come into existence.
In 1952 I was an economist at the Federal Trade Commission. At the time there were five computers in the world. They were powered by cathode-ray tubes, not transistors, and each filled a large room. IBM, the National Bureau of Standards, MIT, the University of Illinois and the University of Pennsylvania each had one. The U of P computer was developed by Eckert and Mauchly. In order to get into the computer business Remington Rand acquired their company. Continue reading “Surplus: The Changes”→
Let’s talk about the concept of surplus. As adults each of us has the primary responsibility of taking care of ourselves, first and foremost. That involves providing the goods and services necessary to survive on a day-to-day, week-to-week, month-to-month basis — the air, water, food, sleep, clothing, shelter, etc. Over and above that it is necessary to use our limited time, energy, resources and funds (TERF) to fulfill any obligations and commitments that we have taken on. Let’s call that our primary objectives. Either we produce the goods and services required to satisfy those objectives ourselves or we purchase them with the income received from the goods and services we provide to others.
Here is how an individual and the aggregation of individuals — what economists call the household — can decide to use its disposable TERF (the amount left over after satisfying the primary objectives). Some of it can be used in the following ways: to increase the consumption of goods and services; be put aside for future consumption — into saving; used to pay off previous loans; or assist other individuals and households that do not have sufficient disposable income to survive long-term. Some of the funds can be set aside to cover unexpected expenses. Or can be devoted to the attempt to develop new products or processes of production — innovations (some of which may be successful) or used to create works of art, or anything else the individual or household may decide to do with its remaining TERF.
Any income that we have left over after fulfilling the primary objectives is our disposable discretionary income — the surplus. The left over funds can be used for anything else we choose to do with them. How we choose to use the surplus is up to each of us. For those at the lower-end of the income distribution—almost all, all and sometimes, even more than all of their disposable income is used up just to survive. The more of our income that we are able to withhold from current consumption, the greater the surplus.
Let me begin by telling you a story about Bill Daigle. Bill was raised on a farm in Minnesota. He was born in 1954, one of 14 siblings. Bill got his training in mechanical drawing. Initially that is how he made his living. He shifted jobs to become a salesman for a nonprofit life insurance company, working his way up the line into management. The company moved Bill from Minnesota to Arkansas and eventually to North Carolina, where he “retired” in 1989. Bill built himself a home with a studio where he lives with his second wife, Paula.
Every day, at 65, Bill does just what he always wanted to do, namely, work in wood. Bill calls himself “The Chairman”. Have a look at some pictures of Bill’s work.
On Saturdays you will find my friend, Bill at the Carrboro Farmers Market, where he displays and sells his work and watches the young children playing on a footstool or with a wooden plane or truck, sometimes under a parent‘s watchful eye. That’s where we met.
Bill is doing what he loves doing and uses his unique skills and expertise to produce products others like. If he elects to sell the work, he gets some bucks on the side. That’s not too bad. He can use the extra money to help take care of himself and his family, and to do the additional things they like doing.
Can you imagine yourself as a “retiree” and being in Bill’s position? That is, spending your days doing what you love doing and selling the work — the products and/or the services — to others who are willing to pay your asking price. As an aside, they are willing to give up that amount of money just to get your work.
For a while now I have been working on this series of blog posts entitled “Surplus”. One’s primary responsibility is to take care of oneself and fulfill any obligations and commitments that we have taken on. The remaining discretionary time, energy, resources and funds is our disposable TERF — our Surplus. Only you can decide what you want to do with it.
The current coronavirus — COVID-19 — provides an important example of why it is necessary to take our surplus into consideration when making our decisions. The virus brings on a new set of circumstances, along with the accompanying uncertainties. Those new conditions affect the appropriate decisions. For example, if your income declines and you do not have additional surplus set aside, adjusting to the virus is difficult. It is my hope that this blog series, “Surplus” will provide you with a better understanding of the nature and consequences of the concept, so that the choices you make will be better for you.