Surplus: Community

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.

Canva - Persons Raising Hands-1In 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.

Continue reading “Surplus: Community”

Surplus: Winners and Losers

the-weight-of-the-2032357_960_720In 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.

Continue reading “Surplus: Winners and Losers”

Surplus: The Changes

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”