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”

Surplus: The Concept

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 oblijohnny_automatic_bag_of_moneygations 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.

Continue reading “Surplus: The Concept”

Unbelievable Opportunities

IMG_0801Let 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.

Continue reading “Unbelievable Opportunities”

Surplus: A New Series

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.

 

 

 

 

The Adjustments

earthTrust me, aging brings change along with it. Some of the changes are predictable, others not. In the hope of helping us learn better ways to deal with change, I would like to share with you the experiences I’m going through and how I am adapting to the changes they bring about.

To do that I am starting a new series of blog posts entitled “The Adjustments”. It is designed to address the issues that I am facing associated with aging and how I am adapting to them — sometimes successfully and sometimes less so.

For each of us one thing is certain. At some time in the future we will die. When I was growing up in the 1930s Social Security –a.k.a., Old Age Benefits (OAB) –- was just introduced. They came into play at 65. The expectation was that you might make it to that age, or perhaps longer. My dad died at 68. The bottom line is that the amount of time we have left here on Mother Earth is uncertain. I certainly can attest to that at 91, going on 92. For each of us that opens up the question “What do we want to do during the rest of our lives?” There’s another way is to ask that question. In light of the uncertainty, how do we want to use our limited remaining time, energy, resources and funds (TERF).

I’ve addressed the question and here’s what I’ve come up with. Let me begin by telling you a little about myself.  I call myself a nominally retired economist. I have lived alone here in Carrboro in a two-bedroom ground-floor apartment for the last 15 years. One of the bedrooms serves as my office-study-studio-playspace. I am pretty much able to do all the things necessary to take care of myself on a day-to-day, week-to-week basis with some occasional help. (You can see more about me in the blog post entitled “Me–Then ’til Now“). My primary objective is to do just that — that is, to take responsibility for and take care of myself and when I require assistance, to compensate those who provide it. Most of my remaining disposable time, energy, resources and funds (TERF) are used in finding ways in which, based on my background, experience, and expertise, I can help others. The books, essays, video and blog posts on this blog are a part of my contribution. My plan is to continue on that path. Hopefully that will be part of my legacy. Continue reading “The Adjustments”

Creativity: Ideas, Invention, and Innovation

I recently attended a seminar on creativity at the Seymour Senior Center. It was conducted by Carl Nordgren and I found it very revealing. One of the things he emphasized was that creativity exists and that it changes throughout our entire lifetime. I’d like to share with you what my perspective as an economist reveals for me about the nature and consequences of that creativity.

Playfulness, curiosity, inquiry and improvisation are essential elements of creativity. However, by no means are they the whole story. It is one thing to have a creative “idea” and another thing to make the idea into a reality.

Let’s consider creativity under very different circumstances. The first is when someone comes up with an idea that has no prior experience or understanding of what it takes to get from here to there. For now it is just a new idea, one that popped into their head. The second is when the person who comes up with the idea has a clear understanding of the related processes of production — of what it takes to get from where they are to where they want to be. Then there is the situation where he/she is a recognized, highly-skilled Creative Master Craftsperson who comes upon an idea that pushes the boundaries of their discipline. Perhaps it is an entirely new product, a variation of an existing one, an art work, or a novel, lower-cost, more ‘efficient’ way of producing the product itself.

ideaKeep in mind that there is a significant difference between:

  • having a new idea,
  • bringing it to fruition the first time — the invention, and
  • producing multiple similar copies of it – the innovation.

Sometimes the new ideas come about because the creator has multiple skill sets or a familiarity with different materials or different methods of production.

When an innovation comes into being and is widely accepted, it displaces the old ways of doing things. The new ways make some portion of the population better off. Nonetheless, the displacement causes harm to others and makes them worse off, including those who were involved in supplying the products that were previously relevant.

To begin the discussion of creativity I’ll tell you a story. Last Saturday I was at the Carrboro Farmers Market. I was at Bill Daigle’s booth sitting on one of beautifully crafted chairs. Bill is a woodworker, who calls himself “The Chairman’. (Check out his website and the attached pictures of his work.) I spent a little time watching a three-year-old boy that we’ll call Sam.

His parents were deeply involved in conversation with friends they had just spotted at the market. Sam saw the footrest of one of Bill’s chairs and was singularly focused on it and playing around it. He climbed on top of the footrest, got off and moved it up against the chair. Sam then climbed onto the foot rest and then the chair, where he sat in it with his legs on the footrest. After a while Sam got bored and decided to check out the table that Bill had built with various paraphernalia on it. Along with the other things were some ‘healing crosses’ Bill created. Sam started playing with them. One fell off the table and hit the floor, drawing his mother’s attention. Sam ran over and grabbed his father’s leg for support. The video of the experience is still in my head!

Sam exhibited curiosity in dealing with a new, novel situation –a setting he had not previously experienced. His curiosity led to exploratory, experiential and experimental behavior, allowing Sam to do what he wanted to do. Sam’s creativity certainly worked for him.

Let’s compare Sam’s behavior with that of a Creative Master Craftsperson’s. We are talking about a person that is highly skilled, experienced and fully understands the “process of production” — what it takes to get from where you are to where you want to be. Among my idols are Frank Lloyd Wright, Isamu Noguchi and Louis Armstrong. Choose yours and imagine that you are right there along with them when they came up with n idea and begin working on it. They go through their own creative process, one based on their extensive knowledge and experience. The end result is there for all to see.

In that context let’s look at the situation where s/he comes up with a creative idea — a new object, piece of music, creative work, or new process of production. It is something no one ever thought of previously.

The next stage is when the new idea pushes all previous boundaries of the discipline. When the idea comes to fruition it becomes an ‘invention’, something that is new, novel and not simply an extension of previous experience. Under those circumstances it may be patentable.

invention-industrial-revolutionSometimes the new idea comes from a person with extensive prior experience. At other times it comes out of the blue. In either case, it is necessary to go from the idea itself to the initial successful attempt to bring it to fruition — the invention. The invention goes through its own process of production, which by its very nature cannot have been experienced previously. Typically, it is not a simple direct path without any hiccups. In all cases some of society’s limited time, energy, resources and funds (TERF) are required to make it happen.

There is another circumstance that is important to keep in mind. During the entire time from when s/he originally comes up with the idea until it comes to fruition, s/he must have sufficient TERF and the basic goods and services required to survive and to fulfill any obligations or commitments that they have taken on. All activities related to the development of the “idea” must come out of the individual’s and society’s discretionary disposable TERF.

Importantly, there is no guarantee that the idea will ever come to fruition. Nevertheless, all the limited TERF involved is used up in the process. When the idea does not become a reality, it is TERF that could have served a more useful purpose. Furthermore, there is no guarantee that the invention, even when it is patentable, ever sees the light of day. In the 1930s my Dad got a patent for an umbrella tent. That is as far as it ever went. The invention becomes part of the public domain after the patent protection period when it becomes available to other potential producers.

The next step is to follow through with the invention and make the new product or new process of production available to potential users — its innovation. Two intermediary steps are required. The first is to set up the process of production for the new product or process. That often requires changes in the way the invention was produced initially. The second is to make potential customers knowledgeable about the innovation — its uses, benefits, potential issues and its price. To be able to remain in business, the sales price must at least cover all of the long-run, most efficient costs of production, marketing and distribution of the good or service at the selected level of output. (For more details about pricing in this situation, see my essay on “Monopoly Pricing”.)

When the innovator is able to provide the customers — the households, firms and/or governments — with the quantity demanded for the product or service at the market price (to use the lay-term) we’re in business! When the price charged exceeds all the long-run cost of production, the company makes “excess profits”. Those are returns over and above all of the costs required to produce the product or service, including a reasonable return for coming up with the invention.

When the price charged for the innovation is over and above its long-run cost of production, the higher price takes money out of consumer’s pocket. They could have used those funds to purchase additional goods and services that they would have preferred. That would make society’s product mix more consistent with the public’s desires. The net effect of that type of pricing is that it makes it more difficult for those at the lower end of the income distribution to become better off.

Moreover, the excess profits provide the company, the managers and owners with additional funds. Those funds help them maintain their position in the upper-end of the income distribution. Some of those funds can be used to maintain and extend the monopoly position and also to engage in economic and political activities that promotes their private agendas. It is also important to recognize that every innovation changes the basic technological and economic conditions under which we, as individuals and as a society, operate. That is especially true of the innovations that have a profound effect on our lives, livelihood and lifestyle. (If you are not convinced about that I suggest you check out my blog post entitled “Me — Then ’til Now”.

Also importantly, every innovation mandates change. The old ways of doing things are no longer the best way and, in fact, they may become irrelevant. As a result the companies and individuals that produced the “old products” — like horse-drawn carriages — are displaced and replaced by the firms and employees producing the new products. The technical economic term for it is “the reallocation of scarce resources”. The reallocationbottom line is that while some households and firms are made better off as a result of the innovation, others are harmed and made worse off. Perhaps one way to help them would be to assist them in their transition. Some of the funds necessary to make that happen could come out of “excess profits” earned as a result of the innovation.

In summary

The challenge we face, both as individuals and as a society, is to discover what creates and triggers our creativity. It is likely to be different for each of us. As an aside, it would also be interesting to find out what suppresses it. Once we determine that it will be easier to promote creativity.

The “idea” triggered by creativity opens up uncertainty as to whether the new product or process of production is, in fact, achievable and also what it would take in terms of the time, energy, resources and funds (TERF) to make it happen. Nevertheless, the idea will never become a reality unless the necessary disposable discretionary TERF is available. Furthermore, the innovation brings changes along with it. They include the transformation to the new technological and economic conditions and the unintended consequences, like the use of disposable TERF for unsuccessful ventures and those firms and individuals who are made worse off by the new developments. Those consequences come along with the benefits the new innovation brings. An integral part of creativity and the innovation is that it brings along with it the resulting changes that the societies have to adjust to.

The Rash of Anti-Abortion Legislation

heart-3846613_960_720As human beings we are largely all alike, 99.9  percent of our DNA is the same.  Despite the differences in gender, sexual orientation, appearance, our skin color and the shape of our eyes and nose, etc., we have far more in common than different. Nonetheless, each of us is different. We all have different combinations of genes, skills, strengths and weaknesses, background and experiences. Those differences make it possible for us each to make a unique contribution.

There has been a recent rash of anti-abortion legislation. Some States have made it illegal to have an abortion once the fetal heartbeat can be detected, which can occur before the woman even knows that she is pregnant. Let’s take a closer look at the consequences — on the woman, the child and society — of making it illegal for a woman to have an abortion when she would elect to have one.

Regardless of the circumstances that led to the pregnancy, making it illegal for a woman to have an abortion puts her in a very difficult position. Because the decision is forced on her, this changes her life, lifestyle and her life path. It places her decision in the hands of others. She and the child bear the consequences and the burdens of the unwanted pregnancy. Typically, she receives little or no additional support or help adjust to the decision that was forced upon her. Much of the time the man, who is also responsible for the pregnancy, is not held accountable for the results of his actions.

The unwanted pregnancy also has important additional consequences. Each of us, as adults, is responsible for taking care of ourselves on a daily basis. That obviously becomes more difficult for a woman in the case of an unwanted pregnancy. That responsibility is present regardless of her age and marital status. It is even more difficult to fulfill when she is single, a teenager, or the victim of rape or incest. If she elects not to put the child up for adoption, that added burden of raising a child she didn’t plan on having, continues until both are adults. Under any of those circumstances not allowing her to have an abortion when she wants one, clearly, places an additional burden on her and the child.

Continue reading “The Rash of Anti-Abortion Legislation”