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.

Keep 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.

Sometimes 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 bottom 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.