New Commitments

Let’s talk about taking on a new commitment. It is based on the experience of my friend, Bob and his wife, Pam. (Of course, their names have been changed to protect the innocent.) 

Before we begin here’s a reminder.  It is important to remember that the amount of Time, Energy, Resources and Funds (TERF) that each of us has is limited.  Whatever TERF we use for any purpose, we give up whatever else it could have provided. Of necessity in that context, there are our prior priorities. They include, first and foremost, taking responsibility for taking care of ourselves and fulfilling any obligations that we have taken on, as well as any prior commitments we made — in that order. Fulfilling those priorities requires some of our Time, Energy, Resources and Funds. In order to take on any additional commitments is necessary to have Surplus TERF. Without additional Surplus TERF the performance of the prior obligations will be compromised. 

Bob is a fine woodworker in his late 60s. He is actively pursuing his passion and career.  He keeps coming up with new ideas and products. Bob is especially known for his Adirondack chairs which are made from unfinished local  Eastern red cedar with stainless steel hardware. They weather naturally and beautifully. Pam is a teacher who works with preschool children some of whom are developmentally disabled. It is their second marriage. They live on a 1.5 acre property in rural North Carolina about an hour south of the Chapel Hill-Carrboro area where we met. Their house, along with the workshop, was designed and built by Bob. They enjoy hanging out with each other and going to concerts and NASCAR races together. They have some goats and other animals on the property. 

Bob and Pam went to an animal rescue center and decided to take on the commitment of taking care of a King George spaniel . The pooch had a prior history and had been returned to the center twice.  Her name is Daisy. Habitually at 3 o’clock in the morning Daisy came into the bedroom and started barking. To put it mildly that was disruptive. Add to that the medication for a heart problem cost them $100 dollars a month along with her special dog food.  Talk about an unexpected commitment that cut into their TERF!

Bob and Pam decided to return Daisy to the shelter so that  she did not cut into their peaceful night sleep. It is important to recognize that fulfilling any commitment requires TERF over and above the amount we expended previously. In order to ensure that there is enough TERF available to sustain the prior activities,  it must come from Surplus TERF — over and above that required to meet those objectives. A certain amount of the TERF is always required to perform sequence of tasks necessary to meet any desired objective. Unless all the components required to complete the new project come out of Surplus TERF it cuts into our ability to successfully perform the obligations and commitments that take priority — that includes taking care of ourselves. 

Taking on additional commitments is more difficult, or impossible, for those at the lower-end of the income distribution. Some individuals and households just do not have sufficient TERF to take care of themselves and fulfill their obligations. Furthermore, regardless of whether we take the likely consequences of our actions beforehand or not, once we take on the commitment we bear the consequences. That includes both the expected and unexpected and the favorable, and the unfavorable, ones. Furthermore, when the experience is a new and novel,  like COVID-19, there are bound to be unexpected effects, that are simply not predictable ahead of time. Under those circumstances it is useful to have additional Surplus TERF in order to adjust to those outcomes, like additional hospital beds and ventilators. The new circumstances can also make it necessary to reorder one’s previous priorities. The pandemic is a classic example. 

We always have to remember that it is necessary to have enough Surplus TERF to take care of the unexpected glitches that are bound to happen, including the perversity of inanimate objects, like the times when we turn the key and the car won’t start or when we wake up with a severe headache. Circumstances that require some of the Surplus TERF, including taking on any new commitment, not only applies to individuals and households, it is relevant for firms, governments, organizations, institutions and for society as well.  


Baskets: Unacknowledged Accomplishments

I learned the mantra — Art is a product of the culture — from Prof. Clemens Sommer in my Art History course at UNC-Chapel Hill. It has always resonated for me. From my perspective as an economist, it has taken on a special meaning that I would like to share with you. Art is like any other product. To be created it must go through a process of production. That process requires some of the limited time, energy, skills, tools, equipment, materials and other resources that are available locally at the time. The primary use for those inputs is to provide the goods and services the population needs to take care of itself just to survive. Art comes along afterward.

For any individual to be able create art there has to be a Surplus. Surplus is the time, energy, resources and funds (TERF) you have left over after taking care of yourself and fulfilling any obligations and commitments that were taken on. Not only does the concept apply to individuals, the concept applies to a society as a whole as well.Some of the surplus TERF can be used to produce art. Notably, when the art is sold that increases income and adds to the surplus.Typically art is not part of current consumption. Consequently producing any art requires a surplus.

It is from that perspective that I would like to re-examine Prof. Sommer’s mantra with you in the context of what happened on the small, mountainous tropical 19 1/2 sq.mi. island in the Caribbean known as St. John. St. John, along with its larger sister islands, St. Thomas and St. Croix, were originally part the Danish West Indies. Today they are part of the US Virgin Islands. In earlier years, because of the nature of transportation and communication, St. John was quite isolated, especially when boats were under sail and there were no phones and no internet.

Evidence of art on St. John reaches back into prehistoric times. Art is etched in stone in Reef Bay as petroglyphs. They tell us of the existence and a little bit about a culture that existed at the time. Not only did these ancient artists have the creative imagination, skills and tools to create artwork, the culture also had to have the sufficient surplus time, energy, and resources to make this art possible. A St. John artist, David Ferguson, many, many, many years later copied the images of these petroglyphs and put them on a T-shirt, which I have gladly worn for many years. During the historic period, centuries later, St. John had a very important art form — St. John baskets. They were around long before paper and plastic bags. Baskets are typically thought of as functional items however, some baskets have reached level of high end art.

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Surplus: Inefficiency

Canva - 20 Us Dollar BillsHaving 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.

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Surplus: Collective Decisions

Canva - People DancingAs 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”

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.

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