'Like, it's the creative vibe, man' (2)

Way way back .. in the day .. I completed an undergraduate degree in economics. I'd always planned to be a teacher (since aged 7 years, would you believe), but did briefly entertain the idea of being a professional economist. I was never good enough .. whew.. dodged a bullet!! However that body of knowledge to some degree persists in my head (the cynical might say it is seared into my brain and left me permanently scarred), so I hope you'll forgive this wee foray into some speculation around creativity and economics.

The issue of the moment seems to be the efficacy of the education system, and talk about creativity might well be easily dismissed as 'woke', as 'soft', as missing the point about the need for the 'three Rs', to which many educators will no doubt be letting out long sighs and gasps.

I'd have to say that the literature generally seems to be very supportive of the efficacy of creativity as a vehicle, as an impactful approach, to education, and something that benefits society in many ways. So this has me thinking about how we foster greater creativity. This lead to some simple (some would say simplistic) concepts from economics. Why economics? I wonder if the only way to get real change is via the traditional 'market signals' of prices. Do we need to flick the switch of 'self interest' that lies at the heart of neo-liberal economics in order to get the 'buy in', the support that this all needs?

Just a cautionary note: I am not arguing that what you will read below is correct. It is intended as something of a 'provocation'. It is less important to be right, than it is to be engaged, at the moment.

I was struck by a connection with what economists call the 'elasticity of supply'. Alfred Marshall wrote of the concept of time periods in economics. These are not defined by our usual measures of time, but rather by the variability of the factors of production, or inputs, that firms use. Marshall describes the momentary, short run, and long run time periods. Here is a typical undergraduate summary. The  economy's resources or factors of production are typically classified as land (all natural resources), labour (all human inputs), capital (all man-made goods used to make other goods), and entrepreneurship (the willingness to take risks, and to organise production). I have found varying definitions for Marshall's time periods, but the most universal seem to be these:

The momentary time period is that in which no factors of production can be changed.

The short run is that time period when some factors can be changed, but some cannot.

The long run is that time period in which all factors can be varied.

The supply curves look like this:

In the momentary time period, no changes in price will induce changes in the quantity supplied from producers. They simply cannot vary any inputs, therefore they cannot vary outputs.

In the short run increases in price will induce some increases in output, because some factors of production (natural, human, and entrepreneurship, in particular) can be varied. However the producers don't have enough time to vary capital inputs (machinery and buildings are the big ones here).

In the long run an increase in prices will induce larger increases in quantity supplied, because producers have enough time to build new buildings, buy new machinery, invent new processes etc i.e.. they are able to vary ALL of the inputs into production

I have been thinking about a relationship between prices and creativity. I wondered if there might be a similar general relationship between prices and creativity in the economy. I am NOT saying that producers BUY creativity. 

The model I am suggesting assumes that we might have some way of measuring creativity in order to quantify it along an axis. Attempts have been made, but rather than talking about creativity they typically talk about innovation. In an article titled "What’s the Real Difference between Creativity and Innovation?" by Sarah Stone, published on June 16, 2022

"Creativity involves generating original and unique ideas, while innovation is about implementing those ideas to create value. Understanding these distinctions is essential for organizations and individuals looking to remain competitive in their respective fields. "

However if you'll forgive me the looseness here, I am trying to suggest a concept rather than a strictly econometric relationship.

In that momentary time period, there is no time to be 'additionally creative in an economic sense.

In the short run, as prices vary, it is possible to vary to some degree the amount of creativity and innovation, and their consequential impact on production. However because producers have 'staked their claim', 'drawn their line in the sand', with their specific capital investment, they will be unwilling to make many changes their current investments. They will see current plant and processes as 'sunk costs' from which they need to garner a return. Therefore they will be relatively unwilling to invest in new processes, unless in some way they see themselves at risk of being whisked away by the pace of change. The current AI revolution may be a case in point.

In the long run, all bets are off, and creativity and innovation could rule.

So I wonder if the 'chunky' nature of capital inhibits creativity. Once producers are locked into a specific set of capital investment decisions, do they then effectively turn their back on new creative solutions as they seek to recover the 'sunk costs' of their capital investment?

This approach looks at individual markets, but what about the economy as a whole?

So, as prices rise in an economy, do they in fact induce more creativity, innovation if you prefer, from producers? It is of course possible that as prices rise, producers are getting adequate reward from their existing processes and capital investment, and so in fact their incentive to innovate and be creative diminishes.

I adapted an old Keynesian model to the following:

In the longer run as prices rise, they induce increased creativity, which in turn increases GDP and incomes.

Interestingly, the relationship could actually be the opposite. In a paper titled 'Does innovation promote economic growth? Evidence from European countries', Rana P. Maradana, Rudra P. Pradhan*, Saurav Dash, Kunal Gaurav, Manju Jayakumar and Debaleena Chatterjee, 2017, the authors establish that while it seems reasonable that increased innovation leads to economic growth, the relationship can also move in the opposite direction. Increased economic growth can lead to increased innovation. Quoting from the paper Abstract:

"The paper examines the long-run relationship between innovation and per capita economic growth in the 19 European countries over the period 1989–2014. This study uses six different indicators of innovation: patents-residents, patents-non- residents, research and development expenditure, researchers in research and development activities, high-technology exports, and scientific and technical journal articles to examine this long-run relationship with per capita economic growth. Using cointegration technique, the study finds evidence of long-run relationship between innovation and per capita economic growth in most of the cases, typically with reference to the use of a particular innovation indicator. Using Granger causality test, the study finds the presence of both unidirectional and bidirectional causality between innovation and per capita economic growth." (my emphasis)

So IF innovation and creativity tend to go hand in hand (that might be quite a leap), then we might be able to expect growing economies to generate more creativity across communities.

And how does this connect with the concept of the learning city? There seems to be a cyclic relationship between growth and creativity/innovation. Creativity leads to innovation which leads to economic growth which leads creativity which leads innovation which leads to ... ... etc

And I've already written about how creativity and learning seem to be inextricably linked. Is learning the kick starter to creativity? Is creativity the kickstarter to learning? Does it matter? What impact would we have on learning if we engendered more creativity? What impact would we have on creativity and innovation if we engendered more learning? In particular what impact would we have either way if we built a whole city permeated with the creative and learning ethos?

The issue seems to be that we think about the circuit breaker(s) that will set this cycle on it's way.

References

'Does innovation promote economic growth? Evidence from European countries', Rana P. Maradana, Rudra P. Pradhan*, Saurav Dash, Kunal Gaurav, Manju Jayakumar and Debaleena Chatterjee, 2017 

"What’s the Real Difference between Creativity and Innovation?" Sarah Stone, June 16, 2022