Thoughts on "Buy Local"

[Originally published in the Front Range Voluntaryist, article by Mike Morris]

The idea of “buying local” for the sake of doing so is one that is perpetuated in the popular culture. It’s no less popular today than it was before, somewhat ushered back into prominence by Trump’s idea of forcing people to produce domestically, or punishing those who produce foreignly and sell to us imported goods with “border taxes,” i.e., tariffs.

This fallacy exists on both ends of the political spectrum: Democrat-types like it for their idea of supporting the town’s little shops, Republican-types have their equally unfounded infatuation with “Made in U.S.A.” There are even growing traditions such as Small Business Saturday to follow up the envy of Friday’s big box-store purchases, as if those jobs mean less.

The economists at the Colorado Springs Business Journal accept this idea, too. In an article by Helen Robinson titled “Buying local produces big economic results,” Nathan Landry of the Colorado Springs Regional Business Alliance is quoted saying, “There’s no argument. When you spend locally, more of it stays in the local economy.” Well, perhaps that much is true. But we must ask however if the positive effects that are derived from this statement, which seem to suggest that money and consumption are what matters, are erroneous.

The concept

Before tackling related fallacies, the whole concept of “buy local” should be challenged on its face: where is local? Is it the neighborhood, a certain side of town, towns right outside city limits, other cities in the same state, other states? Clearly it must be arbitrary where to stop with the “local” rationale, but we can assume this at least ends with the fictional borders of the country, which is a sort of unfounded economic nationalism. But most likely it is something closer to home. My guess is that proponents of “buy local” have no idea where “local” starts and stops, and probably haven’t even thought about it. It seems to be another thing you’re supposed to just accept and move on.

The concept is rendered meaningless as no geographical boundary can be defined as to what is “local.” Perhaps it is nothing more than a marketing ploy. We see in Colorado grocery stores now a “Colorado Proud” tag on items, but does it really matter to the consumer where the product came from?

It is also a matter of who does what best, which isn’t concerned with location. If Mexicans produce cheaper avocados than Californians (I don’t know that they do), Californians should find something they’re relatively more productive at, leaving the avocado business to Mexicans; the consumer should purchase the cheaper avocado and be on with his day. Namely, then, this all misses the idea of comparative advantage and the need to exchange with others to satisfy our ends.

Contracting with each other in voluntary exchanges is the means of raising our standard of living beyond what we alone are capable of. To restrict this exchange because arbitrary borders have been raised between them is only to hamper mutually beneficial exchange. And furthermore, there are only individual actors seeking means to satisfy their own subjectively valued ends. There is not this collective which should “buy local,” nor should any one person be told who he should exchange and contract with.

This concept can get even more absurd, though. Many people, if left to “buy local,” would quite literally die. Specialized medical services are offered in Denver, Colorado which are not offered in rural parts, or even other bigger cities such as Colorado Springs. Should the old lady in the small mountain community, without the specialist she needs or the specialized medical equipment required, be told to “buy local?” No way! She needs to not “buy local.”It is a non-local facility (or is it) that can fulfill her needs. (Or, is heading to Denver actually still local?) This is almost to say that someone cannot get what they want unless the locale in which they reside in produces it. You shouldn’t buy a Gibson guitar if you live in Colorado, because they’re made in Tennessee (using wood that comes from anywhere else).

Thankfully, however, this absurdity isn’t held up between interstate trade. Rarely anyone would even think you shouldn’t buy something from Kansas or Kansas shouldn’t buy products from Colorado. But what about the other “local” economies, then, that aren’t local to us? Should they boycott our products? Should we unleash a trade war where there is no more cross-border exchange, where authorities get to define the borders? What’s the point in all this? Is the goal to end exchange and make everyone self-sufficient? Probably not.

What about labor? All of the time local companies are bringing in workers from out of state to perform jobs that locals cannot. I recently met some pipe manufacturers from Utah who told me that no one in Colorado even makes the pipe they needed, so they were called out for the job. Were they stealing “local” jobs? Were they “taking money out of the local economy,” as the “buy local” sees it? Should they be told to keep away since when locals are employed instead (though they obviously cannot do the job), the “money leaks out of the economy more slowly,” as Paul Rochette of Summit Economics is quoted saying in the article? Again, I don’t think so.

There are endless considerations. Should no “local” companies be allowed to buy labor from someone who doesn’t live in Colorado? Must employers only purchase doctors who were born, raised, and trained in Colorado? I hope you can sense the absurdity in these notions. Can foreign companies make beneficial capital investment in our local economy, even though they will make their profits “overseas?” Can locals make investment outside of their local community?

Really, the whole idea is a wash. Each state, each city, each neighborhood might all be said to have trade deficits with each other. They all might contribute to a product before it’s in its final stages, ready to be consumed. If a Coloradan spends his money in Texas, a Texan will spend his money in Colorado. It really doesn’t matter. Are we to tell traveling Texans that they should turn around and “go back home and spend their money locally,” because “we don’t want the tourism...and Texans are hoping they’d spend it locally too?” Holding the “buy local” fetish would have to imply these things.

The economics

In the article it’s stated that, “subsequent rounds of spending,” after the businesses have received the money from the locals, will “increase the local impact of that money far beyond the dollar value of the original purchase.” How so? Money is simply the medium of exchange, but here it’s spoken of as if it does the work itself and is the end. This notion of “keeping the money circulating” (and locally) is a funny conception of the economy. There is no such thing as making “your dollar work harder,” as Robinson states it.

I guess we’re then at the magic of the so-called Keynesian multiplier as the reason for not buying outside of your local economy, presumably “when possible.” This idea holds that, “an increase in spending creates a ripple effect that ultimately generates increases in employment, income and consumption greater than the initial amount spent.” This is an excuse to justify government taxation and spending under the belief it can somehow “stimulate” the economy. But it’s not true, despite its wide acceptance, that increased consumer spending increases employment. And as they’re for in the article, it’s assumed government spending can simply increase wealth by boosting economic activity, no matter what this activity is. It might even be true in the short-run that government can “create jobs” by stimulating bad investments via credit creation, but then these jobs building homes, constructing bridges to nowhere, etc., will inevitably go bust in the end. It is also the job that is not the end itself, but a means to the end of consumption.

But the fundamental importance is to see that production must precede consumption. This is Say’s Law, which Keynes allegedly refuted, which is at the heart of the issue here. Before we have purchasing power, something must be produced that enables us to buy another product. Printing new money does not create more purchasing power in the economy. The driving force of the economy is entrepreneurship and production, not simply consumption as they see it, in which all is needed for people to spend more money to enrich others.

The example

They then delve into even deeper fallacious territory by explaining how it is that this magic “multiplier” plays out. Tom Binnings at Summit Economics explains: “The direct impact is the first round of spending. Let’s say the dollars come in to the local community from wages paid to military personnel….The military facility, say Fort Carson, then buys from local contractors based in Colorado Springs. The more they buy locally to support the facility, the more indirect impact is generated.”

By this logic we're supposed to believe that taxing productive people and redistributing it to the military, who produces nothing in exchange (i.e., exchange nothing for something), makes the local economy richer than if it had never been taxed in the first place. What should be obvious, taxation heightens the cost of production and lowers the cost of consuming other’s property through the political means. Taxation doesn’t create new things, but destroys productive efforts. Government spending must be counted as consumption, not investment. The point is, the government is not producing something to earn an income, but they take, via taxation, from productive activity. The government is not of the nature of the private business which seeks to exchange with others.

Government spending can thus scarcely be considered beneficial. In fact, all intervention into the economy must be considered a net-loss, as only the free-market can maximize what we might call social utility. Never can government intervention do so. It is the difference between voluntary exchange and violent or coerced exchange. Taxation always has an injured party whereas free exchange is mutually beneficial. The State is parasitical on production (of which the end goal is consumption), not a public benefactor as such economic reasoning related to the buy local fallacy would have it.

If taxation were ended, it is true that none of this military spending would continue. But it can be made up for by private—and productive—spending once the taxation were ended. Would this mean we lose out on the alleged benefits of the Federal government taxing us, giving it to welfare recipients on Fort Carson, who then spend money into the economy (though having offered up no good or service themselves)? No. It’s just that government has screwed a lot of and will continue to do so. But if the extortion to fund the military, a force for evil in the world, were to be ended, then since government has caused a massive misallocation in resources, they would indeed unwind in the event they were to stop redistributing property. Businesses built up around serving the military would perhaps fail; people working for the State would have to get real jobs.

But this economic correction is needed, as taxation siphons off wealth to blow it where ever the government thinks is necessary. Is it an argument against ending the theft of taxation because less soldiers will spend their money at the grocery store now? No way. This spending as of now is funded by compelling payment from the taxpayers, and cannot be said to benefit them as they otherwise wouldn’t have made the choice. If they would have, then there would be no need for taxation. But if this money were back in their hands, rather than that of murderous thieves, then they could choose where to spend it. Indeed, we wouldn’t be blowing it on this multi-trillion dollar military that is is burdening the economy, but other more useful things.

We wouldn’t see so many contractors coming into town doing seemingly never-ending construction on Fort Carson. But we don’t need them. In fact, rather, if the tax-extortion ended we would be spending our money on things that benefit consumers directly—like housing, or whatever else it is we desire and demand—instead of to satisfy government, i.e., using the money to luxuriously and wastefully spend on military personnel who necessary add no benefit to the community whatever. Soldiers would be more productive to get real jobs that satisfy consumer needs, not whatever it is they’re currently doing, which cannot rightfully and honestly be considered “work” as it’s considered.

Whatever value it is they’re said to produce is apart from individual’s subjective valuations, so it’s dubious to suggest it’s a good thing. Much less does stealing from us and spending it back into the economy supposedly nearly double the initial spending. The military-industrial complex is not in the business of satisfying people, but in taking from the productive and giving to themselves. To believe they economically support us, rather than to see them as a drain on the economy supported by ourselves, is totally fallacious. This is the whole purpose of taxation: deprive the consumers of their desires to satisfy the government’s.

The military in this sense is nothing but a giant welfare program, and it cannot be said to be of benefit to the economy anymore than if they increased the food stamp budget and they all bought “local” produce with it. The wages paid to the military are not from goods or services they offered someone else, but are paid out of extortion (tax) money. To act as if they’re a benefit to economic growth would contradict their other fallacious notion that “freedom isn’t free,” which would seem to suggest there is a cost to have a tax-funded defense monopoly decide how much it is we owe them in the supposed cause of freedom. For economists to come along and excuse them as a public benefactor is telling of people who supposedly have taken an honest approach to economics.

Statistics

To back up this effect of a dollar spent locally continually working harder to produce more wealth, they report that, “the Colorado State Demography Office recorded a 1.84 percent multiplier for El Paso County, Binnings said. Every dollar spent ultimately generated $1.84.” Who knows how such statistic is derived or what this even means. In a genuine free-market, there is no need for statisticians. We need entrepreneurs and producers, not quacks making up numbers for government data, attempting to reduce the human component to an equation. They should all go get real jobs too, like the military. Collecting statistics is a need only under the notion that the government should intervene in the economy.

There is no way to aggregate complex economic exchange into one simple number such as consumer prices or economic growth, and there’s no need to do so either. Perhaps some companies might find it useful to collect data on economic activity as to help plan for their own private investments, but we don’t need economic central planning or spending.

Keynesians

The “buy local” fallacy is essentially the Keynesian fallacy of the economy as demand-driven. This thinking still dominates economic thought today. The Keynesian strain (or should I say, stain?), which I think the “buy local” idea might originate, is to think that keeping the money local and consuming as much as possible has an increased “multiplier” effect, and is therefore better. But again, what or where is “local?” The only answer must be arbitrary and assume that money sloshing around various hands is the needed economic activity.

Indeed, Keynesians think consumption could be on just anything, divorced of a need to use scarce resources (labor, capital) toward the most highest-valued needs. This is how to get things moving again. Make-work infrastructure projects funded by the government will suffice as “stimulus,” which is the notion in this article that military spending is the needed boost. Keynes famously posited that the Treasury could bury money in a coal mine, cover it in trash, and the economic activity (for activity’s sake) of having people dig it up would make the people richer and end unemployment.

Keynes also thought a lack of spending could cause unemployment, and monetary or fiscal tools should be used to remedy this. Keynesianism, one eventually discovers, is but a cover for State aggression in the guise of economic efficiency and stability, of which is never achieved. This would seem to be what is suggested by saying the military makes us better off than if we had not been robbed by them and spent the money ourselves.

If anything, though, an increased demand for money (by holding off consumption) is a good thing as this will lower prices, as an increase in money-holding (pejoratively: “hoarding”) can only occur by bidding down money-prices elsewhere. Keynesians have an irrational fear of “money hoarding” since it would take away from consumption, the driver of the economy in their view. Keynes also wrongfully feared this meant business would anticipate falling prices, thus causing businesses to reduce investment and to hoard their money too. The free market is alleged to be inherently unstable, and Keynesian economics its savior.

But if you spend too much, since it’s believed this consumption drives rising prices, then it should be checked by increased taxation! “The economy,” to Keynesian macroeconomists, seems to be this manipulatable thing that becomes sluggish sometimes (justifying government spending and inflation) or “overheats” (requiring raising taxes and running budget surpluses).

What a sham! Any solution is a government one. The ethical reality, however, is that people need to be free in their preferences, to consume, save, hold cash. They don’t need to have their choices made for them under the idea that “the economy” can be made better off (though this is untrue). “The economy” is not this entity to be played around with using supposedly sophisticated models no layman could understand. Manipulation of interest rates, a favored policy, will get us nowhere in genuine economic growth. In fact, artificially depressing interest rates is the cause of the business cycle, which Keynesians have said they would end (though never have).

Keynesian ideas, despite having claimed to be capable of achieving a post-scarcity world in a generation, and despite remaining the policies we live with today, are highly destructive to the pool of real wealth in the economy. Essentially, Keynesianism is nothing but an economic rationale for government intervention into the economy. It is social engineering, more or less. It’s a policy of inflationism. But as should be sufficiently demonstrated already, monetary expansion (inflation) cannot be used to make us richer. Any economy is enriched by an increased amount of goods and services available, not by “more money.” It is capital investment that raises the demand for labor and wages, not spending or laboring for the sake of doing such (“buy local”).

Keynesians engage other fallacies too, such as assuming there can be involuntary unemployment on the free market, in which case it is the role of the State to step in and create “full employment,” a stated goal of the central bank today. The market cannot be trusted, it’s said. Keynes believed adding money to the economy can have a positive effect on employment, but this isn’t true either. Since there’s no involuntary unemployment in the market economy, as Keynes believed, a “full employment” policy by the government is but a scheme.

The real way to end unemployment is to end government interventionism into the labor market that created it. If employers only hire when wages are perceived to be lower than the marginal value product, in which it would be a loss to hire any further, then imposing a minimum wage law above the marginal productivity of labor will cause disemployment.

So surely, there is no money supply problem, as the central bank and others think. And spending more money isn’t what’s needed. An economy is not in need of more money, but more production; and more money doesn’t stimulate more production, but only decreases the purchasing power of each preexisting money unit. Once a natural money is established, i.e., gold or silver, there is no “shortage of the money supply” warranting someone to step in and inflate and counterfeit more notes, which is certainly the Keynesian prescription we’re given. Again, to no avail.

How do we get rich?

So what is always needed is more production and capital investment, not more monetary consumption. Indeed, in refraining from consumption and investing, this savings is the means to extend production into the future as to expand output. More goods are created by more capital investment. It is a low time-preference society that can increase its wealth. Taxation heightens time-preference and thus makes us poorer.

The driving force behind the economy is entrepreneurial investment. This is what creates employment. This requires savings in order to make happen, which means foregoing consumption. Inflation, which is the policy of creating new money, is not the same thing as savings. Indeed, since it must decrease the purchasing power of every pre existing monetary unit, inflation is punishing to savers. It devalues their holdings. For Keynesians, this is probably the goal: people save too much when they ought to be out spending, so, destroy the incentive to save (an appreciating value of the money). Of course, all this necessarily implies a government money-monopoly as we have.

This idea that what we need is more money and spending all seems to fall in line with the general public’s assumptions that printing money creates actual wealth. Wealth is defined by the goods and services an economy produces, not it’s amount of money. If all it took to create wealth was to print more money, then which ever country printed the most would be the richest. This obviously isn’t true (e.g., Zimbabwe).

The mistake is then to conflate money (the medium of exchange) with real wealth (goods and services ready to consume. Money is only to help facilitate exchange. Ignoring what the government has done to it (monopolized the natural money, gold, turning it into fiat paper-money ran by the central bank), money is only the most marketable medium of exchange that all other goods trade for; wealth is measured in the actual output of goods and services in an economy. Increasing the supply of money doesn’t add to the wealth, but helps to redistribute it and deplete it. A policy of inflation cannot make a society richer, but indeed will impoverish it by causing capital consumption.

Do we want self-sufficiency?

The division of labor, which is the natural course an economy takes in which people, based on their unique skills and talents, fall into specialized roles, is what makes man infinitely richer than if he performed all his labor in isolation. Should man be alone in the woods, he must prioritize his use of time and labor, constructing a shelter, fishing, etc. Should another person show up, they can do what they do best, and both can exchange to each other’s benefit. But all alone, or even with one other person, he would conceivably never be able to produce a car himself.

The idea of self-sufficiency, which “buy local” seems to be saying, is wholly against the division of labor across geographical boundaries which makes us rich. This is the specialization that everyone takes part in, exchanging their labor for money, and their money for the array of goods in the economy produced by everyone else. It’s a psychological-emotional thing, bred by years of ingraining nationalism into us, that anyone feels there’s something wrong or bad about imports and something favorable about exports or “local” goods. These imaginary borders drawn by states apparently shouldn’t have goods cross them, and this is why collectivist concepts like “buy local” should be dismissed.

Autarky is not the goal; international exchange and specialization is. Preferably everyone is incorporated into this vast, complex network of exchange which doesn’t care for where something originates. But of course, States control exchange and such potential for wealth is highly diminished through taxes, regulations, tariffs, quotas, and other trade restrictions. We’re denied the full benefits of a global division of labor as local protectionist policies serve to shield inefficient domestic firms from foreign competition, at the expense of better, cheaper goods for the domestic residents. These people seem to think the U.S. should go back to producing things they’re no longer most efficient at, like textiles. We don’t want American’s making shoes; that would take away from what they do relatively better.

But is buying local even a possibility? Global supply chains have it that parts are manufactured everywhere, assembled in different places, and then shipped elsewhere for final consumption. If “we,” in some undefined “local” jurisdiction, were forced to buy local, then this would mean we would be indefinitely less productive than before. It’s impossible to think that all the factors of production—machinery, fuel, tires, paints, raw materials, other inputs—could be produced locally. They can’t. If this were a requirement, say by law, that only local purchases may be had, then it wouldn’t too far off to assume everyone would die out. We need products from everywhere, all around the world. There’s no such thing as a “buy local” banana in Colorado. I’d venture to guess that few products are made 100% in the United States, but again, this doesn’t matter anyway.

Ideally in this division of labor though, everyone across the whole world is incorporated into it with one common and natural money (e.g. gold) in which they can all calculate and exchange in. This would yield us all the greatest results. The whole idea of “keeping the money local” should be completely disregarded, I’d say.

Last thoughts

There’s too many problems with this which can’t be covered here, but suffice it to say there’s no issue with buying non-locally. One should buy from whoever offers them the best deal, not whoever is closest in proximity. If one was faced with product A and B which were virtually identical (say, a plain white t-shirt) but A is $15 and was produced locally and B is $5 but made elsewhere, then that means if you purchased A, you would have that much less to spend ($10), perhaps locally, at another business. I don’t think hurting yourself by paying more for a local product for community feel-good purposes is any way to really help the economy.

There’s yet another argument that there are less transportation costs in doing so, and that this is good for the environment. But it might be possible that someone else is so productive that this isn’t true; they can make it and ship it cheaper than the domestic firm. This is all for the market economy to sort out, not what essentially amounts to a propaganda campaign to purchase locally.

Though I’m not sure of any examples, “buy local” could lead to further calls for protectionism such as placing a tax on all non-local imported goods as is already done on the national level. Or perhaps, preventing online retailers from shipping goods into the state as easily since they compete with local goods. But forcing consumers to spend more money is not of benefit to them. They prefer cheap goods, and for them, it doesn’t matter where they came from. They want the best deal.

So, sure, “buy local” (wherever that is) if your heart desires. But I see no convincing argument for why one should do so purely because they have an affinity for “keeping the money local,” short of supporting your friend’s business, which you do anyway. But the positive economic statement that it’s better for the economy than if you bought something non-local for cheaper seems to me a false one. One should be free to decide how much they allot for consumption and how much they allot for savings or holding cash, and from where and whom they wish to purchase their goods from. The economy is not this living entity, but a network of individuals exchanging with each other. A likes what B has and B likes what A has, and so they exchange, regardless of where they both live. In the methodological individualist approach to economics there is necessarily no concept of “local.” There are only acting individuals.