Buy Local First, or Money Is Made To Wander

It is shopping season, and some do-gooders want to tell you how and where to spend your money. Go to a local coffee shop or book store and you might see a sign promoting ‘buy local first.’ The logic is simple – buy locally manufactured and sold products and more wealth will remain in your home town. Better, keep the money even closer – in your neighborhood. The theory goes that big stores like Wal-Mart undercut independent local businesses and ruin neighborhoods. Of course nothing could be further from the truth. Buying from the most competitive provider, is the best way to promote your hometown, even your neighborhood’s prosperity.

First off, the irony of a book store or a coffee shop bashing long distance trade is too delicious to pass by. Unless you live on Hawaii’s Big Island, it is more or less impossible for an American to buy local coffee. Coffee is an international commodity that is historically the one of the pillars of international shipping and trade. Books are an even purer form of long distance trade. Unless you live in Oxford MS, you probably don’t want to only read locally written books. The whole point of writing is to allow ideas to travel beyond a local audience. These hotbeds of ‘buy local’ activism are among the most obvious beneficiaries of long distance trade.

Confronted with the obvious paradox of simultaneously marketing international products and promoting ‘local first,’ these shop owners would probably say that the real enemy is large corporations like Starbucks or Amazon driving down margins and siphoning profits to out of town headquarters. No surprise there, businesspeople don’t like competition. Likewise, local politicians support ‘local first.’ After all, the local shop owner is much more likely to contribute to a local mayor than is Starbucks’s Howard Schultz. Everybody wins except for the neighborhood.

Economists like Bastiat and Hazlitt long ago debunked the ‘local first’ notion. Their core point is that while it is easy to see how the local shop keep benefits, it is harder to see how this harms a disparate and unidentified community denied free trade. Of course ‘local first’ trade means paying more; if a local business offered a better value, there were would be no need to cajole people into shopping there. Alternately, even nice businesses charge as much as they can for their products, so increased ‘local first’ business enables favored local businesses to keep prices somewhat higher than if they had to compete with national chains.

So ‘local first’ means paying more. Doesn’t that contribute to the neighborhood? Not really. Every extra dollar spent on ‘local first’ is a dollar a neighbor cannot spend on painting his house, or enjoying a steak meal. By concentrating money on less efficient ‘local’ providers, money that could buy even more things is lost. Every time a consumer bases his decisions on altruism rather than self-interest, potential wealth is lost, and the neighborhood’s standard of living is reduced.

The whole point of trade is to allow people to do whatever they do best, thereby ensuring that overall, more people have more wealth. An extreme example of ‘local first’ is Thomas Thwaites’s The Toaster Project. Rather than just buy a $12 toaster, Thwaites decided to build one himself; ‘local first.’ Naturally, without the benefits of long distance trade, his toaster cost 100 times more, not counting the value of his time and effort. The book purports to comment on the evils of consumerism, but it unintentionally demonstrates the immeasurable benefits of long distance trade and specialization.

Another tragic example of the ‘local first’ fallacy is the ‘green energy’ movement. Among the arguments for wind and solar power is that they keep money ‘local.’ Setting aside the fact that these technologies don’t actually work when the wind is still and the sun has set, they still harm their communities. The ‘local energy’ argument suggests that most of an energy bill goes to pay for far away coal mines, and that is bad. The alternative is to pay 4 to 10 times more for ‘local’ energy. Paying more for the exact same service prevents spending money that could better create local wealth. Not choosing the rational lowest cost provider of electricity is literally destroying wealth, causing unemployment, and reducing the local standard of living.

This Christmas, don’t sign up for the guilt trip that is ‘local first.’ It may be hard to believe, but by allocating your shopping budget to the vendors that give you the best value, you will be creating the most wealth, employment, and local benefit.

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