Monday, September 08, 2008

My Comment

One of the comments to Will Wilkinson's article was this one:
Wil, you need to do a little more research into Buy Fresh, Buy Local before you get on your soabox. Eating locally and seasonally keeps more of the food dollar in the local economy. In western Minnesota where I'm from that is very important. Local foods will keep more people on small farms and help decrease our national dependence on petroleum. Modern corn and soybean production puts money in Monsanto, Archer Daniel Midland, and the other conglomerates pockets at the expense of local economies. Local food puts the food dollar into local farmer's and grocer's bank accounts.
I posted a response, that I don't know if the MarketPlace editors will approve. So I'm posting it here as well:
Mike Jorgenson says, "Eating locally and seasonally keeps more of the food dollar in the local economy." This is false. First, it's irrelevant how much money is kept in the local economy. What's more important to wealth creation is taking advantage of those who can produce the most efficiently.

But suppose your goal is to keep more money in the local economy. If so, then don't forget that when I spend less to buy remotely produced food, I keep money in the local economy. Suppose a locally produced food costs $2 and the same remotely produced food costs $1. Buying the remote produced food immediately keeps $1 in the most local economy possible: my own. Now it's highly unlikely that a local producer could come anywhere near matching the economies of scale that a large remote produce can take advantage of. So it's highly likely that the profit margin of the local producer is lower than $1.

So if I buy remote I keep $1 in the local economy. If I buy local, I keep less than $1 in the local economy.

But like I said, keeping money local is irrelevant. What matters is efficiency. If the local producers are more efficient than remote producers, then buy local. If not, then don't. How do you know which is most efficient? The one who can sell their product for the least price is the winner. Buy from that person. That's the best way to make yourself and your neighbors wealthier.


Anonymous said...

Doesn't this miss the point of "keeping more of the dollar in the local economy?" Is part of wealth creation keeping unemployment down?

Keeping money locally helps your neighbors stay gainfully employed.

If you buy potatoes from South America, South American farmers have jobs. If you buy potatoes from Idaho, Idaho farmers have jobs. If you live in Idaho, then your neighbors have jobs and presumably will spend money in other local businesses.

I don't really get the whole dollar circulation thing, but my hunch is

1) You spend $2 on local potatoes.
2) The local farmer spends $1.5 manufacturing potatoes (she keeps $.5 as profit).
3.1) She spends $1 on gasoline, tractors, building materials, etc.
3.2) She spends $.5 on local labor
4) The local businesses she frequents spends part of their $1 on other local businesses.
5) continue ad infinitum. Or is that ad nauseam?

What am I missing?

mjh said...

Keeping money locally helps your neighbors stay gainfully employed.

Sure, but at the cost of making you generally poorer. If that someone creates value for you, continue to pay them. Some of that value can take the form of lower prices. Or perhaps the value takes the form of higher quality. But paying someone who provides higher prices or lower quality than a competitor is a transfer of wealth from you to them. It makes them better off by exactly the amount that it makes you worse off.

To see this imagine a city that enacts a law that requires everyone to buy potatoes locally at $2 when they're available from someone else at $1. The potato farmers are now have an incentive quandry. They either work hard to produce potatoes that they sell at $2, or they covertly buy $1 potatoes and resell them.

Say what you want about human desires to "do the right thing", but there's really no way, that in a large group of people, you could keep those incentives from producing that result. The incentives are wrong, and the result will follow.

What buying at the best value proposition does is correct the incentives. Produce effectively and you'll earn sales. Don't, and you won't.

More here.

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