Monday, September 08, 2008

Re: My Comment

Anonymous comments on my comment:
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... What am I missing?
What Anonymous is missing is that nothing can possibly be produced entirely locally. For a good description of why this is true, checkout Leonard Read's "I, Pencil". There are an unbelievable number of things that must be purchased, and almost always, must be purchased outside of the local environment just to make a simple pencil. When you buy locally, the *vast* majority of the cost of producing locally already goes somewhere else. What remains local is the profit. What people who advocate buying locally forget is that getting a better deal *also* keeps money local. Probably more money than is retained in profit by the local producer. The only real question is who gets the local money. Me or the local producer? If maximizing localization of money is good, then keeping money more local to me must be better then sending it remotely to some other producer - even one who lives down the street.

But let's assume for a moment that the herculean task of all local production could be accomplished. Doing so would almost certainly result in a lower quality product. Why? Because the assumption in producing locally is that we have the best natural resources, capital and labor in the world locally. That assumption is almost certainly false. When that's false, you end up with worse quality for the same price. Sometimes the price goes up while the quality goes down.

Now, of course there are some things for which it's true that you have the best natural resources, capital and labor to produce a product locally. In which case, that's good. Wisconsin does a much better job of producing milk and diary products than Arizona. In that case, it makes sense to buy locally. But it almost never makes sense to buy everything locally. No place can possibly be the best at producing everything.

So, if you could wave some magic wand, and despite the immense difficulty of doing so, you could manufacture something locally - that isn't already produced locally - the resulting quality would be probably be terrible compared to what you can get through participating in a global economy. But, of course, some have tried. Take for example the 100 mile suit.

The first thing that comes to mind is that it looks horrible! Is there any question at all that this is a significant reduction in quality?

But the next thing that comes to mind is that the person who did this, almost certainly cheated. Did the transportation that she used to make this suit get produced w/in 100 miles of where she lives? What about the roads that she drove on. Was the equipment that made those roads produced w/in the 100 mile radius? How about the camera that she used to document it. Is that a local product? Or the communications devices that she used to coordinate her efforts. All made in New York? Or the fuel that she used. Did that come out of New York ground, get transported around in vehicles made in New York and refined in New York? How about the feed for the sheep that produced the wool, or the feed for the cows that produced the leather? What about the food that she ate to fuel herself for this work?

If the answer to any of those questions is no, then it's almost impossible to measure how much the global economy was needed for the production of the suit. How much did the suit cost to make as it is? How much would it have cost if she had to substitute any or all of the above for local production? The difference is how much (unmeasured) profit she got from relying on globalization. So, sure you can call that unbelievably ugly suit a local product if you're willing to cheat. But even then, it took monstrous effort for her to make. I'd bet the amount she lost in wages working on this project would have paid for several top quality, custom tailored suits. But even in producing what she did, she still relied on immeasurable resources from globalization. She would have been better off, by far, just buying a suit made by someone else, even one that was custom tailored.

But here's the most incredible part. As a consumer, I don't really have to know who has the best resources, capital and labor to produce products. That information is carried through the price. Those who have access to the cheapest natural resources will develop the physical and human capital to distribute those resources. They will become the most efficient at it, and drive the cost of production down. So all I need to know is this: which product is the least expensive for my desired level of quality. The pricing system sorts out all of the stuff that I don't have a clue about and allows the most efficient producer to emerge.

Inexpensive quality is the road to wealth. Calling for everyone to produce entirely locally, will drive us towards poverty. We will lose all of the unmeasured profits that globalization provides.

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