Are We Better Off If We Buy Local?

In our previous Everyday Economics videos, we asked you, the viewer, to tell us where the course should go, and you did. The top voted topic was, "Is everyone better off if we buy local?" That's a great question. There are many arguments behind the case to buy local. Lots of these arguments involve consumer tastes and preferences, about which Economics has little to say. What Economics can shed light on is the question of whether spending money locally keeps more money flowing through the community, which allegedly benefits local businesses and increases the number of local jobs.

First, a practical issue. In a modern economy, almost nothing is produced 100% locally. Maybe that apple that you picked up at the local farmer's market did grow on a tree only five miles from your house. But what you also need to consider are these things: the bees trucked in to pollinate the orchard, the fertilizers that feed the apple trees, and the wooden box the farmer uses to tote his apples to market. None of these things are made locally. The fact is, that local apple isn't as local as it seems, and the profits of the local farmer are also likely to be spent non-locally. So it's naive to suppose that if you buy from a local supplier that your money necessarily remains confined to the local economy.

Let's suppose that you could direct your money locally and that all of your neighbors do the same. Would that be good for the local economy? It's important to realize that much of the money flowing into your community comes from the outside. So if it were good for your community to stay local, then it would be good for other communities to stay local as well. Think about all the jobs and businesses that exist today. How many of them could survive solely on local business? If you've watched our previous videos, you know that globe-spanning specialization is a huge source of our amazing modern prosperity. Specialization increases with the size of the market. If you force markets to be small, you shrink specialization. And if you shrink specialization, you make people less productive. So it's simply mistaken to believe that one can buy local and still have the same productsavailable at the same prices. Buying locally is what we did for thousands of years, because we didn't routinely trade over long distances. It was the opposite force that helped us to our modern prosperity, mainly the ability to cooperate with multitudes of strangers much further away, the ability to apply scale to be more productive, and to utilize ideas from all over the world. A widely followed “buy local” strategy would mean higher prices and less variety. We'd voluntarily make ourselves poorer. That's not to say that some local products aren't worthwhile. I personally love the freshness of local produce and some unique local restaurants. But I buy these products because they're better, not just because they're local.

The best way to have your local community thrive is to produce products and services that people want.  There are other arguments to the case for buying local that we don't have time to cover in this video. But if you'd like to see them addressed, go vote. We are at your service. Voting continues, so please send us whatever additional Everyday Economics questions you have.

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