David R. Henderson  

Buy Local

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My friend Ted Levy sent me the following story:

I'm walking through a local Phoenix mall and pass a kiosk for Rosetta Stone, the language-learning software. There's a sign indicating $125 off each course. I ask the woman manning the kiosk, "Is this a discount price over an internet purchase?" She responds, "Where do you live?" I indicate I live locally. She says, "Why would you want to support the Virginia economy [I gather this is where Rosetta Stone is headquartered] rather than our local Phoenix economy? It's the same price either way, but don't you want to keep the money here?"

I told her she made a good point and asked her where in Phoenix she lived? She told me she lived in the Biltmore area. I sighed and explained that was too bad since I lived in the Arcadia area, and wanted to help support the Arcadian economy.

She looked at me like I was crazy. Sadly, this is not an isolated incident...


I'm guessing that virtually every reader sees what's wrong with her reasoning, but just in case, see this.


Comments and Sharing


CATEGORIES: International Trade



COMMENTS (56 to date)
Tom West writes:

Whether one agrees with it or not, I have to say, the fact that so many economists don't understand (or claim not to understand) the logic of "buy local" worries me.

Most people want to have a vibrant local community with numerous amenities like stores and restaurants, even if they don't use them often themselves. (At least so seem 'quality-of-life' surveys) Most urban dwellers rather dread the thought of being a ghost town filled only with residences and big box stores, even if they mostly shop at big-box stores. In many ways, small local retailers are a public good.

While this may not be articulated by the sellers, they recognize this, as do their customers. That is why the 'buy local' appeal has strength.

Once again, one can easily decide that the extra gain of the public good is not worth the higher price and smaller selection. That's not the issue.

The problem is that if most economists cannot even recognize the trade-off being made when most human beings do on an instinctual level (even if unable to articulate it), it points to economists being manifestly unqualified to make policy recommendations for a populace that they do not comprehend.

Bryan occasionally complains that people don't listen to economists. When economists make it clear that they can't even comprehend certain human motivations, is it any wonder?

David R. Henderson writes:

Tom,
You didn't find Karen Selick's article persuasive?
David

Robert Simmons writes:

Tom, could you square the circle and explain why the woman was correct to want Ted to buy local, and also was correct to think he was crazy to call Biltmore not local for him? Oh, you can't? I guess that means that I can't even understand human motivations.

Tom Dougherty writes:

Tom West writes, "In many ways, small local retailers are a public good. While this may not be articulated by the sellers, they recognize this, as do their customers. That is why the 'buy local' appeal has strength."

Local retailers are as opposite as you can get from being public goods. A public good has the property of being nonexclusive and nonriral. Neither of these properties belong to local retailers. And since your argument of buying local rest on the logic of local retailers being public goods your argument fails.

Badger writes:

Tom West,

The money saved buying online won't disappear. It may be used for example to buy delicious dishes at a quality local restaurant.

Do you really believe that irrelevant and costly local suppliers produce significant positive externalities? Your argument looks to me like nothing more than a mix of make-work and anti-foreign biases.

RL writes:

Tom West argues that economists don't understand human motivations and are therefore bad choices to make decisions that guide society.

I wonder if Tom believes either of the following to be true:

1. Although economists can show that progressive taxation is economically inefficient, people generally like progressive taxation because they feel it just or because they believe it means other people will pay more than they do. Therefore, economists would be wrong to call for ending tax progressivity.

2. Although economists can show that minimum wage regulations cause people to lose jobs, especially the most economically vulnerable. But most people like minimum wage laws, because it makes them feel that they care about poorer wage earners, the very ones actually hurt by the regulations. Therefore, economists who argue against minimum wage laws don't understand people and should shut up.

Zachary writes:

I understand the problems with "buy local," but all other things being more or less equal, is there any reason not to prefer a local distributor? Taking this case for an example: The price is the same, the search costs are pretty close (local mall verses Internet don't require much difference in time or effort.) So why not give your money to someone you might run into on the street?

Admittedly, most local options aren't as obviously equal as this example. But if buying local means paying the same price and not incurring any other costs, why not?

Neverfox writes:

Like Zachary said, one doesn't need to disagree with Selick to notice that this particular example doesn't offer any of Selick's reasons for rejecting "buy local". Same price, probably lower transaction costs (since Ted is standing right there and buying from the internet would require driving home, paying shipping perhaps and waiting) etc. At that point, it really should come down to how one feels about the local salesperson vs. the Virginia office.

Who but someone with really eccentric preferences would refuse to pay the same price now vs. running home, ordering online, paying shipping and waiting? It just makes you look stupid, rather then like a great economic genius, even if you are right about buying local as a blind rule being a bad idea.

If a family member offers to sell me something and it's the same price as I can buy it elsewhere, I'll buy from them because I want to make them happy and I could care less about the online sellers happiness. If the price is different (and depending on how different) then Selick's advice starts to kick in. But that "proximity/familiarity preference" is a valid one as far as I want to apply it. It's an insult to the subjective theory of value to think that there can't be any psychologically valid preferences pertaining to the location of the seller, nor should we care, especially in this case. Selick's argument is just that it would have bad consequences if they were your only (or primary) considerations most of the time.

It's entirely possible that he does value purchasing on the internet (despite the likely higher transaction costs) more than making this woman happier - say he gets a huge rush from the danger of online shopping security loopholes. In that case, sure, he should decide to pass on the offer. But given more reasonable and likely parameters, I think most people could find good reasons (Zach mentioned running into them later, for example) that aren't fallacious, to buy here and now.

The salesperson knew enough to point out that the equal price was an important piece of information so I think it was presumptuous of Ted to assume she needed a drubbing (since we can assume she would have been satisfied with rejection if the price was lower online - though maybe not; who knows?). I know you (and Ted) wanted an opportunity to make a point about protectionism but this example was poorly suited to it.

agnostic writes:

I see what Tom West is getting at, and that everyone else is missing.

The satisfaction the "buy local" people derive from having mom & pop hardware stores, used CD stores, etc., rather than big box stores, comes from their feeling of belonging to a unique community. When they pass by the small local stores, they feel good knowing that these quirky stores are still alive in their community. Even when they're nowhere near the stores, they found their identity partly on the basis of belonging to such a community -- if these stores vanished, that source of meaning and identity would evaporate too.

Perhaps it's more useful to think of the other slogan that the "buy local" people have on their bumperstickers: "Keep ____ Weird," where the blank is their city's name. They want to belong to a unique community; that's what gives them satisfaction.

So these small local stores are providing public goods. My satisfaction doesn't diminish anyone else's since we're all equally able to found our identities on "belonging to a unique community." And since passersby don't actually stop to gawk at the small local stores for hours, there's no congestion in the activity of getting satisfaction from marveling at the stores themselves. So the good they produce is non-rivalrous.

And no sensible small local business is going to try to keep itself a well-guarded secret, or to put up a castle wall around itself. A country club might, but not the stores we're talking about -- used CD stores, corner florist, etc. Once the small local store becomes visible and allows people to become aware of its existence, no one can exclude anyone else from enjoying the two sources of satisfaction -- the feeling you get when you walk by and see it, and the identity-based feeling you get at any time when you are aware of its existence. So the good they produce is non-excludable.

(Again, it's not a country club with a 50-foot wall or that aims to locate itself remotely enough where few will be aware of its existence.)

Therefore they are providing a public good -- something that makes people feel nice when they walk by and see it, and that gives them a foundation to build their identity on (belonging to a community where such nice things exist). Because it is a public good, it is no surprise that people are fine with subsidizing such stores' existence, as you see with all sorts of towns and cities making it cheap for such stores to colonize the main street or downtown areas.

Why doesn't Wal-Mart provide the same public good? Because people don't get that warm glow when they walk by it, and no one founds the "community belonging" piece of their identity around "living in a community with Wal-Mart." It's not unique enough to serve as a community or tribal membership badge. This is just the way people perceive big box stores compared to small local stores, and you can't argue against their subjective evaluation of what gives them a warm glow and a source of identity and belonging.

agnostic writes:

To follow up, this resolves the puzzle of why no one is convinced by the reductio about "why not buy only within your zip code, your block, your household, yoursef?" We all know that what people perceive as their "community" is bounded in the dimensions of space and number of members. There's a band that represents variation, but clearly there are upper and lower bounds.

Too big, and it's no longer a community because you never see those people face to face, interact with them personally, etc. It doesn't mean you can't base your identity on super-community-level groups, like the nation, but no one calls that a community or treats it as they do their true community.

Too small, and it's no longer a community because although you do interact personally and see them often, something in the human mind requires a bigger size of land or greater number of people, perhaps evolved during our recent history as agriculturalists. (Not as hunter-gatherers, as groups above several hundred would turn them off. We aren't turned off by communities that big, so if it's an evolutionary adaptation, it is to our agricultural history.)

I don't think anyone who says "buy local" literally means as physically close to where I'm standing right now as possible. That would be obviously silly to anyone who pondered it. So assuming people aren't stupid, we infer it's a shorthand slogan for something more sensible like "within radius X, but not all the way down to radius Y." And since they all talk about their town or city, and refuse to extend it to their block, this must be what the slogan is a shorthand for.

To a Martian, there may not be anything special about a particular range within the spatial scale or population range, but to the quirks of the human mind, there is a qualitative difference when you try the reductio in the too-small or too-big directions. That's why no one accepts it.

Finally, while I agree with a lot of Selick's article, she's wrong to refer to the "buy local" movement as a variant of protectionism. She admits right away that it is non-coercive -- therefore, not protectionist. The advocates plead their case to the actual consumers, who then make up their mind whether to buy local or not.

The implication of the phrase "protectionism" is that some special interest group pleaded to some entity other than consumers themselves, which had coercive power to keep non-local goods out, and that this was done against consumers' desires, whether explicit or tacit. If a religious group evangelizes and gains scores of converts, while another religious group uses the state to compel people to be members, the latter is a protectionist religion and the former is not.

david writes:

The comments on this post clash wonderfully with all the "economics is TOTALLY a positive, value-neutral science!" comments on Caplan's last post.

Non-coercive trade, people. You can't condemn this and still argue with a straight face that you aren't bringing your value judgments into this.

Tom West even conceded that big-box stores are cheaper right off the bat, and commenters are still freaking out that their fellow consumers might not be as materially self-interested as they are. I mean, what? It's one thing to say that people are materially self-interested, let's base our study of human nature on that - and quite another to say that people should be materially self-interested.

Does someone really need to spell this out? Walmart sells a widget for $1, corner store sells it for $2. Would it make you feel better if the corner store changed its name to "local community charity" and sold the widget for $1, with every $1 donation? Because, you know, that's what's going on. It would hardly be the first instance of advertising fudging the truth. Google likes to pretend to be your trustworthy disinterested information provider, not a profit-maximizing publicly listed corporation. Do you complain about that too?

It probably is true that the cheapest way of delivering masses of consumer goods to the suburbs is via 24-hour big box stores scattered throughout suburbia. But perhaps the majority of people do who stay there would like to pay more to retain a certain type of neighborhood, the one they made the decision to move into years back? Who are you to condemn their choice to do so?

RL writes:

To agnostic:

Are you aware that the Biltmore and Arcadia areas of Phoenix are each about the size of what in middle America would be small towns, that is to say, about the size of towns that run "buy local" campaigns. Phoenix is a sprawling metropolis, with parts of the city separated from other parts by about the same distance that, elsewhere in America, towns are separated from other towns...

If Levy had argued Tempe or Scottsdale vs Phoenix instead of Arcadia vs Biltmore, would that change the logic of the argument for you?

Boonton writes:

People derive pleasure from making other people happy. The easier it is to see the happiness they create, the more pleasurable it is. This is why 'save the children' does that 'sponsor a child' charity strategy where you get letters and progress reports on the single child you are 'sponsoring'. Of course its more efficient to help a village collectively than an individual child. There's also some serious equity issues (imagine a letter, "dear wonderful American sponsor, thanks for your quarter a day. I was able to eat this month. Too bad my 4 year old brother didn't get an American sponsor, he starved to death in front of me!") but in general the charity found people give more when they feel they can see the good they are doing more directly.

Hence the woman's argument makes sense. By buying over the internet, Ted would be helping someone somewhere earn income. By buying from the attractive woman standing in front of him, Ted could have the same software package but also the pleasure of immediately seeing the attractive woman light up with happiness as she earns her commission. If anything, Ted should be charged a premium for being able to 'shop local' and often times he is. The highly impersonal mega-stores like Wal-Mart charge less than that local shop where the guy knows your name and asks you about your kids.

Of course psychology is very subtle. People like helping others in front of them but they don't like people in front of them demanding help. Entitlement issues are the bane of many parents of spoiled children. Hence the woman must circumvent the more direct truth of "don't you want to see me light up at the prospect of being able to go out on the town with this weeks commission check!" with a more roundabout "help your local community" type of argument.

Jacob writes:

I think Tom West and agnostic are confusing public goods with positive externalities. Simple mistake. I believe they are trying to say that "local shops" are fun to see, and thus they're existence is a positive externality for the community. However, they are assuming others share their values. I, along with many others, don't care about any of the benefits they list, including having inefficient stores that yield a local flavor. It's still an interesting point though.

Great post Prof. Henderson. Thanks.

Tom Dougherty writes:

I am not opposed to buying something locally especially if the satistifation you receive from buying locally is greater than not buying locally. But the arguments made in favor of buying local by some on this thread and by the lady quoted in the post above are not good arguments.

First, local retailers are not a public good. By charging a positive price for the products they have for sale means that those goods are exclusive. A local hamburger shop can exclude people from consuming their hamburgers by charging a positive price. Those unwilling to pay are excluded from the consumption of the hamburger. Nonexclusivity would mean that products once produced would be available for anyone to consume without paying for it. Does this characterize any local retailer you know? In addition, a nonrival good is one that if is consumed by one person does not prevent it from being consumed by another person. If I consume a hamburger from a local retailer that hamburger is not available to be consumed by another person. So the notion of local retailers being public goods is wrong.

The second problem is the definition of local. Is buying within the US local? Or what about with in your state? Or your city? Your neighborhood? Within your family only? Or how about just yourself? Isn't buying from yourself the ultimate in buying local?

Tom West writes:

Yipe. I'll try and and answer a few of these.

David Henderson
You didn't find Karen Selick's article persuasive?

Ms. Selick's article was very good. However, again it did not make any allowance for the pleasure (a few drops of dopamine) that people get from living in a dynamic community with flourishing local merchants. In other words, she failed to even recognize the existence of a moderately important component in the 'happiness transaction'.

Robert Simmons, let's not confuse rhetorical device in the quoted article (she looked at me like I was crazy) with actual logic. Ted Levy's post is meant to indicate it is crazy to believe the locality should have any influence on the transaction. I think he's wrong.

I doubt many merchants would look askance if you said, "Sorry, there's a store around the corner I patronize for items like this."

Tom Dougherty
And since your argument of buying local rest on the logic of local retailers being public goods your argument fails.

My misuse of the word "public good" means that the existence of a preference for locality in many people doesn't exist?

I think you're inadvertently supporting my thesis about why a lot of people are dubious about receiving policy recommendations from economists :-).

Badger
Do you really believe that irrelevant and costly local suppliers produce significant positive externalities?

I think that a large number of people do, and the fact that economists consistently fail to consider that many people place a value on these externalities is what makes people uncomfortable about economists representing their interests.

RL
Therefore, economists would be wrong to call for ending tax progressivity.

No. What I am saying is that if they want their recommendations to be considered by the populace at large, they need to address the reality that there are non-economic reasons that are important to the populace.

Minimum wage laws have even more non-economic social impact.

Neverfox and agnostic have laid out what I was trying to say far more eloquently than I have. Thank you.

Me again...

I'm not certain about the hostility against the "buy local" campaigns. Is it offensive for people to have a preference that you don't share? Should people not have a right to such a preference?

Is it any more offensive than a buy luxury campaign? (You pay higher prices for certain intangible benefits.)

Boonton writes:

The second problem is the definition of local. Is buying within the US local? Or what about with in your state? Or your city? Your neighborhood? Within your family only? Or how about just yourself? Isn't buying from yourself the ultimate in buying local?

If the saleswoman was a bit more on her toes she could have answered this question and closed the deal in a snap:

Tom:

I told her she made a good point and asked her where in Phoenix she lived? She told me she lived in the Biltmore area. I sighed and explained that was too bad since I lived in the Arcadia area, and wanted to help support the Arcadian economy.

Hypothetical Response:

I assure you if there as an Arcadian kiosk owner of a Rosseta Stone franchise in this mall I'd direct you immediately too her.

In more direct terms, buying local is a preference. In terms of 'all other things equal', you would opt to buy more local than less local. If your sister had a Rosseta Stone franchise you'd buy from her first.

But this is only if 'all else is equal'. The appeal of buying local can be overcome by other factors such as price and quality. You may buy from your sister even if it costs you 10% more than buying over the Internet, but not 20%. You may be willing to walk to anotehr kiosk to find an Arcadian salesperson but not drive 20 minutes to another mall.

Tom West writes:

My previous (long) post has fallen into a spam-trap. It may appear sometime later.

Jacob

However, they are assuming others share their values.

No, that's *not* the point of my post at all.

My point is that if economists consistently refuse to acknowledge that these preferences exist in anyone (and I have yet to see a posting about "buy local" that does acknowledge that these preferences exist), then people are going to regard economists and the policies they promote with suspicion.

It's like a class of people who offer marriage advice without ever acknowledging that sex exists, except to to admonish people who might claim that it can be an issue.

It's not that their advice is necessarily bad, nor is it to say that every marriage problem is about sex. But if you see an obvious blind spot about something that is occasionally a real issue, you start to question their advice about everything.

Lastly, why is there a tendency to assume that any acknowledgment of a point means it must be deferred to?

If many people have a locality preference, there's no guarantee that it will be dominant. In fact, we see that for the most part, it isn't. Why the big fight to try and suppress it's legitimacy? It's just another factor, and merchants advertise to that preference like they advertise to all the other factors like price, safety, location, quantity, color, etc.

Chuck E writes:

Look, I hate the "buy local" campaigns, and a lot of them are motivated by protectionist instincts, but Tom West's point cannot be ignored.

Having local shops in the area (that you may never shop in) is something that's valued by some people. At the very least, you have to admit this is non-excludable. But maybe you think it's just a positive externality.

Either way, people (besides me) do value this sort of thing. Kind of how people might like having art stores (where they display & sell expensive painting for example) in their city, but they have no intention of buying any art there. It just makes them feel like they live in a culture-rich area.

Encouraging people to buy local may be a round-about way of keeping those shops around. Maybe there's a better way. But let's not pretend Tom is speaking nonsense.

Boonton writes:

I think the classical economics theories accept that "locality preference" can exist, but they relegate it to being simply a matter of taste.

What I wonder, though, is whether locality preference can also exist as an economically rational preference. All things being equal, can it make sense to try to 'buy local' in order to keep income close to him thereby making the community you are living in better? Let's dispense with the silly objection Ted gave to the saleswoman. Of course locality preference is just that, a preference. All preferences compete with each other. On Saturday night my wife and I were looking for a place to eat. We wanted someplace nice but not crowded. These are competiting preferences and since they offset each other on Saturday night we had to be willing to trade one off against the other (we ended up in a crowded place but not so crowded we had to wait for a table). Likewise locality preference might be economically rational but that doesn't mean it should trump all other preferences no matter what. Clearly it may be rational but if non-local sources are able to supply the good or service for much lower cost or much greater quality then that can trump locality preference.

Brian Garst writes:

"I'm not certain about the hostility against the "buy local" campaigns. Is it offensive for people to have a preference that you don't share? Should people not have a right to such a preference?"

The hostility is directed toward the fallacious, protectionist arguments so often used to support those campaigns. Telling people that they somehow benefit economically by buying more expensive local products is a lie, yet people do this all the time. It's not simply a question of value judgments, since the argument is almost always made that they will somehow be strengthening their economic circumstance locally, as opposed to merely contributing to a more pleasant environment according to particular tastes. But this is not true, because if everyone local does this, there will be fewer goods and a lower standard of living all around.

Why are you only considering dollars leaving a community and not the ones entering? Some of you are behaving as if there will be no local stores if people don't buy local, but that makes no sense. It's just as likely that any given area will find a unique product that it can export, though which other people will also fallaciously demonize as somehow bad for their local economy.

Boonton writes:

Brian,

I'm not sure the buy local argument is a lie or even protectionist. You've put your finger on the scale by assuming local produce is 'more expensive'. Why assume that? In the example above its of equal price. Likewise you admit it can contribute to a 'more pleasent local experience'. In other words, it has an added value that could justify even a more epensive price provided it isn't too much more expensive.

Why are you only considering dollars leaving a community and not the ones entering?

I'm not sure who is not considering this. I've never heard of a 'buy local' campaign that advocated merchants shooing away non-local customers!

Billy writes:

Some people extend this fallacy past trade. Here in Alabama, there has been a lot of criticism of two local kids who chose to play basketball at The University of Kentucky instead of The University of Alabama at Birmingham or some on other state school. Fans and even some sports writers have been saying that they should have kept Alabama's basketball talent (whatever that means) in state.

Mattia Landoni writes:

I don't get why are we even having this discussion, or being worried about "buy local". If people buy local it's because they rationally decided to do so and it's for the greater good. Economists seem to always think "No one can decide for you better than yourself, except I".

Then, as to why people actually do it - I won't pay $2 when I can pay $1, but it is often the case that people who campaign for 'buy locally' are simply reminding passersby that they are offering comparably good products at a comparably good price. This way the buyer gives up nothing while keeping the profits in the community, perhaps eventually - in equilibrium! - reducing the number of homeless in the community by one or two. (And other above-mentioned public goods).

Finally, most online shopping is based on selling things that are perfectly standardized. Amazon would have never taken off if they sold veggies and clothes. Therefore (like in the Rosetta Stone case) it is often the case that local options are identical to online options.

Boonton writes:

Some people extend this fallacy past trade. Here in Alabama, there has been a lot of criticism of two local kids who chose to play basketball at The University of Kentucky instead of The University of Alabama at Birmingham or some on other state school. Fans and even some sports writers have been saying that they should have kept Alabama's basketball talent (whatever that means) in state.

Let's say the two local kids want to make a life career out of basketball. No I'm not talking NBA superstardom but they want to make a life career out of the 'basketball industry'. Maybe they want to be coaches after their college career (and any post-college career) is done. Maybe they want to get into basketball management....maybe they want to run a 'basketball camp'. Being the 'local boys who made it in basketball' would both encourage Alabama's basketball market and give them an edge in it in the future.

"Keeping it local" would have some rational arguments for it. By encouraging the local market they are making a small contribution to their future careers. Assuming the choice between the University of Kentucky is roughly equal to Alabama going local might be a very rational strategy. Granted by staying local they are only making a tiny contribution to the 'local basketball industry' as in the above case buying the Rosetta Stone in the local mall only makes a small contribution to keeping the mall in business....but if the cost differential is minor it might be quite rational.

odinbearded writes:

I know I'm jumping into the fray a little late, but maybe someone can help me out. Maybe I'm missing something, but can't you make an argument about taxes? That is, buying local supports the local tax base. And buying in your state supports your state sales tax.

The insistence that a "Buy USA" policy is no more rational than a "Buy from your own family" policy strikes me as slightly absurd. Given the choice between identical products at an identical price point, why wouldn't it be in my interest to support my own country, state, county, etc. over another?

Sam Grove writes:

Note that the retailer bought the Software non-locally.

Why didn't she supply software developed locally?

Businesses should relieve themselves of an expectation that people are obligated to be their customers just because they are "local".

Kurbla writes:

olinbearded nailed it - buying local is just like buying from family. Lets say you must buy something expensive, $1 million, and you can buy it from your son, and if you do, you'll save him of bankruptcy. And it is only way you can save him. On the other side, Korean offer same product 1$ cheaper. So, what would you do?

At the end, it is emotional choice - what do you like more, your community (smaller or greater) or your principles. If you like market so much, you'd buy from Korean guy, period. Some people really believe in their principles that much they are willing to leave their family members to die, just not to decline from principles.

Tom Dougherty writes:

Let’s first get this straight; local retailers are not public goods. Here is an example of a public good: national defense. National defense is nonexcludable and nonrival.

There is nothing wrong about buying local. As has been mentioned, buying local can be a preference like any other and someone may be willing to spend more on the exact same item just to purchase from a local store. Fine. That is their preference. Why you need a movement to remind people to exercise their preferences is beyond me?

But I think the inherent problem with the buy local mentality is the mercantilist thinking that money is wealth and by keeping more money in the local economy everyone will be wealthier. In reality, it is the things that money can buy that make us wealthy. Having more money in the economy just buying from local merchants will cause the prices to rise at the local stores. You will just be creating inflation. More money in circulation will create inflation and will not make everyone in the community better off. Those merchants with increasing prices will be better off, that is, if everyone keeps buying their products at inflated prices, but the consumers of those merchant will be receiving less and less products per dollar.

Buy local if you wish; or not.

Morgan writes:

A "buy local" norm clearly and obviously increases the amount of valuable activity within the local community.

If I buy a hat from you (instead an equivalent one from someone further afield) and you buy your groceries from me (instead of from Wal-Mart 15 miles away), we have both seen demand for our offerings increase, and we are both better off.

That's true even if we both paid more than we would have for the equivalent items. If we each paid an extra $1.50 but each earned $3.00 profit that otherwise would have gone to someone outside of the community, we *both* win. Not because of the value of the purchase, but because what goes around comes around, and we both stayed busier performing profitable activities.

Yes, it's bad for everyone if *everyone* does it, but if a community can arrange to selectively patronize its own members' goods and services while the spending patterns of outsiders remain the same, they have successfully beggared their neighbors.

Independent George writes:

The interesting thing if my spending habits are of any indication, free trade and the internet would most adversely affect the big boxes, and most benefit the small boutique shops.

For example: I own a dog, upon whom I spend a lot of money. For commodities like poop bags, tennis balls, etc., I can purchase them online for far less than I pay at a retail chain like Petco. For everything else, I go to a local pet shop where I can talk to the proprietors about various products, advice on training, etc. Even if they're slightly cheaper at the big retailers, the difference basically amounts to a service charge - in exchange for the higher price, I get a consulting service with guarantees from the store owners.

The pattern holds true for most of my spending - bike shop, kitchen supplies, travel - businesses win my loyalty by providing value-added services, and not a sentimental devotion to buying local.

[advertisement-like urls removed--Econlib Ed.]

Jim writes:

Why doesn't Wal-Mart provide the same public good? Because people don't get that warm glow when they walk by it, and no one founds the "community belonging" piece of their identity around "living in a community with Wal-Mart."

I guess maybe I'm the only person who actually does get this kind of warm fuzzy when I step into a Walmart. Thousands of cheap, useful goods at our fingertips, abundance that our grandparents couldn't imagine, none of which would be possible if our economy still depended on cottage industries and shoe-box corner stores.

To me, higher standard's of living that Walmart's low costs provide outweigh any parochial interest in limiting my business to people who happen to live within a certain mile radius or within the bounds of an arbitrarily defined political jurisdiction. "Community belonging" is mostly just primitive us-versus-them tribalism.

To me, "buy local" is on par with "buy white", and state and municipal buy local programs are just a redux of Jim Crow.

Milton Recht writes:

Too often buy local also coincides with keeping national chains out. No Starbucks or Dunkin' Donuts, but local coffee shop is ok, etc. It it not just about where one purchases the goods, but also includes compromises about quality, variety, etc.

Nick writes:

The salesmanship of the woman in the story is poor, the correct rebuttal is not 'buy local' but instead
'if you buy it from me, you wont have to pay shipping and you can start using it today'.

The prices were, after shipping and tax most likely not the same.

Josh Weil writes:

odinbearded said:

"The insistence that a "Buy USA" policy is no more rational than a "Buy from your own family" policy strikes me as slightly absurd. Given the choice between identical products at an identical price point, why wouldn't it be in my interest to support my own country, state, county, etc. over another?"

Let's imagine the price of buying a computer is equivalent in New York and China. You aren't doing better for Americans by buying the computer in New York. Why? Well, what are the Chinese producers going to do with your dollar bills? They could burn them, in which case Americans should look for more transactions from China! If they only wanted pieces of paper we would be the best off. But they're not stupid, Chinese exporters want American dollars so they can consume American goods or invest in dollar denominated assets. So the American exporter benefits just as much as the original American producer you didn't buy the computer from.

agnostic writes:

1. Tom West, I, and others have made no policy prescriptions, so everyone else needs to take their meds. We're simply trying to articulate what the "buy local" people mean, why a rational person might want the used CD store more than Tower Records (when it existed) or Best Buy.

2. The apologist camp has not said that the benefits we're highlighting, and which no one else had admitted, outweighed the other costs of more mom & pop and less Wal-Mart. So again, chill out. We're simply bringing to your attention some benefits that you failed to include in your calculation that didn't appreciate the satisfaction people get from belonging to a unique community.

3. Since some commenters still do not get it, I will repeat: the public goods that the small local stores provide are not the widgets on their store shelves. Tom Dougherty remarks that "By charging a positive price for the products they have for sale means that those goods are exclusive." True -- but you're looking at the wrong good.

Rather, the good in question is -- as I said before -- their mere existence and visibility. The satisfaction that "buy local" people get comes from two sources. First, when they physically pass by the store, they feel nice just looking at these quirky and non-cookie cutter stores. They perceive Wal-Mart as more cookie cutter, so they derive no such satisfaction from strolling by Wal-Mart.

Second, even when they're not physically near the stores, they base part of their identity on the community they belong to. They derive more satisfaction when this community has a unique flavor, like a special club they (and other locals) belong to. That's also why most sports fans don't root for the Yankees -- they enjoy a boost of satisfaction from knowing they're part of the community where the Orioles play, even if the Orioles were always behind the Yankees in points scored, column inches devoted to them in sports writing, etc.

In contrast to the widgets on the stores' shelves -- which obviously are excludable and rivalrous, hence private rather than public goods -- the good described above is *not* rivalrous and *not* excludable. I've explained that already in my first comment, so won't repeat. So, contrary to some commenter who said I'm confusing public goods with goods that produce positive externalities -- no, I showed that the good meets both conditions for being a public good.

I call this good a "source of unique community identity" for lack of a better term. Best Buy and Wal-Mart do not provide this good -- yet. They could re-design their stores so that people perceived them as unique, in the way that most Starbucks don't feel the same as each other, and each has its individual character. But right now, Best Buy and Wal-Mart provide private goods on their shelves.

The used CD store provides not only CDs but the public good of "source of unique community identity." If people are willing to pay higher prices for its widgets in order to encourage their continued provision of the public good, and it's entirely voluntary, who can be against that?

agnostic writes:

Now, what will the equilibrium outcome be? Clearly not everyone in a city or town perceives reality the way the "buy local" people do. So, there will be some distribution of tastes along the continuum of "most like the buy local people" to "least like them," who don't value the "source of unique community identity" at all, and who therefore don't perceive the small local stores as providing public goods. Most of the commenters here clearly lie in this latter part of the continuum.

Because these buy-local-or-not decisions are entirely voluntary, the distribution of stores in the town will reflect the underlying distribution of consumer values. At one extreme, a town might selectively attract the "buy local" crowd, and most of the stores will be of the mom & pop type -- by choice.

At the other, a town might attract people who don't value community membership, or at least not the unique and local type under discussion, so that few used CD stores will survive; most will be big box stores that only compete on the price and quality of widgets, not on how much they can make residents feel part of a unique community.

In general, though, values will be heterogeneous, and the outcome will be somewhere in between. Still, it will reflect consumers' values -- not a subset of them using the state to coerce those with opposite values into supporting stores they don't want. Again, non-coercive protectionism is not protectionism at all.

If you don't get much satisfaction from the community identity I've described, that's fine -- but you can't admonish those who do that they'll live poorer lives under the buy local decisions they voluntarily make. They realize their paying higher prices for the widgets, but they value the community identity-based satisfaction more than they do the monetary price difference in widgets.

As long as people are free to enter and exit communities, who cares? If you're right and the "buy local" people will be poorer in the full sense (not just monetary / material sense), then they'll trickle out into the "buy global" towns, and the "buy local" experiment will come to an end. If the experiment persists, then you were wrong to think they were poorer in the full sense. Either way, we just let people make the choices they want.

Last, the "keeping the money in local hands" is not a big part of the "buy local" popularity. So, there is little mercantilist flavor. Again, the appeal is to "Keep Austin Weird," not to "Keep Austin's Gold in Austin." The mercantilist argument sees keeping the money local as a desirable end per se. The typical "buy local" adherent sees it as a means to the greater end of having a community with a unique flavor to build their identity upon.

odinbearded writes:

Josh Weil-

You've provided a great argument against protectionism. And I agree with you. But you've also illustrated why buy local movements are effective and economists can seem distant.

Yes, the dollars will come back. On the other hand, that's a long way for a dollar to travel. Spend the dollar at a local merchant, it's here right now. In the abstract they are similar. But if they're similar, why shouldn't we stick with what we know?

It could be anti-foreign bias. And that's certainly present in many buy local movements. But all too often the economist's argument is absurd to the point of being laughable. Take this clip from the Selick article:


It is therefore possible to send money out of the community and still have a win-win scenario. Even if nobody else in the community engaged in any transactions at all, other members of the community—besides me—are nevertheless likely to be a tiny bit better off due to the expenditure of my money outside the community—whether from encountering a happier Karen Selick as I interact with my fellow townspeople, or from sharing the sight of my pretty sweater as I wear it around town.

If she's counting on increasing others' happiness, why not just give them the money? It is that convoluted thinking (however logical it may be) that negates the economic argument.

Tom Dougherty writes:

Agnostic defines a public good: “Rather, the good in question is -- as I said before -- their mere existence and visibility. The satisfaction that "buy local" people get comes from two sources. First, when they physically pass by the store, they feel nice just looking at these quirky and non-cookie cutter stores. They perceive Wal-Mart as more cookie cutter, so they derive no such satisfaction from strolling by Wal-Mart.”

This is an interesting definition of a public good. The mere existence and visibility of a local retailer makes it a public good. My car exists and is visible. Does this make it a public good, too? Most things on this planet exist and are visible. So, nearly everything is, so defined, a public good. Public goods loose there meaning defined in this way. But wait there is more. Public goods only exist in the minds of the “buy local” people, because not only do local retailers exist and are visible but they also give them a positive externality that the big box stores just don’t give. So, a public good is something that exists, is visible, and gives good vibes to “buy local” people! Agnostic then explains that these qualities, of course, make local stores nonrivalrous and nonexclusive.

Agnostic writes, “Last, the "keeping the money in local hands" is not a big part of the "buy local" popularity. So, there is little mercantilist flavor.”

“Buying local” is all about keep money in local hands. What in the world is one buying locally with if not with money. It is a mercantilist scheme that believes keeping money in the local economy will make everyone wealthier, when in fact it is the goods that money can buy that will make us wealthier. Having more money in circulation will just drive up prices. Some communities have gone so far as to print there own local currency that can only be used in local shops. The “Buy local” mentality at heart is a mercantilist fallacy that confuses money with wealth.

Josh Weil writes:

@ odinbearded

You said, "But if they're similar, why shouldn't we stick with what we know?"

Because people only buy things overseas when it is advantageous for them to do so. I'm not going to buy my bananas from Peru if I can get the same price and quality here. In the long term compounded over millions of consumers, overall welfare increases tremendously.

Local movements are effective for precisely the reasons you mention. There is the seen and the unseen. The seen is the local merchant. The unseen is both the exporter and whatever else you would have spent your savings on.

Craig writes:

If the consumer finds value in shopping locally, he'll buy locally. Economists may very well claim to prove that the consumer is being foolish, but -- in the end -- as long as the local shopping mania isn't compelled by government, it's none of the economist's business.

'Nuf said.

Chris Koresko writes:

I sympathize with Tom West's position, but I rationalize it differently.

There is a certain satisfaction in bringing your business to people you are likely to see again, and who are representing themselves primarily rather than some larger organization.

Yesterday I took the family to a small restaurant run by a family whose kid goes to kindergarten with mine. It felt good to eat there, and spend money there, because in addition to paying for the meal my family was building on our social relationship with theirs.

Would that have happened if we'd eaten in a chain restaurant, or even a franchise operation run by someone we knew? Maybe, but I think the effect would have been weaker.

So the point is that the incentives involved in "buy local" are at least partly social rather than financial.

Boonton writes:

Chris,

I'd say your incentive is in fact partially financial. You're basically saying to yourself by bringing business to people you are likely to see again you're increasing the possibility that they might reciprocate. This may be direct or it could be very indirect. Years from now, they might give your kid his first summer job, for example. Your buying local might be seen as an investment in building your social network and reputation.

The other incentive to buying local is real but much weaker. It's basically the same incentive that keeps you from littering on the sidewalk in front of your house. A buy local preference does indeed keep business in your community. The incentive, though, is very weak since your individual spending decisions rarely make much of a difference in the local community. So it's not rational to go crazy trying to buy local but it is rational to have it as a preference to be filled when the cost of doing so is relatively modest.

Loof writes:

In general, recall Kenneth Boulding saying something about the business worth of a trusted community smile; to which L'll add: rather than the unworthy business of a suspicious surrogate smirk.

But, specifically @ Tom Dougherty saying:
“The “Buy local” mentality at heart is a mercantilist fallacy that confuses money with wealth.”

Quite the opposite really: Neither in heart, nor in my experienced mind. Full-blown private markets (like malls for brand-names only) are more mercantilist at heart; full-fledged public markets (like farmers markets) are more entrepreneurial, free and fair, not mercantilist at all.

It so happens that L was visiting Vientiane (Laos) this past weekend to update a 5-yr study he’s doing on market development. The city's vast main market has been split between: a big private mall at one end; a smaller public market at the other; with the middle between evenly divided by the remaining ramshackle old market and an area cleared for more private capitalist interests to be developed in conjunction with the governing communists. This area has been sitting empty, suspended, since the economic downturn.

In this mercantile private market vs. entrepreneurial public market scenario, a key problem occurs especially with supermarkets, which local farmers' markets resolves. Long ago, L found grocery markets could be virtually integrated (own the farms) or otherwise contracted with agribusiness (that could be thousands of miles away). A local farmer could have a better product for a lower price – and no place to sell, since private markets usurped public markets, then monopolized or oligopolized entry with a virtual system through ownership or contracts. When a group of farmers came to Loof with this problem he advised creating a farmers’ market. The farmers’, all men, didn’t believe it’d work; their wives believed otherwise and went to work – the market has been going great for decades now. This sort of mercantilism Loof observed many years ago in the West is happening similarly in the East.

So, on the whole, buy local in entrepreneurial public markets; buy less in mercantile private malls. You likely get a smile that helps community; definitely not a smirk that simply reinforces status quo society.

Mattia Landoni writes:

There is no more merit in this argument than in arguing against any Superbowl commercial. I could argue that there is no such thing as "drinkability" and that Bud commercials are deceptive and we should fight Bud commercials to increase social welfare. Or we could say, there is no evidence that Tide detergent makes your laundry cleaner. In the same way, some people here have decided to fight "buy local" advertisement because they don't believe it has merit.

Again: consumers are spending their own money so they are in a unique position to decide what is best for them. If they decide to believe the "buy local" story, we should not assume that they have fallen prey of a deception, rather that they have seen some value in it. If we question "buy local", we should question all forms of advertisement.

Matt writes:

You guys don't know if the choice is all things equal. Perhaps people like to think before buying an expensive foreign language program?

Boonton writes:

Of course there's also an element of rudeness in the exchange. He took the girls time to question her about the product, leading her to believe a sale was about to be made only to then yank the sale away from her by threatening to order on the Internet even though doing so would achieve no savings for him (valuable information he took from her time, not his own research!)

It is our custom, of course, to view this as a cost of doing business. McDonald's lets the customers grab napkins, sugar packs etc. free of charge yet most would consider it rude if someone started using the self-serve bin to stock up on their house's napkin inventory. Even though its free, most people recognize an implicit tragedy of the commons situation. They know if some people start foot high stacks of napkins McDonald's will eventually start charging for them ruining a good thing for everyone else. Hence they disapprove. Likewise we know making it a point to waste the time of live service reps will just hasten the point where live service will disappear and your questions will have to be answered via web tickets or phone banks staffed by people thousands of miles away from you.

Michael writes:

Obviously the women gets no commission internet sales.

Sheldon Richman writes:

In my days as a newspaper reporter, I witnessed town councils in Pennsylvania vetoing permits for traveling circuses on the grounds that the circus personnel will gather up all that local money and then leave town without spending it locally.

Dano writes:

I am a free-rider. When my wife and I moved to the community we live in, the quaint, locally owned stores were part of the decision. But the stores in the village I frequent most often are the supermarket (which was owned by a Dutch company), a bank branch (headquarters: London, U.K.), and a pharmacy (part of a nationwide chain). I can count on probably two fingers the number of times I purchased something in one the retail stores -- they have nothing that interests me.

Now occasionally we go to a neighboring village about 5 miles away. The shops there are even more quaint than those in my town and some of the merchandise is attractive. Yet to go to this village, we need to pay a toll for a bridge and have our passports because the village is in Canada. Since geographically this village is local, will the buy local advocates agree that I buy local?

Anonymous writes:

I choose to buy local because it gives me pleasure. I prefer to buy from small retailers for the same reason. Spending my money to preserve choice strikes me as a worthwhile investment. But that is a choice and I am glad I have it. Still, I would hate to see my preferences or anyone else's on this subject turned into a coercive law.

Through this lens, I object to the thesis implied by the main post and it seems a bit condescending. The seller and the buyer are two private parties negotiating a possible sale. The seller's pitch may be one that the buyer dislikes but it is not "wrong" in the way that 2+2 = 5 is wrong or in the way that a law that required the buyer to buy local might be cricized. It is a private party's pitch to consumer taste. It may work or may not for a given buyer, but it's no different from any other private party' communication. The buyer's pseudo-clever response came off to me as condescending (as in, I know the secret truth and the seller doesn't, whereas it's a matter of taste not right or wrong).

ThomasL writes:

"It's the same price either way, but don't you want to keep the money here?"

Maybe I'm not economically minded enough, but I agree with her.

That is _all things being equal_ I'd support my local retailer, so that I would continue to have a local retailer which has certain advantages of its own.

I wouldn't buy a product for $4/ea instead of $1/ea to support my local store, because obviously someone out there is able to do a much more efficient job than they are doing. I would, however, happily buy my item at that same $1/ea here rather than ordering it, to help maintain a local presence which I also find useful.

It seems to me more contrariness than economic reasoning to purchase something in Virginia for price A rather than in Arizona for the exact same price A.

Tom Love writes:

I would much rather buy over the internet than buy local. I will generally have a better choice and can avoid having to go to the local mall. Many local only shops have much smaller choice and the stores are often smaller, darker, and not fun. There are always exceptions, of course. Going to a store is something that I avoid, so being able to shop online and have the product delivered is definitely a plus for me.

@agnostic
Locally, heh, we have t-shirts I like that say "Keep Georgetown normal".

Tim writes:

I found Selick's article to be extremely touchy feely, non-academic, and subjective. How can she possibly be talking about happiness and dopamine droplets?

odinbeard talked about the tax base.

That, along with customer service and convenience, are the three main reasons you would shop local. Take Walgreens for example. It is a big company but their stores are smaller and they are all over the place. Their prices may be higher, but I can get in and out in a couple of minutes. With Wal-Mart, their prices may be higher, but I have to park about 300 yards away and deal with crappy service and long checkout lines. With the Internet, I may have to wait at least a day, if not more, to get my item. I also can't try it on or examine it in my hands. Maybe I'm buying a gift and I need it that day. Or I'm going to a party that night or the next. Can I really engage in an eBay auction and have it shipped.

Most, smaller stores tend to have better customer service. That is how they can stay in business without being able to beat on price.

Also, as odinbeard states, any sales tax is supporting my locality (city, county, state).

Vinay S. Rao writes:

I think the posts and discussions generally get very philosophical when they are not made on objective grounds.

Here is how I (lay man) think about this: Price, Time and other parameters deemed valuable to you should first be prioritized. Everyone gives a different value for time, money and other parameters there-in lies the differences in opinions. The same person may change the sorting criteria for different products or same product at different times or based on how much of their remaining hard earned money needs to be parted with.

For most people, charity and other peoples happiness are ok as long as they dont come at the heaviest expense of one self.

If you go solely based on books of economics, they single dimensionalize people and preach "trade is good", "local retailers may not be able to compete with big stores on price due to economies of scale achieve by big stores" etc..

Obviously most of the abovementioned fall into the realm of micro-economics.

But then how to(and do we need to) control the macro economics based on the above mentioned is a question that is tough to answer.

Vinay S. Rao writes:

The point that I was trying to make in my post above is that "trade is not always good" and neither is "protectionism". Let human nature control the economics.

Trade is not good when it is unfair. If someone bullys you into a trade by controlling their currency and offering products at low prices, its unfair to locals because then we will only be buying from the other country and never selling (Unless we make top of the line stuff all the time. Not everyone can do so).

Protectionism is not good because it creates a false sense of riches and security from within. Its like a "frog in a well" story. One day when a person from our protected community goes outside to buy something that our community may have run out off (water lets say), we will be screwed.

The right balance is to mostly let people figure out and fit themselves into the global economy and provide a little (very little) help to those who cant seem to figure it out.

At the end, if you work hard and adapt, you will stay with or ahead of the pack.

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