Does “Buying Local” Really Help Local Economies?

Posted on November 28, 2011 by


Buy Fresh, Buy Local

It’s a sentiment based on admirable goals: supporting local jobs and businesses.   But the push to shop locally is also partly based on a fundamental misunderstanding of how economics works.

So before you reject “big box stores” out of hand as immoral marketplace bullies who gobble up their mom and pop competition, take the time to examine the facts.

Tyler A. Watts writes at the Ludwig Von Mises Institute:

It happens every spring: as the grass turns green and the songbirds appear, environmentalists celebrate Earth Day to renew their devotion to the planet. In recent years, the eco-activists’ theme has morphed from simply respecting the natural environment into making sure that everything we do is “sustainable.” So along with “Reduce, Reuse, Recycle” comes a host of new obligations. Prominent among the new rites of the earth-faithful is the idea of “buying local.” It’s a win-win, they claim: good for the earth, and good for the economy. Or is it?

On the surface, it’s obvious: to help local businesses, we should buy more of their stuff. But as for helping “the economy,” it’s not so obvious. In fact, when people take “buy local” seriously, they are setting the stage for absurd and potentially tragic economic results.

The first difficulty with “buy local” involves the question of what exactly is meant by “the local economy.” Is it my city? My county? My state? Any designation will arbitrarily include some and exclude others. By itself, “local” is not an economically relevant category. It’s costs and benefits that are economically relevant. The cost of providing a good typically goes up with increased distance from market. But for many goods, people in more distant locations are so much more productive that — even factoring in the cost of transport — we find that trade makes sense.

But what about the money? Buy-local advocates cite studies showing that 68 percent of the money spent at local businesses stays in the “local economy.” So I spend $100 at a locally owned store. What happens to the $68 of the original $100 that is then recirculated locally? Well, only 68 percent of it, or $46, stays local. And that $46 becomes $31, then $21, then $14, $10, $6.80, $4.57, $3.10, and so on. It won’t be long before there’s no money left in this town!

This is obviously not the case, so the studies must be leaving something out. Sure, for any town, much (if not most) of the money leaves to purchase imports. But there are lots of towns! They’re also sending money away. So town A may be losing money (by importing goods) to town B, but meanwhile gaining money (by exporting goods) from towns C, D, and E. Looking at only one direction of the money-goods flow is a common fallacy. It crops up frequently in discussions of international trade, but is equally applicable to interlocal trade. Trade is trade, after all!

We could ensure that no money leaves our local community by simply placing our town under an impregnable glass dome like they did in The Simpsons Movie. Surely that would guarantee that all money stayed local! But would it really boost local prosperity, or would it simply condemn us to a lower standard of living by cutting us off from the rest of the world?

The buy-localists aren’t so easily dispatched. They have further studies proving that the revenue of local businesses increases whenever folks drum up a buy-local campaign. Well, of course you’ll see an increase in local business revenue if you have a bunch of people actively cajoling (or is it guilt-tripping?) their neighbors into shopping local at all costs! But that doesn’t mean it’s the best possible economic outcome.

If I could convince half of my students to pay $15 each to see me give a karaoke concert, in order to “support our local musicians,” would that be a good idea? The answer is no — I’m a terrible singer (just ask my students!). But if I were a great singer, I wouldn’t advertise “Buy local,” but “Buy excellent!” And I would quickly surpass the local economy — I would “export” myself to bigger and bigger venues, where I could garner larger audiences.

Don’t get me wrong — there are times when buying local is also buying excellent. In the Midwest, we get excellent locally grown sweet corn, strawberries, tomatoes, and such in the summer. But again, we’re not buying them because they’re locally grown, but because they’re a good value. And in these cases, do you really need to cajole or campaign for buying local? No — it comes naturally. But there’s no rule that says local is always the best value. In many cases, the best values can only be had by trading with faraway people. Prices reveal what the best values are for each person, regardless of distance, and without special coaxing.

Here’s a challenge for proponents of “buy local”: Tell a small-town family, whose infant child has a rare and deadly disease, to “buy local” for their medical services. Sure, there’s a general practitioner physician in their town, but she lacks the specialized training, equipment, and medicines to treat this child. But the highly trained specialists at the Children’s Hospital in the big city can save this child’s life. In this case, “buy local” is a death sentence. Or tell the Afghani students at my university that they should be “buying local” for their educational services instead of importing their education from the United States. Or tell my small-town students that they should “buy local” for their weekend entertainment — that is, no trips to the movieplex, and no American Idol, because that would mean sending our money away to Hollywood!

If buying local makes sense, there’s no need to extol or encourage it. If it doesn’t make sense, but people do it anyway in a half-baked attempt at local stimulus or in a vain effort to save the planet, the effects are not “good for the economy,” but quite the opposite. So don’t let green guilt or quasi economics trick you into paying too much. Simply seek your greatest value, and savor the benefits of the economy, local and global.

Cross posted at

The Buy-Locally-Owned Fallacy

Don’t follow the money

Big Box Panic: Americans have been afraid of chain stores for nearly a century, but independent outlets keep thriving

Posted in: National, Oregon