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0 pointsbobmarino11y ago0 comments

Well, to address your main objection then that “the movement to buy/invest locally goes against all of economic theory.” That is not a correct statement. I would first point out that the quote from my first reply, which discusses the benefits of small businesses on local economies, is taken from the FDIC 2012 Community Banking Study. The study’s authors are trained, mainstream economists who based their conclusions on empirical evidence. Now, even if you stay within the bounds of pure neoclassical theory (which it sounds like you ascribe to) it remains the case that maximum utility (net benefit) accrues to localities when there is a preference for the goods and services of small, local-based firms over larger firms. This is mainly due to the local multiplier effect, the tendency of smaller firms to plow back a greater percent of their revenue into the local economy in the form of secondary vendor purchases than larger firms. Smaller firms typically use a local account, a local attorney, a local design firm, etc. In contrast, larger firms are much more likely to utilize larger, more distant firms resulting in money being transferred outside of the community. Lastly, in addition to the economic case, there are important cultural and political arguments for supporting small businesses and buying locally. One of the respondents touched upon an important cultural factor, avoiding cultural hegemony. As for a political argument, studies have also shown that communities with strong local businesses ownership tend to have greater civic engagement as measured by voter turnout and membership in civic organizations and community groups.

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swatow11y ago

>I would first point out that the quote from my first reply, which discusses the benefits of small businesses on local economies, is taken from the FDIC 2012 Community Banking Study.

The quote doesn't actually demonstrate that community banks are better, it just states the benefits they bring. Compare "Y-combinator provides opportunities for startups, simulating the economy" from this it doesn't follow that I should prefer investing my money with Y-combinator to investing it with another similar company, or a VC.

>Now, even if you stay within the bounds of pure neoclassical theory (which it sounds like you ascribe to) it remains the case that maximum utility (net benefit) accrues to localities when there is a preference for the goods and services of small, local-based firms over larger firms. This is mainly due to the local multiplier effect, the tendency of smaller firms to plow back a greater percent of their revenue into the local economy in the form of secondary vendor purchases than larger firms. Smaller firms typically use a local account, a local attorney, a local design firm, etc. In contrast, larger firms are much more likely to utilize larger, more distant firms resulting in money being transferred outside of the community.

This shows that you don't understand neoclassical theory. In neoclassical theory, preferences are intrinsic. You don't create preferences based on so called "multiplier effects", that is doing things backwards.

The entire point of neoclassical economics is to dismantle specious verbal arguments like the one you've given. Neoclassical economics states that you plug in everyone's (intrinsic) utility into a big market mechanism, and it will give you a pareto optimal result.

Now (neo)-Keynsian economics does have multipliers. The (neo)-Keynsian argument is that during a recession (i.e. not all the time) the government should stimulate the economy by targeting money to where it has the greatest multiplier. This isn't an argument for buying locally but it might be an argument for supporting small business. In any case, that job is better left to the government's fiscal stimulus plan, not individual consumers.

bobmarinoOP11y ago

another term for the local multiplier is the local premium, but the point being is that if you have 2 cities, one near , city L, and one far, city F, if you buy from small firms in city L more of your dollars will be recycled back into city L than if you purchased from larger firms. This is not an argument that purchasing locally produces a more Pareto efficient result for your "big market" comprised of both city L and F, it only means that a greater proportion of benefit accrues to city L. That is why I stated it is consistent with a neoclassical approach. Now I would separately argue that Pareto optimality should not be the goal of society, and that its public policy justification in Utilitarianism philosophy stands on very shaky ground. Moreover, that the niceties of neoclassical economics depend on simplified, ideal conditions that ignore real world complexities, human psychology, as well as empirical evidence.