Bad ideas have real costs

One of the supreme achievements of microeconomics as a discipline lies in its reliance on actual data. The insights available from facts allow us to reject many bad or counterfactual notions. Still, defective claims reappear in public with unnerving regularity, such as the assertions that a ‘buy local’ movement will serve to restore local economies.

The fact is that in 2016, American households and businesses spent a larger share of their earnings on locally produced goods and services than at any time in history. As it so happens, we are in the midst of a golden age of local consumption.

The recent change in local purchasing have been remarkable. In the 1960s, households spent only half their income on goods, while business spent a tiny share on local goods or services. By the turn of the century, more than 70 percent of household expenditures alone are on services, which are necessarily local. Business spending on people and services (such as health care) have never been a higher share of their revenues.

Recent changes are more pronounced. In Muncie, locally consumed goods and services comprised 77 percent of the economy in 2001. Today it is 85 percent. It bears repeating that we live in the midst of a golden age of local consumption. So what explains the continued voice of the ‘buy local’ movement?

First, I think some of it is harmless local boosterism, which generally has no effect for good or ill. Nevertheless, much of the “buy local” chatter flourishes from raw ignorance of readily known facts. Still, the problem lies in taking seriously the policy recommendations of the buy local movement.

Here’s why: Among the problems with the‘buy local arguments is the common misconception is that locally purchased food items are more environmentally sustainable than the current market outcomes. The transportation costs of food in a grocery store are about 4 percent of the sales price. Far less efficient farming, storage and local transportation consume whatever energy or national transportation costs are avoided by local production.

Local tomatoes taste better than those grown in California, but they do not benefit the environment. This should be especially obvious of those tomatoes bought in February, so beware the false environmental claims and resulting policy ideas about local buying.

The bigger problem with the buy local movement lies not in mistaking its benefits, or chirping on with local promotion. The risk lies in diverting our attention from the real problems that ails so many Midwestern communities. There is an opportunity cost to bad ideas, and few better examples exist than in some of the recent claims of the buy local movement.

Folks who assert great benefits about buying local without bothering to check the data deserve having their opinions dismissed with prejudice. It’s not that they are necessarily wrong about any particular policy, rather that their being right is simply a matter of luck. So what should concerned citizens do about local economic development?

There is a lengthy body of research about economic growth at the local level, comprising several thousand high-quality studies over the past few decades. It boils down to this; good schools and safe and livable neighborhoods with recreational options for residents make all the difference. Almost nothing else matters.

In the end, all the efforts to boost a local economy that do not specifically focus on improving education and quality of place are a waste of time and money. Fortunately, there are many great ways to support local schools and support a more attractive neighborhood. But, efforts that divert scarce public resources away from these efforts will inevitably damage a local economy.

In the end, maybe the best way to think of gimmicky economic development is as the bribe a failing community has to pay to lure new residents or businesses. The higher the payment, the worse the community.

Michael J. Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to awoods@tribtown.com.