Sunday, October 16, 2011

The Economics of Local

I am not an economist.  The truth is, most everyday conversations about general business topics tend to leave me disinterested.  But economics as a profession must be important, because universities give advanced doctorate degrees in this stuff, and Nobel prizes are given for new economic concepts – even though economic predictions are usually less accurate than my local weather forecaster.  (It is noted that there is no Nobel for accountants or advertising gurus!).

All that said, I do find the human interactions upon which economics is based to be quite fascinating.  And that is the flaw in “economic science.”  It attempts to rationalize the irrationality of human beings, a nonsensical quest if ever there was one.

In the first English colonies that begat America (Jamestown and Plymouth), both were settled and, by necessity, operated on a “collective good.”  Everyone participated in constructing homes for each other, serving in a defense role, and gathering food.  All shared in the common result.  There was virtually no supply chain of goods from England, so the Massachusetts Pilgrims and the Virginia adventurers had to be self-sufficient to survive.  They all worked together as a collective team.  (Our forefathers/mothers were communists – Gasp!)

But survive they did. They prospered and expanded over wider territory.  Trade and supplies from England stabilized and regularized.  So these early Americans then began to specialize – as craftsmen, tradesmen, farmers and merchants, thereby beginning a culture of exchanging services to meet their several needs.  The “collective economy” gave way to the “exchange economy.”

Thus was created Economic Theory 101, all we really need to know about building an economy.  I have a need for something.  Since I cannot make it myself (due to lack of time, resources or skills), I come to you for it, since that is what you make for people.  As a result of my buying my something from you, you can now buy the somethings you need.  And you can also pay all of the people who helped you make my something, or provided you with the raw materials or services you needed to work with.  Thereby, all those folks can go out and get the somethings they need.  And so on and so on.  This beautiful chain reaction keeps geometrically expanding, ultimately coming full circle back to me when someone wants the something that I make.  Thus allowing me to start the chain reaction all over again.

This is really all I need to know about Economics 101.  My needs for somethings support other people, and if the chain reaction flows unbroken, it will all come back to me for my own benefit.  But if the chain gets broken, the economy breaks.  The dollars do not keep moving; someone does not spend their piece of the chain, or takes the dollars out of the circle.  So the dollars do not complete the circle and do not come back to me.  This is what is happening in America today.

Big corporations, making record levels of income and profits, are sitting on those profits and not reinvesting them in hiring and innovation investments.  Banks, whose reason for existence is to multiply their depositor’s funds through prudent lending, are not lending, sitting on the money and therefore stifling other people’s potential growth.  Governments are being forced to lay off employees and decrease wages due to perverse political pressures that inconceivably believe that laying off workers will grow the economy and reduce unemployment.  (Huh?)  Links in the economic chain have been taken out as some of the suppliers have been moved to Asia or other places, but their needs for somethings do not come back to me and complete the circle.  Our interdependencies have been broken, our mutual support has been pulled.

2/3rds of our economy is built on consumer spending for somethings.  But consumers are not spending because they are not convinced that their dollars spent will come back to them as income.  The greed and immorality of 2008 has undermined our economic trust.  Rebuilding that trust is today’s true economic challenge.  It continues to be clear that the big corporations are not rising to meet that challenge; they are concentrating on preserving their status quo, not leading to our collective future.  So we need to collectively go back to the beginning and rebuild our American economy through smaller local economic circles.  Circles where we can see and make a more immediate impact.

ABC News/Diane Sawyer has been running a wonderful “Made in America” series of reports.  They have shown many examples of small businesses competing on price and besting on quality versus the imports we currently buy.  One home builder in Montana built a new home entirely of American-made products for no net added cost.  He estimates that if all builders and suppliers increased American-made purchases just 5% it would create 200,000 new jobs.

I encourage everyone to access the website for more information and lists of websites on buying American.  We need to buy more food from local farm stands – it is healthier for us anyway.  We need to buy jewelry, housewares, clothes and furniture from American craftspeople and small industries, not foreign products imported and sold by American-based corporations.  (Wal-Mart, Lowes, Sears/K-Mart – where are you in this effort?)

This is not about isolating ourselves from the world, being uncaring about others across this globe.  It is about “acting local” where we can make the most immediate and effective impact.  It is about helping our next door neighbor.  We cannot help the world if we are not healthy ourselves.  We must first heal ourselves before we can help others in the world.  That is true global leadership.  So let us first rebuild our simple economic circle.  Look at those product labels, ask the store managers where the American-made products are, and pick those items with your neighbor’s name on it.  It is simple Economics 101.