I just watched a PBS NOW documentary on the current economy and how going local and sustainable could be an option to evolve the way business is being conducted. Here’s the link. (I haven’t figured out how to embed it.) The video’s part of our course ‘reading’ for macroeconomics taught by Professor Brandl (hilarious guy; just watch him narrate this short video on Zombie Institutions).
A few observations:
- Going local. Two impacts. 1) You’re cutting out unsustainable activities, such as burning fuel for shipping, creating waste from packaging, etc. 2) You’re reinvesting your money into your local economy. What does that mean? Well, there’s a multiplier effect, and the money you spend on your local economy goes to your local company, who pays your local community members, who in turn buy something from you, which you then spend the money, etc. Not only are you getting back what you gave out, but any savings you deposit at a local bank then gets invested in a new or expanding local business, who then creates more work, etc. etc. Isn’t trade good? Well yes, in a normal economy, workers in other locations get paid and there’s a multiplier in their neighborhood as well as yours. During economic distress, companies lay people off, businesses go under, and huge banks hold on to their capital (they don’t lend it out because they fear their loans will not be repaid). So now you have a credit crunch- banks don’t lend, supply of money decreases, people have less money to spend, demand for goods and services decreases, hellooooo recession! or in today’s terms oh, hai, recession, you’re still here… The examples brought up in the documentary show that this doesn’t happen in a local economy. The banks have personal relationships with their customers, and in cases where the people in the city own many shares of the bank, it’s mutually beneficial to give loans, keep jobs, take savings, and generally have the economy move forward.
- A similar idea is work co-ops. A group of people own the company where they work, there’s no conflict of interest, and profits get reinvested into the company, the local community, and the workers themselves. In addition to the economic effects, there’s a greater sense of community, accomplishment, and level of happiness among the workers. I’m pretty sure happiness has a multiplier effect as well.
- Well what’s money? A medium of exchange. Basically, without money, we’d have to barter for everything and spend significant time finding the person who has what we want and wants what we have (transaction costs). St. Paul, MN has a time bank. Instead of money, the medium of exchange is an hour or hours of your time. You provide a service (make a deposit in the time bank), and then get to use an hour of someone else’s time (cash out). You can create a logo for a local company, and in return find someone else in the time bank network to help you fix the roof. There’s a sense of belonging and community, and puts value doing what you love and making friends instead of what you’re worth. As a supplement to the money economy, it’s a great idea. I doubt it will work on its own, as in the long run, there will be certain jobs that no one wants to do, and since everyone’s time is of equal value, no one will fill that need. That’s why some people just get paid more; classic example, of course, is the trash picker upper.
- The GDP is by definition quantitative. It measures in three ways: how much we, as a nation, spend; how much we earn; and how much we add value as goods and services go through a supply chain. What it doesn’t measure is anything qualitative (duh). So by definition you can ride a bike to the grocery store, buy a locally produced apple, and then drink some water you brought from home. Sure, you got exercise, went green, and if you wore plaid and drank from a Sigg bottle, are essentially a hipster. Good for you. But you didn’t add much to the GDP, you dolt. Instead, you should drive your hummer burning gas, buy some imported kiwis and Fiji water imported from well… Fiji, and you’ve contributed a lot more to the GDP. You can even buy a gym membership to burn the calories you would have by riding your bike. Yay! You also have a larger carbon footprint by driving, importing goods, and creating waste with the water bottle. But GDP doesn’t measure that so it’s ok, right? The documentary points out a fundamental problem with GDP: we’re pushing constantly to expand aggregate demand that we’re not looking at externalities (side effects) and qualitative measures, i.e. obesity. My take-away is “yes, I agree. Of course.” I agree that we should take externalities and maybe even human happiness into consideration when looking at the well-being of a nation, but how? How do we measure it? Do we have to? What are the ramifications if we don’t?
I started this entry thinking I got all my economic terms to tie together neatly in a bow. Honestly, this documentary and what I’ve learned in macroeconomics this quarter has raised more questions than conclusions. Going local actually decreases aggregate demand because shipping companies don’t employ as many people. Do you assume they will simply find other jobs? If unemployment goes up, aggregate demand and short term aggregate supply decrease, investments go down, will that halt long term aggregate supply increases? Does that matter? How far can you take “go local” and still reap the benefits of trade? If being sustainable, i.e. riding your bike, increases your longevity and the longevity of resources but decreases GDP, does it matter? According to discounted cash flows, isn’t the value of “now” worth more than the “future”? If happiness and quality of life is more important, why do we measure nations against wealth? If our population growth in the US is around 1%, but we’re expecting to grow GDP at 2%, how do we keep making up this difference? Will I spend all my money now to buy a ginormous 10,000 sq. ft. house for myself now and then be broke from 55-death, which won’t be long b/c I’ll also drive, eat processed foods, and die of heart failure?
Maybe Professor Magee (microeconomics professor) was right all along. Maybe economies is really philosophy.
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