One of the bright graduate students in my department alerted me to the graph below - shown on the Keep it Local OK web site (the figure appears to have been taken from this publication). The figure purports the following. For every $100 spent at a local business, $73 stays in the economy and $27 leaves. But, for every $100 spent at a non-local business, $57 leaves the economy.
Here are my questions:
- Where does the $100 come from? If $57 is leaving the economy, where do all the dollar bills go? If I continue getting my paycheck (that's the $100), then trade must balance. So the dollars leaving have to equal dollars coming in. Otherwise, Oklahoma is gonna run out of money! After all, even in the "buy local" world, $27 appears to be continuously leaving! Oklahoma doesn't have it's own Fed and isn't printing it's own money. So, what's going on? The answer is that the $27 doesn't really "leave" - at least for long. It must come back when trade balances.
- What does "leave the economy" mean? As I just pointed out, it doesn't really leave if trade balances (as it must - businesses aren't giving out stuff for free). But, even if it "left" - it doesn't "leave the economy" - it just goes somewhere else – to the larger economy. And, as much as I hate to admit it, there are also some nice people that live outside Oklahoma. These people also buy things that "leaves" their economy and eventually find their way back to me. Otherwise, I wouldn't continue to get a paycheck.
- Are the sizes of the circles drawn accurately? Right now, the sizes of the pies appear the same. But, imagine the two circles being two different countries. Which do you think would be bigger (in terms of GDP)? So, to make the comparison correct, we need to change the sizes of the pies. The size of the first "local" pie should be smaller and the size of the second "trade" pie should be much larger. So “yes” perhaps for every $100 spent, maybe more of that $100 is leaving in the second "trade" pie. But that’s alright if you’ve got a lot more $100 bills to spend!