In Defence of Liberty

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Against Economic Patriotism

It is common to hear the refrain that people should buy locally, where this locality may be a town, a county or a nation. This is not a modern phenomenon: the Buy American Act 1933 meant all goods for public use bought by the federal government must be produced in the United States. Owen Paterson, a British Secretary of State for the environment, said: “By buying seasonal fruit and veg we can improve the nation’s health, help the environment and boost the economy.”

Comparative advantage is an important concept in economics, but it is not widely understood by the wider public. Economist Paul Krugman labelled this “Ricardo’s difficult idea”. A person has a comparative advantage when they can produce a good or service at a lower cost than anyone else. This comparative advantage is not equivalent to having an absolute advantage – being the best at something.

Imagine you and your partner are hosting a housewarming party, with two main tasks: cooking food and mixing drinks. If you are the best at cooking, whilst your partner is superior at mixing, or vice versa, then it is clear that the person with the absolute advantage also has the comparative advantage. However, if your partner is better at both cooking and mixing, which job should you do? To see the answer, opportunity costs must be recognised. If one person does one job, they then cannot spend that same time doing another job. If your partner is a much better cook, but only slightly better at mixing drinks, you two will be much better off if they cook whilst you get drinks, as you are the less expensive bartender. This example shows that, even if one person has an absolute advantage at everything, everyone has a comparative advantage at something.

“Boosting the Economy”

Economic patriots fail to register the importance of comparative advantage. If local and non-local products are of similar quality, but the local goods are more expensive, then the exhortation to ‘buy local’ means foregoing anything that could have been bought with the money saved. This is the essence of wealth destruction. Nothing is gained by dragging food production away from the location and people that have comparative advantage.  Claiming such purchases “boost the [local] economy” misunderstands that what is spent on non-local importation must, eventually, be spent back in the local economy. The balance of payments must hold.

There is a fervour towards local foods. (Photo: Mike Gogulski)

There is a fervour towards local foods. (Photo: Mike Gogulski)

The local food movement also touches upon environmental concerns, counting the food miles. Customers must travel too, particularly if they are to go to separate markets for local produce, cheese and meat. Home preparation also expends energy. Thus, it is unclear if local food systems actually emit less greenhouse gases than non-local ones. Given the appeal to ‘buy local’ is a further constraint on our nutritional intake; such commands cannot make our country healthier.

Buying local foods is about shopping, whilst economic patriots seek to elevate this decision to a moral plane. Comparative advantage means we should back and institute free trade, and reap its benefits.

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This entry was posted on February 3, 2014 by in Economics and tagged , .
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