Economists Gone Wild #1: Art Woolf
Posted on April 3, 2008
A periodic feature of this blog will be to scrutinize economists whose arguments are selling communities short. The subtitle for the series might be: "Hey, they don’t call it the dismal science for nothing."
This first installment focuses on Art Woolf, State Economist for Governor Madeleine Kunin of Vermont a decade ago and now an Associate Professor of Economics at the University of Vermont. In a blog entry for the "The Vermont Tiger," Woolf discusses Vermont’s successfully luring Canadians to its ski slopes ("Buy Local, Eh?"). But his argument careens recklessly downhill from there:
"We don't hear a peep of protest from the Canadian 'buy local' folks. If they exist, and they are like the Vermont crowd, they would argue that the best use of Canadians' dollars is to spend them in the province. After all, why ski in Vermont if there are ski areas in Quebec? If that's true for Canadians it is also true for Vermonters. We should all ski at home."
Actually, that's correct. It's undeniably true that if Canadians skied locally, their own economy would benefit enormously. The reason is the economic multiplier. From a community perspective, money spent outside one's community yields zero local economic benefit. Woolf then ridicules his fellow Vermonters for loving local but profiting from globally minded Canadians:
"The buy local folks have a curiously asymmetrical view of economic activity. It's great for Vermont firms to sell products out of state. We celebrate Ben and Jerry's, IBM, GE, and many other firms located within our borders. But to them, it's not good for Vermonters to buy products produced outside of our borders. The illogic of these two statements should be clear to anyone. As David Ricardo noted long ago, trade produces wealth. Trying to be as self-sufficient as possible produces poverty. That's as true for Canadians as it is for Vermonters."
But it is Woolf's argument that is illogical. And it's also clear he doesn’t really understand localization.
Economic logic suggests that the strongest community is one in which local businesses maximize sales to local markets and maximize sales to global markets. Local production and global production together produce wealth. Take away either, and an economy suffers. That Woolf encourages communities in Vermont not to favor local markets – the markets that generate the highest multipliers of income, wealth, jobs, and tax receipts – condemns them to poverty. And this in a state filled with rural economies that are largely about local markets!
Woolf is unaware that localization advocates seek two very different goals: Increase the number of locally owned businesses in one's own community, whether the firms sell local or global. And nurture them through "Local First" campaigns. Our slogan is not "Local Only," nor "Local, Whatever the Cost" – but "Local First." Strong local markets prepare companies for going global, without giving away the diversified businesses local necessary for local economic success.
Woolf's real beef seems to be that if Canadians follow the buy-local logic, Vermonters will suffer. In the short-term, perhaps. But in the long-term, Canadian communities that go local will get wealthier, and then be poised to spend on all kinds of goods and services, including those from its closest neighbor, Vermont. Wealthier Canadians might even take even more vacations at Stowe.
Buying local first, when done wisely, means spending less money: Moving one's mortgage, the single largest expenditure by a U.S. household, from a global bank to a local credit union can save thousands of dollars over the lifetime of the loan. Local energy conservation, according to the Rocky Mountain Institute, can make the average U.S. household $3,000 wealthier. Local wellness investment, things like family counseling and good nutrition, preempts expensive nonlocal disease treatment and saves thousands in health care expenditures. (Future blog entries will elaborate these opportunities.)
The important point for now is this: Smart localization means finding and seizing opportunities for saving money and enjoying all the benefits – greater income, wealth, jobs, and tax revenues – that come from replacing unnecessary or expensive imports.
Moving my own mortgage from Bank of America to a credit union in Washington gave me lots more money to buy all kinds of things, including meals at local restaurants and nonlocal single-malt scotch. As I increase the fraction of my purchasing that is local, I'm also raising the level of certain imports into my community.
In other words, it's quite possible – paradoxically – that localization can increase a community's absolute level of trade. But rather than import things, like finance, that my community can do competitively, I'm importing those very special things like fine scotch that my community definitely cannot do. That's what David Ricardo really meant by comparative advantage.
Art Woolf believes that wealth comes through maximizing trade and trivializing local markets. In fact, his strategy is guaranteed to transform thriving communities in Vermont into destitute maquiladoras, where they achieve one or two comparative advantages that can collapse overnight with a shift in global markets. The smarter strategy is for a community, through the wealth of localization, to help its local businesses to realize hundreds of potential comparative advantages. It is localization that offers communities the only plausible path out of poverty.
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Re: Economists Gone Wild #1: Art Woolf
America is currently undergoing a recession, which made its beginning mark in December 2007. As a result, over 1.5 million jobs have been lost in the last year. Struggling consumers are turning to payday loans and debt consolidation services hoping to maintain a solid name and livelihood for their families as the economy worsens. We are currently enduring one of the longest recessions that we have had since the Great Depression. Is there really another economic disaster on the move? One thing we must consider is the fact that America’s way of consumption has been blown out of proportion. Americans waste so much more than any other country in the world. We are also a nation that never fails for wanting the latest and greatest of everything and if we can’t afford it, we have an abundance of financial options such as short term installment loans, payday loans, or other forms of cash advances that help us to obtain it. Our ability to over-overextend ourselves financially has finally put us, as well as our country, at risk. Today consumers owe an average of over $8000 in consumer credit debt alone. We must start taking better control of our finances. How we use them or what we use them for will interpret how well we can endure any recession that may come. Conservation is another important thing we should practice. Not only should we use conservation in our financial matters, but we should use conservation with our water and energy supply. Although we are facing trying times in this country, we must remember to be appreciative that we have the privilege to access many of the things that a great number of people around the world have no access to. Eighty percent of the world lives on less than $10 a day and the poorest 40 percent of the world’s population accounts for 5 percent of the global income. The richest 20 percent of the world accounts for three-quarters of the world income. If you have food on the table, running water and a roof over your head, then you’re way better off than 80% of the world’s population. So, consider yourself lucky to have what most people world-wide consider the luxuries in life. Start limiting your consumption habits and practice conservation.
Buying local vs international trade
What you say makes some sense - and I advocate buying locally - but isn't Woolf alluding to US international trade policy to some extent? Doesn't the US push for policy that favors its exports and discourages imports? I guess what I'm saying is - there is a national form of "buying local" as well.
Who Knows?
Who knows what Art Woolf is really saying? Except that he doesn't like or understand the concept of Local First.
Mainstream economists, like Woolf, tend to believe that the basis for prosperity is simply to maximize "free trade." They assume that maximizing imports and maximizing exports, if that's what the market leads to, is just dandy.
You're right that not a few politicians are happy to talk free trade and then restrict imports to benefit domestic industries. President Bush certainly claims to be a free trader, but has had no qualms about protecting steel and other industries. I would not put Art Woolf in this category.
Buying USA is not at all the same things as Local First. Most of the reasons for buying local -- the higher economic multipliers from local business, for example -- simple disappear in a country as large as the United States. I'll elaborate this distinction in a future posting.