Embrace your local multiplier
Dear Readers:
This begins an on-going series of articles about buying locally.
I pledge to spend one week in September living a “local lifestyle”—more on that later.
August 18, 2008
by Kris Kolk
What is the magic local multiplier effect theory? When consumers spend money in their own community, these dollars are re-circulated within the area to be used repeatedly, stimulating that community’s economy many times over.
Consider this fictional, but possible, scenario:
It’s lunchtime and you’re hungry. You decide to go to a chain restaurant whose corporate office is in Sacramento (who thinks about corporate offices?)
Your meal costs $25. Much of that $25 would typically be mailed to that corporate office. Your $25 has left your community--forever.
Oh, but this restaurant chain does good things for the neighborhood—their neighborhood. They use a marketing company, a printing company and an accounting firm from their hometown of Sacramento. This restaurant even sponsors a local softball team—in Sacramento.
Now consider this more hopeful scenario:
It’s lunchtime and you’re hungry. You decide to check out a small, locally-owned restaurant. You’ve heard that the veggies are fresh, because they aren’t shipped 1,500 miles to the restaurant. This place relies on produce from farmers just outside the city.
Your meal costs $25. That $25 is re-spent in your community, beginning with the restaurant owner.
Who benefits from your $25?—the restaurateur, of course and everywhere he spends his profit, such as: with the farmer; the local printer (for flyers and menus); a local accounting firm; local newspapers (for advertising); local teams and charities. The residents benefit from all this money being spread around in their neighborhood.
Each of those local businesses above (like the farmer and printer) who further support local resources is contributing to the continuous cycle of feeding of our local economy.
So now, your $25 has been re-spent in your neighborhood, bettering the local economy over and over.
The local multiplier effect was first coined by economist John Maynard Keynes in his 1936 book, “The General Theory of Employment, Interest and Money.”
Isn’t it about time we get the hang of it?
Copyright 2008 Neighbors About Town