Saturday, October 4, 2014

Buy Local

George Washington, Abraham Lincoln and Benjamin Franklin walk into Schmidty’s. “What’ll it be boys?”

Ben says, “I’ll have a cognac.”

G.W. says, “I’ll have a Sam Adams.”

Finally, Abe replies, “I’ll have a Southern Comfort…on ice.” Cue percussion sting.

We often hear the mantra “Buy Local!” It is repeated as though it were the end-all saving grace of micro-economics. As though buying local were enough to save every small town and defeat the Walmart Leviathan. Well, as it turns out, it just may be the key after all.

On a philosophical level I think we can all get behind the understanding of why buying local is important but have you given it any empirical thought? Let’s take a moment together and breakdown what a hundred dollars spent locally really means to our community.

First let’s get a couple things out of the way: Overhead and taxes. The local tax scheme means that $100 is actually $106. But that’s not all bad, four dollars go to the state and two go to the city. The state spends the money on highways and parks and such…ok good. And the city does roughly the same, spending on streets and the public pool et cetera.

Overhead, the cost of doing business, is something we can’t control and varies widely. Overhead - not including payroll, taxes and utilities - accounts for 35% on the low end (retail) and 65% on the high end (grocery). This means that Jackson, Hamilton, Sacagawea and her four sisters go straight to the wholesaler.

Twelve dollars goes to payroll or wage expense. In other words, $12 goes to the person who helped you find what you’re looking for and ring it up. That person running the till is usually your neighbor and half their paycheck goes directly back into the local economy.

Four dollars is cash contribution to local charity, a business donation to the local FFA chapter for example.

The next four bucks go to utilities. Municipal utilities happens be Arlington’s primary revenue stream. One dollar each goes to road improvements, volunteer EMT, public works and the Sherriff.
The next ten-spot goes into reinvestment. The local business owner spends this money on getting more of the things you need and introducing more of the things you want.

Unfortunately, eight dollars must go to The Fed in various taxes. So, Thomas Jefferson and his three clones are off to the treasury to do gosh-knows-what but, we do have two US highways running through Arlington, so maybe it’s not all bad.

The final $27 is what the local business owner takes home (so to speak).
That local business owner is also your neighbor and that money is quickly turned around locally. 

Nine dollars is spent on housing – a house in town which means the payment goes to a local bank and local insurance agent and the real estate taxes go to the school your kids attend.

Three dollars go into a savings account and three go to personal charity contributions: one dollar in the collection plate at church, one greenback to the fireman’s ball and Jack Kennedy gets to wear a Cardinal Hoodie.

Six dollars are directly reinvested in the community via food, entertainment and transportation costs. Five dollars go to miscellaneous living expenses and finally, when George is done with his Boston lager he get’s set aside for a hard earned vacation to Wall Drug three years from now.

To sum up: Of every $100 spent locally, $63 is directly reinvested back in the community.

Additionally, local purchasing has a ‘Multiplier Effect’ of 3x or more in the form of direct, indirect and induced impact. We will talk about more on the multiplier effect next week.

In the mean time, “Buy Local” will be the theme of for this week. If you have questions on local buying from the consumer or retailer perspectives come and see me about it. I’m in Norgaard Insurance on our Main Street.

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