Ethics and Economic Education of New England: Buying local and blocking out the sun
Incorporating the lens of opportunity cost into to decision-making is probably one of contributions of economic thinking. Failure to incorporate it is what often leads well intentioned movements into destructive outcomes. Jason Sorens does a good job illustrating this with the "Buy-Local" movement.
So return to the example of the plastic bins [Buying bins for $1 at Wal-Mart vs. local for $2]. If I buy them from Wal-Mart, I save $1. I can use that dollar to buy other things or to invest in producing things (by saving). I am better off than if I buy the bins at $2 each from the local retailer, Wal-Mart is better off, and whoever would benefit from my spending or saving that extra dollar is also better off. Only the local retailer is worse off.
Do the gains from buying from Wal-Mart rather than the local retailer in this example outweigh the losses? Yes. To see this, imagine that everyone bought local, all the time. Cars, airplanes, software, clothing, food… everything would have to be made and exchanged in the town where you live. What would happen to everyone’s standard of living? It would fall dramatically. (How many skilled airplane manufacturers does your town have?) The same principle applies at the national level, or any other geographic level you choose. If you buy everything within that circumscribed area and exclude everything outside it, your community will be worse off than it would be if it bought from any willing seller.
Now, that’s an extreme example, but it illustrates the principle. Some things are impossible to make locally (airplanes). Other things are difficult and costly to make locally (shipping and retailing of plastic bins). A few things will be most efficiently and affordably made locally, and you will want to buy them locally without having to be goaded into doing so – they’ll simply be the best products for the price. Goading your community into buying shoddier or more costly products just because they’re local or American or whatever just makes your community poorer.
Read the whole thing.