Why the idea of buying "local" goods at higher prices vs. large corporations at lower prices is against our best interest

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lilbromarky1
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Why the idea of buying "local" goods at higher prices vs. large corporations at lower prices is against our best interest

I keep hearing, still, on many of my youtube channels that we need to buy local rather than "saving a few bucks by going to Wal-Mart".

For my argument, we need to assume that the widgets are identical.  That it is the exact same product.  We are also assuming that the distance from your house to the mom and pop store is the same distance from your house to Wal-Mart

The current myth goes, that to support the revolution, you should buy your widgets from mom and pop instead of the Wal-Mart.  The idea is that we will starve the beast, and also that big corporations are somehow responsible for our current situation.  False.

Capitalism rewards efficiency.  If we lived in a true free market system of capitalism, with true free market money with no govt interference, you would see 2 things happen.  

1.  Our standard of living would increase

2. Unemployment would increase as a result because less people would need work in the first place

People go to work to produce a good or service that someone else desires.  In the utopia situation, all businesses operate at their most efficient level possible.  As a result of their efficiency, the most efficient corporations survive and the least efficient go out of business.  

If mom and pop shop cannot sell our example widget at the same price level that Walmart can (again, assuming identical widget, equal travel time to both stores), then mom and pop should not be given your business, just for the sake of supporting a cause that is flawed.  Supporting mom and pop at the expense of your wallet only serves to perpetuate malinvestment.  If shopping only at mom and pop store causes your wallet to empty faster, you are not doing society any favors. 

Let assume that the fiat system has crashed on planet earth, and we smartly move to free market sound money, chosen by the public, not by congress, not by bankers.  Lets assume no govt exists.  We have transcended above and beyond this primitive system.  Therefor, there are no bailouts, no taxes.  The only thing that determines whether or not a business survives is its ability to produce desirable goods or services at the most efficient (lowest cost) possible. 

In this system, as technology increases through the natural human desire to generate more output with less input, we would eventually be taken to a place where humans had INCREASING levels of freetime and leisure.  We could get to a point where not only could mom stay home with the children, but dad might only have to work a 4 hour day instead of 8 hours with a lunch break. 

When people talk about rising unemployment as a negative factor for society, it is only negative because the ridiculous monetary system/govt system that we allow to exist through our own participation and consent.  If we were to take control of these 2 factors as a general public, efficiency would rule.  Goods and service providers would consolidate in the sake of efficiency, and people would cheer every time unemployment went up another percent because it would mean that our standard of living was increasing.  It would symbolize our progress.  Again I state, that in the abscence of govt regulations, and in a system where the money is chosen by the free market, with no banker control and no legal tender laws, big corporations would be celebrated and loved.  In our current system, govt creates conditions in which competitors are not able to enter the marketplace to compete with the established.  The competitors may have a more efficient means of producing the goods, but govt control stifles them.  We reward terrible business decisions.  Of course it makes sense then that unemployment is such a concern.  The reason we need men, women, and children all fully employed is because all of that human effort is required to compensate for idiotic business decisions and a lack of innovation.

Edited by admin on 11/08/2014 - 06:02

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lilbromarky1
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Another way to view this idea

Another way to view this idea is to look at all humans on earth as a team.   To simplify, assume we all transact through a centralized marketplace.  Assume you receive goods via teleportation services so if you need some palladium from russia to create your product in Chile, the distance between Russia and Chile is irrelevant.  Assume every good that is for sale is represented in the central marketplace.

We all have the same objective, which is improve the standard of living of everyone by specializing tasks and allowing people to create the good or service that they are best suited.  Those who contribute the most time at the most efficient level possible are rewarded with the most goods in return.  But not everyone is a go getter, and some would prefer to only work a small amount in exchange for more leisure time.  This would be okay as well.  Even the man who prefers leisure and the minimal existence is able to live a happy and fulfilling life.  The reason would be that through our collective efforts and technological improvements, the minimal man's labor would be so valuable that he would be able to work a 10 or 20 hour week and still enjoy a comfortable, non-threatened, secure lifestyle. 

Somehow humans need to transcend the mental construct of government if we are ever to move forward.  What is government really?  Its just a belief.  If you take away the belief, you're left with a bunch of granite and marble and some mahogani desks.   The only thing we have to do to overcome all of this is to stop being afraid of one another.  By and large, the peons of the world do not wish to hurt one another.  Its the disgusting leaders that make up stories about peons that live in place that we have never been to, and know nothing about, in order to create a sense of separation and misunderstanding and fear.  If you take away the fear of other humans, the entire need for government is eliminated.  The government created the internet, and the internet will destroy the belief in government.   Once people, through the internet, start watching and learning about just how similar people are to them, even in far away places, the idea of war, and offensive military spending will be absurd. 

Let me ask you as the reader this, how much video have you ever seen of Chinese culture on television?  How about a country in the Middle East?  What about Russia?  How much do you hear about these cultures on the radio?  There's a very specific reason we that hear and see nothing about these cultures.  It is because our leaders know that we will not be willing to fight against a group if we understand them.  

We can change this entire system by simply changing our minds. 

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Hayman
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Why is Mom and Pop more inefficient?

I submit that the tax code imposes a huge burden on non-corporate businesses in multiple ways which favors wealth transfers to corporations.

To run a business, it may require several hundred thousand dollars in capital investments to support every job.  Especially any type of manufacturing business.   Using this premise, any non- corporate business which supports 12 people may require 2.4 million in capital in buildings, equipment, etc...  That is most likely on the very low end of capital requirements.   Every business (in the U.S.) that surpasses approximately that threshold is subject to the most brutal of all taxes upon the transfer from one generation to the next upon death.  Every sucessful business in this country is forced to re-buy a large chunk of itself every 20-30 years.  eventually this becomes insurmountable.

If Corporations were subject to a Tax that forced them to hand over 35-55% of their NET WORTH every 25 years, you would see that they wouldn't be as efficient as you claim they are.  They would have large debt service obligations just to maintain the payments made to meet tax obligations.  Just contemplate the burden of that kind of TAX for a minute.

The tax structure of this country has destroyed the longevity of the 25-1000 employee private businesses in this county which are businesses least likely to close domestic plants and open overseas only to ship products back to this country.

Fix this one problem and Mom and Pop could compete with Corporations head to head.  Eliminate the death tax and Tax the corporations with this type of monstrosity every 25 years for the next 100 years.   You might start seeing private businesses buying parts of corporations at tax time rather than the other way around.

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Hayman, I'm all for that and

Hayman, I'm all for that and I do realize that govt rules and regulations and taxes have created a very uneven playing field.  Username "Paladex" and I were going back and for this on this a few months back.  He made good arguments against the larger businesses as well.

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UGrev
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History shows us that #2

History shows us that #2 would be cyclical. You would have a period where a certain part of the populace wouldn't need to perform tasks that were once laborious and some of them would become wealthy enough to not have to work. Some would lose their jobs as they were replaced, some would move on to other jobs, usually building off of the "automation" of the previous job they occupied. The latter does tend to take a few years as people develop their ideas, however. 

CreditCrumbs
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Fallacy

" If we lived in a true free market system of capitalism, with true free market money with no govt interference, you would see 2 things happen. "

If PREMISE then CONSEQUENCE. 

PREMISE = we live in a true free market of capitalism

CONSEQUENCE = increased living standard

In your argument, the PREMISE is false and "free market" is a pie in the sky concept not grounded in reality. Hence the CONSEQUENCE is questionable. There is no true free market when your trade partner relies on slave labor practices and environmental destruction. How can you make an economy competitive in such an environment? With even worse slavery. Sure, you will get even cheaper products, but at the expense of human rights and collapse of civility and justice. On a second thought, even with slavery, there is no way American worker can survive with Chinese living standard. How many percents of Americans can work 70-80 hours a week while consuming only 1300 calories a day? How can you be competitive against a country that destroys its environment to absorb industrial capacity of others? By destroying your own environment at a greater rate than your competitors. Go to China and try to survive there as a migrant worker. Then come back here to report if you still believe that theory.

lilbromarky1
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CreditCrumbs wrote:" If we

CreditCrumbs wrote:

" If we lived in a true free market system of capitalism, with true free market money with no govt interference, you would see 2 things happen. "

If PREMISE then CONSEQUENCE. 

PREMISE = we live in a true free market of capitalism

CONSEQUENCE = increased living standard

In your argument, the PREMISE is false and "free market" is a pie in the sky concept not grounded in reality. Hence the CONSEQUENCE is questionable. There is no true free market when your trade partner relies on slave labor practices and environmental destruction. How can you make an economy competitive in such an environment? With even worse slavery. Sure, you will get even cheaper products, but at the expense of human rights and collapse of civility and justice. On a second thought, even with slavery, there is no way American worker can survive with Chinese living standard. How many percents of Americans can work 70-80 hours a week while consuming only 1300 calories a day? How can you be competitive against a country that destroys its environment to absorb industrial capacity of others? By destroying your own environment at a greater rate than your competitors. Go to China and try to survive there as a migrant worker. Then come back here to report if you still believe that theory.

You assume that the Chinese Labor market is also a free market, and has no government intervention.  Specifically, you mention "slave labor".  What force is it that makes it necessary for these workers to do you say, work 80 hours per week, 1300 calories per day.   Why are these chinese workers not allowed to enjoy the fruits of their own massive labor efforts?

The Chinese are not free there.  Just as US workers are not free here.   Varying degrees of freedom yes, but your argument is flawed despite seeming strong on the surface.

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CreditCrumbs
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Not my assumption

I don't assume China or US have any free market. None of them has. Both US and China are controlled by oligarchies hell bent on enslaving their population. China is more successful in that. It has a hukou system where migrant workers move from rural area to cities and work in factories but are not allowed to establish residency. Residency implies access to public schools, public health, etc. Migrant workers are extremely oppressed in China. They are paid $150 a month in salary, and their children are not allowed to go to city schools. Factory owners give them work environments lacking any  safety standards. Many of them die young (from toxic factory air), have cancer at a young age, lost limbs, etc. When that happens, factory owners give them RMB 5000 (US $800) to compensate them and tell them to go home. They go home to the rural area where they come from, but without limbs they cannot work, so they commit suicide. Many stories like that. Migrant workers are afraid to complain because without residency, they may get kicked out any time from cities and must return to rural area. Their bargaining power in the economy is completely stripped bare. So, my question is (to everyone, not just to you), do we want to compete with China on labor cost, knowing that there is no way to compete other than to violate human rights? 

China is playing tariffs game on US products through currency underpegging, immense subsidies for exporters (at the expense of the household sector), and old fashioned protectionism (alibaba vs. yahoo, for example). At the same time, it has policies that force US companies to share their advanced technology in order to sell products in China. US companies are enjoying fat profit margin from outsourcing labor to China and India with shareholders pocketing the increased profit margin. Now China starts to hike up its labor cost (which it has every right to do), US companies are worried of shrinking profit margin, so they are pushing politicians to re-institute slavery so that profit margin can be maintained or increased on the back of the US working class. This process has started with dismantling of unions, and will go on for the next 10-20 years. If that does not work, insource a large number of legal or illegal immigrants willing to work 70-80 hours a week for half pay. That is what capitalists call "free market", which is not really free. 

lilbromarky1
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CreditCrumb:I read

CreditCrumb:

I read everything you wrote.  What capitalist is going around claiming that's a free market?  Whoever they are just discredited themselves greatly :)

You asked: "do we want to compete with China on labor cost, knowing that there is no way to compete other than to violate human rights?"

First response:  Its not a matter of wanting to compete, its either compete or die.  Just like on a battlefield, you either kill or get killed.

Second response: This situation cannot last forever.  The chinese will rebel and revolt to improve their conditions.  The currency will rise and gain strength. The wage gap will close and the playing field will be a little bit more level.  Its honestly up to the chinese people to make the change that needs to happen.   Americans dont need to become communists in order to compete, they just need the dollar to be devalued.  Our artificially prosperous conditions created by the overvaluation of the dollar are the cause of our phoney prosperity and that same overvaluation will be the demise of our prosperity.  What I'm trying to say and I'm not sure if I'm being clear or not is, balance will be restored one way or another.

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CreditCrumbs
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@lilbro

I see better now where you come from and your thought process. I agree that overvaluation of dollar created phoney prosperity and resulted in trade imbalance that will have to correct voluntarily or involuntarily. USD devaluation is one way that imbalance is being addressed. I agree with your points. 

However, I would add that that is not the only way to address the problem. Trade balance is affected by economic competitiveness, and economic competitiveness is a function of technology lead and production cost. Rather than making US economy competitive through USD devaluation (which may not be avoidable at this point), it is better in the long run to increase technology lead. Which means investment in creation of new technology and policies to stop technology that is already created from being given away to Chindia. For example, GM was under pressure by China gov to share their Chevy Volt electric vehicle technology, and in the end relented. The US gov should have stepped in and said "you can't do that", or "if you want to do that, return all bailout funds you received from the taxpayers".  

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Frugality 1st

.

lilbromarky1
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CreditCrumbs wrote:I see

CreditCrumbs wrote:

I see better now where you come from and your thought process. I agree that overvaluation of dollar created phoney prosperity and resulted in trade imbalance that will have to correct voluntarily or involuntarily. USD devaluation is one way that imbalance is being addressed. I agree with your points. 

However, I would add that that is not the only way to address the problem. Trade balance is affected by economic competitiveness, and economic competitiveness is a function of technology lead and production cost. Rather than making US economy competitive through USD devaluation (which may not be avoidable at this point), it is better in the long run to increase technology lead. Which means investment in creation of new technology and policies to stop technology that is already created from being given away to Chindia. For example, GM was under pressure by China gov to share their Chevy Volt electric vehicle technology, and in the end relented. The US gov should have stepped in and said "you can't do that", or "if you want to do that, return all bailout funds you received from the taxpayers".  

Question and objection to your statement: "Which means investment in creation of new technology and policies to stop technology that is already created from being given away to Chindia"

Regarding investment, do you mean private investing or government subsidies?  

Regarding stopping china from having the volt technology, who's to say that's a bad thing if China can produce a better product?  I'm not assuming that they can make a better product, but they should have the opportunity to compete and try.  Going back to the original point of this thread, the world runs best when everyone does what they are best at.  Efficiency is the goal.   Government is the opposite of efficiency

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Paladex
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Malinvestment

Good to see this subject under debate again.

Lilbromarky, your assertion that paying more to shop locally is a malinvestment is false, as is your assertion that "efficiency is the goal." Investment is, by definition, the allocation of money in anticipation of future return FOR YOU. Supporting local businesses is an investment in the future of your community, and, by extension, yourself.

When you shop at a megastore, the bulk of the profits are exported to God knows where, and ultimately wind up in the bank accounts of a small number of shareholders and executives. Therefore, by shopping at megastores, you are investing in the welfare of those shareholders and executives, at the expense of yourself and your community. 

In many ways, your argument echoes that of the Industrial Revolution. They argued that establishing textile factories that produced cheap cloth was good for everyone, because the local weavers that were put out of business could simply go to work for the new textile firms. The problem was that the new jobs were in dangerous, toxic factories, and paid less than a living wage.

The same is true now: picking oranges for ConAgra is not just as good as owning your own farm; earning minimum wage at Barnes & Noble is not just as good as owning your own bookstore.

Are the big corporations more "efficient" because of economy of scale, etc.? Perhaps, although quality is often sacrificed, creating hidden costs. The larger principle, however, is that efficiency for the sake of efficiency is dehumanizing. The goal is - or should be - quality of life.

The capitalist precept that a community of people, all acting in their own self-interest, will elevate society only works if people are willing to take a slightly longer-term view. Just because "investing" in megastores by shopping at them is cheaper than "investing" in local stores does not mean that it pays a quality return, in the long term.

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