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Sunday, December 7, 2008

Recession Zen: Buy Less and Buy Local

Maybe the trick is not to fight recession, but embrace it...

South Dakota magazine editor (and incoming Democratic state legislator) Bernie Hunhoff sounds just a little like President George W. Bush this morning. In his weekend musings on the economy and what we can do to be more like our northern sister state than the rest of the floundering national economy, Hunhoff offers a sort of Serenity Prayer for the local economy:

As Dakota conservatives, we should do our best to keep things going as they are; let's keep our neighbors working and keep our locally-owned stores going. We can't change the currency rate or restore sanity to Wall Street, but we can fight off the recession by buying a cup of coffee and pie at Joe's Cafe in Alexandria.

That's a sacrifice I'm willing to make for South Dakota [Bernie Hunhoff, "What Recession? Or When?" South Dakota Magazine: Editor's Notebook, 2008.12.06].

A casual reading might leave you thinking Bernie is saying "be a good American: go shopping!" However, I do credit Bernie with somewhat more thoughtfulness than our President. A recession is by definition a period of less economic activity, so if you want to get rid of a recession, prescribing more economic activity (more pie at Joe's, more shopping at Books and More) is perfectly logical.

The key words there: if you want to get rid of a recession. We assume a recession as bad thing, to be gotten rid of, if not avoided. But is it?

I can think of hypothetical situations in which a decrease of economic activity would not inherently be a bad thing. If an economy were based on unhealthy economic activities—cocaine production, prostitution, predatory lending—a recession in those industries could be desirable. Short of those extremes, there are certainly times when it would make sense for a lot of Americans to cut their spending by five or ten percent and put those savings away for college, retirement, and rainy days.

The problem: when the economy has been surviving on a negative savings rate (people spending more than they earn) since 2005, then a sudden sensible move toward savings causes a recession (as Dean Baker predicted in 2006).

We're in this recession because we were buying more than we could afford, and we had to—have to— stop. Banks do need to dry up some credit. Homebuilders need to sell smaller homes. Americans need to buy less stuff. We need a recession.

So how do we soft-land that recession—well, maybe we're past that point. How do we make the recession a soft crash instead of a hard crash? How do we accept the recession and buy less without driving our local merchants out of business?

It may take a hatchet... used like a scalpel. We can't cut all of our spending: we still have to eat, and so does our local grocer. We can, however, prioritize our spending and cut judiciously. Maybe keep your morning dollar coffee at Joe's or the Country Café, but skip the Starbucks when you visit Sioux Falls. Rein in your out-of-town spending first, and keep your money circulating on your own Main Street as long as you can. For many families, even that may not be enough: to climb out of credit card debt and cover their mortgages and health premiums, they may have to skip those Sioux Falls trips altogether and still not go down to Joe's or the local DQ as often.

Wherever we make our judicious cuts, that decrease in spending still means a recession. Even if we all go loyally local, bigger economic forces beyond our control will still knock down some of our local businesses.

The recession is big, and it's necessary. Instead of fighting it, we should use economic judo (any advice, Mr. Putin?): absorb the hit, roll with it, save all the local businesses we can, and come up on a stronger footing of positive savings and conservative spending.

Update 13:48 CST: ...like folks refinancing their mortgages and socking the savings away for later.


  1. I go along with the fact there is something our economy needs to learn from the recession, and if scaling back means shopping locally makes more sense great, but don't suggest people do it out of a sense of "loyalty." When I hear that kind of protectionist talk it bugs me just as much as sweet deals for the big boys. If a sensible person does the math, considers their time and doesn't want to make a trip to Sioux Falls or Brookings, great, but I got so tired of people trying to use guilt to say people should shop locally and pay 25% or 35% more. If we want people to shop locally, then get competitive to create loyalty. Put in open areas downtown to enjoy that DQ sandwich or that fancy coffee. Get a grocery store with wide aisles, selection, and lower prices. Be comparable on sheetrock and paint and we won't drive to Sioux Falls. Bring in a Mexican restaurant. Oh, we have one scream for joy. People like this town and they will stay here and enjoy it if they are given the right reasons. John Hess

  2. Cory:

    We just spent a bunch of money on our studio in Rutland so that we can become more efficient. Our new insulation will save me thousands each winter in heating costs. Bad for F&M but good for me.

    We are spending money to save money and increase productivity. I have no problem shelling out a thousand or two for a new computer or software to save me time.

    It's very easy to be sucked into a bunker mentality, but life is meant to be enjoyed.

  3. By all means, Michael, spend it if you've got it. I'm not talking bunker mentality. I'm talking not carrying a balance on your credit card to eat out. I'm talking not seeking a $300K mortgage when conservative lending principles should only approve you for $200K.

    But consider this: if we all had your smarts, insulated the heck out of our living/working spaces, and cut our energy spending by thousands each year (thousands?!), wouldn't that constitute a recession, at least for our local energy suppliers?

  4. Bernie Hunhoff12/07/2008 3:25 PM


    I'm not sure you're representing my position very well, but that's probably more my fault than yours.

    I'm simply stating that while we can't do very much in the short-term to improve commodity prices or save Citi-Bank we probably can preserve Joe's Cafe and the jobs he provides. There may be silver linings in a recession, but losing local jobs and businesses isn't one of them.

    So let's do what we can.

  5. I see people are still buying vehicles, and why not! Some new vehicles are up to $15,000 off, so if you need a new vehicle and have reliable income, do it. The used market is priced right too. I think what Bernie is trying to say is, "try to do what you've been doing, rather than cutting back severely, to lessen our local impact."

  6. Good morning, Bernie! My apologies if I did too much damage to your original message. I concur: losing local jobs is not a silver lining.

    Yet as John pointed out above, it can be hard to justify buying something just because it's good for one's neighbor. It would be great if everyone in South Dakota dropped by and put ten bucks in my blog Tips jar, but if the blog itself isn't worth your ten bucks, or if you just decide you need to cut back on your blog spending this year and save money for retirement, I can't hold that against you.

    As for "cutting back severely," Anon, well, that's a tricky phrase. You might not think that buying used instead of new constitutes "cutting back severely," but if everyone in Madison does it, Pat Prostrollo will freak out. Remember, even smaller growth than expected constitutes cause for doom and gloom for many businesses. Reasonable cutbacks by everyone (like the decline in driving this year) can lead to huge economic impacts (price of gasoline down 60%).

  7. I think part of the "loyalty" involved with shopping locally is loyalty to one's own convenience (and not some kind of altruistic community-support-at-the-cost-of-higher-prices).

    Even on a very limited budget, it's important to me to support the downtown hardware store because it's only a short few blocks from my house. Their prices are a little higher, but I don't have to fire up my truck to get there and back and have a lightbulb in my socket (or a fuse in my box) in about ten minutes flat.

    What's more is that a Sioux Falls or Sioux City shopping trip isn't just about the time and the gas. There are the hidden costs of a meal while you're there, the wear and tear on the tires and the engine--things not generally taken into account in a straightforward does-the-gas-cost-outweigh-the-extra-cost-of-shopping-locally analysis.

    Hidden too are those benefits you get by patronizing those local businesses--they might be willing to extend a bit of credit or throw in that extra something to keep you coming back.

    I don't advocate shopping locally just for some altruistic do-goodism--I can't afford that. I advocate buying locally to build and strengthen a local network that can service my needs and create those you-scratched-my-back situations where we can all help each other out in hard times.



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