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Vote with Your Dollars - Part 1 of 2

Mindfulness with your money matters - Shopping & Banking

By: Derek Huntington

Oct. 20, 2010

The 2010 election cycle is in full swing, and with it has come the usual plea from both sides of the political spectrum that voting is crucial if we want to solve the myriad crises our nation, state, and communities are facing. While fulfilling our civic duty by voting this November is important to ensure we have the best possible people and laws governing us, significantly more important to building thriving and prosperous communities are the “economic votes” we make every day.
 
There is no doubt that our country is driven by economics, and, over the last few decades, primarily global economics under the banner of “free trade.” While this focus has led to the enrichment of small percentage of society, by-and-large the neo-liberal economic agenda has failed to alleviate poverty and create enduring well-being in communities worldwide. By many measures it has made matters worse.
 
In response, many grassroots initiatives have sprung up worldwide advocating “bottom-up” economic development deeply rooted at the community level. In the United States, this movement is united under the banner of “economic localization,” and is being driven by cutting edge organizations such as the Business Alliance for Local Living Economies (BALLE) and the American Independent Business Alliance (AMIBA). Their focus is on building resilient and thriving local communities by helping them reclaim their local economic power. The tools? – the shopping, banking, investing, and giving decisions that people make every day.
 

The Power of Consumption

When the consumer finally begins to exercise the virtually untapped power of citizen action, consumers will take their logical place at the head of the economic process.
--Ralph Nader
 
Probably the most significant barrier to making positive change through our political system is the influence of lobbyists, who, according to opensecrets.org, spent $3.49 billion in 2009 to influence the decisions of our nation’s leaders. But even this number is insignificant compared to the amount spent by businesses to lobby consumers through advertising, which was estimated by a number of media analysts at around $160 billion in the U.S. for 2009.
 
To understand the above Ralph Nader quote and why businesses spend so much on advertising, one need only look at the U.S. Gross Domestic Product (GDP) figures. In 2009, total U.S. GDP was estimated at $14.1 trillion, of which personal consumption composed 71.6%, or $10 trillion! Based on data from the U.S. Census and the Bureau of Labor Statistics, in Sonoma County alone households spend an estimated $9.85 billion annually to meet their needs.
 
What do you support with your shopping votes? So far, by and large we have been duped into being mindless consumers programmed to believe that true happiness is found at the shopping mall. In many cases, the production, transportation and distribution of the goods we buy is at the expense of the well-being of the World’s people and ecosystems.
 
This fate is not inevitable. We have the potential to use our economic power and shift our support to businesses that provide quality jobs, respect the environment, and maintain the unique character of our communities. It is up to each of us to look deeply at our self and our spending patterns to understand the impact of our economic actions. If we can do this collectively, we can leverage our full potential as economic citizens.
 

Go Local First!

The phrase “Think Globally, Act Locally” has been a rallying cry for citizen community action for decades, and it continues to be relevant today as we work to transform our destructive global economy. Thankfully, emerging research is beginning to show that a little shift goes a long way, and the reason is the local economic multiplier.
 
Numerous studies have been completed throughout the United States, primarily by Civic Economics, to measure the economic impact of shopping at locally-owned businesses compared to their non-local counterparts. The results of the studies show that one-and-a-half to four times as much money stays local when you shop at locally-owned businesses. One of the more robust studies done in Andersonville, Illinois showed that, on average, an extra $25 of every $100 spent at a locally-owned business stayed in the local economy to create more economic activity, jobs, and benefits for the local community.
 
In Sonoma County, if we are able to shift even 1% of our estimated $9.85 billion in spending to locally-owned businesses, this would mean an estimated $98 million in additional revenue for local businesses annually. On top of that, the multiplier effect would keep an estimated $24 million circulating locally that would otherwise have left the community before the shift. These numbers are no small potatoes and are only the beginning of what is possible if the majority of community members make a concerted effort to Go Local First with their shopping decisions.
 

Bank Local

As illustrated above, a small shift in spending by everyone creates a huge amount of benefit that we all can take to the local bank . . . and should take to the local bank, as our local banks and credit unions play an important role in our local economy that increases the impact of the shift.

We all learn the basics of banking in high school economics, and, probably more of us, from the classic holiday movie "It's a Wonderful Life." The key concept we learn about banks is that they don't keep all of our money locked away in their vaults, but rather, lend most of the money we deposit to other people and businesses for business loans, mortgages, student loans, etc. This is known as fractional reserve lending, a process that allows banks and credit unions to lend 90% of their deposits, while keeping 10% in reserve to have enough cash on hand for withdrawals.
 
There is an important part of this process that is often overlooked, but is the key to maximizing the impact of the local banking multiplier . . . loans count as new reservable deposits. This means that the 90% of deposits that banks can lend to others become new deposits once the dollars make it back into a bank, and then 90% of those deposits can be lent, and then 90% of those deposits, and so on. In theory, banks and credit unions can create new loans, essentially new money, totaling nine times the amount of the original deposit if 100% of the loan proceeds make it back into a bank or credit union each time.
 
According to the FDIC and NCUA, there is approximately $11.5 billion deposited in banks and credit unions in Sonoma County, of which $5.3 billion or 46% resides at "non-local" banks. If we can shift just 10% of these deposits, or $534 million, to local banks it could generate up to $4.8 billion in new local lending. If just 25% of all the loans in the chain make it back into local banks, the $534 million could still create $620 million in new local lending.
 
The Bank Local shift, combined with a shift in spending to locally-owned businesses, would be a powerful force reshaping our local economic landscape for the better. By shifting demand to local businesses, it creates opportunities for our local financial institutions to invest our deposits through loans to increase local business capacity, which in turn allows local businesses and their employees to increase deposits and savings through their success. This virtuous cycle is a key driver for creating jobs and enduring well-being in Sonoma County for all members of society.
 
Next Week: Part 2 of 2 - Vote with Your Dollars: Investing & Giving

Comments (2)


Very nicely said

posted by Nikee Huntington on 10/20/10 @ 01:13 p.m.

Derek: Very impressive! Compellingly articulated!

posted by Mark McLeod on 11/10/10 @ 10:57 a.m.

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