Last month I
shared with you the concept of comparing our local economy to that of a rain
barrel.The principle was that money
spent with local businesses was like rain filling a barrel and how much money
stayed in the community depended primarily on how many "leaks" the rain barrel
had.Leaks in the barrel were likened to
when local businesses AND local residents make purchases outside of the county
(local economy).The lesson I was
attempting to teach was, the more YOU buy from businesses located in Madison
County the more the local economy grows.The question asked of readers was, think about where you buy goods and
services?Consider making more
purchases here in Madison County than in Idaho Falls or online thus building a
stronger local economy. Sealing a local economy is impossible but it IS
POSSIBLE to slow the rate of dollars leaving locally (leaks in the rain barrel)
which will ultimately increase the local economy and build employment levels.
This month
let's consider the value of each $1 spent locally.Economic studies look at two factors, the
multiplier and the turnover.The "multiplier"
is the total impact a dollar spent in the local economy has while the "turnover"
is the number of times portions of
the initial dollar spent "turn over" within the local economy.Some studies suggest the multiplier to be 6
or 7 times however that does NOT mean one dollar spent results in $6 or $7 in
return to the local economy.The general
rule is a multiplier is usually 1 to 2 times the original amount spent.So $1 spent locally results in $1 to $2 re-invested
in the local economy.Why does it work
this way?Because the dollar you spent
is also subject to "leakage" of its own.Here's how it works.Let's say
the item you purchased for $1 cost the local store 50 cents and the store
purchased it from an out-of-area wholesaler.Then 50% of your dollar (50 cents) was leakage but the other 50% is now
available for the store to pay wages to local employees, pay state sales tax,
pay the store's utility bill to the out-of-state electrical supplier, pay for
the store's credit card machine and etc.Each time the store's 50% (50 cents) of the dollar spent is then spent
LOCALLY again becomes part of the multiplier and thus further builds the local
economy.So how do you grow the impact
of a dollar spent locally?Two ways... produce
the item the store is selling locally AND have the store then use the "net"
proceeds from the sale of the item with as many other local businesses and
service providers as possible.Since
Madison County is not known as a hot-bed for wholesale production, other than
agricultural products and services to the tourism industry, it is unlikely we
can help local stores lower the price of merchandise they sell BUT local
businesses can look more closely at spending with their local business partners.
Most
importantly, we as business owners, managers and employees as well as all
residents of Madison County need to continue to evaluate where we spend our
business' dollars and our discretionary income.Spending a dollar locally means that dollar can be worth 2 dollars or
more to the local economy versus spending a dollar outside of Madison
County.Virtually nothing of the dollar spent outside our county supports our local
economy.Let's all work together to grow
our local economy.The result will be
more local jobs, better paying jobs and a greater selection of goods and
services.
