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What studies discuss how money flows internally and permanently out of an economy? This seems tangential here. I recall an article/conversation long ago about

by xrd 7y ago

What studies discuss how money flows internally and permanently out of an economy? This seems tangential here. I recall an article/conversation long ago about how open source consulting projects keep money local. IIRC, the argument was that paying someone to develop open source software for a government project leads to that money being cycled around six times inside the local economy, as opposed to money leaving the local economy. For example, if you buy Oracle's database (and associated consulting) for that municipal government accounting project for the city government of Smalltown, USA, then all that money leaves that economy permanently. If instead the city council of Smalltown, USA can be convinved to hire a few weird local Perl programmers to build it that money will go into their bank account at the local credit union. That credit union will then loan out that money, and multiply it inside the local economy there. That Perl programmer will go down to the pub, and spend money there, and on groceries (and not Amazon), etc. There are complications to doing it local (Perl programmers aren't great salespeople), but in Oregon we were bitten by Oracle and it turned out to not be cost effective at least: https://www.oregonlive.com/politics/2016/09/post_183.html https://www.oregonlive.com/politics/2016/09/post_183.html. Oregon tax payers paid $240M to Oracle. Oracle settled for $100M, but let's be straight: $75M of that is Oracle software. You cannot find Oracle software being exchanged for pizza at any brew pubs here. It seems like buying local is keeping money local. But, I never hear people talking about it that way, other than in that random open source advocacy discussion. I cannot find that link, and perhaps it was only a dream I had, but this makes sense to me logically.

hantusk 7y ago
Don't have a link to a study, but would also appreciate a good one of anyone is into this. From my understanding of economics, the idea is that, optimizing for local money is suboptimal. Compare that to Smalltown finding their own niches/specialization and earning more money from that to purchase Oracle software. Smalltowns will end up having more value by exporting what they are good at, and importing what they need from the area/company that is best at what they are good at.
- hantusk 7y ago
  Of course this requires everyone to be good purchasers and sales people (Oregon, perl programmers and Oracle alike). Individual cases can be outliers but in general we are rational (to a certain degree)
- notechback 7y ago
  That's if the market is optimal. The market is not optimal as the big players buy the smaller ones and centralise where taxes are low, rather than stay where they came from.
- josinalvo 7y ago
  When theory does not match experience, do we throw away theory or experience? That is, when we see the local economy drying up again and again, and towns in permanent recession, disappearing, do we just keep doing what the theory says. Besides, the theory does not say "open economy is good for everyone". It says, at most, with its caveats and conditions, "open economy is good to maximize global wealth", the sum of the wealth of all the participants. Maybe that benefits smalltown (good), or maybe a chinese smalltown more than it hurts smalltown (still good, but a though time convincing smalltown to go along against their interests). Maybe that benefit Jeff Besos more than it harms smalltown (in dollar terms, that are the issue the theory is about). Saying that the economy produces good results is like saying evolution produces good results: true, as far as it goes, but your blind god optimize for things you care only incidentally, and often not at all (see also: covid-19 :P)
- xrd 7y ago
  I appreciate that idea. But, the example I cited should at least warrant further discussion. If you know anything about the way Oracle does business (and this is the case for many other businesses in other industries) is that they sell you on a project with a small initial cost. Then, BIG SURPRISE! Cost overruns! Can't be helped, but here is the bill. Hence the lawsuit. If you look at this example, I really feel like a local solutions consultant (my magical Perl programmer) could have done it for less money and a better outcome. And, I really think that is a model we should consider much more often.
notechback 7y ago
This is a fascinating argument, thank you for sharing.
azepoi 7y ago
This is one a the points of Strongtowns. Local independant shops hire local accountants, local attorneys to setup shop, are more likely to hire local businesses for marketing etc. Big retail chains funnel all the money to HQ. Same thing with automobile dependency, all that car and gas money leaves the local economy.

by xrd 7y ago

hantusk 7y ago

Don't have a link to a study, but would also appreciate a good one of anyone is into this. From my understanding of economics, the idea is that, optimizing for local money is suboptimal. Compare that to Smalltown finding their own niches/specialization and earning more money from that to purchase Oracle software. Smalltowns will end up having more value by exporting what they are good at, and importing what they need from the area/company that is best at what they are good at.

hantusk 7y ago
Of course this requires everyone to be good purchasers and sales people (Oregon, perl programmers and Oracle alike). Individual cases can be outliers but in general we are rational (to a certain degree)
notechback 7y ago
That's if the market is optimal. The market is not optimal as the big players buy the smaller ones and centralise where taxes are low, rather than stay where they came from.
josinalvo 7y ago
When theory does not match experience, do we throw away theory or experience? That is, when we see the local economy drying up again and again, and towns in permanent recession, disappearing, do we just keep doing what the theory says. Besides, the theory does not say "open economy is good for everyone". It says, at most, with its caveats and conditions, "open economy is good to maximize global wealth", the sum of the wealth of all the participants. Maybe that benefits smalltown (good), or maybe a chinese smalltown more than it hurts smalltown (still good, but a though time convincing smalltown to go along against their interests). Maybe that benefit Jeff Besos more than it harms smalltown (in dollar terms, that are the issue the theory is about). Saying that the economy produces good results is like saying evolution produces good results: true, as far as it goes, but your blind god optimize for things you care only incidentally, and often not at all (see also: covid-19 :P)
xrd 7y ago
I appreciate that idea. But, the example I cited should at least warrant further discussion. If you know anything about the way Oracle does business (and this is the case for many other businesses in other industries) is that they sell you on a project with a small initial cost. Then, BIG SURPRISE! Cost overruns! Can't be helped, but here is the bill. Hence the lawsuit. If you look at this example, I really feel like a local solutions consultant (my magical Perl programmer) could have done it for less money and a better outcome. And, I really think that is a model we should consider much more often.

notechback 7y ago

This is a fascinating argument, thank you for sharing.

azepoi 7y ago

This is one a the points of Strongtowns. Local independant shops hire local accountants, local attorneys to setup shop, are more likely to hire local businesses for marketing etc. Big retail chains funnel all the money to HQ. Same thing with automobile dependency, all that car and gas money leaves the local economy.