Djembe
Intercultural Magazine of Concordia College
Hipsternomics: An Economic Discussion on the Hipster Movement
Jacob Amos
The hipster movement, seemingly taking the world by storm one coffee-addicted college campus at a time, brings with it more than indie music and thick-rimmed glasses. Hipsterdom, so to speak, carries economic claims that are as noble as they are widely disputed.
The average hipster loves nothing more than to follow her Sunday grocery shopping at the local farmer's market by lounging in an unheard of cafe sipping on organic, fair trade coffee. Throw in some indie music nobody's heard of yet, and you have a hipster's perfect day.
Setting aside for a moment the massive over-generalization, all of this is really nothing new for most acquainted with the hipster movement. Indeed, on most college campuses and their nearby businesses, fair trade, organic, and buy-local practices are proudly boasted without a second thought.
All of this, though, seemingly flies in the face of an almost dogmatic economic wisdom. Free trade is touted by most economics as the end towards which virtually all international macroeconomic policy ought to strive. Indeed, The Economist was first founded in 1843 as a protest to the protectionist Com Laws installed by the UK during that era.
There exists, therefore, a fundamental tension between the average economist's obsession with free trade and the increasingly popular love for fair trade, organic food, and buying local. Both sides of this debate, however, strive for the maximization of welfare for populations globally.
This conflict, then, begs an important question: Which strategy reaches the goal better? This question is not one wisely shirked, as the implications extend beyond one's choice of coffee for the day. In today's globally interconnected economy, how everyday citizens approach this debate impacts struggling farmers and producers in every comer of the globe, from rural Minnesota to sub-Saharan Africa and everywhere in between.
Let us, for purposes of simplicity and swiftness, bypass the many objections to capitalism and our consumerist place within it, accepting for now our role as consumers and the implication our aggregate demand has for the global economy. Making this grand simplification, we must there- fore ask of ourselves: How should we then consume so as to maximize the global good?
Fair Trade
First, let us examine the wisdom behind the fair trade pillar of the hipster movement, as it is perhaps the most prominent.
For evidence of this prominence, look no further than even the most mainstream of coffee shops that offer fair trade options, to say nothing of the less mainstream ones that put posters supporting fair trade up as commonplace wall art.
Proponents of fair trade claim that it is a market-based solution to a problem where farmers are not sufficiently paid for the crops they produce. There is no government intervention requiring that we consumers pay extra for fair trade coffee; this is all consumers "voting with their wallets," so to speak, saying that they are happy to pay a bit extra to support struggling farmers and level the playing field.
Under the folds of the fair trade label lie benefits that even transcend the helping of poor farmers to pay their bills. Indeed, in order to get the fair trade label, farmers must first adhere to several different criteria commonly considered to be of social good:
Rafael de Paiva was skeptical at first. If he wanted a "fair trade" certification for his coffee crop, the Brazilian farmer would have to adhere to a long list of rules on pesticides farming techniques, recycling and other matters. He even had to show that his children were enrolled in school (Downie 2007).
Therefore, fair trade labels also come with a guarantee that more sustainable farming practices were employed, and even that a child that might have gone otherwise uneducated gets at least some schooling.
At first blush, it is hard to see why so many economists are made so uncomfortable by the idea of fair trade. Dig a bit deeper, though, and some of their concerns may seem a bit more reasonable, especially when we keep in mind that most economists are, again, inculcated with a love for free trade throughout their education.
One argument made by some is that fair trade is often done through co-ops, which excludes certain farmers that may not be included in the coop for any number of reasons - fees, transportation, lack of information, and so on. In practice, this tendency has the effect of reversing the social good of bringing the poorer farmers to a level playing field with the richer farmers. This effect, however, often proves harder to see as these poorer farmers are now at odds with the wealthier competition in their own countries.
In addition to the co-op pattern, some argue that the preference of fair trade products will edge out the poorest farmers that do not have the capacity or resources to meet all of the fair trade criteria. In this way, buying fair trade does the precise opposite of what is intended by edging out the farmers with the greatest need.
These arguments must be weighed against the benefits experienced by the farmers that do indeed benefit. For those farmers, the model stands to provide economic gains that are not easy to disregard. A "relatively small premium can nearly double the income of a farmer in Guatemala, where the average income is less that $2,000 a year" (The Economist 2007).
Additionally, the problem with these economists' claims - as well as those that contradict them - is that literature with any in-depth research on the matter of reliable ethos is surprisingly sparse. Few economists have been able to effectively figure out anything conclusive about the empirical effects of fair trade. Without much conclusive study, the claims made by these economists appear highly speculative.
Turkish Economist and Princeton professor Dani Rodrik, expressed his own confusion over fair trade on his blog. Among other worries, he challenges that it may not be the place of Fairtrade International (FLO) to decide how a farmer spends his extra money from the fair trade premiums.
Should a farmer want to spend his premiums on his child's education, then he should be able to do so. But Dr. Rodrik challenges that it may be better for the FLO to stay out of how he decides to spend his earnings. "Wait a minute ... Isn't the farmer himself a better judge of how his extra income should be spent? Should these decisions be made by Starbucks instead?" (Rodrik 2007).
Layer on top of this the likelihood that the school in which the child enrolls would be of poor quality, and the fair trade requirement of educating the farmers' children begins to seem a bit short of ideal. The obvious counter to these arguments is that even a poor education is better than no education at all. As for whether the farmer should be free to spend the money the way he sees fit, the way he sees fit may not be for the best when it comes to sustainable and socially acceptable practices. Further, if the FLO gives the farmer his premiums and relieves him of his surpluses, it may be acceptable that the FLO gets a say in how those premiums are to be spent. Without the FLO, the opportunity to spend would not exist.
It would seem, then, that the arguments most economists throw at fair trade seem to be premised more on a pre-disposed love for free trade than based in empirical and rational reality. It would appear that psychologically conditioning the economists to adore free trade so dearly might indeed produce blinding effects.
One more word deserves mentioning on this topic, however. For any consumer of fair trade goods - coffee especially - pay close attention to price. There is at least one wisdom that these economists' trepidation has discovered. Fair trade products being sold at a noticeable premium above those that are not fair trade are little more than a tricky way for companies to extract profits from their customers.
Economist and journalist Tim Hartford, author of the book The Undercover Economist, makes the point aptly:
It might seem reasonable for a coffee shop to ask its customers to pay more for a Fair Trade cappuccino. lt isn't, because there is very little coffee in a cappuccino - about seven grams of beans, or a quarter of an ounce. The Fair Trade premium, so important to a struggling grower in Kenya or Ecuador, is typically less than a penny when applied to such a small quantity of coffee. When a coffee shop charges ten pence extra for a Fair Trade cappuccino, the grower gets his due, but most of the mark-up is profit for the shop (Hartford 2008).
This concern seems to be less pressing lately, as many coffee shops have been dropping their premiums and offering fair trade options at virtually identical prices to non-fair trade products, but the lesson remains: If you are choosing between a $1.00 cup of coffee, and $1.10 cup of fair trade coffee, know that about nine of the extra ten cents you'd be spending will be going to the coffee company whose store you're standing in.
You may still be interested in making that purchase, however, which is perfectly noble. Keep in mind, however, that the fair trade movement's ability to have a powerful change on the global economy is minimal.
According to Bloomberg commodities journalist and author of the book Endless Appetites Alan Bjerga, "Fair Trade isn't going to save the world, as its scale is too small and it will never supplant the market that just wants coffee at a cheap price. But so what? lf I can't help everyone, does that mean I shouldn't help anyone?"
Therefore, at this point, we may reasonably conclude that fair trade is at least a fairly - heh, pun - reasonable economic practice. Despite widespread economist hesitation, it is a market-based, consumer-driven movement directed at trying to help struggling farmers. It may not rescue every impoverished coffee farmer, but if the consumer sees enough social good in it to pay a smidge more for a cappuccino, then let her do so comfortably.
Buying Local
Fair trade isn't the only practice adored by the average hipster. Indeed, buying local and frequenting the local farmer's markets is another, perhaps equally alluring, pattern of behavior.
The economic logic behind the buy-local campaign is a bit easier to zero in on, and is therefore a bit easier to engage argumentatively. As the logic goes, people should buy goods local to their own community in order to support the local economy, help the mom-and-pop shops stay afloat, and create wealth and jobs within the local community. The greater degree of community welfare, it is argued, easily justifies the often higher prices required to purchase goods from local businesses.
In addition to these benefits, many buy-local advocates will argue that keeping money within the community is more environmentally sustainable -especially with regard to the market for food. This is a perhaps rare area of debate on which most economists generally come to a consensus: the wisdom of buying local is drastically over-hyped. Before delving into the hard economics of it all, though, it is first good to come to a more solid understanding of what it means to make a trade or purchase:
"Every time we, as individuals, spend money, we exchange it for something that we expect to give us greater satisfaction than the money would. If this were not true, we would just keep our money and walk away from the proposed deal. .. Trade, therefore, increases human satisfaction. I will have less money ... but my overall happiness level will have increased (Selick 2008)."
No, the compulsion to buy local creates a sort of imperative for us consumers to purchase goods at a higher price than we would if we bought from either a larger corporation or from a cheaper option produced in another country. This higher price produces an objective inefficiency - what economist call "deadweight loss" - to the consumers.
The toll this takes on the consumer comes in the form of reduced options for things to buy at a later time. The satisfaction the consumer personally derives from the more expensive local purchase is necessarily less than the consumer would experience getting the same good while parting ways with fewer dollars. This reduced satisfaction stems from the fact that the consumer will not be able to exchange those extra dollars for more satisfaction later on in the form of some future good.
In other words, since I spent more groceries this week by buying local, I can't buy that groovy sweater I have been wanting. That is the basic economic logic.
In addition to this basic loss to the consumer, there is an overall loss of efficiency that results from buying from areas that are naturally less efficient producers of the good. This goes doubly for food, where the ability of any one location to produce the good depends so heavily upon what resources that location naturally has at its disposal:
"Economists have long recognized the welfare gains from specialization and trade. The case for specialization is perhaps nowhere stronger than in agriculture, where the costs of production depend on natural resource endowments, such as temperature, rainfall, and sunlight, as well as soil quality, pest infestations, and land costs" (Sexton 2011).
Buying local can therefore have the side effect of supporting producers that are not as efficient as producers elsewhere, while still buying at higher prices.
When it comes to environmental sustainability, those efficiency losses hurt. Bigger and more modern farms are able to make efficiency gains that tend to empirically reduce the environmental costs. Certainly, there are those that abuse their positions of power and pursue undesirable practices, but in general the gains from being able to afford more efficient farming equipment and technology to keep the land farmable create environmental gains.
But, as buy-local advocates tend to claim, there is an environmental cost associated with transporting goods from farther locations. However, according to Harvard economics professor Edward Glaeser, the environmental gains from greater productivity far outweigh reduced transportation costs. "One recent UK report found that the greenhouse gas emissions involved in eating English tomatoes were about three times as high as eating Spanish tomatoes. The extra energy and fertilizer involved in producing tomatoes in chilly England overwhelmed the benefits of less shipping" (Glaeser 2011).
Therefore, the buy-local movement creates loss for the consumer by effectively pushing up prices, and also works to keep less efficient producers afloat, which produces broader economic inefficiency and does little to support sustainable practices.
Conclusion
The hipster movement is more than a trend associated with fashion and music. Hipsterdom brings with it several claims, however implicit, regarding economic practices that are often contested by economists.
Sometimes, as in the case of fair trade, economists' concerns seem to be based on preconceived notions rooted in over-generalized economic principles. In most cases, most economists will agree, free trade is best.
In the case of fair trade, however, it would appear that the practice is not as antithetical to
the principles of free trade as many economists fear, but rather a consumer-driven and
market-based response to global imbalances in wealth that many in society see fit to work on improving. Here, there is little hard economic evidence that flies in the face of this especially coveted branch of hipster economics.
However, not all of hipsternomics is immune to generally accepted economic wisdom.
The economics of buying local, while understandable, produce objective inefficiencies and overall losses in welfare that leave an empirically justified bad taste in the mouths of most economists, while doing little to convincingly support environmental sustainability, and in some cases even hurting it.
The lesson in all this? In lay terms, do what makes you happy. If you want to pay extra for fair trade coffee so that the poorer farmers of the world get a fairer price for what they produce, go for it (but beware of excessive fair trade premiums). If you want to save a little money and afford some other things down the road that will increase your happiness, it is okay to buy groceries from a bigger grocery store or buy a cheap product on Amazon from some unknown retailer in China.
Whatever it is that most optimizes your personal happiness, your personal welfare: go for it. Indeed, the original hipsters were just people that stuck to what they liked, and realized that they could find cool things in unconventional places.
Economics is little different. The discipline seeks to maximize human welfare and finds some unconventional truths to that end - little-known truths few are aware of that produce the most aggregate happiness. So do what will trend is hipster in nature. Be economical, Be the true hipster.