Wednesday, December 22, 2010

Dominick the Italian Christmas Economics Whiz

Merry Christmas, everyone!

If you're anything like me, you've been playing Christmas music since the day after Thanksgiving, and have probably listened to every version of "Baby It's Cold Outside" ever recorded. I really enjoy Christmas music, but after a few weeks of the same 20 songs by the same 30 artists, it gets a little mundane. When I discover a new Christmas song, it's usually cause for much rejoicing and repeated playing. When I was introduced to "Dominick the Italian Christmas Donkey," however, I realized that this song probably isn't ever going to come up on Pandora's "Swingin' Christmas" station.

See, this overly-cheerful children's tune (complete with barnyard sound effects that probably sound more like the real Christmas than anything Elvis ever recorded) is a strange conglomeration of Italian Christmas traditions, Italian words, and Italian pride that is rare west of the Mississippi. It's about a little donkey, named Dominick, who helps Santa deliver gifts ("Because the reindeer cannot, // Climb the hills of Italy" [even though the whole point of flying reindeer is so they're not hindered by any hills]). It's a little bit Rocky-meets-Rudolph, but it works. What caught my ear especially (beyond "hee-haw, hee-haw") was the stanza that goes:
A pair of shoes for Louie
And a dress for Josephine.
The label on the inside says
They're made in Brooklyn.

When I heard that, I actually had to stop and think about why no other songs talked about Santa bringing Brooklyn-manufactured goods to children in Italy. I then realized that our whole American Santa tradition was an economic catastrophe, thanks to its use of elf labor!

When elves at the North Pole make toys for Santa, they theoretically supply the entire Christmas market with goods. In other words, they have a monopoly on toys. Now, monopolies are destructive in the sense that they eliminate competition, which reduces the incentive to create something better (without competition, Lincoln Logs never would have become Legos). So, there's a big initial problem with the whole world suffering from a toy monopoly.

What the song really points out though, when Louis and Josephine in Italy get shoes and a dress from Brooklyn, is the importance of specialization on a global level. Different countries (or regions) have different specialties — in the song, Brooklyn's specialty is children's clothes. Italy's specialty is tenacious donkeys (see chart below for production capabilities).

Brooklyn
Children's Clothes 0 100 300
Tenacious Donkeys 100 50 0

Italy
Children's Clothes 0 50 200
Tenacious Donkeys 200 100 0

If both Brooklyn and Italy try to create both children's clothes and raise tenacious donkeys, the world has 150 units of clothes, and 150 donkeys. The chart shows that Italy has the comparative advantage in donkeys (raising 2 for every 1 Brooklyn raises), and Brooklyn has the comparative advantage in children's clothes (producing 3 for every 2 units Italy produces). If both places specialize and only produce what they're best at (clothes for Brooklyn, donkeys for Italy), the world ends up with 300 units of children's clothes, and 200 donkeys — more of both!

Trade (or in this case, Santa, acting as a kind of jolly "invisible hand") allows nations to specialize, because they no longer have to produce all the goods they want to consume.* Specialization creates more goods overall, which helps reduce scarcity (the chief foe of economics). Trade tariffs (or naughty children) prevent this exchange, reducing everyone's standard of living. In the song, Brooklyn made its own children's clothes, it didn't have to rely on elves. This allowed for specialization that can't be found at one factory at the North Pole (unless individual elves specialize). With free markets and Dominick the Italian Christmas Donkey on my side, I think I can safely advocate the abolition of Santa's elves. It's probably sweatshop labor anyway.

I listened to "Dominick the Italian Christmas Donkey" in:
Turquoise skinny jeans, multicolored bell-shaped knit top, brown shrug, brown disk earrings, turquoise flower cuff bracelet, and brown, high-heeled leather boots (none of which were made in Brooklyn, unfortunately).

*Careful readers may have noted that at first glance the doctrines of competition and specialization may seem contradictory. A closer inspection, however, reveals that specialization comes about when one country produces what its resources are most conducive to, but it also relies on supply and demand. If everyone in the world had an easy time producing wheat, the world wouldn't produce only wheat because there would be a demand for other products. In a global economy, the potential supply and demand of goods is much more complex than the model. Thus, there may be 15 regions that all produce children's clothes according to specialization, but they can compete amongst each other, creating cheaper, more durable clothing. There's also the possibility of competition within one specialized market. If there are 10 donkey raisers in Italy, they all compete against each other to breed the most tenacious, cheerful donkeys, further increasing Italy's comparative advantage in donkeys.

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