David R. Henderson  

Does Peggy Noonan Understand Comparative Advantage?

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In the controversy surrounding the uniforms of the 2012 U.S. Olympic team, the problem isn't China. That the uniforms were made there is merely a deep embarrassment and a missed opportunity. Our textile and manufacturing companies deserved that work. You wonder how it could be that no one in the American Olympic Committee or in Ralph Lauren's company asked, "By the way, we're making the outfits in America, right?"

And--here's part of the missed opportunity--on being told yes, someone might have thought: "Hey, we could do a nice commercial to run during the games, with American women and men making the uniforms, looking up from their sewing machines as the camera goes by and saying, 'Good luck America.' The last shot is of a seamstress at the end of the day on a floor in the New York Garment District. As she goes to turn off the lights, she walks by a mannequin wearing the full uniform, gives the shoulder a little pat and says, 'Good luck, kid.'" As if we're all in this together, and what we're all in is actually bigger than the games.

Instead--sigh--China.


This is from Peggy Noonan's weekend column in the Wall Street Journal today. It's titled "A Remedial Communication Class."

To her credit, she points out that a more-important problem is the uniforms themselves. Great line: "They look like some European bureaucrat's idea of a secret militia, like Brussels's idea of a chic new army."

But back to the economics. What's wrong with buying uniforms made in China? I'm guessing Ms. Noonan doesn't object to buying coffee made in Colombia. We could make coffee here too, using greenhouses, but it would be more expensive. We could make those icky uniforms here too, but it would be more expensive. The labor and capital used to produce those could be used to produce something else instead. What else? I don't know. But the market knows. Ms. Noonan is ignoring comparative advantage. (See the excellent article on this by Paul Krugman also.)

"Ah," Ms. Noonan might answer, "but you're ignoring the fact that we have 8.2 percent unemployment. There are plenty of people out there who would be willing to produce those icky uniforms."

Sure, but not at a competitive price. I'll bet dollars to doughnuts that if the American Olympic Committee had put it out to bid, it wouldn't have found any U.S. producer willing to meet the price charged by the Chinese producer. So what's that saying? That given their alternatives--working in other jobs, looking for work, being on unemployment insurance, or not looking for work but "enjoying" leisure--U.S. workers would not have been willing to work at a wage low enough to be competitive with the Chinese producer. Which means that the most efficient way to get this done was with the Chinese producer.

I have left out one alternative: maybe U.S. workers would have been competitive had they been legally able to work for less than the minimum wage. I doubt it. But in the unlikely event that that's so, then let's not blame the American Olympic Committee. Let's put the blame where it properly belongs: on the U.S. government, which means on George W. Bush, who signed the law increasing the minimum and on Barack Obama, who refused to push for repeal.


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COMMENTS (19 to date)
Brandon Berg writes:

An argument could be made that because of our taxation and welfare policies, there are positive externalities to employing Americans rather than the Chinese. When an unemployed American gets a job, he starts paying taxes and stops collecting unemployment, somewhat offsetting the added cost.

Bob Murphy writes:

What else? I don't know. But the market knows.

David, don't let Sheldon Richman hear you talk like that!

shecky writes:

Patriotism is one area where comparative advantage may favor US made Olympic uniforms. On this point, I agree with Noonan. Contracting with US manufacturers could have been good marketing ploy for both the US Olympic team and the clothing manufacturers involved. For all I know, it might have been attempted. While all your points are valid on their own, to discount the potential symbolic value for an event that organizes by country seems a bit shortsighted.

A similar situation can be seen when Buck Knives decided to "onshore" more of its knives from China. Buck's chairman was remarkably candid when explaining why. The company's Chinese partners had a comparative (and probably absolute) advantage in all areas, save one: the factories were not on American soil. And that was a factor that put a significant hurt on the bottom line.

c141nav writes:
I'll bet dollars to doughnuts that if the American Olympic Committee had put it out to bid, it wouldn't have found any U.S. producer willing to meet the price charged by the Chinese producer.

Yes, but what is unseen? Follow Bastiat's idea. An American producer can't match the price. Consequently the Amercian laborer doesn't work and draws unemployment. The total price isn't seen in the the cost to the user. The total price includes unemployment, lost income taxes, and lost FICA taxes at the very least.

BLM4L writes:

1. Ralph Lauren is not charging China low-cost provider prices. It is charging bespoke American prices. It assuredly pocketing huge margins and I bet was banking on good PR too (until it blew up). Low-cost provider is good for some items, probably not for bespoke, high-end clothing. Maybe the styling has something to do with the choice of low-cost provider as well.

2. You are missing the point of the Olympics. It is about national pride and nationalism. Why not outsource American Olympians to other countries too? Instead of fielding an American team, we could just hire athletes from around the world and slap a red white and blue sticker on their clothes and call it a day.

David R. Henderson writes:

@BLM4L,
You are missing the point of the Olympics. It is about national pride and nationalism. Why not outsource American Olympians to other countries too? Instead of fielding an American team, we could just hire athletes from around the world and slap a red white and blue sticker on their clothes and call it a day.
Great idea! And while we’re at it, let’s hire foreigners to coach the American athletes. Oh, wait.

Ted Levy writes:

BLM4L: Is America the only country to which your strictures apply?

As Dan Ikenson noted on the Cato blog recently, "As our U.S. athletes march around the track at London’s Olympic stadium wearing their Chinese-made uniforms and waving their Chinese-made American flags, the Chinese athletes will have arrived in London by U.S.-made aircraft, been trained on U.S.-designed and -engineered equipment, wearing U.S.-designed and -engineered footwear, having perfected their skills using U.S.-created technology" Do you, BLM4L, chide Chinese for buying American (foreign) goods for their Olympians?

As Mark Perry pointed out at Carpe Diem, "The Brazilian Olympic equestrian team is using saddle pads produced by Wilker’s Custom Horse Products in Cool Springs, Tennessee." Do you criticize Brazil, BLM4L, for buying American (foreign) goods for their Olympians?

If one of the goals of the Olympic games is to promote peace and good will among nations, it seems perverse to argue we accomplish this by setting up trade barriers to Olympic products and preparation of the sort that, in the past, have promoted antagonism and led to war.

Ted Levy writes:

David H.,

I suspect Peggy Noonan may have just one word for you:

Signaling...

Grant Gould writes:

Peggy Noonan was a professional political speech writer. Of course she doesn't understand comparative advantage -- such an understanding would have disqualified her for the job.

stephen writes:

I am little disappointed in Ralph, actually. I would have thought (for the Olympics no less!) they would have made their jackets in Italy, where they have all of their high end stuff made. :)

Tom West writes:

And if we were homo economus instead of homo sapiens, the case would be absolutely closed.

However, we aren't. For something like the Olympics, where a lot of money is spent, the subtext here is not that the American manufacturing isn't cheap enough - it's that American manufacturing isn't *good* enough.

The Olympics aren't an event that I imagine any Libertarian approves of, involving the involuntary massive expenditure of money for the purposes of making people feel good about entities of questionable authority and value.

However, given that is the Olympics' purpose, it makes sense for a government to work on *all* aspects so as to provide the maximum patriotic benefits.

In this, Noonan is correct. The American government failed.

marc writes:

As a business person its a turn off to hear someone claim that any company, anywhere "deserved that work". I know I have to go out and earn my business everyday by providing more value than my competitors. It's a everyday effort to improve service and products and my customers are free to go where ever they get the best deal, with my blessing.
Furthermore, when I have low end competitors, I can meet them on price if I want. But I would rather move up the value chain and provide premium products and services, the types of product that my competitors wouldn't even know how to start producing. I can take pride in that. In fact for a business person I'm fairly sure the real "embarrassment and a missed opportunity" is getting stuck fighting for crumbs in an minimally profitable businesses --- (like providing low end sewing services to RL).

Yancey Ward writes:

Everyone mouths platitudes about buying American when they are selling something, but not so much when on the buying end.

Michael Rulle writes:

I am often highly critical of Ms.Noonan. But on this one I am cutting her some slack. She is for free trade, so she was clearly speaking to politcal optics on a very small economic transaction. I do wish she made it clear she understands comparative advantage, but she may not.

Still.......One looks at those uniforms and it is absurd. They may not be Unisex, but they look like a Star Trek writer's fantasy of Uniworld, or Universe (pun) clothes. And it is transparently ridiculous that the Amrican Olympic Team has a "made in China" tag, even as we all know almost everything is really made almost everywhere.

China is not exactly the human rights capital of the world-----and yes America is far from perfect, bla, bla. But this is the Olympics where, believe it or not, countries and their athletes do compete for national pride. We have megamillionaires playing basketball for free----they want to prove American basketball is the best.

Sometimes I think only an economist cannot see this point.

Ghislain writes:

I can say why what Ms Noonan didn't happen: it is the very strict control of the Olympic organizers on the commercials and other communications using their brand.

I work for a company that worked for the previous Olympics, we did not do it for free, but we lost money on the contract in the hope to gain visibility and credibility. That worked a little bit, but less than expected: ALL communications where we cited Beijing or Olympics... needed to be reviewed, checked, changed until nearly nothing remained.
Lot of additional work, very few effects.
Only official sponsors can use the brand, and they pay much more than a few uniforms!

Needless to say, we did not contract for these games.

David R. Henderson writes:

@Michael Rulle,
Sometimes I think only an economist cannot see this point.
What is the “this point” that I cannot see? There’s nothing in your comment that I didn’t see. Please clarify.
@Ghislain,
Thanks.
@Bob Murphy,
Good catch. My bad.

collin writes:

David,

Do you think economic nationalism is continue to increase especially with the coming Iran sanctions and Chinese oil buying? Although I know most Americans basically supports free trade (since Wilson/Truman, and don't get too caught up in exceptions), there really is a lot of tiring of constant threat of outsourcing.

What happens if China buys Iranian oil? Could conservative radio go off the deep end?

CR

blink writes:

Should country-of-origin matter for Olympic apparel? While economic arguments clearly say 'no', I am willing to entertain the possibility that it should. If so, we ought to favor foreign over domestic production. What better way to show respect for others than to engage them on equal terms in the market?

In the idealistic vision of the Olympics I learned growing up, nations set aside their differences and engage in friendly competition. It is an inclusive endeavor with a clear moral point: xenophobia is wrong.

Mike Rulle writes:

@David Henderson

I did not mean you would not understand what I wrote. What I meant was the first thing you assumed about Peggy Noonan's essay was she did not understand comparative advantage. When I read it, the first thing I thought of was that her political sensibilities in this instance dominated her sense of economic optimization.

Your entire critique of Ms. Noonan is about economics. Her essay was entirely about political optics. (Obviously one need not agree with her political views.) That is why I said what I said about economists.

However, I admit my comment should have been directed more specifically to this essay itself, rather than economists in general or you in particular. Sorry about that.

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