New economics of Christmas

Aleksi Knuutila is a researcher in the Valuing What Matters programme at nef

If you are behind in your Christmas shopping, this is the perfect intellectual excuse for your shortcomings. In his new book Scroogenomics, Joel Waldfogel claims that Christmas is an economic calamity of the order of the worst natural disasters. The professor from the University of Pennsylvania blames the winter celebrations for the destruction of a full $12 billion of wealth.

What is so seriously wrong with Christmas? Waldfogel believes that it is festival of inefficiency, where people give each other things of little use. The reason is simply that people don’t understand one another and are poor judges of other people’s preferences. Your close ones may display delight from your gifts, but this is only polite deceit; in truth they would have found something better with the money you used.

Waldfogel’s claims are based on a survey he has done with potential victims of Christmas. He asked a range of people how much they would be willing to pay for the things they had been given. It showed that, as a rule, gifts were worth one fifth less to their recipients than their actual price. That new jumper that your aunt bought you for £50? You may find that it is not worth a pence over £40. This means that economic value of £10 has disappeared into thin air.

Waldfogel is right to question how much just producing precious commodities adds to social welfare. In trying to adjust measures of exchange value to better reflect the worth of things he comes close to much of the work that nef has been pioneering.

At the same time, Waldfogel suffers from a bias that is not untypical to people of his profession. In his view the only good that can result from gifts is the utility that the recipient gets from the commodities exchanging hands. If the object does not match the wishes of its receiver, the whole ordeal has been a waste. Does this view not miss many important sides of our habits of giving? Some examples can show what Waldfogel forgets to take into account.

There are times when the usefulness of the goods being given is completely secondary. One extreme example of this is the tradition of potlach, observed by some natives of North America. In its most extravagant form, potlach involved chiefs giving away valuable pots, blankets and food, which were promptly destroyed and burned after being received. Potlach is a case where gifts are used to maintain certain types of social relations: The group that gives more lavishly is able to express and reassert their superior power. In less competitive settings, giving gifts can also support equal and communal relationships.

Modern societies have some practices more bizarre than potlach. One recent innovation are so-called charity gifts. By donating the right amount you can purchase, for instance, a goat for someone in a developing country, then give your donation as a present to someone else. It is unlike regular gifts because when the present exchanges hands, the owner of the goat stays the same. The point of the present is not to allow its receiver to get something new, but to let them assume the role of a benefactor. It is, to use an obscure term, a meta-gift: a gift of giving. What better proof could there be of the fact that people place value on giving things in itself?

Even when a gift is meant to be useful, it is not always given with the preferences of the other in mind. Some presents are aim to have an educative function. Here the point is not to match the recipient’s preferences. On the contrary, it is to actively shape them. For instance, I have been at times pretentious enough to give complicated books or fringe films with the hope of kindly nudging someone’s cultural tastes. To the credit Waldfogel and his approach to gifts, such attempts have never been met with much enthusiasm.

All the same, I would not recommend buying Scroogenomics as a gift. It seems like a guaranteed failure. If the premonition of the book is correct and you did not predict your friend’s preferences, they will be unhappy with the present. In case they enjoy your book and accept its message, they may berate you for so lavishly investing in a present.