Saturday, December 23, 2006

I'm working out the math right now...

Many of us amateur economists (and some real ones) have puzzled over the inefficiencies wrapped up in Christmas presents. When we give stuff we don't particularly like to people it may not fit, hasn't value been lost? Isn't the economy worse off?

Jonathan Chait considers this problem in too much depth in the New Republic (registration required, but it's free and they don't bug me):

Now some in the pro-gift faction actually argue on economic grounds, too. The economy, they say, depends on frenzied holiday-induced sales. Actually, it doesn't. Economists incessantly lecture us to save more--our national savings rate is notoriously low, after all--and consume less. And discontinuing gifts would give consumers more satisfaction with less stuff, by letting them choose what goods they end up with when the tinsel or the Menorah have all been packed away. Those previously employed in the field of fruitcake manufacturing would find work making things people actually want. [More]

The boy has a point. But is it worth making? Obviously somebody thought so (they don't call it the dismal science for no reason):
It's the sort of question only an economist would ask. Economist Joel Waldfogel, from Yale University, asked it first 13 years ago in a seminal paper entitled The Deadweight Loss of Christmas.

He asked university students to estimate both the amounts paid for the gifts they had received and the amounts that those gifts were actually worth to them. He found that at least 10 per cent of the value of the gifts was destroyed in the giving.

In a later, more sophisticated study, he put the figure at between 10 and 18 per cent of value lost as much as $9billion throughout the United States each Christmas. If you doubt Professor Waldfogel about the inefficiency of present giving, consider present recycling.

A survey conducted by American Express found that 28 per cent of us rebirth some of the presents we receive as gifts for other people. And then there are returns. The US Journal of Consumer Research has concluded that 16 per cent of all gifts bought by men are returned to shops by the recipients; 10 per cent of all gifts bought by women. (Women are better at choosing the right gifts than men). [Too much more]

Sure, it's tough finding a new facet of the economy to write a paper on, but "deadweight"? Dude - that's harsh.

Besides, the problem isn't Christmas - it's the insidious efforts to invent "new" card-required-mandatory-gifting holidays like "Sweetest Day".

No wonder we're heading for a recession.

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