Paul Solman spoke with Scroogenomist Joel Waldfogel and Dan Ariely, among others, for this report on the deadweight loss of Christmas.
The bulky sweater from grandma cost her $50 at Macy’s. But to you, forever the sweater-shunning type, it’s worth significantly less. And how about the expensive coffee table book you gave your Uncle Joe? Well, since he already has it, your copy is worth pretty little to him.
So maybe all that holiday spending was a waste, unless you knew exactly what the recipient wanted. But even then, how could you be sure your friends and family get the same value from your purchase that you paid? You can’t. They probably would have been better off, economically speaking, with cold hard cash.
There’s even an economic theory for this doom-and-gloom perspective: “The Deadweight Loss of Christmas,” coined by University of Minnesota economics professor Joel Waldfogel some 20 years ago. Simply put, buying Christmas gifts for someone else is inefficient.
His idea has gone on to have a life of its own, and he updated it with the 2009 book, “Scroogenomics: Why You Shouldn’t Buy Gifts for the Holidays.” On Making Sen$e last year, Paul Solman explored the meaning and the limitations of the theory with the scroogenomist himself.
But over the years, the theory has encountered a fair amount of criticism, even from economists. Waldfogel is the first to admit he does give gifts, especially when his wife gives him hints about what she wants. But Jared Bernstein, former chief economist to Vice President Biden and now a senior fellow at the Center on Budget and Policy Priorities, thinks there’s something to be said for giving gifts that the recipient doesn’t even know he or she wants.
Bernstein, writing in the Washington Post this week, “Have yourself an inefficient Christmas”:
“Nana’s” paperweight: My wife’s stepmother (that would be “Nana”), someone we rarely see, once gave me this paperweight-like object that you can use to hold down the pages of a book. I didn’t think much of it, meaning it was a candidate for precisely the inefficiencies we’re worrying about here. And yet, it lives on my nightstand, and I use it every night, which makes it the most used holiday gift I’ve ever received.
In other words, I didn’t know I needed it. The fact is that no recipient is “perfectly informed” about their needs and wants, so even a throwaway gift can be life-altering — or at least it can keep the pages in place while you’re flossing (TMI??…my bad).
The larger point is that too much economic thinking and modeling is based on the notion of “rational economic actors with full information” vs. the reality of who we really are: often irrational people driven by all kinds of misperceptions.
Likewise, Avner Ben-Ner, a University of Minnesota colleague of Waldfogel’s, pointed out that we often think we need things that we don’t. That makes it hard to argue that giving us more money to spend would be the most efficient gift. “I don’t know about you,” he told Paul, “but my closets, my basement, my attic are full of things that I bought with good money, thoughtfully, I thought, and I discovered that I don’t like this.”
Besides, economic efficiency, in a social setting, only gets you so far. “If you are an economist in the world of normal human beings, and you go to dinner parties and you offered people cash, you’re going to be treated very badly,” Duke behavioralist Dan Ariely told Paul Solman last year. “It would basically imply prostitution,” he continued. “When you give a gift to somebody, you basically are hiding the economic nature of the transaction.”
And so, while the coffee table book you gave this Christmas may not have been the most efficient gift for your uncle, there’s an argument to be made that your spending was a gift to all of us — supporting seasonal jobs and pumping more money into the economy. As Matthew Yglesias writes in Vox, “Christmas is the greatest economic stimulus.”