Christmas has been described as a ‘retail festival’ because of its commercial nature. Retailers certainly encourage the buying of gifts. But is it really that good for the economy? Speak Up contacted Joel Waldvogel, an economist at the University of Minnesota and the author of Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays. He recognises that buying Christmas presents can be a challenge:
Joel Waldvogel (American accent): It’s hard enough to choose things for oneself. We often disappoint ourselves with our purchases, even though we know what we have and we know what we like. But buying for other people is a very much more difficult problem. We don’t know what they have. We don’t really know what they like. And so it’s a recipe almost for buying the wrong thing.
RESOURCE ALLOCATION
Behind factors such as: who you buy for, what you buy, how much you spend and how much a gift will be valued lies the economic theory of resource allocation. Economists have long understood that gift giving is an inefficient way to allocate resources, says Waldvogel.
Joel Waldvogel: When we spend a hundred dollars or a hundred pounds or a hundred euros on something for ourselves, we usually get something worth at least a hundred euros to ourselves. If I spend a hundred euros on somebody else, there’s a good chance I’ll buy something that’s worth nothing to them or worth much less than what a hundred euros could have bought for them if they had chosen.
ELDER WISDOM
Many psychological and emotional elements are involved in the process of buying gifts. If you don’t give someone a gift, how will they feel? And how will you feel? Can a bad gift provide a sufficiently good feeling to compensate for the money wasted in making the purchase? To resolve such issues, like so many things in life, we should look to the wisdom of our elders, says Waldvogel.
Joel Waldvogel: Grandparents have always understood these ideas. Now, they’re not engaged in calculation, but when they give gifts to their grandchildren, in the US anyways anyways, they quite often give gifts of cash instead of choosing particular items. Now, why do they do that? Well, because they understand that they don’t know what their recipients want. They understand they don’t want to disappoint them with something useless. The same is true with aunts and uncles, who again don’t know what their nieces and nephews want. And so they give cash.
THE RIGHT STUFF
The Christmas shopping season starts early, often in September, and continues through to the January sales. Many businesses prepare during the summer. Buying gifts means billions of euros-worth of billions of euros-worth of extra sales. It also means lots of environmental and financial waste and unwanted Christmas presents. We asked Waldvogel whether it was ultimately good for the economy and GDP?
Joel Waldvogel: GDP, yes, it’s good for people to have jobs and and so forth. So what I would say is let’s just try to get some satisfaction out of the spending. Go ahead and spend, but let’s do it in a way that delivers all the warm -and-fuzzies, all the employment for sellers and producers, but also that gets the right stuff to the right people.
