Ideas@TheCentre

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What if you got pink bats and a school hall for Christmas?

Stephen Kirchner | 18 December 2009
Economist Joel Waldfogel has for many years argued in favour less gift giving at Christmas. His latest book (just in time for Christmas!) is Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays. Waldfogel maintains that Christmas is an ‘orgy of wealth destruction,’ which he estimates at US$13 billion a year for the United States and US$25 billion globally. His argument is that we put much less time and effort into buying gifts for others than we do buying things for ourselves. The problem is made worse by the simple fact that our knowledge of what other people want is often too limited to choose the right gift. Waldfogel points to survey evidence suggesting that Christmas gift recipients value their gifts at 20% less than the cost to the giver. This difference in valuation is pure waste, what economists call a ‘deadweight loss.’

An almost perfectly analogous argument can be made against fiscal stimulus of the non-cash variety, except that Waldfogel’s arguments apply with even more force. The government has even less knowledge about your preferences, less of an incentive to satisfy them and, to add insult to injury, sends you the bill for your ‘gift.’ The rush to push stimulus dollars out the door is similar to the mad rush to buy presents before Christmas, resulting in poor quality spending decisions. The political Santa Claus also has a rather more selective view of who has been ‘naughty’ and who has been ‘nice.’

Fiscal stimulus spending is often viewed as valuable in its own right, as if it doesn’t matter what the government spends money on. When asked whether his proposal for less Christmas gift-giving would be bad for the economy, Waldfogel says:
I’m not against spending, I’m just against spending done ignorantly by others … Although George Bush said go out and spend and other folks have exhorted us to spend at times, spending is not really a measure of success or satisfaction … When we say it is good for the economy, we can’t just look at the amount of spending, we want to think about the amount of satisfaction that we’re getting from the spending.

While Waldfogel’s argument is less applicable to so-called ‘cash splashes,’ last year’s cash hand-outs were strategically timed just before Christmas. We will never know just how much of last year’s pre-Christmas cash splash ended up in the great national stockpile of unwearable socks and ties.

Dr Stephen Kirchner is a Research Fellow with the Economics Program at the Centre for Independent Studies.