Joel Waldfogel, in his new book Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays, argues that we should give up giving gifts at Christmas time because we inevitably waste money on gifts that others don’t want. From the publisher:
When we buy for ourselves, every dollar we spend produces at least a dollar in satisfaction, because we shop carefully and purchase items that are worth more than they cost. Gift giving is different. We make less-informed choices, max out on credit to buy gifts worth less than the money spent, and leave recipients less than satisfied, creating what Waldfogel calls “deadweight loss.”
I’ll admit that I haven’t read the book, so there may be more to Waldfogel’s argument in the book, but I have a few issues with the main thesis.
First, the actual economic transaction between the retailer and the gift-giver creates value. When we go to the store to purchase a gift, say for $20, we value giving that gift more than the $20 we use to purchase it. So, without taking into account how much the receiver values the gift, the transaction creates positive economic value.
More generally though, by focusing on gifts as a method of allocating resources, Waldfogel misses the point of giving gifts at Christmas. The Christmas gifts we give each other symbolize the gift humanity received from God. As Dan Ariely points out in Predictably Irrational, the symbolic exchange of gifts is a perfectly rational exchange, governed not by a market mechanism, but by social expectations. Indeed, under the assumption that individuals maximize value, no one would ever give away anything of value for free. Economists like to think of people as rational utility-maximizers, mostly to simplify mathematical models. That assumption doesn’t always hold.
However, Waldfogel does correctly discern that individuals can choose best what goods benefit them the most. His logic applies to government welfare programs that collect taxes in order to spend money on goods that people may or may not want.
