Friday, December 14, 2012

Scroogenomics

Many of our friends know that I'm the scrooge of the holidays.  I don't enjoy giving gifts (I prefer simply gifting cash) and I don't particularly enjoy receiving them.  It probably makes me a horrible person.  The inefficiency of gift giving, particularly around Christmas, irritates me.

Apparently at least one other person on the planet shares my feelings.  He's a professor of economics at University of Minnesota and has written a book and a journal article in the most popular economics journal on the subject.

His thoughts mirror my own:  People tend to understand their preferences better than everyone else.  The result:  huge inefficiency.  People value gifts they receive for much less than the cash value of the gifts (not to mention the additional anguish on the part of the purchaser, which isn't even accounted for, or the anguish of the receiver for trying to graciously receive a bad gift).  This loss is what Joel Waldfogel calls the deadweight loss of Christmas.  He implemented a survey in a class that he taught, and estimated a deadweight loss of 10-33%.  That is, if a person in the class received a $100 item, they would have preferred simply to have received $67-90 cash instead of the item.  For me, I think the average deadweight loss is closer to 50%.  Why?  Because I have everything that I need or want.  Anything else is just clutter.

At this point, I will point out that thoughtful gifts, such as those that are hand-made or whatever, are great.  I have no qualms with this.  I think there is value here.  But I think this is the exception in our culture, not the norm.

My beef is the American way.  Most of us are wealthy.  And by wealthy, I mean we can provide for the necessities of life for our families and can easily satisfy many of our wants.  Most of us have savings.  The accumulation of savings in and of itself is proof that an individual prefers consumption tomorrow (say groceries, rent, a cruise to Hawaii) to consumption today (say a sweater, video game, whatever).

So the approach many of us take is to ask our friends/family what gift they want.  If we're lucky, they tell us. This reduces the deadweight loss.  However, what's the point of gift giving if it is a mechanical exchange of goods?  If I tell my friend Bob that I want product XYZ and he tells me that he wants product ABC, why do we go through this silliness of exchanging gifts in the first place?  Why not just declare holidays a time of guilt-free spending on one's self, since this is essentially the scenario described in the previous sentence?  I feel that much of our gift giving is precisely the above scenario.

But the fact that people have savings means that they'd prefer not to partake in this guilt-free spending.  Because they have already chosen to defer consumption today to some future date.

So why exchange gifts?

I do acknowledge, however, that gift giving (in moderation) to kids makes sense.  I actually believe that parents can understand their young children's preferences pretty darn well.  However, I think that giving cash to kids and letting them go buck wild at Walmart is better.  I think letting kids go buck wild with cash in a thrift shop (or Amazon) is even better.

Books are tough gifts, because a book recommendation and libraries are just as effective as gifting a book.  DVDs are tough gifts due to the same logic:  a movie recommendation and a $1 redbox rental (or library rental) is just as effective as gifting a DVD.

So what do I want for Christmas?  A personally tailored list of recommendations on books, products, DVDs, travel destinations, or family activities.  That would be a phenomenal gift!  Perhaps this is the gift that I will give this year!

To all of our friends and family out there:  I highly recommend a trip to Columbus, OH.  It's a beautiful vacation destination!

- The Scrooge

* Update a few days later *
Let me clarify things.  To clarify that I'm not a horrible cash-obsessed monger, let me append my comments.  I would much prefer the equivalent cash spent on bad gifts be given to charity in lieu of the bad gift.  With so much need in the world, why waste precious resources on the proverbial fruitcake or ugly sweater?

* Update 2 *
Another observation is this:  It's tacky in our society to gift others the option of current or future consumption (i.e. cash) or to simply desire more future consumption for one's self (i.e. ask for cash).  The prospect that an individual is satiated...that is she has everything that she needs/wants....is mind-boggling and unacceptable.

1 comment:

Morgan Pond said...

I frequently feel the same way this time of year. But, like you, I realize I should be better. The Christmas devotional had some related information:


Every gift that is offered at Christmastime — especially a gift that comes from the heart — is an opportunity to build or strengthen a bond of love.

“When we are good and grateful receivers, we open a door to deepen our relationship with the giver of the gift,” he said. “But when we fail to appreciate or even reject a gift, we not only hurt those who extend themselves to us, but in some way, we harm ourselves as well.”

-President Dieter F. Uchtdorf

So maybe... present as it may be,life is not about removing economic efficiency. Maybe... we should use these opportunities, that challenge our mortal selves, to improve our being by removing other inefficiencies to improve our gifting and receiving abilities and there by become economically efficient as well.

Just a thought.