Comments on: “The Deadweight Loss of Christmas”

By: lawyerchik1

lawyerchik1 — Thu, 01 Dec 2005 19:28:55 +0000

And then there’s the giant sucking sound of the money never collected by creditors for items purchased on credit by people who overextended themselves during the retail buying frenzy…..

By: Zach Wendling

Zach Wendling — Wed, 30 Nov 2005 17:42:00 +0000

The problem is that we know there are inefficient, unsatisfactory gifts. And not just from personal experience. Millions, maybe billions, of dollars worth of gifts get returned, exchanged, sold, re-gifted, thrown away, or fall into disuse every year.
Of course, we also know that there are also efficient, satisfactory gifts.
The question is, then, why do the former persist along with the latter?

By: RiShawn Biddle

RiShawn Biddle — Wed, 30 Nov 2005 15:49:39 +0000

The problem is that it’s difficult to measure satisfaction, which is key in all of commerce. The best possible way is to consider that if gift-giving didn’t lead to satisfaction for any of the participants, it would have dropped off long ago. After all, if using horses-and-buggies for transportation was satisfactory, then rush-hour traffic would consist of horse-drawn carriages. Instead the streets are filled with cars. The reason: Cars provide its users far more satisfaction, including more mileage at a lower cost. Besides cars, unlike horses, don’t need rest or get sick.
The nature of economics is such that few products, services or activities that don’t provide the optimal level of satisfaction to everyone involved, survive for very long. Under such considerations, gift-giving just doesn’t seem like a ‘deadweight loss.’

By: Zach Wendling

Zach Wendling — Tue, 29 Nov 2005 22:53:53 +0000

In response to comments:
1. Yes, Paul has it right.
2. Religious rituals are essentially a purchase by the devout for whatever intangible good feelings such donations produce. That is, it is a gift one buys for oneself–a further i.e., it is akin to a normal market exchange. When one spends money on religious rituals, one presumably has a good handle on one’s own preferences and the value attached to them.
This is what makes this a flawed analogy, because of the mismatch of perceived and actual preferences between givers and recipients.
3. The analogy really wasn’t necessary to introduce the main objection: that there are intangible benefits not accounted for in simple monetary values.
Essentially, the value of the sentimental properties of a gift may compensate for Waldfogel’s measurements. As the original post and linked articles show, this may be an empirical question that depends heavily upon the construction of the survey instrument.
Maybe I’m simply an unsentimental person, or maybe I’ve too often been in inefficient gift-exchanges, but I’m inclined to think that the sentimental value is not sufficient to compensate for the deadweight loss.
4. Yes, it certainly seems petty to worry over the value of something that someone is giving you because they love you, and even more crass to discount the sentimental value. But as long as gift giving remains a substantial component of our economy, I think it is important to look at these issues. They don’t call it the dismal science for nothing.
5. And as for it accounting for a substantial part of our economy, and the further impacts that can’t be seen, it also behooves us to ask the ever-pertinent economics question, “Compared to what?”
Although I don’t explicitly say so, one could gather from my post that abolishing ritualistic gift-giving would avoid the deadweight loss. I’m not ready to take that plunge, precisely because I don’t know what the effect of such a move would have. Maybe it would be good, maybe bad. I doubt that if gift-giving ended tomorrow, though, people would take the money they had budgeted for Christmas and stuff it under their mattresses.
A second alternative would be that gifts would be exchanged much more efficiently–how, I don’t know. I do think that our current scheme also has unseen impacts. Namely, consumers send the market inaccurate signals about aggregate preferrences. So entrepreneurs will make a whole bunch more Executive Decision Makers instead of something people will actually like to receive. This seems to confirm the theory that Christmas supports kitchy crap.

By: RiShawn Biddle

RiShawn Biddle — Tue, 29 Nov 2005 17:43:19 +0000

And Zach, you seem to forget that the money just doesn’t disappear into the ether. Jobs are created (or kept), which in turn leads to more purchases fueling more job growth. One may not be a fan of Christmas and its propensity for materialism, but the concept of Christmas spending as a deadweight loss of any kind is, to paraphrase Henry Hazlett, to simply look at what can be seen and not at the impacts that can’t be seen, which means it’s short-sighted.

By: Joel Thomas

Joel Thomas — Sun, 27 Nov 2005 06:11:00 +0000

I’m not aware that I’ve ever returned any Christmas gift that anyone has ever given me. I don’t ponder whether they might have bought it on sale. I don’t consider whether they might be giving me something they got two of the year before. My focus is so much on approaching Christmas in a spirit of hope and community that I really don’t care about the rest.
Further, if someone takes the time to write a substantive and encouraging note on a Christmas card, I cherish that card as a gift the same as I would something someone paid $300 for. Likely more.
I do fear that gift-giving and partying have overtaken the spiritual side of the holiday, but no one is forced to get on or stay on that treadmill.

By: Dave S.

Dave S. — Sun, 27 Nov 2005 03:16:54 +0000

While I think Christmas gifts are mostly a waste, in the grand scheme of things, 4 billion dollars is small potatoes.
In reality, it is a privitized welfare policy for retailers. Perhaps we Americans just really want to keep those kitchy crap stores in business so badly we are willing to sink bucks into them.
Hmm. Maybe I need to get me one of those Christmas mall stores…

By: Jason Kuznicki

Jason Kuznicki — Sat, 26 Nov 2005 14:00:13 +0000

I think that there is an enormous deadweight loss in all the money that is spent on religious ritual in the United States. People just don’t get any economic value out of it.
(Actually, I think the deadweight loss from gifts is illusory for exactly the same reason that the above appears absurd — When we exchange gifts, we receive a happiness that exceeds the retail value of the gift, had it been purchased ourselves. Gifts turn money into satisfaction more efficiently than personal shopping sprees can do, making the transaction a sound one overall. Exactly the same is true of spending money on otherwise nonproductive religious rituals.)

By: Paul

Paul — Sat, 26 Nov 2005 00:49:47 +0000

Mike, you’re forgetting the key point–that if your mom had spent the fifteen dollars on something that you (or she) had chosen, society as a whole (summing across individual preferences) would be better off.

By: Mike Heath

Mike Heath — Fri, 25 Nov 2005 21:27:07 +0000

Assuming the receiver of the gift actually went into the market place and purchased the gift at a reduced price. I would argue that it does help the economy since it increases output, I never would have purchased the new Newt Gingrich book my mom bought for me even if it was on sale for $5.00.