December 23rd, 2013


the economy of gifts

holiday giftsWith Christmas approaching, I’ve been thinking a bit about something my flatmate the economics Ph.D. once told me about economics and gift-giving. According to her, economically, the practice just doesn’t make a lot of sense. More specifically, if we’re trying to use our resources to satisfy our desires, then we’re all better off not buying gifts and each using the money on ourselves.

Michael Sandel describes this problem in his book What Money Can’t Buy:

Joel Waldfogel, an economist at the University of Pennsylvania, has taken up the economic inefficiency of gift giving as a personal cause. By “inefficiency,” he means the gap between the value to you (maybe very little) of the $120 argyle sweater your aunt gave you for your birthday, and the value of what you would have bought (an iPod, say) had she given you the cash. In 1993, Waldfogel drew attention to the epidemic of squandered utility associated with holiday gift giving in an article called “The Deadwood Loss of Christmas.” He updated and elaborated the theme in a recent book, Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays: “The bottom line is that when other people do our shopping, for clothes or music or whatever, it’s pretty unlikely that they’ll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value.”

Applying standard market reasoning, Waldfogel concludes that it would be better, in most cases, to give cash: “Economic theory – and common sense – lead us to expect that buying stuff for ourselves will create more satisfaction, per euro, dollar, or shekel spent, than does buying stuff for others . . . Buying gifts typically destroys value and cano nly, in the unlikely best special case, be as good as giving cash.”

On the surface, at least, this seems logical. I only have so much money to spend, and every dollar I spend on a gift is a dollar I can’t spend on myself. If I have the choice to spend $30 on a gift for my sister, or $30 on something I really want, then at best I’m trading $30 worth of satisfying Marta-desires (the amount of my desires I could satisfy by spending $30 in the way that seemed best to me) for $30 worth of satisfying Katie-desires. Set aside the fact I love my sister and want to do something nice to her, get some joy from seeing her receiving the gift and thinking about her using it, and focus just on the economics of the situation. Is this the most efficient use of my dollars?

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Originally published at Faith Seeking Understanding. You can comment here or there.