Christmas Economics

Jeff Walden linked to a great paper:The Deadweight Loss of Christmas by Joel Waldfogel. Given the economy this several year old paper is extremely relevant and interesting. Something to keep in mind when merchants report their holiday sales statistics.

I remember a discussion on this in college (likely an economics class). It’s a slight misnomer that Christmas is an economic stimulus in the way people think it is.

Wasteful Spending

Gift giving is hardly an efficient economy. The one this paper focuses on is utility of the gift received. Simply put if the gift valued less than the cost by the receiver (or simply not used) it’s economically wasteful. Another example of the same concept is if two people buy each other a gift that costs $25. Person A buys Person B something Person A was looking to buy anyway. Person A is saved the expense (indirectly at least) and utilizes the gift. Person B buys Person A a Chia Pet which Person A thinks are pretty pointless but graciously accepts. Person A is down $25 as they received no economic benefit for the $25 exchange.

Gift Cards

Another thing rarely factored into Christmas economics is gift cards. Between fees up to $2.50/month and up to $6.8 billion that’s unclaimed there’s a lot of waste in this system. In a growing number of states businesses can’t even keep unused funds, they are treated as unclaimed property.

To quote one of my favorite short-lived cartoons, here is Dilbert on gift certificates (pretty much the same concept):

Dilbert: …actually a gift certificate is worse than cash because you can only use it in one place…
Wally: [interjects] and it expires

Dilbert: It shows defective thought, your trading perfectly good money for something that does the same thing, only not as well.

There are several references to the economic issues of gift giving as well as several consumerisms in this episode. I highly recommend watching.

Returns/Exchanges

Another thing rarely taken into account is returned and exchanged items. Store credit has the same limitations as gift cards regarding unused, forgotten and sometimes expired values. Thanks to online shopping there’s also the expense of shipping returns (plus insurance).

If a product is defective it can actually turn into a liability for a store which will handle all the returns and exchanges (labor costs) and waits on the supplier for a refund of its cost. They also face the stresses on supply as excess supply is wasteful and short supply means lost sales.

Conclusion

The economics of Christmas isn’t exactly what we’ve all been led to believe. The idea that it’s a perfect stimulus but it hardly is. Waldfogel concludes 10% waste in his paper and doesn’t even take into account things like gift card/certificate economics and returns.

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