Thursday, November 12, 2009

Why We Shouldn't Give Christmas Gifts

By Andrea Sachs

Starting to think about holiday gifts? Stop! Joel Waldfogel, the author of "Scroogenomics: Why You Shouldn't Buy Presents for the Holidays" (Princeton), is convinced that giving Christmas and Hanukkah presents is bad economic policy. And as the chair of business and public policy at the University of Pennsylvania's Wharton School, he's no economic novice. TIME senior reporter Andrea Sachs, who is still hoping to get a few gifts this season (hint, hint), spoke with Professor Waldfogel about his new book.

What's your objection to Christmas and holiday spending? My objection is that the holiday spending doesn't result in very much satisfaction. Normally if I spend $50 on myself, I'll only buy something if it's worth at least $50 to me. But if you buy something for me, and you spend $50, since you don't know what I like, and you don't know what I have, you may buy something I wouldn't pay anything for. And so you could turn the real resources required to make things into something of no value to me. And that would destroy value.

How much is actually spent? In the U.S., about $65 billion a year is spent on holiday gifts. There's been this giant [holiday season] bump in retail sales in the U.S. going as far back as statistics are available, back to the 1920s and 30s. In fact, as a share of the size of the economy, the spending has gotten smaller over time. Our fathers' and grandfathers' Christmases were a bigger deal than ours.

That's interesting because it's often thought we've reached the pinnacle of commercialization. Yes. Every generation thinks that it invented sex, and thinks that it invented the vulgar commercialization of Christmas. But actually, our holiday spending has moderated relative to the size of the economy in the last two generations.

Isn't that degree of spending good for the economy, especially in a recession? Well, yes and no. Let me talk about that in a couple of different ways. First of all, the economy consists of buyers and sellers. You think about why we spend in the first place. We spend in order to produce satisfaction for buyers. We don't spend in order to help sellers. It's fine if we do help sellers, but we're trying to produce satisfaction. If the spending we engage in doesn't produce any satisfaction, then it's hardly a measure of wellbeing. I'm not against the spending. But whatever amount of spending we do, we should get as much satisfaction out of it as we possibly can.

Have you thought about why do we do it? Why is there this huge splurge at the end of the year? Well, it's a bit of a puzzle. We don't do it with cash. Giving cash is very socially awkward. The exceptions are for parents to children, grandparents to grandchildren, aunts and uncles to nieces and nephews. It's okay for cash to flow from those of higher social status to those of lower social status, but [otherwise] it's just considered a tacky thing to do. Which makes the growth of gift certificates remarkable, because they're not tacky at all. I mean, recipients rate them as their most desired gift. In some sense, it's a way for givers to give a gift that has the flexibility of cash, without the tackiness of cash.

Do you have kids? I do.

What if you don't give them holiday gifts? Well I do give them holiday gifts, because they are people whose preferences I know a lot about. The problem arises in the situations where we have to give a gift but we have no idea what the recipient wants. I'm not against giving gifts, in the situations where we have a good idea what people want.

What about the person who says, my in-laws would go insane if I didn't get them gifts? Yes, that's the problem. So what do you do? There are a few possible answers. One answer is gift certificates or gift cards. Another solution that we see increasingly and that I advocate is giving gifts to charity. If you look at data, as people get richer they give a higher fraction of their income to charity. So if you think that luxuries in that sense are things people would like to do, if only they had more money, then holiday giving — giving someone the ability to give to charity — is a way to allow them to experience a luxury.

Do you expect to have an influence, or is this a totally uphill fight? I hope to have a small influence. I think people are ready. I'm not the only person who sees some madness in our behavior. And so I think people are looking for opportunities to do good for the world. I think people enjoy giving; there's something joyful about giving. And I'm not against that. I'm happy to see the same amount of spending, but if we could just eliminate the really sloppy stuff, and maybe shunt some of [the gift-giving] to good causes, that seems consistent with people's religious goals, and it might even be good for the world.

I'll know not to send you a Christmas gift! Well, I'm not against it. Why don't you do something good for someone else and say it's in my name and everyone's happy.


source: Time.com

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