Editor’s Note-Siding with Scrooge

Editor’s Note-Siding with Scrooge

Have yourself an efficient little Christmas (or alternative holiday with gift-giving rituals).

There was a time when Christmas was under attack primarily for encouraging secular revelry and materialism. More recently, it has been maligned as insufficiently multicultural.

In 1993, a new challenge emerged. Writing in the American Economic Review, a Yale economist named Joel Waldfogel condemned what he called “the deadweight loss of Christmas,” or the economic inefficiency of gift giving.

You might think I’m kidding, but I’m not, and neither was he. He explained that in neoclassical economics, the consumer is best off when he chooses—within his means, of course—the highest-ranked good or service on his “utility” scale. In gift giving, however, “consumption choices are made by someone other than the final consumer”—which makes it “more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash.”

Professor Waldfogel surveyed Yale undergraduates and learned that they would have been willing to pay an average of about 71 percent of the cost of the gifts they had received in the previous holiday season. The difference represented a “deadweight loss” of $125 per respondent—or $40 billion per year nationwide at the time. Waldfogel noted that “gifts from friends and ‘significant others’ are most efficient, while noncash gifts from members of the extended family are least efficient,” destroying a third of their value.

Waldfogel suggested that inefficiency in gift giving could be eliminated simply by making only gifts of cash, as many of his students’ aunts and grandparents had done. Another possibility is for the recipient to drop hints, perhaps using magazine gift guides. This is my idea, not Waldfogel’s, but I am always pleased to contribute to the body of academic literature. Feel free to e-mail my idea to friends. (You cannot legally e-mail Waldfogel’s essay without copyright permission.)

An alternative view of giving that predates Waldfogel comes from Marcel Mauss (1872–1950), a French anthropologist. In his book The Gift: The Form and Reason for Exchange in Primitive Societies, he argued that the utility of gift giving comes not from adding to the material possessions of the recipients, but from enhancing social and societal bonds. In the best gift-giving systems, he asserted, there are “mechanisms . . . that oblige a person to reciprocate a gift”—and for one reciprocation to trigger another, until social contracts are formed.

Obligations to reciprocate can be onerous, as Mauss notes by quoting a 12th-century Icelandic poem: “The miser always fears presents.” Failure to engage in gift giving can be hazardous, however. Among Polynesian tribes that Mauss studied, “to refuse to give . . . [or] to accept is tantamount to declaring war; it is to reject the bond of alliance and commonality.”

To find a more congenial view of gift giving, we can go further back, to Aristotle (who wrote in The Politics, “There is the greatest pleasure in doing a kindness or service to friends or guests or companions”) or to the Bible, a version of which, believe it or not, is featured here. Experience informs us that a Money magazine writer was right when he wrote: “Seeing someone react with honest pleasure to a perfectly chosen present is, as the ads say, priceless.”

And there is such a thing as a perfectly chosen present. Gifts can represent a gain in social welfare, valued by the recipient at more than their retail price.

One of my favorite presents ever came from my daughter, when she was four years old and learning to write phonetically. It is a crayon drawing of a smiling, long-armed character reaching for a square covered in tiny circles—representing, it turned out, a typewriter. Lettering at the top read: JAYETITRUVMAGZEN. (Think like a four-year-old. Sound it out.) Better than frankincense, and as efficient as any Yale economist.