Back in my native land, the United States, nearly everyone will sit down to feasts this Thursday with their families and friends to celebrate the wonderful American holiday of Thanksgiving. For many of them, this will be followed by the decidedly un-wonderful observance of “Black Friday,” a grotesque shopping orgy that kicks off the Christmas retail season.
Black Friday madness is a historically recent development. When I last lived in the United States, in the 1990s, I had never heard of it. (“Black Friday” in those days was widely understood to refer to the 1929 stock market crash at the beginning of the Great Depression.)
Christmas shopping, however, has been with us for as long as anyone can remember. Business school professor Joel Waldfogel has written an excellent little book on the subject, called “Scroogenomics,” in which he argues that the whole shopping season is, from an economist’s point of view, insane.
Here’s my review:
Joel Waldfogel has solved one of the great economic mysteries. Why is there such an abundance of tacky, golf-themed knickknacks in American shopping malls when no one in their right mind, no matter how avid a golfer, would ever buy such things for themselves?
The question contains its own answer. Almost no one buys golf-bag bookends or golfball whiskey decanters for themselves, but they do feel compelled to buy them for other people – especially as Christmas approaches. While year-end retail sales are widely touted as a barometer of economic health, Waldfogel sees them as a bonfire of economic waste. In the wittily written “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays,” he argues that $12 billion in value is destroyed every holiday season, and he persuasively explains why.
Suppose you buy a $100 sweater and give it to your niece, who thanks you sweetly while secretly thinking, “Ugh, I wouldn’t have paid more than ten bucks for this frumpy thing.” Waldfogel, a professor at the University of Minnesota who was on the University of Pennsylvania faculty when this book came out last year, would argue that you have just wasted $90 by spending $100 to give your niece a mere $10 worth of satisfaction.
What’s worse, this is a deadweight loss for the economy as whole, because your $90 loss is not made up by anyone else’s gain. (The presumably fair price of $100 you paid to the retailer was balanced out by their giving you the sweater in the first place. It is only by throwing the sweater away on someone who doesn’t want it that value is destroyed.)
The problem is that you don’t know your niece’s tastes as well as she does. The market works its magic best when rational, well-informed people spend their own money on their own behalf. But in the case of gift shopping, when buyer and consumer are separate parties, the invisible hand may as well be blind.
Waldfogel has attempted to quantify this blindness through surveys of his students, asking about gifts they have received, how much they probably cost, and how much the students actually valued them. He later refined the survey to measure the money spent on gifts against how the recipients would have spent it themselves. Over the years he has consistently found that “people’s own choices generate about 18 percent more satisfaction – per dollar spent – than do gifts.”
Applying that figure to a conservative estimate of $66 billion spent on holiday shopping each year yields his assertion that at least $12 billion is a deadweight loss.
But if all you really know for sure about the personal tastes of your seldom-seen uncle is that he drinks and plays golf (like millions of other men), then that golfball-shaped decanter may look like your only choice. What are you going to do?
Waldfogel recommends going the gift certificate or gift card route, as it results in purchases that are a better fit for the recipients by letting them choose items for themselves. On top of that, any unused value reverts to the retailer (or to the state, in some cases) rather than simply evaporating. In the true spirit of the season, he also endorses making charitable donations in a gift-recipient’s name. And he looks forward to the day when these two ideas can be combined, with charities allowed to “keep the change” from unredeemed gift cards.
To further show that he is not really a Scrooge, he makes it clear that his recommendations are meant for adults and teenagers. Parents and Santa can still be trusted to do an economically efficient job of shopping for the littlest kids, who are not yet adept at choosing things for themselves. (Participating in an exchange of gifts might help children learn about relationships and social obligations, but this is something the book does not get into.)
Returning to gentle scold mode, Waldfogel includes a brief chapter on how credit cards have supplanted Christmas club bank accounts and store layaway plans – remember those? – as the method by which many Americans pay for their holiday spending sprees. Easy consumer credit is great for dealing with unanticipated emergencies or opportunities, he writes, but there’s little excuse for Yuletide debt. “Christmas arrives on December 25 every year. It’s fully anticipated by even dimly sentient beings…So why would a sensible person need to borrow for it?”
Waldfogel makes sound arguments that will be welcomed by anyone seeking relief from their Christmas shopping duties. But his publisher, Princeton University Press, seems to be hedging its bets. Not only is there a cute photo of a little girl and a wrapped present on its glossy cover, but “Scroogenomics” has been packaged as a petite hardback measuring just over 4 by 6 inches – the perfect size to slip into a Christmas stocking.