The Economist Who Stole Christmas 

Let me start by getting something off my chest. I hate Christmas! After years of receiving unwanted presents, Christmas has always been a source of disappointment. Now, after studying economics my disdain for this event has grown. This is because I have now realised that Christmas is inefficient. No other word is as painful in economics.

So how inefficient is Christmas? A study by Joel Waldfogel in his 1993 paper “The Deadweight Loss of Christmas” has revealed that “between one tenth and a third of the value of holiday gifts is destroyed by gift giving”. Given that the Australian Retailers Association is predicting “national sales of $45 billion in the six weeks before December 25”, this Christmas spending will result in a deadweight loss of billions to the Australian economy.

In a perfectly efficient market, consumers make the best decision regarding their own consumption and saving. However, at Christmas people award gifts to each other and, in effect, individuals do not have a choice about the gift that they will receive. This means that, unless you are given something that you would have bought anyway, you will receive a suboptimal outcome. An example of this occurred when I received a $30 book a couple of years ago. Whilst I was happy with this present, I would not have spent anything more than $20 for it. This means that there was a deadweight loss of $10 from this present.

So what is the solution to this problem? The simple exchange of money at Christmas. This allows consumers to adapt their budget constraint to their net exchange of money. As a result, individuals have the opportunity to maximise their utility by choosing the best consumption bundle available. Another solution involves signalling what presents you would like in a Christmas Wish List as this mitigates the information asymmetry between the giver and recipient. Yet another way to minimise inefficiency is through the giving of gift cards. This has become a popular trend in recent years as it allows people to choose gifts that they desire whilst the practice maintains the sentimentality of giving a gift. However, this is still inefficient as the recipient’s choice is restricted to the gift card merchant.

The obvious exception is Santa. As the benevolent ruler of the North Pole, he distributes his wealth in the form of foreign aid to children around the globe. This generous act maximises children’s utility around the globe.

So therefore, unless you are receiving gifts from Santa, I hope you will be sharing my dislike for Christmas as an economist can never justify a deadweight loss.

The Economics of Tinder 

It is a truth universally acknowledged that a single man in possession of a smart phone must have downloaded Tinder (or, at the very least, contemplated doing so). While Tinder is far from the first online dating network created, it’s had enormous success in capturing the once elusive under 30 market. But why is this so? Why aren’t we all on e-Harmony instead? The answer reveals itself, as always, through economic analysis.

The dating market for a possible partner can be seen as a kind of barter economy. In order to enter into a successful transaction i.e. a relationship, someone must have what you want and in turn, this very same person must want what you have. In the realities of the dating world, the specific requirements of each individual participant are widely varied, encompassing a range of prerequisites such as gender, personality, smarts, handsomeness, beauty, music preferences, and the list goes on. Searching for another person in the dating market can be quite time consuming, especially if your list of requirements is long. And even if by chance you find that tall, dark and handsome man who happens to live on a country estate in Derbyshire (let's call it Pemberley, shall we?) and earns £10,000,000 a year, there is no guarantee that your feelings will be returned.

Furthermore entering into the dating market is also a costly exercise which requires both emotional and financial investment. For example, Lizzie is a smart, attractive young woman who studies Economics and Law at UQ. One day, she meets a handsome boy in the library called George. George asks Lizzie out on a date. Lizzie, wanting to impress George, buys a new dress and heels, setting her back $250. She catches the train to the date, as George says he's too busy to pick her up. $5 (Lizzie forgot to order her TTC Card). Low and behold, at the date Lizzie discovers that George is an egotistical snob who won't shut up about himself. And he studies law at QUT! The horror! The relationship cannot progress from here and Lizzie leaves the date. George, annoyed and pissed off, has to foot the $150 bill for dinner. It has cost both parties considerable expenditure to enable them to ascertain that they are not compatible.

The key to understanding Tinder’s success is that it lowers the search costs associated with finding a potential partner. While Lizzie meets plenty of people in day-to-day life, there is no way of determining quickly whether they are also looking for a partner. By joining Tinder, Lizzie eliminates part of her search cost as she no longer has to determine who is looking for a girlfriend. As over to a million Australians have joined Tinder,[1] Lizzie’s chances of missing out on potential dates by constraining herself to a single dating market are decreased.

Tinder further decreases the search costs of Lizzie finding a boyfriend through its easy to use interface. Lizzie does not have to bother with cumbersome questionnaires, common to other dating sites, which ask her whether she prefers cats or dogs, what her birthdate is or what she is looking for in a relationship. All Lizzie has to do is swipe left or swipe right. It’s that simple. Furthermore, other costs associated with dating are eliminated. By simply asking a few questions to her matches, Lizzie can further decrease her search cost, as she no longer has to expend time and money in going on a date in order to talk to her potential matches. Less romantic? Yes. Economically efficient? Definitely.

Lizzie has no guarantee that she will meet her Mr Darcy but by decreasing her search costs, Lizzie has increased her chances of doing so. Lizzie’s only problem now is that Mr Darcy is swayed by first impressions and swipes left after finds her profile photo tolerable but not handsome enough to tempt him, thus denying both the chance at finding true love.



[1]http://www.news.com.au/national/south-australia/love-me-tinder-dating-in-the-new-app-era/story-fnii5yv4-1226880118593

Notice of AGM 

The UQ Economics Society hereby gives notice of its 2014 Annual General Meeting to be held from 6:00pm, October 7 2014 in the Prentice Building, Room 115. At the AGM, it is intended that the Society will vote on any proposed significant changes and will vote in the 2015 Executive. There will also be pizza!

If you would like further information about nominating for a position, please consult the AGM Guide below. An AGM Information session will also be held on Thursday 25th September 2014 at 12:00pm in the Priestley Building, Room 342.

If you have any further questions or require more information, please contact the Secretary, Rachel Stowasser, at r.stowasser@uqes.com.au

Download the AGM Guide here.

The Neoclassical Nightmare: John Maynard Keynes 

It’s the 1930’s, and mainstream economic circles are ringing with cries of “Humbug!” and “Balderdash!”, as monocles burst asunder from the faces of Neo-classicalist’s everywhere. The source of this orthodox outcry? John Maynard Keynes. The powerhouse of post-war policy. The monster of multiplicative effects. His intellect, passion, and unparalleled ability to apply theoretical concepts to the real world brought about a revolution in how governments tackle economic adversity, the ideology of which dominated the policies of capitalist governments around the world for most of the 20th century. However, too often in this post-GFC climate we merely associate the name Keynes with “recessions means spend, boom means save”, which is a gross oversimplification of the work of a man who fundamentally changed an entire field of study.

Firstly, I feel that it is important to address one issue. I know why you are all reading this. You have opened the article, with the simple pretense of reading the history of a man who made some of the most significant contributions to economics since Adam Smith. But I know the truth. You want to know who he hooked up with. Thus, I believe that if we get this out of our system early, we can progress to some serious discussion of economic history. As such, a list of some of his confirmed lovers is given below:

  • Daniel Macmillan (brother of future British Prime Minister Harold Macmillan)
  • Dilly Knox (a World War 1 code-breaker, who was instrumental in brining the US into the war by assisting in decrypting the Zimmerman Telegram)
  • Arthur Hobhouse (the man largely responsible for the current National Park system in England and Wales)
  • Duncan Grant (another member of the influential Bloomsbury Group, most famed for his post-impressionist artistic style)
  • Ray Strachey (a prominent member of the women’s suffrage movement, and one of Keynes’s earliest heterosexual love interests)
  • Lydia Lopokova (a Russian ballerina, whom Keynes married in 1925)

It should be noted that the above list is not comprehensive, and merely lists the most notable of his interests. Now that the trivialities have been covered, we can get on with what is truly interesting…economic history… right?

In his formative years, Keynes followed the educational structure of so many of the last centuries great intellectuals that it almost sounds cliché; born in Cambridge, schooled at Eton (on a scholarship, of course) and later attended Kings College. Aside from a brief stint in the now defunct India Office, he rose quickly from clerk, to member of a Royal Commission and then, in 1915, to the Treasury. His performance during the time he spent there garnered him international notice; for example, his decision to sell the limited supply of Spanish Pesetas he had worked so hard to obtain, instead handing them over to the British government (and thus risking the wrath of a vengeful Secretary of the Treasury) resulted in a sharp depreciation of a currency that up until that point, the Treasury had been struggling to find a continued source of.

Keynes’s actions (or rather, lack thereof) at the Versailles Peace Conference showed the man behind the mathematician, through his ardent opposition of reparation payments that were set to beggar the German people (those most prominently representing Britain during discussions were given the moniker of the Heavenly Twins, as the reparations they intended to demand from Germany were “astronomically high”).  Keynes suggested writing down German debts, to the benefit of not only Germany but other impoverished European nations (through maintaining strong export demand and international trade). He was overshadowed however, largely due to extremely anti-German post-war sentiment, and the fact that the US was the largest creditor at the time. Keynes was disgusted by the outcome of the conference, going so far as to write that the resulting policies were “…reducing Germany to servitude”.  Perhaps I am being too generous to Keynes; a harsh peace would surely deter future aggression? I can’t seem to recall any particular conflicts arising in Europe after World War 1…

In the years following the Versailles conference, Keynes continued to publish a number of influential works, notable among them A Treatise on Probability and Treatise on Money. It was The General Theory of Employment, Interest and Money, however, which would become his most famous work. Recall how, in opening this article, I expounded upon the offended sensibilities of Neo-Classicalists everywhere? This piece of work alone would be enough to have self-respecting neo-classicist calling for Menger to come and save them. A strong, theoretical justification for government intervention, and the absolutely radical suggestion that maybe, just maybe, workers will not reduce the price for which they will supply their labour until firms can employ them once again (price stickiness, which today appears perfectly acceptable, seemingly went against classical rationality assumptions).  

Following his death in 1946, Keynes’s ideas continued to gain traction, dominating policy decision until it began to fall from favour during the 1970’s (due, in no small part, to the critiques of Milton Freidman). It was not until the GFC that his suggestions for expansionary policies were again embraced by the global community, in Australia particularly (as to their effectiveness, one could debate for hours). Though whether or not you agree with his economic and mathematical contributions, there’s no doubting that he’s been one of the most influential figures of the 20th century… Or if you’re not entirely academically inclined, you’ve got to agree that he was an absolute player.